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Congress getting closer on omnibus spending accord likely completed next week

 An abbreviated report as I am in Las Vegas for a presentation at Farm Journal’s MILK conference.

Equities: Global stock markets were mixed overnight, with European shares mostly lower and Asian shares mostly higher. U.S. stock indexes are pointed toward slightly lower openings. In Asia, Japan +0.8%. Hong Kong +0.4%. China flat. India +0.2%. In Europe, at midday, London -0.3%. Paris -0.3%. Frankfurt -0.5%.

Key outside markets today see the U.S. dollar index weaker. Prices Tuesday hit a 5.5-month low following a slightly cooler than expected U.S. consumer price index report. Nymex crude oil prices are firmer and trading around $76.00 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. Meantime, the yield on the benchmark U.S. 10-year Treasury note is presently 3.51%. Gold and silver futures were weaker, with gold around $1,818 per troy ounce and silver around $23.92 per troy ounce.

Commodity price pressure overnight. Corn, soybean and wheat futures traded solidly lower overnight despite supportive outside markets. As of 7:30 a.m. ET, corn futures were trading 2 to 4 cents lower, soybeans were 7 to 9 cents lower and wheat futures were 6 to 10 cents lower. Front-month crude oil futures were about 50 cents higher and the U.S. dollar was around 125 points lower this morning.

Cattle traders remain cautious. December live cattle futures finished Tuesday 89 cents below last week’s average cash cattle price. While the longer-term outlook is bullish as supplies tighten, traders remain cautious toward nearby futures, as they expect packers will try to limit strength in the cash market through the end of the year.

Hog traders increasing bets seasonal low in place. December lean hog futures firmed 45 cents on Tuesday, extending the lead contract’s premium to the cash index, which is up 15 cents to $81.62 (as of Dec. 12). While December hog’s 78-cent premium to the cash index is modest, it signals traders sense the cash market is in the process of posting a seasonal bottom.

Progress finally comes to omnibus spending measure. House and Senate Appropriations committee leaders announced Tuesday evening they had reached agreement on “a bipartisan, bicameral framework” that will allow them to complete details of the omnibus spending bill. Senate Minority Leader Mitch McConnell (R-Ky.) says the package must be passed by the end of the day Dec. 22. “We intend not to be back here between Christmas and New Year’s, and if we can’t meet that deadline, we would be happy to pass a short-term CR into early next year,” he said.

      The topline agreement will allow lawmakers to spend the coming week hashing out specific spending levels for each federal agency as well as what additional legislative items they will attach to the bill, likely including an extension of the Emergency Relief Program (EP), and a possible aid program for rice producers. Senate Majority Leader Chuck Schumer (D-N.Y.) said Tuesday he expects the legislation will include aid for Ukraine as well as a bipartisan bill raising the bar for challenging presidential election results.

     Next steps: Congress is expected to approve a one-week stopgap spending bill this week to extend the funding deadline from Dec. 16 to Dec. 23. The House will vote at about noon on the rule for consideration of the week-long stopgap. The rule also would send a separate bill back to the Senate to be used as a vehicle for an eventual omnibus funding package, a maneuver that’s meant to expedite a final vote in the Senate.

The Federal Reserve releases a policy statement and economic projections at 2 p.m. ET, and Chairman Jerome Powell holds a press conference at 2:30 p.m. ET. Most expect a 50-basis point hike in rates, but the key will be any signals for rate hikes ahead and comments Powell makes during his presser. Two straight months of moderating price pressures could complicate officials’ deliberations over how high to raise rates early next year. Next FOMC meeting is Jan. 31-Feb. 1. The market will be focused on the “dot plot.” A terminal rate of 5% or above will be viewed as hawkish and likely weigh on stocks.

     Upshot: The Fed has been at pains to insist that it will keep rates elevated for as long as is needed to bring inflation to heel. A slowdown in rate increases does not equate to an easing of monetary policy.

The European Central Bank and the Bank of England meet on Thursday and are likely to follow the U.S. Federal Reserve with half-point rate hikes.

