Evening Report | May 25, 2023

Evening Report
Evening Report
(Pro Farmer)

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Drought footprint remains over Plains, western Corn Belt but creeping further east... As of May 23, the Drought Monitor showed 41% of the U.S. was covered by abnormal dryness/drought, unchanged from the previous week. USDA estimated drought covered 26% of corn production areas (up one point from last week), 20% of soybeans (up one point), 8% of spring wheat (up one point) and 36% of cotton areas (down one point).

The Drought Monitor noted: “Showery weather across the southern half of the Plains provided additional drought relief, following the previous week’s major storm. Still, much of the rain arrived too late to rescue winter wheat, although rangeland, pastures, and summer crops greatly benefited from the soil moisture improvements. Variable rainfall extended westward into the central and southern Rockies and eastward to the southern Atlantic Coast, maintaining generally favorable growing conditions for pastures and summer crops.”

For the Midwest, the commentary stated: “Short-term Midwestern dryness has begun to intensify, especially along an axis from the lower Missouri Valley into the lower Great Lakes region. This led to the introduction or expansion of several areas of abnormal dryness (D0). In addition, moderate to severe drought (D1 to D2) was added or expanded in a few spots across Illinois, Iowa, and Missouri. The dry weather continued to support a rapid pace of agricultural fieldwork, including corn and soybean planting. Within a few weeks, however, those crops will need moisture for proper emergence and growth. On May 21, the U.S. Department of Agriculture rated topsoil moisture more than one-third very short to short in Michigan (40%) and Missouri (38%).”

For the Plains, the Drought Monitor summarized: “Following the previous week’s substantial drought relief, mostly dry weather returned across the High Plains. However, locally heavy showers continued in parts of eastern Colorado and southern and western Kansas, leading to some additional reductions in the coverage of moderate to exceptional drought (D1 to D4). By May 21, Nebraska led the U.S. with rangeland and pastures rated 55% very poor to poor, according to the U.S. Department of Agriculture. On the same date, Nebraska led the High Plains with topsoil moisture rated 58% very short to short, followed by Kansas at 52% and South Dakota at 36%. Much of the recent rainfall has bypassed eastern sections of South Dakota and Nebraska, with some increase in drought coverage noted in the latter state.”

Click here for additional information and related maps.

 

Supreme Court rules against EPA in WOTUS case... The U.S. Supreme Court sided with a couple in a significant environmental case against the Environmental Protection Agency (EPA) over a plan to develop a small lot near Priest Lake in Idaho. This decision has national implications for water quality, agriculture and the Waters of the U.S. (WOTUS) rule. The court was unanimous in finding that the land owned by the Idaho family was not subject to the Clean Water Act (CWA), but split 5-4 on the court’s new test, which held that only wetlands that have a continuous surface connection to a body of water are covered by the law.

This ruling overturns an earlier decision by a federal appeals court that had supported EPA. Justice Samuel Alito said EPA’s interpretation of its powers went too far. “We hold that the CWA extends to only those wetlands with a continuous surface connection to bodies that are ‘waters of the United States’ in their own right, so that they are ‘indistinguishable’ from those waters,” Alito wrote, quoting from past court opinions.

The ruling trims the jurisdiction of EPA to regulate waters under the CWA to interstate and navigable waters and immediately adjacent wetlands.  It is a return to the traditional understanding of what Congress passed in the early 1970s.

 

USDA continues to lower food price outlook... USDA now forecasts food prices will rise 6.2% this year, down from last month’s projection for a 6.5% increase and well below last year’s 9.9% jump. USDA cut its forecasts for both food at home (grocery store) and food away from home (restaurant) prices. It now expects grocery store prices to rise 6.3%, down from 6.6% last month, and restaurant prices to increase 7.7%, down from 8.2% previously.

USDA noted prices declined for eight food-at-home categories between March and April 2023. Still, prices are predicted to increase for other meats (5.6%), poultry (3.1%), dairy products (4.5%), fats and oils (11.2%), processed fruits and vegetables (8.4%), sugar and sweets (9.4%), cereals and bakery products (9.9%), nonalcoholic beverages (8.9%), and other foods (8.8%). Beef and veal prices are predicted to increase 0.7% in 2023. Pork prices are expected to decrease 2.5% this year.

 

Exchange keeps Argentine crop estimates unchanged... The Buenos Aires Grain Exchange maintained its crop estimates at 21 MMT for soybeans and 36 MMT for corn.

The exchange rated the Argentine soybean crop 5% good/excellent (up one point from the previous week), 39% fair (down one point) and 56% poor/very poor (unchanged). It rated the country’s corn crop 5% good/excellent (up one point), 42% fair (down one point) and 53% poor/very poor (unchanged).

 

India expects record wheat crop despite adverse weather... India expects to harvest a record 112.7 MMT of wheat this year, the country’s ag ministry said, despite lower yields due to torrential rains and hailstorms. That would be up 5 MMT (4.6%) from last year’s crop. Despite the expected rise in output, India is likely to keep a ban on wheat exports as it seeks to replenish state reserves and bring down domestic prices.

India raised its rice production estimate for 2022-23 to a record 135.5 MMT from an earlier estimate of 130.8 MMT. India banned overseas shipments of broken rice and imposed a 20% duty on exports of various other grades in September 2022. The government on Wednesday said New Dehi could consider supplying broken rice to other countries only through diplomatic channels.

