Evening Report | December 2, 2022
Check our advice monitor on ProFarmer.com for updates to our marketing plan.
Livestock producers: Cover corn-for-feed needs through December… Corn futures have plunged to levels not seen since late August. We advise livestock producers to cover all corn-for-feed needs in the cash market through December. Be prepared to extend coverage into 2023 if there’s additional near-term price pressure.
Your Pro Farmer newsletter is now available... EPA finally released its biofuels blending proposals for 2023 through 2025. The corn-for-ethanol figures were in line with what was expected. But the soyoil market faced heavy price pressure as the biodiesel figures were lower than traders anticipated. EPA’s proposal also includes regulatory changes to how credits from renewable electricity (eRINs) would be implemented and managed under the RFS program. Amid a flurry of protests across the country, China appears ready to finally relax its Covid policies. Our News page 4 feature this week looks at these two factors and a host of other market, trade and policy issues ahead. On the economic front, the Fed’s fight against inflation isn’t complete, but it appears the pace of gains in interest rates may slow soon – potentially this month amid indications inflation has peaked. We cover all of these items and much more in this week’s newsletter, which you can access here.
Jobs data stronger than expected... The U.S. economy added a stronger-than-expected 263,000 non-farm payrolls in November. Average hourly earnings jumped 5.1% over the past 12 months. The strong jobs data could lead to another 75-basis-point increase in interest rates this month. But most economists expect the Fed to go with a milder 50-basis-point increase after Chair Jerome Powell suggested the central bank may slow rate gains “as soon as December.” While there are signs inflation has peaked, Powell warned earlier this week the Fed’s tightening cycle is far from over.
Argentine wheat exports could fall to eight-year low in 2022-23... Argentine wheat exports could fall to the lowest level in eight years in 2022-23 at just 6.5 MMT due to the impact of a prolonged drought in the country, the Rosario Grain Exchange said. “It is likely that Argentina will run out of wheat exports relatively quickly,” the exchange said, noting it could be as early as February if its shipments follow the same pace seen in 2021-22.
In November, the Argentine government authorized export companies to reschedule grain sales for up to 360 days, fearing both export and domestic demand could not be met due to the lack of production.
The exchange also said more than one-third of the early planted soybeans in Argentina’s main farming region are in regular or poor condition due to drought. “A lack of water and high temperatures in recent weeks left numerous soybean fields in critical condition. Most of these fields are located in the east and southwest,” the exchange said.
Canadian wheat, canola crops smaller than expected... Total Canadian wheat production is estimated at 33.8 MMT in 2022, the largest crop since 2020 and the third highest production on record but down 900,000 MT from the September forecast and at the bottom end of trade estimates. Spring wheat output was trimmed 421,000 MT from Statistic Canada’s September forecast to 25.679 MMT. The major cut came in the durum crop estimate, which at 5.443 MMT was cut from 6.1 MMT in September.
Canadian canola production is estimated at 18.17 MMT, down from the 19.1 MMT forecast in September and below even the lowest trade estimate. Despite improved growing conditions overall relative to 2021, weather in the southwestern and west-central Saskatchewan and southern Alberta remained dry, negatively impacting crop output.
USDA raises farm income forecast... U.S. net farm income in 2022 is now forecast at $160.5 billion, up $19.5 billion from 2021, and up $12.8 billion from USDA’s September outlook. Net cash farm income is now forecast at $187.9 billion for 2022, up $39.4 billion from 2021 and up from a September forecast of $168.5 billion. When adjusted for inflation, net farm income would be the highest since 1973 while net cash farm income would be highest since USDA’s inflation-adjusted series started in 1929.
Nearly all expense categories are forecast to rise in 2022 compared with the previous year, with cash expenses to total $412.1 billion versus $408.5 billion in September and $345.4 billion in 2021. The most significant increases are expected in fertilizer-lime-soil conditioner costs, forecast up $13.9 billion in 2022 versus 2021, putting them at $43.4 billion. Feed expenses are seen hitting $76.6 billion, up $11.3 billion in 2022 versus 2021, while interest expenses, not surprisingly, are to rise $8 billion, hitting $27.4 billion. On a percentage basis, fertilizer-lime-soil conditioner costs are up 47%, feed expenses up 17.4%, interest expenses up 41% and fuel and oil expenses are up 47.4%.
While farmers are seeing higher expenses, they have built a sizable amount of working capital. USDA forecasts working capital on farms at $134.5 billion, up from $126.5 billion in 2021 and the recent low point of $65.2 billion in 2016. The infusion of payments from the government has contributed to the “war chest” that farmers must work with as they deal with higher input costs. The increase in working capital is 4.7% in nominal dollars, but when adjusted for inflation, it is down 1.4%. Farm sector equity is expected to increase by $320.8 billion in 2022 to $3.34 trillion, with assets forecast to hit $3.85 trillion, up $348.6 billion. The debt-to-asset ratio is put at 13.05 by ERS for 2022, down from 13.56 in 2021, and the lowest since it was at 12.99 in 2017. Similarly, the debt-to-equity ratio, at 15.01, is down from 15.68 in 2021 and the lowest since it was at 14.93 in 2017.
EU officials set Russian oil price cap at $60... The European Union on Friday agreed to cap Russian seaborne oil prices at $60 a barrel. The price limit will be reviewed regularly to monitor its market ramifications, but it should be “at least 5% below the average market price,” an EU document with details of the cap said.
Energy analysts have warned that the G-7 will need support from other major buyers if the cap is to be effective. China and India, for instance, increased their purchases of Russian oil following the invasion of Ukraine to benefit from discounted rates offered by Moscow.
Biden administration wants to halt SPR sales to refill depleted stockpiles... The Biden administration is seeking to stop sales from the Strategic Petroleum Reserve (SPR), mandated by Congress, so it can refill the emergency reserve. The move could impact the release of 147 million barrels of crude oil, Doug MacIntyre, an Energy Department official, told a Senate panel Thursday. Such a plan, which would require congressional approval, could be attached to a must-pass government funding bill that could come together this month.