U.S. mortgage rates. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) in the U.S. edged up by 1bps to 6.42% in the week ended December 9, data from the Mortgage Bankers Association (MBA) showed. It is the first increase in mortgage rates in five months, although borrowing costs hold close to low levels not seen since mid-September, tracking a retreat in bond yields. In November, rates reached 7.14%, the highest since 2001.

The annual inflation rate in the U.K. eased to 10.7% in November of 2022 from 11.1% in October which was the highest since October 1981. Figures came below market forecasts of 10.9%, with the largest downward contribution made by transport (7.2% vs 8.9%), particularly motor fuels (17.2% vs 22.2%) and second-hand cars (-5.8% vs -2.7%). Prices also slowed for clothing and footwear (7.5% vs 8.5%), recreation and culture (5.3% vs 5.9%), and communication (2.6% vs 3.2%). Prices in restaurants and hotels rose at a record 10.2% (vs 9.6%), mainly pushed by alcohol served in restaurants, cafes and pubs. Food inflation meanwhile, edged higher to 16.5% from 16.4%, hitting the strongest since 1977, led by the cost of bread and cereals. Housing rentals increased by 4.5%, slightly above 4.3% in October. Compared to the previous month, the CPI increased by 0.4%, well below the 2% jump in October.

ERP payouts continue to move higher. Payments under USDA’s Emergency Relief Program (ERP) rose to $7.22 billion as of Dec.11, up from $7.20 billion the prior week. The total includes payments of $6.17 billion for non-specialty crops ($6.14 billion prior) and $1.06 billion for specialty crops ($1.04 billion prior). Payments were largely unchanged under both of the Coronavirus Food Assistance Program (CFAP) efforts.

Prices for school lunches more than tripled from a year earlier. A Labor Department economist said the 2020-21 decline and 2022 increase in the index was largely related to the start and stop of the federal government's free-lunch program. Labor hadn't reported the price series from June through October because it wasn't collecting enough information from schools.

Sen. Booker seeks major expansion of 'food as medicine' programs. Congress should "substantially scale up" programs like a produce prescription and nutrition incentive program at USDA and create a food box program to provide locally grown produce to Medicaid participants, said Sen. Cory Booker (D-N.J.) on Tuesday. "Food as medicine programs can be transformative," he said during a Senate Agriculture subcommittee hearing on the issue.

OPEC maintained its outlook for global oil supply and demand on Tuesday, suggesting it doesn’t expect Western attempts to set a price cap for Russian oil to have much impact on global crude flows.

China is moving forward with economic/Covid policy meetings this week after previously saying they would be postponed pointing to a potential reopening occurring sooner than later. The latest shift includes the country will stop counting asymptomatic cases of Covid-19 as high numbers of such patients were no longer taking part in testing. This comes in the wake of China’s decision to cut back on testing requirements and close testing facilities. However, the country is now pushing more vaccinations as it appears to pivot away from its zero-Covid policies — those with a higher risk of infection due to severe existing conditions, weakened immune system or over the age of 60 will be targeted for a second booster shot six months after the first booster. The Financial Times reported that more than half of Chinese over 60 received a booster before March this year, “heightening uncertainty over the efficacy of Chinese vaccines compared with messenger RNA jabs used in the West.”

     Bottom line: “There is a problem with people thinking the pullback of Covid-zero measures is equivalent to the economy reopening, which it is not." — Leland Miller, CEO of research firm China Beige Book, explaining why China’s economy will likely remain weak for a while. Many people are staying home and canceling travel because they’re worried about outbreaks after Beijing eased its restrictive pandemic policies.

Shippers note ‘notoriously difficult’ railroads during hearing. Shippers urged the U.S. railroad regulator to create more competition in the industry during hearings in which Union Pacific was called to explain a spike in service restrictions. Shippers used the public forum to air grievances about an industry structure that they say gives railroads the power to boost prices and pad their profit even as service suffers. Companies, including Cargill Inc. and Ag Processing Inc., pointed to reduced workforces as one of the main culprits for railcar curtailments. Lance Fritz, the chief executive officer of Union Pacific, said service has suffered because the railroad didn’t have enough train crews at the beginning of the year and has hired 1,400 train and yard workers to address the problem. As service deteriorated, customers added railcars to the network to move goods. That exacerbated the congestion and forced the railroad to use embargoes to clear out railcars from switching yards and tracks, Fritz said. “Excess freight-car inventory disrupts the alignment of our network resources,” he said. “It requires us to use more crews and more locomotives to handle the same amount of business, and it produces congestion on our lines of road and in our terminals.”

