Despite Errant Media Hype, House Overwhelming Clears Debt-limit Measure

OPEC | Collin Peterson alters farm bill stance | Calif. to host 3 webinars on implementation of Prop 12

Some Federal Reserve officials are signaling they plan to keep interest rates steady in June while retaining the option to hike further in coming months. Skipping an increase would give policymakers time to assess data but not preclude future tightening, Governor Philip Jefferson said Wednesday. The message was echoed by Philadelphia Fed President Patrick Harker, who also urged a June pause. After Jefferson’s remarks, traders scaled back the odds of a rate hike at the June 13-14 Federal Open Market Committee meeting to about 35%, from nearly 60% a day earlier.

Eurozone inflation falls more than expected to 6.1%, the lowest level since Russia invaded Ukraine more than a year ago, bolstering hopes that monetary policymakers could stop raising interest rates this summer.

Defense Secretary Lloyd Austin warned that incidents with the Chinese military could “spiral out of control” after a fighter jet carried out an “aggressive” maneuver near a U.S. military plane. More in China section.

Exxon Mobil and Chevron shareholders struck down a raft of proposals urging the companies to cut greenhouse-gas emissions derived from fuel consumption, put out new reports on climate benchmarks and disclose certain oil-spill risks, among other initiatives.

Drones struck two oil refineries in southern Russia on Wednesday as Western officials said Moscow was moving to shore up defenses in border areas and along the 900-mile front with Ukraine ahead of a planned counteroffensive by Kyiv. More in Russia & Ukraine section.

The Ukrainian Ministry of Renovation and Infrastructure announced on Thursday that the Black Sea Grain Initiative has again been obstructed by Russia, which has blocked the registration of ships to all Ukrainian ports. This follows similar allegations made against Russia a month ago. More details in Russia & Ukraine section.

AgriTalk visited with former House Ag Chairman Collin Peterson (D-Minn.) on several topics. He has altered his view on whether a new farm bill can be completed this year. That and other Peterson insights in Policy section.

California this month will host three seminars regarding implementation of Proposition 12. See Livestock section for details. 

USDA lowered its forecast for U.S. agricultural exports in fiscal year (FY) 2023 to $181 billion, a decrease from the previous estimate of $184.5 billion and nearly 8% lower than the FY 2022 record of $196.4 billion. This reduction is due to anticipated declines in corn and wheat exports as well as beef shipments. More in Markets section.

Over 60 House Republicans have written a letter insisting that U.S. Trade Representative Katherine Tai initiate a formal dispute against Mexico over its decision to prohibit certain types of genetically modified corn. More in Trade Policy section.

The cost of grain storage, also known as the cost of carry, has risen significantly due to increased interest rates, high crop prices, and rising labor, insurance, transportation, and energy costs. This surge is impacting grain elevators, potentially forcing them to lower their bids on grain to cope with the unfavorable economics of commodity holding. More in Markets section.

NASA held its first public meeting on its study of UFOs. A team has investigated more than 800 sightings of mysterious objects in the skies, it said yesterday. Of those, between 2 and 5% can’t be explained. The panel said it needed better information to understand these objects. But there’s no evidence — so far — that the UFOs are linked to alien life.

Equities today: Asian and European stock markets were mostly higher overnight after the House debt-limit vote and Fed officials hinting at a pause in hikes. Treasuries dropped, largely reversing a rally in the previous session. U.S. Dow opened around 60 points lower. In Asia, Japan +0.8%. Hong Kong -0.1%. China flat. India -0.3%. In Europe, at midday, London +0.5%. Paris +0.8%. Frankfurt +1.1%.

     U.S. equities yesterday: The Dow closed down 134.51 points, 0.41%, at 32.908.27. The Nasdaq fell 82.14 points, 0.83%, at 12,935.29. The S&P 500 lost 25.69 points, 0.61%, at 4,179.83.

     The Dow lost ground during May, falling by around 3.5% while the Nasdaq gained 5.8% and the S&P 500 edged up 0.3%.

