Evening Report: Feb. 8, 2022

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Attaché cuts Brazil corn crop, exports... USDA’s attaché in Brazil lowered its estimate for the country’s corn production and exports compared to USDA’s January World Agricultural Supply and Demand Estimates (WASDE) Report. The post cut corn production to 113 MMT, down 2 MMT from the January WASDE report. Brazil’s corn exports were reduced 1 MMT from January’s WASDE Report to 42 MMT. The post noted corn imports would remain above average levels, with most coming from the Mercosur trade bloc that includes Argentina, Paraguay and Uruguay.

USDA will release its February WASDE Report on Wednesday. In a pre-report Reuters survey, the average estimate predicts USDA’s Brazil corn production will come in at 113.63 MMT, with a range from 111.0 to 116.1 MMT. Analysts’ own estimates peg Brazil’s corn production at 112.7 MMT, with a range of 108.1 to 117.7 MMT.
 

Brazil’s corn growers report an atrazine shortage...  As Brazilian farmers are planting their safrinha corn crop, they face atrazine shipping delays and unexpected canceled deliveries, according to soybean grower group Aprosoja Brasil and corn lobby Abramilho. The groups say the shortage could put the safrinha corn crop at risk. The leading corn production herbicide is used to control broadleaf weeds, including volunteer soybeans.

Canadian wheat stocks much smaller than expected... As of Dec. 31, Statistics Canada (StatsCan) estimated Canadian stocks of wheat, canola, barley, oats and soybeans were all well below year-ago levels. That was no real surprise considering 2021 crop production was severely curtailed because of poor growing conditions last summer in Western Canada.

However, Canadian all wheat stocks at 15.6 MMT were much lower than the average pre-report estimate of 17.3 MMT. Wheat stocks plunged 38.0% from the previous year and were 37.5% below the 2016-2020 average. Mike Jubinville of MarketsFarm says, “It’s difficult to completely ascertain an explanation to this wide stocks gap, but it might suggest smaller 2021 wheat production than is currently projected by StatCan.”

Canola stocks were estimated at 7.6 MMT, which was in line with trade ideas, but the lowest level for this date since 2007. Canola stocks plummeted 43.1% from Dec. 31, 2020 and were 47.6% below the five-year average. Jubinville says, “This creates an untenable situation for canola given the current pace of usage via domestic crush and export. If use continues at the current rate through to the end of the marketing year, it would imply ‘negative’ canola marketing year ending stocks. That obviously cannot happen... so the process of rationing demand is not yet complete, even at these high prices.”

Russia/Ukraine update... Despite Russian President Vladimir Putin warning NATO and the West, two Moscow-based analysts see signs he wants to avoid escalation, Reuters reported. At a news conference, Putin said the dialogue was not over, some proposals from the U.S. and NATO were worth discussing, and that Russia would do “everything to find compromises that suit everyone.”

Andrey Kortunov, head of the Russian International Affairs Council, said that Putin’s seven-hour meeting with French President Emmanuel Macron shows he is serious about negotiating. Serious negotiations on arms control in Europe could prevent NATO infrastructure from moving closer to the Russian borders.

Fyodor Lukyanov, editor-in-chief of the Russia in Global Affairs journal, said it was possible “the contours of (a) new deal might emerge” from some form of settlement of the conflict, combined with a statement on new security arrangements in Europe along the lines that Macron has proposed, and new arms control measures of the kind that the U.S.  is ready to discuss.

Seaboard Foods to resume California pork shipments... On Tuesday, America’s second-largest pork producer, Seaboard Foods, announced it is preparing to resume pork shipments to California after the state’s Proposition 12 implementation was recently delayed. A California judge delayed the enforcement of the law on Jan. 24. In December, the company stopped selling certain pork products in California as Prop 12 took effect on Jan. 1. California accounts 15% of the U.S. pork market and imports 87% of its pork from other states. 

Canadian trucker protest closes U.S./Canada bridge... Canadian truckers protesting the Covid-19 vaccine mandate prevented traffic entering Canada from the U.S. at the Ambassador Bridge between Detroit and Windsor, Ontario on Tuesday. Twenty-five percent of all the trade between the two countries is hauled over the bridge. Traffic into the U.S. was still moving.

Canadian officials are worried about the effect on the Canadian economy. Canadian Transport Minister Omar Alghabra has taken reports of supply issues from grocery stores and automakers. 

The “Freedom Convoy” started in western Canada and drove to Ottawa, where they have parked their trucks in protest.

Attaché lowers India’s cotton production, raises demand...  USDA’s attaché in India reduced the country’s cotton crop forecast to 27.4 million bales, down 100,000 bales from USDA’s January WASDE Report. Due to robust textile demand, the post increased mill consumption to 26.5 million bales. In January’s report, USDA put India’s domestic demand at 26.0 million bales. The attaché reports fiber, cotton yarn and cotton products remain steady. Farmers continue to limit sales due to higher seed cotton prices. Due to rising costs, mills are importing cheaper cotton supplies. The government has kept its import tax on cotton imports in its recent budget announcement. In January, USDA projected Indian imports at 1.0 million bales and exports at 5.8 million bales.