Russia/Ukraine update:

• The Biden administration is finalizing plans to send the Patriot missile defense system to Ukraine that could be announced as soon as this week. Ukraine has been calling for the U.S. to send the advanced air defense system that is widely considered one of the most capable long-range weapons to defend airspace against incoming missiles, as well as some aircraft. It would be the most effective long-range defensive weapons system sent to the country, and officials say it will help secure airspace for NATO nations in eastern Europe. Each Patriot battery costs upwards of $1 billion, and requires at least 70 soldiers with months of training to operate. Due to its long-range and high-altitude capability, Kyiv hopes the Patriot can potentially shoot down Russian missiles and drones miles away from their intended targets inside of the country.
• Russia launched a new wave of drone attacks on Ukraine’s capital, Kyiv, continuing to rely on the Iranian-made weapons to wreak havoc on the former Soviet nation’s civilians and infrastructure.
• World leaders have vowed to swiftly send Ukraine more than $1.05 billion in aid at a conference hosted by France. Roughly $415 million in the package will go to repairing Ukraine’s energy infrastructure, which has been battered by Russia’s continuous missile strikes. Almost half of Ukrainian energy infrastructure has been knocked out, according to Kyiv, leaving millions facing power outages during the brutal winter.
• Russia may increase grain export quota. Moscow could increase its grain export quota for 2022-23 from its current level of 25.5 MMT, Interfax news agency quoted Russian Agriculture Minister Dmitry Patrushev as saying, without providing further details. Russia produced a record grain crop this year, including around 100 MMT of wheat.
• Ukraine grain exports fall sharply. Ukraine has exported almost 19.7 MMT of grain so far in 2022-23, down 31.5% from the same period last year, according to ag ministry data. The volume included 10.8 MMT of corn, 7.3 MMT of wheat and 1.5 MMT of barley. Ukraine expects to export around 51 MMT of grain this marketing year, down sharply from a record 86 MMT in 2021-22.
   

Restart of Keystone Pipeline delayed. TC Energy is now targeting Dec. 14 for a partial restart of the 14,000-mile Keystone Pipeline and a full restart on Dec. 20, according to Bloomberg, a slight delay from their initial target of a partial restart Dec. 10. Rain and environmental concerns were behind the latest delay after the pipeline was shuttered last week after a spill took place. The situation is limiting crude supplies to the U.S. Gulf Coast as the report noted that the Marketlink pipeline delivering supplies from Keystone to the Gulf has already advised customers on cuts to flows in December and January.

James Leprino, the billionaire owner of Leprino Foods, which supplies 85% of all pizza cheese including deliveries to Domino’s, Pizza Hut and Little Caesars, won a court battle that could have forced the world’s largest mozzarella maker to shut down due to a family feud.

Chicago-based food bank umbrella Feeding America shook up Forbes’ America’s Top 100 Charities 2022 list by snagging the No. 1 spot thanks to $4.06 billion in donations, a 47% increase in its two fiscal years overlapping the pandemic. The shift in giving reflects a pandemic-heightened awareness of food insecurity in the U.S., with a record 11 regional food banks also making this year’s list. Overall, the nation’s top 100 charities took in a combined $58.8 billion in private donations in their most recently reported fiscal years; see all the organizations that made the cut.

Ron DeSantis holds an early lead over Donald Trump among GOP primary voters, a WSJ poll finds. In a hypothetical contest for the 2024 presidential nomination, the Florida governor beats the former president, 52% to 38%, among likely Republican primary voters. Among all registered voters, DeSantis is viewed favorably by 43%, compared with 36% for Trump, the only Republican who has announced a presidential bid. A decline in Trump’s standing among GOP voters follows midterm election losses that some in the party have attributed to his significant involvement in candidate endorsements and promotion during the primary process.

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