Evening Report: March 25, 2022

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Your Pro Farmer newsletter is now available... The food versus fuel debate is heating up again amid global supply shortages exacerbated by Russia's war with Ukraine and surging inflation. That could lead to calls for EPA to reduce its biofuels blending mandate. We look at the U.S. biofuels policy and what could lie ahead in our page 4 feature this week. USDA updated its 2022 food price forecasts, which reflected the inflationary environment. Meanwhile, U.S. meat and poultry inventories swelled in February. While this could signal slowing demand, it may be end-users hedging against higher prices during upcoming stronger demand periods of spring and summer. We cover all this and much more in this week's newsletter, which you can access here.

Cattle on Feed Report: Record March 1 feedlot inventory... USDA estimates there were 12.163 million head of cattle in large feedlots (1,000-plus head) as of March 1, up 163,000 head (1.4%) from year-ago and 31,000 head more than the average pre-report estimate implied. February placements rose 9.3% and marketings increased 4.9% from year-ago levels last month.

The bigger-than-expected jump in placements seems to be driven by poor pasture conditions due to drought in the Plains. Texas (up 40,000 head), Kansas (up 50,000 head), Nebraska (up 55,000 head) and Colorado (up 10,000 head) accounted for nearly the entire 157,000-head increase in placements. Feedlots placed more cattle in every weight category except for heavyweights (1,000-plus lbs.), which were steady and accounted for only 3.0% of the total. Placements increased 7.5% in lightweights (under 600 lbs.), 10.2% in 6-weights, 8.6% in 7-weights, 12.5% in 8-weights and 8.0% in 9-weights compared to year-ago levels.

The report data is slightly negative compared to pre-report expectations, especially for deferred live cattle futures. But we doubt there’s a lasting impact from report. 

Ukraine government to allow corn, sunflower exports... The Ukrainian government is removing corn and sunflower oil export license requirements. This will allow for easier export of those products from the country. The government added corn and sunflower oil with other commodities that needed export licenses after Russia invaded, effectively blocking exports. Recently, the Ukrainian Grain Association asked the government to cancel export licensing for corn and sunflower oil to allow easier export of those commodities to provide money for spring planting. The group also noted Ukraine used to be able to export about 200,000 MT of grain per day through its ports. However, using railways instead, the country can only export about 20,000 MT per day.

National Grain and Feed Association details rail service issues, ask for gov’t action... The National Grain and Feed Association members report significant rail service disruptions from the Union Pacific (UP), Burlington Northern Santa Fe (BNSF) and Norfolk Southern (NS) railways. It requests the Surface Transportation Board to have the railways submit plans for improvement and weekly service updates. The organization reported some of its members could not purchase grain from farmers because they were waiting for full trains to be moved. For members getting grain, such as millers, they have had to stop production as they are not getting deliveries made to them. In some cases, livestock producers could not get livestock feed due to service delays. 

USDA makes large upward revisions in food price forecast... USDA now expects food price inflation in 2022 to be from 4.5% to 5.5% based on the all-food Consumer Price Index (CPI), up from its prior outlook that food prices would rise 2.5% to 3.5% compared with 2021. Not a single category, or aggregate category now has a forecast that includes a potential decline.

The forecast for food away from home (restaurant) prices is for an increase of 5.5% to 6.5%, USDA’s third increase in as many months. Last month’s forecast was for a rise of 4% to 5%. Food at home (grocery store) prices are now forecast to be up 3% to 4% in 2022, up from USDA’s previous call for an increase of 2% to 3% from 2021 levels.

The overall food CPI rose 1% from January and was up 7.9% from February 2021. The restaurant CPI increased 0.4% in February and was 6.8% higher than last year. Grocery prices jumped 1.4% from January and stood 8.6% higher than February 2021.
 

Consumer sentiment declined in March... The University of Michigan Consumer Sentiment Index fell to 59.4 in the March survey, down from 62.8 in February and 84.9 in February 2021 — a 30% decline from last year. The Expectations Index fell to 54.3 in March, down from 59.4 in February and 31.9% from last year. The Current Conditions Index fell to 67.2 in March, down from 68.2 in February and 27.7% from last year. Inflation was the main reason for the declines. The year-ahead expected inflation rate rose to its highest level since 1981. More consumers mentioned reduced living standards due to rising inflation than any other time except during the two worst recessions in the past 50 years: from March 1979 to April 1981 and from May to October 2008. Personal finances were expected to worsen in the year ahead by the largest proportion since the surveys started in the mid-1940s.

Yellen: Ukraine crisis likely to slow global economic growth... Russia’s invasion of Ukraine will slow world economic growth, according to U.S. Treasury Secretary Janet Yellen. She explained that higher commodity prices, especially for wheat, natural gas and oil from the invasion would reduce the prospects for global growth over the next year. She said countries heavily dependent on wheat imports would be affected most. In addition, she expects gas prices to increase for U.S. customers. However, the U.S. was working with allies to reduce the impact on customers.

WHIP+ confusion at FSA offices... There have been reports that county and state FSA offices are telling farmers WHIP+ for 2020 and 2021 was on hold and unlikely to happen. USDA is late in releasing program details. In September, Congress required USDA to extend the program and provided $10 billion for 2020 and 2021 disasters, including $750 million for livestock producers.

Farm equipment companies delaying advance orders... On a recent earnings call, John Deere said it would be pausing advance orders for equipment not already in stock. The order books across all businesses are full for the year, except for where the company paused orders to allow for more dynamic pricing, according to John Deere CEO John May. CNH is also delaying advance orders. The delay comes as equipment companies work with higher inflation costs to make equipment and maintain a profit.

AGP announces port facility expansion... AGP will expand and upgrade its Port of Grays Harbor export facilities in Aberdeen, Washington. The planned development will enable AGP to load multiple ships up to and including Panamax-sized vessels. The improvements would allow the company to ship more soybean meal to Southeast Asia. The increased soybean meal will result from more soybean crushing plants being built due to renewable diesel demand. AGP expects operations to begin in 2025.

Perdue AgriBusiness invests in Virginia soy crushing plant... Perdue AgriBusiness will invest $59.1 million in its Chesapeake, Virginia soybean crushing plant. The investment will modernize the facility and increase the production of soybean oil and meal. The facility provides soybean oil for another Perdue facility in Maryland for more refinement for the food and biodiesel industries. Perdue purchases 80% of Virginia’s soybeans and exports 72 MMT annually through the Port of Virginia.

Lebanon might import Iranian wheat... Iranian Foreign Minister Hossein Amirabdollahian said his country would support Lebanon, including securing wheat. Lebanon was looking for a different wheat supplier since it previously purchased most of its wheat from Ukraine. Earlier this week, Lebanon said it would buy wheat from India, but the timing depended on opening a line of credit. Due to drought, Iran needs to import around 8 MMT of wheat. However, due to sanctions, the country faces payment issues.