Evening Report | February 8, 2023

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USDA raises U.S. ending stocks amid fine tuning... USDA’s February Supply & Demand Report typically doesn’t offer much excitement — and this year was no different. USDA made relatively modest changes to its U.S. and global balance sheets, which will keep market focus on exports, South American weather and the upcoming U.S. growing season. Click here for full report details.

Exchange further cuts Argentine crop forecasts... The Rosario Grain Exchange cut its Argentine soybean and corn crop estimates by 2.5 MMT each due to impacts from the ongoing drought. The exchange now forecasts the country’s soybean crop at 34.5 MMT and corn production at 42.5 MMT.

Bunge CEO: Argentina’s soybean crop ‘probably be in the mid-30s’... Bunge CEO Greg Heckman says Argentina’s soybean crop is “probably going to be in the mid-30s [MMT]” due to the persistent drought. Heckman made the remark during the company’s quarterly earnings call.

Bunge beat fourth-quarter profit estimates as robust soy crushing margins and strong demand for food, feed and biofuel bolstered its core agribusiness unit. Bunge’s fourth-quarter processing results were dented by elevated energy costs in Europe and tight South American soybean supplies, offsetting strength from ample North American crops and strong demand for animal feed and vegetable oil.

The company said it would struggle to repeat its record 2022 profit this year, though CFO John Neppl sees “potential upside” to its 2023 outlook if strong demand and tight commodity supplies continue throughout this year.

Reduced Argentine soymeal exports... An industry source in Argentine told us, “Based on ship lineup data, exporters shipped about 1.2 MMT of soybean meal in January, which would be near the 2013 level. Processors didn’t have beans for crushing as farmer selling in January was slow — only around 300,000 metric tons (MT). After the inflated soy dollar rate in December, farmers refused to sell. Unless that changes, it will be difficult for exporters to meet their commitments.”

USDA lowered its 2022-23 Argentine soymeal export projection by 300,000 MT but shipments currently are expected to decline only 1.5% from year-ago. USDA kept its U.S. meal export forecast unchanged, calling for a 1.3% increase from last year. 

India may extend wheat export ban... India is considering extending a ban on wheat exports as it seeks to ensure adequate domestic supplies, bring down local prices and replenish state reserves, government sources told Reuters. The current ban was scheduled to be reviewed in April and top government officials are likely to make a decision on an extension by the end of March, or early April, the sources said, adding they don’t expect wheat exports to resume until mid-2024.

“The idea is to ensure that the government’s own wheat procurement goes up this year,” said a government source told Reuters. “We do not want a repeat of last year.”

Last year, state purchases of wheat fell by 53% to 18.8 MMT, as open market prices rose above the rate at which the government buys supplies from domestic farmers.

“The priority is to build stocks and bring down prices,” said a second government source said. “The focus is to buy as much as possible from farmers from the current season’s crop and build the wheat stockpile.”

India is expected to harvest a record 112 MMT wheat crop this year.

Beef, pork exports slowed in December... The U.S. exported 266.2 million lbs. of beef in December, down 10.9 million lbs. (3.9%) from November and 20.0 million lbs. (7.0%) below the previous year. That was the lowest monthly tally since February and the smallest December exports in three years. For 2022, beef exports totaled 3.536 billion lbs., up 105.8 million lbs. (3.1%) from the previous year, fueled by a 16.8% increase in shipments to China.

U.S. pork exports totaled 561.3 million lbs. in December, down 16.7 million lbs. (2.9%) from November but 28.8 million lbs. (5.4%) above year-ago and the second highest tally of the year. For 2022, pork exports totaled 6.337 billion lbs., down 9.8% from the previous year due largely to a 46.6% drop in shipments to China.

USDA forecasts beef exports will decline 12.6% this year to 3.090 billion pounds. Pork shipments are expected to inch up 0.2% to 6.350 billion pounds.

Markets more confident than Fed officials on quick drop in inflation... Minneapolis Federal Reserve Bank President Neel Kashkari said financial markets are more confident than U.S. policymakers that inflation will drop quickly down to 2%. “I hope they are right,” Kashkari said at the Boston Economic Club. But the Fed’s job, he said, is to make sure inflation does fall. To do so most of his colleagues believe rates will need to go above 5%, and “certainly” possibly higher – and then stay there for a long time.

Federal Reserve Governor Christopher Waller said inflation seems poised to continue slowing this year but the U.S. central bank's battle to reach its 2% target “might be a long fight” with monetary policy kept tighter for longer than anticipated. “There are signs that food, energy, and shelter prices will moderate this year,” Waller said in remarks prepared for delivery at an Arkansas State University conference. “But I’m not seeing signals of... quick decline in the economic data, and I am prepared for a longer fight,” Waller said. He also warned “labor income will also be robust and buoy consumer spending, which could maintain upward pressure on inflation in the months ahead.” Waller did not say how much higher the Fed may need to raise rates to reach a level adequate to return inflation to the Fed’s 2% target.

A warning about China’s hog industry... “U.S. hog farmers look at the pictures of those farms in China, and they just scratch their heads and say, ‘We would never dare do that,’” said Brett Stuart, founder of the research firm Global AgriTrends. He is worried about disease risks from China’s high-density pig farms, which in some cases pack the animals into tower blocks. Link for details via the New York Times.

Xi woos Taiwan... Chinese President Xi Jinping appears to be pivoting from his hardline approach to the island. China signaled it will roll back a ban on Taiwanese food imports and host one of its senior opposition figures. In Xi’s report to the CCP, he said the development breaks “the myth of modernization equals Westernization,” reinforcing a pledge for self-reliance.

Senators want USDA to accelerate bird flu response, aid to affected farmers... A bipartisan group of eight senators is urging USDA Secretary Tom Vilsack to move faster to deploy fiscal year (FY) 2023 funding set aside to respond to the ongoing H5N1 highly pathogenic avian influenza (HPAI) outbreak, which has infected over 58 million birds nationwide and contributed to a more than 30% jump in egg prices last year. The letter sent last week to Vilsack was led by Sens. Tammy Baldwin (D-Wis.) and Chris Coons (D-Del.). It calls on USDA’s Animal and Plant Health Inspection Service (APHIS) to “swiftly take further action to address the ongoing outbreak of highly pathogenic avian influenza (HPAI),” including deploying $64 million in funding set aside under the FY 2023 omnibus spending bill to help respond to the outbreak. The funding level represented a slight increase from the $63 million set aside during FY 2022 and FY 2021.