     Bank deposits saw a record decline of 2.5% in the first quarter of 2023. The Federal Deposit Insurance Corp. said in a report that deposit outflows at U.S. banks totaled $472 billion in the quarter, the largest drop recorded since the agency began collecting such data in 1984.

Agriculture markets yesterday:

• Corn: July corn closed unchanged at $5.94, finishing near the session high after trading as low as $5.77 1/2.
• Soy complex: July soybeans rose 3 1/4 cents to $12.99 3/4 and near the session high. Prices hit a 16-month low early on. July soybean meal rose 80 cents to $393.40 and nearer the session high. Prices hit a nine-month low early on. July bean oil closed steady at 46.20 cents. Prices closed near the session high and hit a more-than-two-year low early on.
• Wheat: July SRW futures rose 3 1/4 cents to $5.94 1/4 after making a new for-the-move low early in the session. July HRW futures rallied over a quarter off intraday lows to close 6 3/4 cents higher at $7.90 1/2. July spring wheat futures fell 13 cents to $7.80.
• Cotton: July cotton fell 40 points to 83.59 cents, a mid-range close after trading as low as 82.56 cents.
• Cattle: August live cattle rose 50 cents to $167.675. August feeder cattle gained $1.40 at $239.175. Both markets closed nearer their session highs, hit contract highs and closed at technically bullish monthly high closes on this last trading day of the month.
• Hogs: The summer hog contracts led the complex higher again Wednesday, with the nearby June contract climbing $1.75 to $82.575.
   

Ag markets today: Soybean futures led overnight price gains, though corn and wheat actively participated in the push to the upside. As of 7:30 a.m. ET, corn futures were trading 6 to 8 cents higher, soybeans were 17 to 20 cents higher, winter wheat futures were mostly 8 to 12 cents higher and spring wheat was 3 to 8 cents higher. Front-month crude oil futures were modestly lower, while the U.S. dollar index was down around 250 points.

Market quotes of note:

• “Skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming.” — Fed governor Philip Jefferson
   
• Climate proposals stumble badly at oil giant meetings. Investors in Chevron and Exxon Mobil yesterday overwhelmingly rejected an array of shareholder proposals meant to force the oil producers to cut greenhouse-gas emissions and disclose more climate-related data. Big investors have been playing down support for ESG, the investment movement that focuses on environmental, social and corporate governance issues, amid pressure from conservative lawmakers across the United States. Activists fumed about the results, which capped a sharp reversal in their movement’s fortunes since the hedge fund Engine No. 1 won three seats on Exxon’s board in 2021. “It’s incomprehensible that most investors still accept the U.S. supermajors’ refusal to cut emissions this decade,” Mark van Baal, the founder of the environmental advocacy group Follow This, said after the meetings.
   
• “The quicker we can get away from the Chinese components the safer we’ll all be.” — Richard Walsh, CEO of ventilator company CorVent Medical
   
• Ross Perot Jr., whose family is one of the largest independent property developers in the U.S., warned of a looming real-estate recession if banks don’t start lending again. “If the industry can’t get a construction loan, real estate will have a recession,” Perot said.
   

On tap today:

