Evening Report: April 12, 2022
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Some analysts skeptical about the E15 impact... Some analysts think today’s announcement by President Joe Biden about an emergency waiver for summertime sales of E15 gasoline is much ado about little. They note the sparse number of gas pumps in place to sell E15, and most of those are in the Midwest, whereas gas consumption is heavier in the east and west coasts, where there are far fewer E15 pumps. Only about 2,300 of the nation’s more than 150,000 stations now sell E15, and though it is available in roughly 30 states, the fuel is most widely offered in the Midwest. Not only is E15 hard to find, but it’s difficult to get an assessment of what impact the White House ethanol waiver will have. Summertime sales of E15 will boost demand, but not as much as some believe – or hope. Impacts to fuel prices will be both limited and short-term.
Oil industry critical of E15 announcement... Chet Thompson, president and CEO of American Fuel and Petrochemical Manufacturers (AFPM), described the Biden E15 decision as “an unlawful executive order” that is “not how to solve the problem” of high fuel prices. “Emergency fuel waivers are short-term and reserved for very specific unforeseen events and regionally acute supply disruptions, such as those resulting from a hurricane,” Thompson said in a statement. But the White House said it’s pursuing an emergency waiver, not proposing a rulemaking to change the E15 regulation. An administration official said Monday the EPA action “will be rooted in the current fuel supply emergency” and said, “EPA is planning to make this waiver so long as the current fuel supply emergency continues.”
An EPA FAQ page on fuel waivers stresses they “cannot be issued to address concerns regarding the price of fuel.” But White House officials characterized the decision as “yet another action that the president is taking to combat Putin’s price hike.”
March CPI’s largest yearly increase since December 1981... The U.S. Consumer Price Index (CPI) increased 8.5% from a year earlier in March, following a 7.9% annual gain in February, according to the U.S. Bureau of Labor Statistics. The widely followed inflation gauge rose 1.2% from a month earlier, the biggest gain since 2005. Economists had expected a 1.2% monthly increase and an 8.4% yearly jump in consumer prices. Excluding volatile food and energy components, the so-called core CPI increased 0.3% from a month earlier and 6.5% from a year ago, both less than projected – due to the biggest drop in used vehicle prices since 1969.
On a year-over-year basis, goods inflation excluding food, energy and used vehicles rose 8.1% in March, the most since 1981. Services costs increased 5.1% from a year ago, the biggest advance since 1991. The gasoline index rose 18.3% in March and accounted for over half of the all items monthly increase. The food index rose 1.0% and the food at home index rose 1.5%. The energy index rose 32.0% over the last year, and the food index increased 8.8%, the largest 12-month increase since May 1981.
Global growth optimism at an all-time low... Global fund managers’ optimism hit an all-time low while stagnation concerns reached its highest level since August 2008, according to a Bank of America Securities survey. A net 71% of survey respondents were pessimistic about prospects, the most since survey records began in the early 1990s. A global recession remains the top “tail risk” for international markets. Other top risks included aggressive central bank interest rate actions, inflation and the Russia/Ukraine conflict. Allocations to commodities jumped to a record 38%, with investments into oil and other commodities zipping up the charts to become the top most “crowded trade.” Other long positions were resource stocks and healthcare. Investors expect a decline in prices for bonds and cyclical stocks whose performance is most linked to economic growth.
Reuters poll: Economists expect 50-basis point hikes in May and June... A majority of 100 economists polled by Reuters predicted the Federal Reserve would raise interest rates by 50-basis points in its May and June meetings. It would be the first back-to-back 50-basis point hikes since 1994 and take the Fed funds interest rate to 1.25% to 1.50% by the June meeting. Then Federal Reserve rate moves will likely reduce to 25-basis point increases in the second half of this year. The Fed funds rate is expected to end 2022 at 2.00% to 2.25%, 50 basis points higher than the median forecast in a poll taken last month. The economists expect the Fed funds rate to be 2.50% to 2.75% by the end of 2023. The economists gave a median one-in-four chance of a U.S. recession in the coming year, rising to 40% over the next 24 months. The survey did not expect inflation to decrease to the Fed’s 2% target until 2024.
OPEC cuts 2022 world oil demand forecast... World oil demand is expected to increase 3.67 million barrels per day (bpd) in 2022, down 480,000 bpd from the previous OPEC monthly forecast. The cartel cited Russia’s invasion of Ukraine, higher inflation and more Chinese Covid cases affecting world oil demand. OPEC predicted world oil consumption will still surpass the 100 million bpd mark in the third quarter. On an annual basis, the world last used more than 100 million bpd of oil in 2019.
On the supply side, OPEC reported its output only increased 57,000 bpd to 28.56 million bpd. That would be 253,000 bpd lower than OPEC+’s agreed output target. The cartel cut non-OPEC supply by 300,000 bpd to 2.7 million bpd. U.S. shale oil supplies are expected to increase 880,000 bpd, up from 670,000 bpd last month.
