Evening Report | March 8, 2023

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USDA makes limited changes to its balance sheets... USDA’s March Supply & Demand Report typically features limited changes to its balance sheets. This year was no exception, though corn ending stocks increased more than expected, which helped pressure futures. USDA’s cut to soybean carryover was a little more than traders anticipated, though it had little market impact. USDA made no changes to its U.S. wheat or cotton balance sheets. USDA aggressively cut its Argentine soybean and corn crop pegs, though they remain above most private crop forecasters. Click here for full report details.

Canada joins U.S. in requesting formal talks with Mexico over GMO ban... Canada has asked for formal consultations with Mexico under the U.S.-Mexico-Canada Agreement (USMCA) over its restrictions on GMO imports, Bloomberg News reported, citing people familiar with the matter. Canada’s request for consultations follows a similar move by the U.S. earlier this week.

Canada is not a major corn exporter and has not shipped any corn to Mexico since August, according to data from the Canadian Grain Commission. But Ottawa is concerned about Mexico putting arbitrary prohibitions on agriculture produced using biotechnology, according to the people familiar with the matter. Canada is also concerned about Mexico’s lack of respect for USMCA, the sources said.

UN chief: Extending Black Sea grain deal of ‘critical importance’... United Nations Secretary-General Antonio Guterres called for the extension of the deal with Russia that has allowed Ukraine to export grain via Black Sea ports. “I want to underscore the critical importance of rolling over the Black Sea Grain Initiative on March 18 and working to create the conditions to enable the greatest possible use of export infrastructure through the Black Sea in line with the objectives of the initiative,” Guterres said.

Ukrainian President Volodymyr Zelenskiy said after talks with Guterres in Kyiv the Black Sea Grain Initiative was “critically necessary” for the world.

Top UN trade official Rebeca Grynspan, who travelled with Guterres to Ukraine, will meet senior Russian officials in Geneva next week to discuss extending the deal, a UN spokesperson said.

U.S. posts ag trade deficit in January... The U.S. exported $17.024 billion of agricultural goods in January against imports of $17.109 billion, resulting in a deficit of $85.2 million. That was down from a surplus of $1.24 billion in December. Through the first four months of fiscal year 2023, ag exports totaled $69.062 billion against imports of $66.048 billion for a surplus of $3.014 billion.

U.S. trade deficit widens in January... The trade deficit increased 1.6% to $68.3 billion, the Commerce Department said, from a revised $67.2 billion for December. Imports increased 3.0% to $325.8 billion, with goods surging 3.7% to $267.9 billion. Imports of motor vehicles, parts and engines were the highest on record. Exports rose 3.4% to $257.5 billion. Goods exports jumped 6.0% to $177.8 billion. Exports of capital goods were the highest on record, as were those of consumer goods, motor vehicles, parts and engines. exports of services fell $1.6 billion to $79.7 billion, pulled down by declines in travel and transport. Adjusting for inflation, the goods trade deficit increased 3.6% to $101.8 billion in January.

China ‘open’ to visit by Raimondo, trade ties ‘very important’ despite tensions... China’s commerce ministry said it was “open” to a visit by U.S. Commerce Secretary Gina Raimondo. Raimondo said last week she was considering visiting China, stressing communication remains a priority to de-escalate tensions with Beijing. Relations between mainland China and the U.S. are in a stalemate over various issues, including security, Taiwan and advanced technology, but trade between the world’s two largest economies remains strong. In 2022, U.S. exports to China increased by $2.4 billion to $153.8 billion and imports from China increased by $31.8 billion to $536.8 billion, according to the U.S. Bureau of Economic Analysis.

China’s commerce ministry also said last month it would welcome a visit by U.S. Treasury Secretary Janet Yellen. She had also expressed interest in visiting China to discuss economic issues with her Chinese counterparts.

Meanwhile, the 2023 trade policy agenda and 2022 annual report released by the Office of the U.S. Trade Representative (USTR) last week described the trade relationship with China as “complex and competitive,” pointing out that the Bipartisan Infrastructure Law, the Chips and Science Act and the Inflation Reduction Act all allow the U.S. to compete with China from “a position of strength.”

