Evening Report | May 26, 2022
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SovEcon: Chance of full-scale Ukrainian grain exports remains low... As we’ve reported, Russia says it’s opening “humanitarian corridors” from Ukrainian ports in the Black and Azov seas. The United Nations and Turkey are also both reportedly in talks to restart Ukrainian grain exports via seaports. But Russia-based consultancy SovEcon doubts there will be a full-scale resumption of Ukrainian grain exports.
SovEcon says, “After an assessment, the best-case scenario currently is that Russia will allow blocked vessels to leave Ukrainian waters. This means that up to 1 MMT of wheat and corn blocked on those vessels, loaded prior to the war (SovEcon estimate) will be able to reach its destinations. Ukraine’s carry-over wheat and corn stocks are estimated at around 15 MMT to 17 MMT. SovEcon doubts Russia will be interested in fully reopening the Ukrainian terminals at this stage. Amid the protracted war, the Kremlin is unlikely to help Kyiv, which desperately needs sea terminals to be reopened to finance its imports. Agriculture is an essential sector of the Ukrainian economy, accounting for 10% of GDP.”
USDA announces CRP changes... USDA will allow participants who are in the final year of their Conservation Reserve Program (CRP) contract to request voluntary termination of their contract following the end of the primary nesting season for fiscal year 2022. Participants approved for this one-time, voluntary termination will not have to repay rental payments, a flexibility implemented this year to help mitigate the global food supply challenges caused by the Russian invasion of Ukraine and other factors. USDA also announced additional flexibilities for the Environmental Quality Incentives Program (EQIP) and Conservation Stewardship Program (CSP).
FSA is mailing letters to producers with expiring acres that detail this flexibility and share other options, such as re-enrolling sensitive acres in the CRP Continuous signup and considering growing organic crops. Producers will be asked to make the request for voluntary termination in writing through their local USDA Service Center.
Impact of voluntary changes won’t be significant, as the maximum is less than 2 million acres.
Comments: This is a major flip-flop by USDA Secretary Tom Vilsack, who earlier wanted additional acres in CRP. This shows the push by White House officials, reportedly led by the National Economic Council, to get more plantings for the 2023 season. It looks like a growing number of White House officials fret that the food supply/price situation could linger into the 2023 season and thus have a sustained inflation impact. Said one source: “This announcement comes from a Biden administration that until now did everything they could to boost conservation amid their all-of-government approach to carbon mitigation.”
Click here for more details, including maps of CRP acres not being re-enrolled in the program.
USDA raises ag export, import forecasts... USDA now forecasts U.S. ag exports will reach a record $191.0 billion in fiscal year (FY) 2022, up $7.5 billion from the February forecast, led by corn cotton and soybeans. USDA projects FY 2022 ag imports at $180.5 billion, up $8.0 billion from February. That would result in an ag trade surplus of $10.5 billion for FY 2022, down $500 million from the February outlook but up from $8.9 billion in FY 2021.
On ag exports, USDA noted: “Corn exports are forecast $2.2 billion higher to $19.1 billion due to record volumes and higher unit values. Overall grain and feed exports are projected $3.8 billion higher at $46.7 billion, with gains across all commodities except rice. Cotton exports are forecast at a record $9.0 billion, up $1.0 billion from the previous forecast, driven by higher unit values. Soybean exports are projected up $1.0 billion to a record $32.3 billion as higher volumes more than offset lower unit values. Total oilseed and product exports are forecast $700 million higher to a record $44.3 billion. Overall livestock, poultry, and dairy exports are projected to increase by $1.2 billion to $40.4 billion, with gains across all major commodities except pork. Beef and veal exports are projected to increase by $700 million on higher unit values as demand in East Asia is expected to remain firm. The projection for ethanol exports is forecast at a record $3.8 billion, up $900 million from the previous forecast due mainly to higher unit values. Horticultural exports are unchanged at $38.5 billion.”
Poultry regs unveiled by USDA... USDA unveiled a proposed rule under the Packers and Stockyards Act it says will “protect poultry growers from abuse.” The proposed rule will require poultry processors to provide information to poultry growers at several steps which USDA said is aimed at “increasing transparency and accountability in the poultry growing system. Processors would have to disclose details of inputs provided to each farmer and information about the input differences among farmers being ranked. The disclosures would cover the level of control and discretion exercised by the poultry processor and “what financial returns the farmer can expect from the relationship based on the range of real experiences of other growers,” USDA said. “Contracts would also be required to contain guaranteed annual flock placements and density. Poultry processor CEOs would be required to sign off on the compliance process for disclosure accuracy.”