December trade deficit pushes U.S. to yearly record...  An $80.7 billion deficit in December drove the U.S.  2021 calendar year trade red ink to a record $859.1 billion, the U.S. Census Bureau and the U.S. Bureau of Economic Analysis reported. Overall, U.S. exports in December totaled $228.1 billion, up $3.4 billion from November. December U.S. imports totaled $308.9 billion, $4.8 billion more than November. Total 2021 imports were $3.4 trillion against exports of $2.5 trillion.

USDA will release full details on Wednesday, but the ag sector had a trade surplus of $1.9 billion with $16.5 of exports and $14.6 billion in imports for December. Fiscal year-to-date (since Oct. 1), U.S. agriculture is running a $7.8 billion surplus, with $52.6 billion of exports and $44.8 billion of imports. USDA forecasts a $10.5 billion ag trade surplus for FY 2022. The heaviest period for U.S. ag exports is through the first several months of the marketing year, while imports typically pick up during spring.

Cattle prices to increase in 2022 ... Due to tighter supplies and despite lower domestic demand and exports, cattle prices will still likely increase in 2022, according to Jason Franken, Western Illinois University agriculture economist.

Writing on the University of Illinois farmdoc website, Franken predicts quarterly prices for slaughter steers will average about $141.14 per cwt. in the first quarter, $144.55 in the second quarter, $136.00 in the third quarter and $140.76 in the fourth quarter of this year. For 600-700 lb. feeder steers, Franken forecasts prices will average about $174.13 in the first quarter and then rise to $179.27 and $184.83 in the second and third quarters, respectively, before falling to $180.34 in the fourth quarter of 2022.

He notes 2022 beef production is anticipated to be 2.5% lower than last year. Domestic per-capita beef consumption is expected to drop two pounds per person or 3% to 57 lbs. per person. Exports are projected to be 5.35% lower this year.

Argentina raises ethanol prices... Argentina raised the price of ethanol made from sugarcane and corn, according to a notice in the country’s official government gazette. The ethanol price was raised to $0.6197 per liter starting Feb. 2. The previous price was $0.5621 per liter. The prices will remain in effect until the government changes them.

Details and analysis of USDA’s climate-smart initiative... As we reported in “First Thing Today,” USDA on Monday unveiled $1 billion in funding for the Partnerships for Climate-Smart Commodities (PCSC) initiative via the Commodity Credit Corporation (CCC). Some highlights:

• Initial effort is open to groups, companies, nonprofits and others, but not individual producers.
• Existing practices and enhancement to existing practices are eligible.
• Two application periods to be held based on size of proposal.
• Measuring and quantifying, monitoring, reporting and verification key for farm-level greenhouse gas (GHG) benefits.
• There are no payment limits associated with the effort.

Perspective: There is still no definition of a climate-smart commodity. Rather, USDA said one of the outcomes is helping “standardize the definition of a CSAF commodity.” That will become a key definition. USDA said, “Commodities broadly include more traditional agricultural crops like fruits, grains, cotton, peanuts, oilseeds, livestock, dairy, forage crops, and vegetables, as well as timber and other forestry products, and can also include other specialty, organic, or indigenous crops.” Another key: existing practices are going to be included and, in some cases, the notice from USDA indicates that those existing practices could be easier to provide benefits for the effort. The level of farmer payments involved is still not yet known, but that will not stop farmers from repeatedly asking this question. If farmers are going to move to either no-till or minimum-till practices as part of the effort, that will involve the purchase of equipment that is more specialized. USDA said that the projects are to identify that all major equipment is commercially available, and the project needs to justify how this unique equipment is needed to meet requirements of the program. USDA is expecting to see measured benefits within the first year of the program, so that suggests those with existing practices may be able to provide some of the initial information. But there also are some specific mentions relative to those existing practices — that is also combined with mention of carbon offsets.

USDA Secretary Tom Vilsack again sought to downplay the climate efforts as being any type of carbon bank. USDA specifies the projects are to be “focused on generating climate-smart commodities, and not on projects that focus on generating carbon offsets.” But those that do offer projects that provide both climate-smart commodities and carbon offsets have to “ensure there is not double-counting of climate benefits entering commodity supply chains and the benefits being used to generate carbon offsets.” USDA also said that the funds are not to be used for “implementation of the same practice on the same land, but funding may be used to enhance a practice or to further incentivize the climate-smart commodity generated, especially with respect to early adopters.”

Another key: projects have to report and track GHG benefits “per farm, per project, per commodity produced, per dollar expended, and the anticipated longevity of GHG benefits.”

Bottom line: Further details will be key for determining adoption by farmers.