Evening Report | October 25, 2022

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Nuclear rhetoric, concerns heighten between Russia and Ukraine... Russia has notified the U.S. that its annual nuclear exercise has begun and that it will include launches of nuclear capable missiles starting Wednesday, according to two U.S. officials. U.S. officials described the annual nuclear exercise as “routine” around this time of year but nevertheless will take place against heightened Russian rhetoric about using nuclear weapons in Ukraine.

The Russian “Grom,” or Thunder nuclear exercise, typically involves large-scale maneuvers of strategic nuclear forces, including live missile launches, a senior military official said. The last time Russia held a nuclear exercise was in February, just ahead of its invasion of Ukraine.

Russia said Ukraine is preparing to use a “dirty bomb,” an explosive device laced with radioactive material, on its own territory. The U.S. and Western allies accused Russian President Vladimir Putin of using the alleged dirty bomb threat as a pretext to escalate the war in Ukraine. The Kremlin warned the West it was dangerous to dismiss Moscow’s position.

Ukraine’s nuclear energy operator Energoatom said Tuesday Russian forces were performing secret work at Europe’s largest nuclear power plant, activity that could shed light on Russia’s claims the Ukrainian military is preparing a “provocation” involving a so-called dirty bomb. Ukraine claims Russia is attempting to distract attention from the Kremlin’s own alleged plans to detonate a dirty bomb. Energoatom said it “assumes” Russians “are preparing a terrorist act using nuclear materials and radioactive waste stored at the plant.”

 

USDA raises food price forecasts for 2022 and 2023... USDA raised its forecasts for food price inflation in 2022 and 2023 from their September forecasts, now seeing 2022 prices for all food rising 9.5% to 10.5% (9% to 10% prior), food at home (grocery store) prices jumping 11% to 12% (10.5% to 11.5% prior) and food away from home (restaurant) prices rising 7% to 8% (6.5% to 7.5% prior). The ranges for six food categories and four aggregate categories were revised upward this month. No food price categories were revised downward.

Pork prices increased by 1.1% in September, despite high domestic pork production and low demand for U.S. pork from Asia. Pork prices are now predicted to increase between 8.5% and 9.5% in 2022.

Retail egg prices decreased 3.5% in September but were 30.5% higher than last year. The ongoing outbreak of highly pathogenic avian influenza (HPAI) reduced the U.S. egg-layer flock by almost 5 million birds in September, as well as the poultry flock to a lesser extent. USDA projects egg prices will increase between 26.5% and 27.5% this year.

Fresh vegetable prices increased by 1.7% in September following a 1.0% increase in August, reaching a 9.2% annual rise. Processed fruits and vegetables and the aggregate category of fruits and vegetables also increased by 1.6% and 1.4%, respectively. Fresh vegetables prices are now predicted to increase between 5.5% and 6.5%, processed fruits and vegetables prices are predicted to increase between 11.0% and 12.0%, and prices for the aggregate category of fruits and vegetables are predicted to increase between 7.5% and 8.5% this year.

USDA forecasts prices for sugar and sweets will increase between 9.5% and 10.5% and nonalcoholic beverages prices are predicted to rise between 10.0% and 11.0%.

While USDA still sees smaller increases in 2023, the agency upped its forecasts to all food prices to rise 3% to 4% (2.5% to 3.5% prior), grocery store prices to increase 2.5% to 3.5% (2% to 3% prior) and restaurant prices to jump 4% to 5% (3% to 4% prior).

 

ADM CEO addresses Mississippi River, China corn deal with Brazil, Ukraine situation... Archer Daniels Midland Co. Chief Executive Officer Juan Luciano addressed key supply-chain and demand issues during his company’s third quarter earnings conference call. Luciano says he sees “nothing significant that could derail” extending the Ukraine Black Sea grain export deal that expires Nov. 19. He also called China’s corn export agreement with Brazil “nothing more than just risk management” to expand import options amid tight global supplies.

