Consumer Prices Rose Less than Expected in November, up 7.1% from Year Ago

European Parliament in Brussels agreed to enforce the world’s first carbon border tax

Abbreviated dispatch today as I am in Newton, Kansas, for an MKC event.  

U.S. inflation rate falls more than expected. The annual inflation rate in the U.S. slowed for a fifth straight month to 7.1% in November of 2022, the lowest since December last year, and below market forecasts of 7.3%. It follows a reading of 7.7% in October. Compared to the previous month, the CPI edged up 0.1% only, the least in three months, and also lower than forecasts of 0.3%. Despite the slowdown, the annual inflation is set to remain more than three times the Fed's 2% target, pointing to a broad price increase across the economy. The strongest upward pressure continues to come from the services sector while prices of goods are seen to soften due to improvements in supply chains.

     After stripping out food and fuel prices, which move around a lot, the index climbed by 6%. That was less than the 6.1% Bloomberg projection.

     Futures on the S&P 500 rose in premarket trading on Tuesday, extending the previous day’s gains. Still, the benchmark index is down about 2% since the beginning of December and 16% for the year. Dow futures surged by 700 points.

Fed officials today are scheduled to begin meeting to discuss what is expected to be a 0.5-percentage-point rise in interest rates, leaving Chairman Jerome Powell with difficult questions on the next stage of rate policy.

     Treasury yields slid on Tuesday after data showed inflation rose less than expected for November, fueling hope that the Federal Reserve will slow the pace of rate hikes. The yield on the benchmark 10-year Treasury dropped 13 basis points to 3.48%. The 2-year Treasury yield was last down by 12 basis points to 4.27%. Yields and prices move in opposite directions and one basis point is equivalent to 0.01%.

One-week continuing resolution (CR) extension proposed. As expected, Congress is pushing for a one-week extension for “more time” to get a final omnibus budget for fiscal year 2023 which began Oct. 1. The current CR expires Dec. 16. The measure will be taken up by the House Rules committee today and go to the floor Wednesday. The Senate will then get the bill before Friday’s deadline. The omnibus spending package includes an extension of the Emergency Relief Program for eligible 2022 crops and livestock, and a separate aid package for rice growers.

Equities: On Monday, the Dow gained 528.58 points, 1.58%, at 34,005.04. The Nasdaq rose 139.12 points, 1.26%, at 11,143.74. The S&P 500 was up 56.18 points, 1.43%, at 3,990.56. Global stock markets were mostly higher overnight. U.S. stock indexes are pointed toward firmer openings. As noted, futures are surging on a better than expected CPI report. 

Key outside markets today see the U.S. dollar index weaker. Nymex crude oil prices are modestly higher and trading around $74.00 a barrel. A major oil pipeline in the U.S. has been shut due to a leak, and that’s supporting Nymex crude oil prices this week.

Ag markets: Firmer tone overnight. Corn and wheat futures extended Monday’s corrective gains overnight, while the soybean market recouped a small portion of yesterday’s losses. As of 7:30 a.m. ET, corn futures were trading 1 to 2 cents higher, soybeans were 5 to 6 cents higher and wheat futures were 6 to 8 cents higher. Front-month crude oil futures were  around 35 cents higher and the U.S. dollar index was about 250 points lower this morning.

Packers bought limited cash cattle last week. Packers purchased only 59,000 head of cattle in the negotiated market last week. The average cash price dropped 63 cents to $155.79. Cash sources expect generally steady cash cattle prices this week, supported by last week’s light volume but limited by the upcoming holiday-shortened slaughter schedules.

December hog futures now above the cash index. The CME lean hog index is down another 52 cents to $81.47 (as of Dec. 9). December lean hog futures finished Monday 48 cents above that level, suggesting traders sense the cash index will soon bottom. Meanwhile, traders continue to take premium out of deferred contracts, with February hogs finishing Monday just $2.23 above today’s cash quote.