EIA: Summer gas prices to average $3.84 per gallon... This summer’s retail gas price is predicted to average $3.84 per gallon, the highest inflation-adjusted average summer gas price since 2014, according to the Summer Fuels Outlook by the U.S. Energy Information Administration (EIA). The average summer price was $3.06 per gallon last year. March’s average retail gas price was $4.22 per gallon, according to EIA. The average gas price is expected to gradually decrease to $3.75 per gallon in July and $3.68 per gallon by September. The outlook forecasts gas consumption will average 9.2 million barrels per day, up 0.8% from last summer and 3.5% lower than 2019. Ethanol fuel blending was predicted to be close to last summer’s level at 930,000 barrels per day, about 10.1% of total gasoline consumption. However, the report was prepared on April 7, before President Joe Biden’s announcement allowing E-15 sales over the summer.
EIA: Summer retail diesel prices to average $4.57 per gallon... This summer’s average retail diesel price is estimated to average $4.57 per gallon, according to EIA. This would be the highest inflation-adjusted average summer diesel price since 2014. Last year, the average summer diesel price was $3.28 per gallon. The five-year average summer price is $2.92 per gallon. Summer diesel consumption is forecast to average almost 3.9 million barrels per day, up nearly 90,000 barrels per day from 2021 and slightly less than consumption in the 2019 summer driving season. This summer, biodiesel production is projected to average about 100,000 barrels per day, down slightly from last summer. Renewable diesel production is predicted to average approximately 90,000 barrels per day this year, up more than 40,000 barrels per day from last year.
NCBA renews call for Brazilian beef imports suspension... The National Cattlemen’s Beef Association (NCBA) renewed its call to immediately suspend fresh beef imports from Brazil. NCBA has repeatedly called for a thorough audit of Brazil’s animal health and food safety system, to ensure the safety of the U.S. cattle herd. In 2021, Brazilian exports to the U.S. increased by 131%. In the first three months of 2022, Brazil has already shipped more than 50,000 MT of fresh beef to the United States. The imports triggered a temporary tariff safeguard of 26.4% that will apply to Brazilian beef imports for the rest of 2022. A temporary tariff increase may discourage further imports from Brazil. However, the cattle organization says it does not address the underlying concern over Brazil’s repeated failure to adhere to international animal health and food safety standards.
Consultant raises Paraguay corn crop estimate... Crop Consultant Dr. Michael Cordonnier raised his estimate of Paraguay’s corn crop by 1.5 MMT to 5.5 MMT. The higher estimate comes as Paraguay farmers planted more safrinha corn acreage in hopes of compensating for a dismal 2021-22 soybean crop. USDA estimates that Paraguay farmers will plant 825,000 hectares of safrinha corn (2.03 million acres), up 14.5% compared to last year.
According to the consulting firm Consultoria TF Agroeconomiea, Paraguay’s total 2021-22 corn crop could be 6.0 MMT, surpassing the current record of 5.0 MMT set in 2018-19. USDA estimates 2021-22 Paraguay corn production at 4.3 MMT. Last year, the country produced 3.2 MMT of corn.
Cordonnier left his estimates of Brazil’s and Argentina’s corn crops unchanged at 112 MMT and 49 MMT, respectively.
No significant impacts on Brazil’s safrinha corn expected... Despite hot and dry weather during the past week in Mato Grosso, Goias and much of northeastern Brazil, World Weather Inc. expects minimal impact on Brazil’s safrinha corn crop. The Kansas City-based weather forecasting company said the corn crop was able to draw on subsoil moisture as the topsoil dried out. The area is expected to get more rain this week. Portions of southern Brazil will continue to see significant rainfall and the ground will remain excessively wet in parts of Parana, Santa Catarina and northern Rio Grande do Sul, where crop development may be sluggish. World Weather said the remaining safrinha corn areas will see mostly good conditions this week.
EU to start food diplomacy... The EU is planning to start food diplomacy to counter Russia’s claims that Western sanctions were the reason for food shortages and higher food prices in the Balkans, North Africa and the Middle East. One diplomat noted they could not risk losing the region. The EU is working with the U.N. World Food Program to mitigate food shortages. French diplomats have considered setting up a global food distribution mechanism for poorer nations. Hungary has suggested boosting the EU's agricultural output by altering its climate goals. The Food and Agriculture Organization of the United Nations (FAO) considered a food import financing facility. The EU is also working to improve Ukrainian exports and imports through Poland. Last week, the EU announced it would provide $244 million in aid to North Africa and the Middle East. Western Balkan countries, especially Serbia, will get agricultural support as part of the regular funding to the region.