     • ADP's employment report is expected to show that the U.S. private sector added 180,000 jobs in May. (8:15 a.m. ET) UPDATE: Private businesses in the U.S. created 278,000 jobs in May of 2023, compared to a downwardly revised 291,000 in April and well above forecasts of 170,000. The services sector added 168,000, led by leisure and hospitality (208,000) and trade/transportation/utilities (32,000) while job losses were seen in financial activities (-35,000); education/health (-29,000); information (-15,000); and professional/business (-5,000). Meanwhile, the goods-producing industry added 110,000 jobs due to mining (94,000) and construction (64,000) while manufacturing lost 48,000 jobs. On the wage front, pay increases slowed for both job changers (12.1% vs 13.1%) and job stayers (6.5% vs 6.7%). "Pay growth is slowing substantially, and wage-driven inflation may be less of a concern for the economy despite robust hiring", said Nela Richardson, chief economist, ADP.
     • U.S. jobless claims are expected to rise to 235,000 in the week ended May 27 from 229,000 one week earlier. (8:30 a.m. ET) UPDATE: The number of Americans filing for unemployment benefits rose by 2,000 from the previous week to 232,000 in the week ending May 27, the most in one month, but below market forecasts of 235,000. The figure also remained well below the elevated levels of March, in line with other recent data pointing to a stubbornly tight labor market in the U.S. economy.
     • U.S. labor productivity in the first quarter is expected to fall at a revised 2.5% annual pace from the prior quarter. (8:30 a.m. ET) UPDATE: Nonfarm business sector labor productivity declined by 2.1% in the first quarter of 2023, which was lower than the preliminary estimate of a 2.7% fall and better than market expectations of a 2.5% drop. Output grew 0.5 %, surpassing the preliminary estimate of 0.2%, while hours worked were up 2.6%, slightly lower than the preliminary estimate of 3.0%. On a yearly basis, productivity decreased 0.8% in the first three months of 2023, reflecting a 1.4% increase in output and a 2.2% rise in hours worked. Analysts note that productivity has been experiencing a contraction for five consecutive quarters on a year-on-year basis, which marks the longest period of contraction since the series began in the first quarter of 1948.
     • S&P Global's U.S. manufacturing index for May is expected to hold at 48.5, unchanged from a preliminary reading. (9:45 a.m. ET)
     • Institute for Supply Management manufacturing index is expected to tick down to 47.0 in May from 47.1 one month earlier. (10 a.m. ET)
     • U.S. construction spending for April is expected to rise 0.1% from the prior month. (10 a.m. ET)
     • Federal Reserve Bank of Philadelphia President Patrick Harker speaks on monetary policy at 1 p.m. ET.

The consumer price inflation rate in the Eurozone fell to 6.1% in May 2023, down from 7.0% in the previous month and below market expectations of 6.3%, a preliminary estimate showed. The rate hit its lowest level since February 2022, though it remained significantly higher than the European Central Bank's target of 2.0%. The decrease in inflation was primarily driven by a 1.7% decline in energy prices, following a 2.4% increase in April. Additionally, there was a slowdown in cost pressures for food, alcohol, and tobacco (12.5% vs 13.5%), non-energy industrial goods (5.8% vs 6.2%), and services (5.0% vs 5.2%). The core inflation rate, which excludes energy, food, alcohol, and tobacco, also eased more than anticipated, reaching 5.3%.

Fed Governor Philip Jefferson signaled the FOMC is inclined to pause this month, but this “should not be interpreted to mean that we have reached the peak rate.” He wants to see more data before deciding how much more hiking is needed. Patrick Harker also endorsed foregoing an increase at the next meeting, June 13-14.

     After Jefferson’s remarks, traders scaled back the odds of a rate hike at the June FOMC meeting to about 35%, from nearly 60% a day earlier.

The latest Beige Book report from the Federal Reserve, issued ahead of the Federal Open Market Committee (FOMC) meeting set for June 13-14, continues to reflect concerns about a potential recession in the U.S. economy, and inflation remains a major point of focus. The report, prepared by the Chicago Fed and based on information collected up to May 23, contains several references to the slowing pace of inflation, but also mentions that inflationary pressures are still too high.

     Consumer activity has generally been robust in recent weeks, but the report notes a rise in loan and credit card defaults and delinquencies, although these levels are approaching, but not yet exceeding, pre-pandemic levels. As expected with the Fed's recent interest rate hikes, demand for credit is falling.

     Despite these challenges, the U.S. economy continues to mostly advance, though at a slowing pace. Two of the 12 Fed districts reported slight to moderate declines and six reported no change. The report underscores that inflationary pressures continue to be a primary concern for Fed officials.