Indonesia raises palm oil reference price. Indonesia plans to set the crude palm oil reference price for Dec. 16-31 at $871.99 per metric ton, up from $824.32 per metric ton for Dec. 1-15. The reference price would put the export tax for the period at $52 per metric ton and the export levy at $90 per metric ton.

$1,426: Average spot rate, per 40-foot equivalent unit, for container transport from Asia to the U.S. West Coast in the first week of December, down 25% from the week before and 90% from the year-ago level, according to the Freightos Baltic Index.

About 15 million people in a dozen states are under winter weather alerts today as a massive coast-to-coast storm continues to head east. The storm system has already caused huge snowfalls in California and is on track to strengthen today, forecasts show. Meteorologists warn the storm will bring dangerous blizzard conditions in the Great Plains, icy weather in the upper Midwest and severe storms along the Gulf Coast. Some areas inside the blizzard warnings could receive as much as 20 inches of snow, with winds strong enough to knock down tree limbs and cause power outages. Meanwhile, the southern end of the storm is expected to bring late-season tornadoes along with strong thunderstorms and large hail.

China will no longer use its “Covid-19 tracking app,” a key pillar of its zero-Covid policy that Beijing is rapidly shifting away from. By using travel and location data, the app dictated whether individuals should be tested for the virus or quarantined. The decision comes as a surge in infections has strained health clinics and supplies of medicines and Covid-19 tests.

The monthly federal budget deficit widened to $249 billion in November, $57 billion more than the same month last year. The deficit narrowed sharply last fiscal year, which ended Sept. 30, as broad fiscal support during the Covid-19 pandemic ended. At the same time, rapid economic growth also helped power record-level tax revenues. Both those trends are on track to end this fiscal year.

Members of the European Parliament in Brussels agreed to enforce the world’s first carbon border tax. The carbon border adjustment mechanism imposes tariffs on the imports of goods, such as cement and steel, to account for the carbon-dioxide emissions they generate. It seeks to prevent European firms outsourcing production to parts of the world with weaker environmental standards. It has unsettled manufacturers in the U.S. who are concerned the measure would create a new web of red tape to export to Europe. It is expected to be adopted formally by the European Union in the coming weeks as part of a sweeping package of legislation that would step up the bloc’s efforts to limit global warming.

More EU aid for Ukraine after Hungary drops opposition. European Union countries reached a preliminary agreement to clear the way for Ukraine to receive more aid from the bloc after Hungary dropped its opposition in exchange for a reduction in penalties over graft concerns. Hungary had been vetoing an €18 billion ($19 billion) support package for Ukraine, a measure that requires the consent of all 27 EU members.

Russian President Vladimir Putin is dropping his annual marathon press conference for the first time in a decade, as his forces continue to stumble in their war in Ukraine. “There won’t be one before New Year,” Kremlin spokesman Dmitry Peskov told reporters on a conference call yesterday.

Volodymyr Zelenskyy, Ukraine’s president, asked G7 leaders for modern tanks and long-range weapons amid heavy fighting in his country’s east. The G7 promised to “meet Ukraine’s urgent requirements.”

USDA’s Vilsack awards $325 million of taxpayer funding for second round of climate-smart ag pilot projects. The funding includes 71 smaller projects seeking $250,000 to nearly $5 million under the second round of the department’s Partnerships for Climate-Smart Commodities (PCSC) effort. Vilsack says the latest round is focused on projects targeting underserved producers and partnerships with minority-serving academic institutions. The second round follows an initial round of $2.8 billion in funding across 70 larger projects — seeking $5 million to $100 million — that USDA rolled out in September. Total funding awarded under both rounds stands at $3.1 billion, up from an initial $1 billion USDA originally set aside for the effort. Funding is being drawn from the Commodity Credit Corporation (CCC), a development that has caught Republican lawmakers’ attention. CCC requires funds be used “for the expansion of markets in US commodities and the promotion of U.S. exports,” and the department has said PCSC is consistent with the requirement as the pilots seek to promote the development and marketing of climate-smart commodities that can fetch a premium in the marketplace. Some Republican lawmakers have questioned how the move might impact CCC’s other obligations like making farm bill program payments to farmers, along with their concerns about a lack of oversight over the spending. Incoming House Ag Chair Glenn “GT” Thompson (R-Pa.) has signaled he will increase oversight related to the use of CCC funds for the PCSC program. However, ag interests have been generally supportive of the pilot program, and major farm and commodity groups are among the partners that have been awarded funding under both rounds of the effort.