 

Glencore’s Viterra in merger talks with Bunge... Glencore-backed agriculture trader Viterra is in talks to merge with Bunge Ltd., Bloomberg News reported, citing people familiar with the situation. The companies are reportedly discussing the structure of a potential deal. Glencore has flirted with the idea of a deal with Bunge on and off for years, and there’s no certainty they will be able to reach an agreement on terms of a transaction, the sources said.

 

RFS update... The Office of Management and Budget (OMB) has scheduled an increasing number of meetings concerning the EPA’s final rule on levels for the Renewable Fuel Standard (RFS) for 2023 and beyond, with the total number of meetings now reaching 18. This surpasses the number of meetings arranged for EPA’s proposed rule in late 2022.

Several key meetings have been planned with various stakeholders. These include Western Dubuque Biodiesel on May 26, the Renewable Fuels Association on June 8, and both the World Resources Institute and Growth Energy on June 9.

EPA is required to finalize the levels for the RFS for 2023 and beyond by June 14 via an agreement approved in court following a lawsuit filed by Growth Energy.

 

Solar spending surpassing oil... Investment in the solar energy sector is set to surpass spending on oil production for the first time in 2023, with global investment in solar reaching $380 billion compared to $370 billion for oil. This shift is largely due to robust subsidies and tax credits, such as the Inflation Reduction Act, policy alignment among nations towards climate and energy security, and the improving economics of renewable power sources.

Fatih Birol, executive director of the International Energy Agency, noted this development will significantly transform the energy system and contribute to keeping the global temperature rise below 1.5 degrees Celsius – a key target of the Paris Agreement. He emphasized the rapid pace at which clean energy is advancing, stating that for every dollar invested in fossil fuels about $1.70 is now being invested in clean energy, a significant increase from the 1:1 ratio just five years ago. Overall, global investment in energy is expected to hit around $2.8 trillion this year, with over $1.7 trillion going toward clean energy technology like electric vehicles, renewables and energy storage.

 

EU vegoil association wants investigation into ‘abnormal’ waste-based biodiesel imports... FEDIOL, the European vegetable oil industry association, has requested an investigation into a significant increase in biodiesel imports classified as waste-based, terming the rise as “abnormal.” This surge in imports has caused a 30% drop in rapeseed oil prices over the last five months, with a similar decline in the price of rapeseed, Europe’s main oilseed crop.

FEDIOL expressed doubts about the legitimacy of the waste-based classification of the biodiesel imports, arguing this cannot be explained by other market trends and indicates unusual market activity.

Other sources, according to Reuters, have also observed the dip in rapeseed prices. They have pointed to substantial rapeseed supplies and changes in biofuel policy as additional factors exerting pressure on prices, particularly following record highs last year in the aftermath of Russia’s invasion of Ukraine.

 

USDA releases results of survey on ‘Product of USA’ label... USDA’s Food Safety and Inspection Service (FSIS) released results of a consumer survey concerning the “Product of USA” label, in light of its proposed changes to this labeling for several products. The suggested new rule would only allow the use of this label or “Made in USA” for meat from animals that have been born, raised, slaughtered, and processed entirely within the United States. Link for details.

The survey involved 4,800 adults, revealing that over 80% were perplexed by the “Product of the USA” and “Made in the USA” label claims. Some 63% thought these labels signified all production processes had to happen in the U.S., and 21% confessed they did not know the correct interpretation of these labels. There was also confusion over other aspects of meat labeling, with 18% erroneously believing that “USDA Choice” implies the meat is a product of the United States, and 11% mistakenly thought the USDA mark of inspection meant the same.

Despite the confusion, the survey revealed consumers are willing to pay more for meat labeled “Product of USA,” particularly if the label indicates all stages of production took place within the country.

USDA's proposed rule could have considerable implications, so it is being closely monitored. Trading partners like Canada are also evaluating whether this potential change could negatively impact their products sold in the United States.

 

Canadian pork sector faces uphill battle... The pork sector, especially in Canada, is facing a challenging road to profitability in 2023 due to several adverse conditions. These include declining domestic demand, reduced export opportunities, and potential U.S. animal welfare regulations that could lead to lower prices. In this interview with RealAg Radio host Shaun Haney, Christine McCracken, Rabobank’s senior analyst for animal protein, says pork producers are currently incurring losses of $40 to $50 per head. Although there has been a slight improvement in feed costs, the high cost of production and price pressure could necessitate moves to reduce production.

The industry, after experiencing high demand during the Covid-19 pandemic, is now dealing with decreased consumption and oversupply in a post-pandemic environment. McCracken states that supply is currently outpacing demand and this imbalance will take time to correct.

Export markets do not seem to offer significant relief for the oversupply of pork, with McCracken doubting that consumers will switch their protein preferences significantly. Despite strong exports driven by reduced pork production in regions like China and Europe, global economic issues, such as inflation and economic slowdown, could reduce the demand for pork.

California's Prop 12 animal welfare initiative could also disrupt domestic markets. Given that a significant amount of current pork production is not compliant with these new rules, the industry could be flooded with excess pork that isn’t eligible for export or for shipment into California. This could lead to additional challenges for producers.

 

U.S. Q1 GDP revised higher... U.S. gross domestic product increased at a 1.3% annualized rate in the first quarter, according to the government’s second estimate of quarterly economic growth. That was revised up from the initial 1.1% pace reported last month, but still down sharply from the 2.6% growth in the fourth quarter of 2022.

 

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