Fed focus. Federal Reserve Chair Jerome Powell and several of his colleagues have been keeping a close eye on a narrow measure of inflation that focuses on service industries excluding housing. Why? And should they bother? "Policymakers are paying particular attention to nonhousing services inflation, which is considered most closely linked to wages. Analysis shows that higher labor costs are passed along to customers in the form of higher nonhousing services prices, however the effect on overall inflation is very small. Labor-cost growth has no meaningful effect on goods or housing services inflation. Overall, labor-cost growth is responsible for only about 0.1 percentage point of recent core PCE inflation," the San Francisco Fed's Adam Hale Shapiro writes in a new paper (link).

USDA lowered its forecast for U.S. agricultural exports in fiscal year (FY) 2023 to $181 billion, a decrease from the previous estimate of $184.5 billion and nearly 8% lower than the FY 2022 record of $196.4 billion. This reduction is due to anticipated declines in corn and wheat exports as well as beef shipments. Link to report.

     USDA also cut its prediction for agricultural imports to $198 billion, down $1 billion from their previous outlook. Despite this decrease, the new forecast is still $4 billion higher than the FY 2022 mark of $194 billion and, if realized, would represent a new record for imports.

     Impact: The predicted trade deficit for the sector has grown to $17 billion, compared to the $14.5 billion deficit projected in February. The lower export values are attributed to both expected lower prices and reduced volumes of U.S. agricultural exports. Compared to the initial forecast in February, the USDA now expects U.S. wheat exports to decrease by 1.8 million metric tons (MMT), rice exports to decrease by 100,000 metric tons, and corn exports to decrease by 5 MMT. The slow pace of U.S. exports continues to be a major concern and is seen as a factor impacting the overall export outlook for the agricultural sector in FY 2023.

     USDA predicts that China will buy $34 billion worth of U.S. farm exports in 2023, a drop from $36.4 billion in 2022, due to record soybean exports offsetting lower corn, wheat, and beef sales.

     Mexico is expected to be the second-largest buyer at $28.5 billion, surpassing Canada for the first time, which stands third at $27.8 billion.

     U.S. corn exports are estimated to decrease by $5 billion from last year to $14.5 billion, while cotton and beef sales are expected to fall by $2.3 billion and $1.5 billion to $6 billion and $9.3 billion, respectively. Soybean remains the largest export commodity despite a predicted decline of $1 billion to $32.3 billion. The report attributes the fall in corn prices to Brazil's forecasted record production for its upcoming safrinha crop, which has made Brazilian corn more price-competitive.

     On the import side, Mexico is expected to top the list, with its sales rising $3.4 billion from 2022 to reach $46.2 billion this year. Following Mexico, Canada is the second-largest supplier, and the 27-nation European Union is the third. However, a stronger euro and high costs in Europe are expected to limit the import of high-value manufactured goods such as wine, distilled spirits, and essential oils, according to the USDA.

     Bottom line: China, Mexico, and Canada are expected to account for half of the US farm exports in 2023.

Market perspectives:

     • Outside markets: The U.S. dollar index was slightly, with the euro also weaker against the greenback. The yield on the 10-year U.S. Treasury note was firmer, around 3.65%, while there was a mixed tone in global government bond yields. Crude oil moved to being nearly unchanged ahead of U.S. gov’t inventory data due this morning, delayed a day by the Monday U.S. holiday. U.S. crude was around $68.30 per barrel while Brent was around $72.65 per barrel. Gold and silver futures were weaker, with gold around $1,981 per troy ounce and silver around $23.53 per troy ounce.         

     • European coal exports surged after a buying spree turned into a glut as concern over energy shortages eased. Some 1.12 million tons have been shipped out of the region from Spain, the Netherlands and other ports this year. Smaller shipments have been sent on routes that would have been improbable in recent years. Link for details via Bloomberg.

     • Overseas sales of U.S. oil and refined products have surged. Exports of crude have jumped twelve-fold since December 2015, when Washington nixed crude-export restrictions.