The Treasury Department and the IRS issued a revenue procedure on modifications to electric-vehicle tax credits Monday. The modifications, enacted as part of the Inflation Reduction Act, provide a maximum of $7,500 in credits for electric vehicles only if their final assembly occurred in North America. Manufacturers that want to take advantage of the clean vehicle credit will have to make written reports to Treasury by Dec. 15 to ensure eligibility, and the guidance includes procedures for selling vehicles in order to be eligible. The release does not include proposed guidance for critical minerals and battery requirements, and the agencies will “explicitly identify” when they issue proposed guidance on these provisions.

Leaders from 49 African countries will convene in Washington today for the U.S.-Africa Leaders Summit, as President Joe Biden attempts to signal his commitment to a region that has been expanding ties with U.S. rivals. Agenda: three days of group meetings and themed forums and sessions, alongside $55 billion worth of planned initiatives. Not everyone was invited: nations that the African Union suspended — Guinea, Sudan, Mali, and Burkina Faso — and Eritrea were all left off the invite list. At the summit, Biden is expected to advocate that the African Union permanently join the G20 and announce an official upcoming trip to the continent, Axios reported.

USDA plan on allowing fresh beef from Paraguay cleared by OMB. USDA’s proposal to allow imports of fresh (chilled or frozen) beef from Paraguay under certain conditions has been cleared by the Office of Management and Budget (OMB). USDA said that based on a risk analysis, they have “determined that fresh beef can be safely imported from Paraguay, provided certain conditions are met.” USDA said the action would allow fresh beef imports from Paraguay while continuing to protect the U.S. from foot and mouth disease (FMD). The next step is for the proposed rule to be published in the Federal Register with a comment period and then a final rule would also have to be issued before any imports could take place. USDA forwarded the plan to OMB Oct. 14 with the review completed Dec. 12.

China begins a WTO dispute over American chip export controls. Beijing accused the United States of trade protectionism by effectively blocking tech companies from selling advanced chips to China, hampering the Chinese tech industry. At the same time, Japan and the Netherlands are in talks to join the U.S. in tightening export controls on chipmaking machinery.

More than 2,400 migrants crossed into the U.S. near El Paso, Texas, daily over the weekend, a senior border official said, marking what he described as a "major surge in illegal crossings" in the region. Officials have been raising concerns that a wave of migrants will occur when the Trump-era border policy known as Title 42 ends on Dec.  21. The Biden administration is asking Congress for more than $3 billion as it prepares for the end of the policy.

A new study shows the Covid-19 vaccines have kept more than 18 million people out of the hospital and saved more than 3 million lives. Researchers from the Commonwealth Fund and Yale School of Public Health found that without Covid-19 vaccines, the nation would have had 1.5 times more infections, 3.8 times more hospitalizations and 4.1 times more deaths than it did between December 2020 and November 2022, according to the study.

Authorities in the Bahamas arrested Sam Bankman-Fried, the former boss of FTX, a cryptocurrency exchange, at the request of American prosecutors who have filed unspecified criminal charges against him. Those charges are due to be unveiled today; the Bahamas is expected to extradite him in short order. Bankman-Fried presided over the implosion of FTX after it lent customers’ funds to his nominally separate trading firm.

WASDE | Crop Production | USDA weekly reports | Crop Progress | Food prices | Farm income | Export Sales weekly | ERP dashboard | California phase-out of gas-powered vehicles | RFS | IRA: Biofuels | IRA: Ag | Student loan forgiveness | Russia/Ukraine war, lessons learned | Election predictions: Split-ticket | Congress to-do list | SCOTUS on WOTUS  | SCOTUS on Prop 12 | New farm bill primer | China outlook |