Lawmakers press EPA on SREs... A group of 10 Republican Senators urged the Department of Energy (DOE) to shift its scoring of petitions filed for small refinery exemptions (SREs) under the Renewable Fuel Standard (RFS), citing a Government Accountability Office (GAO) report outlining “shortcomings” in the decision process. The lawmakers noted EPA has signaled it would no longer seek DOE guidance on the SREs given that the DOE scoring matrix does not account for the system used by EPA on Renewable Identification Numbers (RINs) — the RIN pass-through theory. That theory, the lawmakers said, was used by EPA to reject 69 SREs as it is based on the view that all refineries face the same costs to acquire RINs and small refiners therefore do not face disproportionate hardship, the criteria under law that SREs can be requested by small refiners.

Refiners in the states the lawmakers represent “have been significantly impacted by both the DOE and EPA’s ad hoc approach to determining disproportionate economic hardship under the RFS,” the legislators wrote.

The lawmakers want answers from DOE on (1) How it will work with EPA on SREs, (2) Will the agency update a study done in 2011 that GAO questioned, and (3) Whether those applying for SREs will be provided with information on the procedures in place for the requests.

The outlook as usual with most things regarding the RFS is murky. About the only thing not uncertain is the likely legal challenges to force changes in EPA/DOE procedures on SREs.

Gasoline sales may have peaked; EV sales have helped... A Barron’s story says peak gasoline sales may have already passed thanks to growing sales of electric and hybrid cars, rising fuel economy standards for new vehicles, and the continuing trend of working from home cutting commuting. Their reasoning:

• In 2022, Americans used 8.8 million barrels of gasoline a day, down from 9.3 million in 2019, according to the Energy Information Administration (EIA). In 2023, demand has continued to fall, dropping 1% from last year’s levels over the past four-week period.

• About 6% of passenger vehicles sold in the U.S. last year were electric and about 1% of vehicles on the road are now electric. Fuel economy standards are set to rise to 49 miles a gallon by 2026. That means fewer stops for gasoline.
• Global gasoline demand is still growing. Refineries shipped a record 887,000 barrels of gasoline a day outside the U.S. in 2022, according to EIA. But electric vehicle sales abroad are also growing, with about 14% of market share for light-duty vehicles worldwide in 2022, according to Raymond James.
• Cities and states are rolling back requirements that new developments include parking, the New York Times reported. Last year, California banned minimum parking requirements for new housing developments near mass transit. New York lawmakers are considering a bill preventing exclusionary zoning such as parking minimums.
• What’s next, according to Barron’s: Furthering the electric-vehicles revolution, General Motors will equip its electric Cadillac Celestiq with its highest-level driver-assistance technology called Ultra Cruise, which takes aim at Tesla’s driver-assistance strategy. The Celestiq is expected out by 2024.

Mass poultry vaccinations for HPAI under consideration... The Biden administration is considering mass vaccination of U.S. poultry in response to lingering outbreak of highly pathogenic avian influenza (HPAI) that has killed millions of birds and has helped spike egg and poultry costs. There are some existing vaccines for farm birds, but USDA spokesman Mike Stepien told the New York Times recently that no vaccination effort has been authorized and the department is unsure if the existing vaccines will be effective against the current strain of H5N1 bird flu. Erica Spackman, a researcher for the USDA’s Agricultural Research Service, told the newspaper scientists are researching new vaccine candidates to help curb the ongoing HPAI outbreak.

Carbon capture has bipartisan backing, shaky track record... The U.S. set aside $62 billion over five years for carbon capture and storage projects as part of a 2021 infrastructure package, despite a previous investment of $1.1 billion in 2009 producing limited results. Trapping carbon emissions from industrial processes, such as cement and steel production, for reuse may play a critical role in meeting climate targets, however, and the technology continues to have bipartisan support in Washington while implementation at scale remains elusive.