Evening Report | October 5, 2022

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Livestock producers: Extend soybean meal coverage… December soybean meal futures dropped below $400 this morning. As a result, we advise livestock producers to cover the remainder of October needs in the cash market. Combined with previous coverage you now have all meal needs purchased in the cash market through mid-November. 

OPEC+ to make sharp cut to oil production... OPEC+ agreed to cut oil output by 2 million barrels per day (bpd), which is the biggest production cut since the height of Covid-19 lockdowns, and double the volume previously flagged. Analysts say the cartel will probably shave more like 1 million barrels off the market, since most OPEC members are already underproducing.

At a news conference following the meeting, the Saudi oil minister, Prince Abdulaziz bin Salman, said OPEC+ was acting amid signs of a downturn in the world economy that might cause demand for oil to weaken and prices to fall. “We would rather be pre-emptive than be sorry,” he said.

Patrick De Haan, oil and refined products analyst at GasBuddy says, “As a result of OPEC's production cut, I estimate U.S. gas prices will be impacted by roughly 15 cents to 30 cents per gallon.”

Biden disappointed by ‘shortsighted’ OPEC+ cut, more SPR releases possible... President Joe Biden called on his administration and Congress to explore ways to boost U.S. energy production and reduce OPEC’s control over energy prices after the cartel’s “shortsighted” production cut, the White House said. OPEC+ ignored pleas from the White House to keep its production unchanged.

“The president is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of (Russian President Vladimir) Putin’s invasion of Ukraine,” national security adviser Jake Sullivan and National Economic Council Director Brian Deese said in a statement.

Biden warned that he will now continue to direct releases from the nation’s Strategic Petroleum Reserve “as necessary,” a shift from the White House’s previous comments that it would end the drawdown in the coming weeks. He also pledged to consult with Congress on additional tools to cut OPEC’s control over energy prices, a potential reference to a decades-long effort to open the cartel to antitrust lawsuits for orchestrating supply cuts.

EPA expected to propose EVs be eligible for renewable fuels credits... EPA is expected to propose that electric vehicles (EVs) be eligible for renewable fuel credits in an upcoming proposal on biofuel blending mandates, three sources familiar with the matter told Reuters. EPA is expected to send the proposal, which will address mandates after 2022, to the White House for approval by the end of next week, two of the sources said.

Reuters reported, “The inclusion of the EV industry into the Renewable Fuel Standard (RFS) would add another powerful player into an already contentious policy that has largely pitted the corn and oil lobbies against each other. If EPA expands the RFS program to include electric cars, carmakers such as Tesla Inc. could benefit and gain access to a new type of credit, known in the industry as e-RINs, or electric RINS. The subsidy could spread to related industries too, like car charging companies and landfills that supply renewable biogas to power plants, according to industry players.”

Ag trade deficit grows in August... The U.S. exported $15.5 billion of ag goods in August against imports of $16.8 billion, which resulted in a deficit of nearly $1.4 billion. That was up from a deficit of $938.3 million in July. USDA will release full details of August ag trade on Thursday.

U.S. trade gap lowest in 15 months... The U.S. trade deficit narrowed to $67.4 billion in August, the lowest since May 2021, and slightly below market forecasts of a $67.7 billion gap. Exports from the U.S. declined by $700 million from the previous month to $258.9 billion in August, the first decrease in exports this year. Sales of goods decreased by $700 million to $182.5 billion in August, especially nonmonetary gold (down by $2.0 billion) and crude oil (down by $1.0 billion). Meanwhile, exports of automotive vehicles, parts, and engines decreased by $1.1 billion while those of consumer goods increased by $1.3 billion. Exports of services decreased by less than $100 million to $76.4 billion.

Imports of goods decreased by $4.1 billion to $270.1 billion, mainly crude oil (down by $2.7 billion) and capital goods (down $1.1 billion). On the other hand, purchases of automotive vehicles, parts, and engines increased by $1.1 billion. Also, imports of services increased by $400 million to $56.2 billion, particularly travel (up $300 million).

Sharp slowdown in global trade points to a possible recession and lower inflation... World trade in goods is set to slow more sharply than previously expected next year, a new forecast shows. Exports and imports should increase by just 1% in 2023, down from a previous forecast of 3.4%, the World Trade Organization (WTO) said today. Measures of global trade flows have been volatile over recent months, partly because of a cycle of Covid-19 lockdowns and reopenings in China that have affected the availability of goods for transport to consumers. WTO said trade flows should rise by 3.5% this year, faster than the 3% previously forecast but down sharply from 9.7% in 2021. In a positive sign for the economy, the slowdown in trade flows looks like it is leading to a decline in freight charges that should help cool global inflation rates.

DOE to look into impacts of possible fuel export ban... The Department of Energy (DOE) will investigate the impacts of a possible fuel export ban as worries mount over the political threat of higher gasoline prices ahead of the midterm elections, according to people familiar with the discussions, although the proposal does not have the backing of industry groups. In a letter to Energy Secretary Jennifer Granholm, the American Petroleum Institute and American Fuel and Petrochemical Manufacturers pointed out that a ban “would likely decrease inventory levels, reduce domestic refining capacity, put upward pressure on consumer fuel prices and alienate U.S. allies during a time of war.”

Senate Ag Committee leaders call for expansion of margin protection tools... Senate Ag Committee Chair Debbie Stabenow (D-Mich.) and ranking member John Boozman (R-Ark.) are urging USDA to accelerate the expansion of margin protection tools to help more producers address the increased risk associated with elevated production costs such as fuel and fertilizers. In a letter to USDA Secretary Tom Vilsack, and Marcia Bunger, Administrator of USDA’s Risk Management Agency (RMA), the senators ask for expansion of options beyond those currently only available to dairy, cattle, swine, rice, soybeans, corn and wheat so that producers of additional commodities can proactively manage risk. The senators also call on RMA to increase risk management education for both producers and agents. “Many farmers are underway in their planning for fall fertilizer applications. Prioritizing the thoughtful and timely expansion of margin protection plans of insurance for additional commodities, as well as related insurance products designed for specialty crops, would allow producers the opportunity to familiarize themselves with these tools and better manage production cost risks by next fall,” the senators wrote.

Where's part 2 of ERP?... Phase 2 of USDA’s Emergency Relief Program (ERP) will be more challenging than Phase 1 because it is intended as a catch all. Phase 1 was when you had a claim under crop insurance, NAP, or livestock disaster and USDA could just plus it up. This second phase deals with all those who did not have a claim but are still eligible for disaster where USDA does not have all of the info on file and all of the other issues.

USDA releasing aid for farm, meatpacking workers... USDA announced 15 groups will get $670 million in funds to farm and meatpacking workers that were negatively impacted during the pandemic, incurring expenses via the outbreak as they were deemed essential workers. The funds would amount to $600 per person and start in the fall, USDA said. USDA also earmarked $20 million for a pilot program that would recognize the efforts of grocery workers. The aim is to defray some of the costs incurred by workers relative to personal protective equipment, childcare and expenses for testing and quarantining.

The largest grant, $141.7 million, was awarded to UFCW Charity Foundation to assist farm, grocery and meatpacking workers. The UFW Foundation received $97.8 million, the second-largest grant, followed by $57.4 million to National Migrant and Seasonal Head Start Association.

USDA noted, “Payments are not yet available and each organization may have application periods that begin at different times.”