Evening Report | January 27, 2023

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Check our advice monitor on ProFarmer.com for updates to our marketing plan.

 

Your Pro Farmer newsletter is now available... Argentina received enough rains to stabilize crops – for now – though drought concerns persist. Brazil’s weather remained mostly favorable despite too-wet conditions in some central areas and dryness in far southern locations. On the macroeconomic front, food prices surged in 2022 and are expected to continue higher this year. But there are increased signs the Fed’s aggressive monetary policy tightening is taking hold, including the first ever drop in M2 money supply. Economists expect the Fed to reduce its rate of interest rate increases to 25 basis points following the Feb. 1 policy meeting. With the winter seminar season in full swing, we answer the major questions farmers have asked us in our News page 4 feature. We cover all of these items and much more in this week’s newsletter, which you can access here.

 

PCE rises at slower rate in December... The Federal Reserve’s preferred inflation gauge eased further in December, and consumer spending fell — the latest evidence aggressive interest rate hikes are slowing the economy. The Personal Consumption Expenditures price index (PCE), rose 5% annually in December, the Commerce Department reported, down from a 5.5% rise in November. Core PCE, which excludes volatile food and energy prices, increased 4.4% annually, down from November’s 4.7% increase. Core PCE is the Fed’s favored inflation gauge as it provides a more complete picture of consumer costs and spending.

Consumer spending fell 0.2% from November to December and was revised lower to show a drop of 0.1% from October to November. Last year’s holiday sales were sluggish for many retailers, with the overall spending figures for the final two months of 2022 the weakest in two years.

Markets are pricing in near certainty the Fed will raise rates 25 basis points next week and about an 85% probability of another quarter-point rise in March. After that, markets have priced in only about one-third odds the Fed will continue to tighten monetary policy.

 

January consumer sentiment a little better than originally thought... The University of Michigan’s Index of Consumer Sentiment rose to 64.9 in January, up from an initial projection of 64.6 and the December reading of 59.7. However, that was still down 2.3 points (3.4%) from last year and remained historically low. The subindex on the current conditions of the economy rose 8 points to 68.4, though that was down from an initial projection of 68.6 and 3.6 points (5.0%) below last year. The expectations subindex rose to 62.7​ versus the preliminary projection of 62.0, though that was down 1.4 points (2.2%) from last year.

Surveys of Consumers Director Joanne Hsu said, “The current conditions index soared 15% above December, with improving assessments of both personal finances and buying conditions for durables, supported by strong incomes and easing price pressures. That said, there are considerable downside risks to sentiment, with two-thirds of consumers expecting an economic downturn during the next year. Notably, the debt ceiling debate looms ahead and could reverse the gains seen over the last several months; past debt ceiling crises in 2011 and 2013 prompted steep declines in consumer confidence. Year-ahead inflation expectations receded for the fourth straight month, falling to 3.9% in January from 4.4% in December. The current reading is the lowest since April 2021 but remains well above the 2.3% to 3.0% range seen in the two years prior to the pandemic. Long-run inflation expectations remained at 2.9%, yet again staying within the narrow 2.9% to 3.1% range for 17 of the last 18 months and remaining elevated relative to the 2.2% to 2.6% range seen in the two years pre-pandemic. Consumers continued to exhibit considerable uncertainty over both long and short-term inflation expectations, indicating the tentative nature of any declines.”

 

Attaché sees slightly bigger Aussie wheat crop than official forecasts... USDA’s attaché in Australia expects the country’s wheat crop to be slightly bigger than currently forecast by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) and USDA. The post notes, “Australia is set for a third consecutive record grain crop, and strong exports. Wheat production is estimated to have reached a record 37 million metric tons (MMT) in marketing year (MY) 2022-23, while barley is estimated to achieve 13.5 MMT of production, the fourth largest on record. The wheat and barley results were strongly supported by near ideal conditions in Western Australia and South Australia, but this was partially offset by excessive rains in much of the grain-growing regions of New South Wales and Victoria in September and October 2022. Wheat exports in MY 2022-23 are forecast to reach a record 28 MMT.”

In December, ABARES estimated Aussie wheat production at 36.6 MMT. USDA has the same forecast.

 

Jefferies willing to talk with McCarthy about spending... Top House Democrat Hakeem Jeffries (D-N.Y.) is open to talks about federal spending with Speaker Kevin McCarthy (R-Calif.), but first wants to see Republicans’ proposal for reductions, and a commitment to take the possibility of defaulting on U.S. debt off the table. “We can have a conversation about future spending,” Jeffries told reporters on Thursday. The House minority leader said before any talks can begin, GOP House members have to coalesce around a concrete demand. “Show us the plan. What is your plan to address your concerns?” Jeffries said. “They want to have a conversation and we don’t even have a document in front of us for which to have a discussion around what future investments in the American people should look like.”

House Republican leaders are considering proposing a short-term extension of the federal debt ceiling to delay the risk of a default until Sept. 30, Bloomberg reported, citing a person familiar with their deliberations. The strategy is merely an option under consideration, and it isn’t clear whether the Democratic-controlled Senate or White House would agree to such a brief delay.

 

Senators say U.S. should seek USMCA action... The Biden administration should pursue enforcement action against Canada and Mexico where necessary, Senate Finance leaders Ron Wyden (D-Ore.) and Mike Crapo (R-Idaho) said in a letter, citing Mexico’s nationalist energy policy and compliance shortcomings by Canada over tariff-rate quotas on dairy products, among other issues. The senators also pushed the U.S. Trade Representative (USTR) for resolution on Mexico’s imposition of export tariffs on white corn, environmental, and digital-trade issues. The pact’s “full potential remains unrealized,” they said. The senators said USTR “must ensure that the United States gets what it bargained for” and asked trade chief Katherine Tai to take “decisive action to ensure full compliance” with every chapter of the pact. The letter comes a day after Deputy U.S. Trade Representative Jayme White met with his Mexican and Canadian counterparts in San Diego and emphasized the importance of making meaningful progress in the ongoing talks over Mexico’s energy policy under the U.S.-Mexico-Canada Agreement (USMCA) that went into effect in 2020, replacing the two-decade-old NAFTA.

The U.S. has repeatedly urged Mexico and Canada to follow through on their commitments under the USMCA, including through the Rapid Response Labor Mechanism to enforce workers’ rights in Mexico and by requesting dispute consultations with Canada over its dairy policies, a USTR spokesperson said in a statement. The agency continues to seek resolution on those issues, including through White’s meeting this week, and will continue to implement the USMCA, the spokesperson said.

 

Bronaugh will exit USDA in the coming weeks... Deputy USDA Secretary Jewel Bronaugh says her resignation will give her more time with her family. She also pointed to her work as co-chair of USDA’s first-ever Equity Commission. USDA Secretary Tom Vilsack said Bronaugh “has accomplished a lot during her tenure at USDA and much of her work will be felt well into the future,” while House Ag Committee Ranking Member David Scott (D-Ga.) praised her work at USDA and recalled that she is the first African American woman to serve in the deputy secretary role. Meanwhile, American Farm Bureau Federation (AFBF) President Zippy Duvall said Bronaugh has “long been someone who understands the needs of farmers and rural communities, and we’ve appreciated her leadership.”

 

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