     • The London Metal Exchange has lost its benchmark status in a key part of the nickel market since last year’s short squeeze, according to Eramet SA. CEO Christel Bories said an index produced by Shanghai Metals Market is now the standard for pricing ferronickel. Link for details.

     • The cost of grain storage, also known as the cost of carry, has risen significantly due to increased interest rates, high crop prices, and rising labor, insurance, transportation, and energy costs. This surge is impacting grain elevators, potentially forcing them to lower their bids on grain to cope with the unfavorable economics of commodity holding.

     A recent report (link) from CoBank’s Knowledge Exchange indicates that the interest-related cost of carry for the 2023-2024 crop year is expected to rise 21% for corn, 42% for soybeans, and 50% for all-wheat, year-over-year - all predicted to be record highs. These projections are based on an anticipated average annual interest rate of 7.75% for grain merchants in the 2023-2024 crop year, alongside USDA’s average price forecasts.

     Grain elevators bear substantial costs for holding corn, wheat, and soybean inventories. Interest expenses can make up between a quarter to a third or more of a grain elevator's total storage cost. The recent increase in interest rates adds more pressure, particularly as they have to borrow higher-priced funds for commodities that maintain historically high prices.

     The persistent inverse in futures markets complicates matters for grain elevators. When futures prices are lower than spot prices, farmers are incentivized to sell commodities instead of storing them for future sale. This is a significant issue for cooperative grain elevators and farmers, both contending with rising costs.

     Cooperative elevators, obliged to buy and market their members' grain despite the economic disincentive, will face more strain on their operations. To cope, they may need to scrutinize operating costs closely and impose stricter cost discipline. Reducing their bids and broadening the basis to cover storage costs might be necessary, requiring clear communication with affected farmer members.

     However, there is some positive news, the analysis notes: the Federal Reserve is expected to maintain the current interest rates for the foreseeable future, and the USDA forecasts lower prices for corn, soybean, and all-wheat for the 2023-2024 crop year, which might alleviate some pressure on carrying costs.

     • Ag trade: South Korea purchased 64,000 MT of optional origin feed wheat. Saudi Arabia tendered to buy 480,000 MT of hard milling wheat.

     • NWS weather outlook: Scattered showers and thunderstorms with the potential for isolated flash flooding and severe weather continue from the Plains to Intermountain West... ...Area of low pressure in the Gulf to bring increasing chance of thunderstorms to Florida the next few days... ...Much above average, record tying/breaking warmth from the Northeast to the Great Lakes to end the week.

Items in Pro Farmer's First Thing Today include:

     • Grain price strength overnight
     • Soy crush, corn ethanol use expected to decline from March but rise from year-ago
     • USDA’s weekly export sales report pushed back to Friday
     • Cattle traders remain relatively conservative
     • Hog futures forging technical bottom

— The conflict in Ukraine has escalated further with an increase in shelling and drone strikes within Russia's borders, including Moscow. Ukraine has, however, denied any involvement in the drone attacks on the Russian capital. Despite this, Ukrainian presidential adviser Mykhailo Podolyak suggested that Russia was experiencing its own tactics after months of bombarding Ukrainian cities. While he claimed pleasure in anticipating more attacks, he denied Ukraine's direct involvement.

     John Kirby, a member of the U.S. National Security Council, revealed uncertainty about who coordinated the recent drone intrusions during an interview with CNN. He further stated that the Biden administration has clearly communicated to Ukraine, both privately and publicly, that it does not support attacks on Russian soil. This recent escalation demonstrates a potential shift in the conflict dynamics, increasing tension in the ongoing war. 

— Ukraine’s grain, oilseed production and exports to fall sharply. Ukraine’s combined grain and oilseed crop production is expected to fall 5.8 MMT (7.9%) to 68 MMT this year, Ukrainian grain traders union UGA forecasts. The grain harvest could include 17.9 MMT of wheat and 23.3 MMT of corn, which would be down from 20.2 MMT and 27.3 MMT, respectively, in 2022. Oilseed production is expected to rise. UGA said combined exports of grains and oilseeds could total 43.9 MMT in 2023-24, which would be down 12.5 MMT (22.2%) from this year. Exports could include 15 MMT of wheat and 19 MMT of corn.

