Evening Report | December 13, 2022
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U.S. consumer inflation falls more than expected... The annual inflation rate in the U.S. slowed for a fifth straight month to 7.1% in November, the lowest since December 2021, and below market forecasts of 7.3%. It follows a reading of 7.7% in October. Compared to the previous month, the consumer price index (CPI) edged up 0.1%, the least in three months, and also lower than forecasts of a 0.3% gain. The energy index increased 13.1% annually in November, and the food index increased 10.6%.
Excluding energy and food prices, core CPI increased 6.0% from year-ago in November, down from a 6.3% rise in October and below expectations for a 6.1% annual gain.
The food index increased 0.5% in November following a 0.6% rise in October. The food at home (grocery store) index also rose 0.5% in November and jumped 12.0% annually. The food away from home (restaurant) index also rose 0.5% in November, after increasing 0.9% in each of the previous three months and was up 8.5% over the past 12 months.
The energy index fell 1.6% in November after rising 1.8% in October. The gasoline index declined 2.0% over the month, following a 4.0% increase in October, but was still up 10.1% from year-ago.
Iowa land values jump 17% in 2022... The 2022 Iowa State Land Value Survey shows the average value of an acre of farmland in the state jumped 17%, or $1,660, to a record $11,411 per acre. When adjusting for inflation, the 2022 average value surpassed the previous inflation-adjusted record set in 2013. While inflation was a major factor that drove the increase last year, Wendong Zhang, an associate professor of economics and faculty affiliate of Center for Agricultural and Rural Development (CARD) at Iowa State University, said that it did not play as much of a factor as commodity prices, limited land supply and low interest rates through summer 2022.
Zhang, who is responsible for conducting the annual survey, said: “The Federal Reserve seems to be determined to keep raising interest rates until they get a firm control on inflation. This is a tricky balance because larger and quicker interest rate hikes run the risk of slowing down the economy, potentially to a recession.” While he noted higher interest rates put downward pressure on the land market, the effects typically don’t show up in land prices for one or two years. Plus, 81% of Iowa farmland is fully paid for, so the higher interest rates don’t always affect farmers’ land purchasing decisions. Furthermore, a significant portion of respondents said that cash on hand was a positive factor influencing land values. “Farmers have a lot more cash on hand and supply chain issues led to a shortage of equipment, so the money that farmers normally spend on equipment is now devoted to land,” Zhang said.
Some 70% of survey respondents feel that current land values are “too high” or “way too high.” Still, t 48% of respondents expect an increase in farmland values one year from now, while 24% anticipate no change and 28% expect lower values. Most respondents expect the one-year value to either be the same or increase roughly 5% to 10%. Looking five years ahead, 60% of respondents believe land values will increase 10% to 20% from current values, while about 24% forecast a decline in prices.
Nutrien expects ‘normal’ fertilizer prices in 2023... After a year of price volatility for agricultural inputs, 2023 is set to be a “normal” year for fertilizer and pesticide costs, an official at top Canadian fertilizer maker Nutrien told Reuters.
“The war in Ukraine generated all sorts of expectations around a shortage of products. After May, prices began to fall,” Nutrien CEO for Latin America Andre Dias said. He added that 2023 will be a more normal year with less volatility than 2022, with a more “settled” market despite what Dias said was expected Russian surcharges on fertilizers.
Vilsack awards $325 million 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 USDA’s Partnerships for Climate-Smart Commodities (PCSC) effort. USDA Secretary Tom 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.
Treasury Department, IRS issued a revenue procedure on modifications to EV tax credits... The modifications, enacted as part of the Inflation Reduction Act, provide a maximum of $7,500 in credits for electric vehicles (EVs) 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.
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 based on a risk analysis, it has “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.
U.S. close to providing Patriot missile defense system to Ukraine... The U.S. is finalizing plans to send the Patriot missile defense system to Ukraine, a decision that could be announced as soon as this week, three U.S. officials told Reuters on Tuesday. Ukraine has asked its Western partners for air defenses, including U.S.-made Patriot systems, to protect it from heavy Russian missile bombardment including against its energy infrastructure.
Two of the officials said the announcement could come as early as Thursday but was awaiting formal approval from U.S. Defense Secretary Lloyd Austin and President Joe Biden. One of the officials said Ukrainian forces would likely be trained on the missile defense system in Germany before the Patriot equipment was sent to Ukraine.
Meanwhile, 70 countries and institutions worldwide pledged more than 1 billion euros ($1.05 billion) in immediate aid to help Ukraine get through a harsh winter as Russian forces batter its energy grid and other critical civilian infrastructure.
U.S. suspends some export privileges after ‘sensitive items’ sent to Russia... Washington has temporarily suspended export privileges for three people and two companies following unauthorized exports of “sensitive items” to Russia, the U.S. Commerce Department said on Tuesday. The department said the items “can be used in military applications” and helped fuel Moscow’s “war machine.” The firms’ and individuals’ export privileges have been put on hold for 180 days.
China begins WTO dispute over American chip export controls... Beijing accused the U.S. 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.