Shipping issues due to low water levels on the Mississippi River will cut U.S. soybean exports and extend the corn export window into the first quarter of 2023. But the company’s CFO Vikram Luthar noted that strong soy crush margins will more than offset the negative impacts of lower U.S. exports due to the Mississippi River shipping issues.

Consumer confidence fades... U.S. consumer confidence declined in October after two straight monthly increases amid rising concerns about inflation and a possible recession next year. The Conference Board’s consumer confidence index fell to 102.5 this month from 107.8 in September. Economists expected a pullback, but not of that magnitude. The survey’s present situation index, based on consumers’ assessment of current business and labor market conditions, tumbled to 138.9 – the lowest level since April 2021 – from 150.2 in September. The expectations index, based on consumers’ short-term outlook for income, business and labor market conditions, fell to 78.1 from 79.5 last month. The expectations index remains below a reading of 80, a level associated with a recession, and suggests the risks of an economic downturn could be rising. The survey’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, dropped to 32.5 – the lowest reading since April 2021 – from 38.1 in September.

Besides the weaker-than-expected consumer confidence data, U.S. home prices fell more than expected in August, while two of the Richmond Fed’s three components of its manufacturing index notably deteriorated in October.

The Fed is widely expected to raise interest rates another 75 basis points following its Nov. 1-2 monetary policy meeting. But dismal data on home prices, consumer confidence and manufacturing fueled market speculation the Fed may pause its aggressive monetary policy tightening sooner than previously thought.

 

Fed’s paper losses will result in ‘stunning swing’ in Treasury inflows... The Federal Reserve is among central banks that are now sitting on paper losses on their massive bond holdings, which were accumulated as part of rescue efforts in recent years. The U.S. Treasury will see a “stunning swing,” going from receiving about $100 billion last year from the Fed to a potential annual loss rate of $80 billion by year-end, according to Amherst Pierpont Securities LLC.

 

Florida Department of Agriculture issues preliminary loss figures from Hurricane Ian... Detailed figures from the state include:

  • Total losses of $676 million for citrus, including fruit loss (up to $304 million) and tree loss ($371 million).
  • Storm is likely to have destroyed 8% to 11% of Florida citrus trees, which would be more than 6.1 million trees.
  • Other fruit and vegetable losses are pegged at up to $231 million, a loss of about 10% to 15%, while losses for row crops were put at about $160 million with horticultural crops seeing losses of around $297 million.
  • Losses for animal agriculture are seen at around $492 million, which includes damage to things like barns, fences, equipment and roads besides losses of livestock and damage to forage production areas.

Commissioner Nikki Fried said the preliminary assessment is a “first step” in trying to get federal disaster aid for affected producers, noting the state would continue working with industry partners “to gain further insight into the depth and breadth of Ian’s damage.”

The University of Florida’s Institute of Food and Agricultural Sciences (UF/IFAS) last week said the preliminary losses for Ian were around $1.56 billion, while the government update issued this week takes into account citrus tree replacement, animal infrastructure damage and forestry.

USDA said earlier this month its estimates of U.S. citrus production were completed before Hurricane Ian arrived and the Florida citrus production figures released Oct. 12 did not reflect potential damage from the storm and that the next update on citrus production will come Dec. 9. USDA also noted the “full impact of the storm may not be reflected until future reports.”

 

Russia to extend duty-free beef imports... Russia will extend duty-free beef imports for the next year, the country’s ag ministry announced, according to Interfax news agency. The measure should ensure a stable price situation on the market and support processors, the ministry said. “The proposed [beef quota] for 2023 is not more than 100,000 MT,” the Russian Economic Development Ministry told Interfax, citing minutes from the customs-tariff and non-tariff regulation sub-commission’s meeting.

Russia does not plan to introduce a similar measure for pork as Russian producers “completely cover the domestic demand for this type of meat, and growth in its production by 6.2% over the first nine months of the year helps maintain stable selling prices.”

Russia instituted a quota on duty-free imports of 200,000 MT of beef for all of 2022 and 100,000 MT of pork from Jan. 1 to July 1.

 

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