USDA also announced efforts to gather information fairness in poultry growing tournament systems. USDA said it “opening an inquiry into whether some practices of processors in the tournament system are so unfair that they should be banned or otherwise regulated.” USDA wants feedback to “determine whether the current tournament-style system in poultry growing could be restricted or modernized to create a fairer, more inclusive marketplace.”
Drought footprint shrinks a little more in HRW areas... Based on U.S. Drought Monitor, dryness/drought covers 87% of Texas (down three points from the previous week), 53% of Oklahoma (down eight points), 71% of Kansas (down a point), 100% of Colorado (unchanged), 98% of Nebraska (unchanged), 73% of South Dakota (unchanged) and 95% of Montana (unchanged).
Drought monitor commentary noted: “A large part of Oklahoma and parts of Texas and Louisiana were inundated with several inches of rain, over 6 inches in places. Heavy rain in central and northern Oklahoma, and in the Texas panhandle, southern Texas, and southeast Texas, resulted in the contraction of abnormal dryness and moderate to exceptional drought. Two inches or more of precipitation fell across southern and eastern parts of Kansas, central Colorado, and northeast Nebraska, while half an inch or more was widespread across North Dakota. Parts of Nebraska, northeast Colorado, Wyoming, South Dakota, and eastern Montana received less than half an inch of precipitation. In Colorado, moderate to extreme drought contracted where it was wet, while severe and extreme drought expanded where it was dry. Abnormal dryness and moderate to extreme drought shrank in parts of Kansas. The rain ate a hole into severe drought in northeast Nebraska.”
Click here to view the U.S. Drought Monitor map.
Ag groups call for tariff relief to help ease inflation... A broad mix of U.S. food and ag groups sent a letter to U.S. Trade Representative Katherine Tai calling for a halt to trade tariffs to ease inflation. The letter said, “Tariff relief could not come at a more important time.”
The letter stated, “Rural America and small businesses are facing significant challenges due to the lingering impacts of the COVID-19 pandemic, logistical and supply chain disruptions, record levels of inflation, and the increasing impacts of Russia’s war on Ukraine. Our businesses are faced with surging fuel prices, skyrocketing fertilizer and other input costs, and continued uncertainty in the global market. With so many challenges threatening our livelihood, removal of tariffs on food and agriculture inputs and removal of burdensome retaliatory tariffs would provide immediate relief to America’s food producers. By rolling back 301 and 232 tariffs and eliminating retaliatory tariffs, you can increase market access for U.S. food and agriculture exports and reduce costs for critical machinery, fertilizer, agricultural chemicals and other food and agriculture inputs. These efforts would have an immediate effect and would ease the uncertainty felt by all rural America.”
Russia to provide Iran with grain... Iran expects Russia to supply it with 5 MMT of grain, including some wheat, Iranian news agency the Young Journalists Club (YJC) reported. Iran and Russia finalized an agreement for the supply as part of several deals signed during a visit by a Russian economic and commercial delegation this week. The YJC report did not specify the timeline for delivery, the amount of wheat supply or the proposed payment.
Iran will need to import at least 7 MMT of wheat in the year to March 2023, marking a second year of high imports as drought continues to affect domestic production, the chairman of Iran’s Grain Union said earlier this month.
U.S. economy contracts more than previously estimated in Q1... The U.S. economy contracted 1.5% annually in the first quarter, slightly greater than the negative 1.4% growth previously estimated. Economists expected first quarter GDP to be revised to negative 1.3%. Most of the weakness stemmed from the record trade deficit. The Commerce Department said the slump in GDP in the first quarter reflected decreases in private inventory investment, exports, and government spending along with an increase in imports, which are a subtraction in the calculation of GDP. Consumer spending was revised higher in the first quarter to a 3.1% rate, up from the prior estimate of a 2.7% increase.
Despite lingering supply-chain constraints and high inflation, economists expect the U.S. economy to rebound in the current quarter.
China pursuing sweeping deal with 10 Pacific island nations... China is pursuing a regional agreement with Pacific island nations that would expand Beijing’s role in policing, maritime cooperation and cybersecurity while offering scholarships for more than 2,000 workers and young diplomats, according to documents obtained by the New York Times. The regional agreement included language requiring that Pacific island countries abide by the “one China” principle. The pending agreement is a direct challenge to the new Australian government under Prime Minister Anthony Albanese, who has vowed a response.
Administration to require GHG emissions reporting for firms with federal contracts... The Biden administration will soon propose a rule requiring major companies that supply goods and services to the federal government to disclose their greenhouse gas (GHG) emissions, a White House official said Wednesday. The rule will be distinct from — but similar to — the U.S. Securities and Exchange Commission’s March proposal that requires publicly traded companies to report their carbon emissions.