— The Ukrainian Ministry of Renovation and Infrastructure announced on Thursday that the Black Sea Grain Initiative has again been obstructed by Russia, which has blocked the registration of ships to all Ukrainian ports. This follows similar allegations made against Russia a month ago.

     Ukrainian President Volodymyr Zelenskyy appealed to the European Union (EU) to remove all export restrictions on Ukrainian agricultural products. The request was made during a meeting with European Commission President Ursula von der Leyen in Moldova. During the meeting, Zelenskyy also discussed security guarantees for Ukraine, which is currently not a NATO member.

     Russia comments. Alexander Bortnikov, director of Russia’s Federal Security Service (FSB), claimed that the grain transport corridors in the Black Sea are being used to launch attacks on the Russian coast, according to a report by TASS news agency, cited by Reuters.

     The United Nations has suggested that Ukraine, Russia, and Turkey commence work on the transit of Russian ammonia via a pipeline through Ukraine, Reuters reported. This proposal is alongside ongoing discussions aimed at expanding the Black Sea Grain Initiative. These reports of negotiations follow disruptions and highlight ongoing efforts to find common ground and sustainable solutions in the region. The U.N. spokesperson, Stephane Dujarric, confirmed that these discussions were ongoing in a recent briefing. He noted that these talks were part of the U.N. Secretary-General's initiative to enhance the effectiveness of the Joint Coordination Centre and tackle the issue of ammonia export, as per the signed agreement. However, Dujarric refrained from providing further details at the moment.
 

— The House easily passed a bipartisan debt-limit bill, 314-117, with 149 Republicans (67% of House Republicans) and 163 Democrats voting for the measure. The final tally was considerably above the level reflected in many major media ahead of the vote — another indication how some in the media focus on those opposing things rather than in this case the vast majority who support things.

     Voting against the bill: Members of the House Freedom Caucus and 71 Republicans in total, and 46 Democrats. A trio of chairs voted against the bill. Rep. Mike Bost (R-Ill.), the chair of the House Veterans’ Affairs Committee, and Rep. Mike Guest (R-Miss.), the chair of the Ethics Committee, voted no. As did Rep. Gary Palmer (R-Ala.), the chair of the Republican Policy Committee.

     The vote was a victory for House Speaker Kevin McCarthy (R-Calif.), who brokered a deal with President Joe Biden to extend the debt limit until Jan. 1, 2025, while also cutting government spending and implementing two years of spending caps. The package also implements new work requirements for some social programs, rescinds some new IRS funding, claws back nearly $30 billion in Covid-19 relief funds and expedites approval for the controversial Mountain Valley Pipeline.

     Domestic discretionary spending authority in the deal will be $112 billion below the Congressional Budget Office baseline for fiscal 2024 and $136 billion below the baseline for fiscal 2025. Republicans also get better leverage to avoid being jammed with another giant omnibus spending bill this year.

     The Fiscal Responsibility Act now goes to the Senate. Senate Majority Leader Chuck Schumer (D-N.Y.) will file cloture on the motion to proceed. That would set up a critical procedural vote on Saturday, although the proceedings can move much faster if all 100 senators agree, which they will not. Senators opposed to the legislation plan to offer several amendments — all amendments are expected to be considered at a 60-vote threshold for passage. But Schumer and Senate Minority Leader Mitch McConnell (R-Ky.) haven’t worked out a deal yet on how many amendments they will bring up for a vote or which ones will be in the mix.

     Outlook: The Senate will eventually clear the measure and send it to the White House for signature. The timeline as noted depends on a few usual senators who use such events to stall the process.

— AgriTalk interviews former House Ag Chairman Collin Peterson (D-Minn.), now a private ag industry consultant. Highlights of the conversation (slightly edited):

AgriTalk: The last time that we talked, you were confident that 2023 would feature an extension of the farm bill. Has anything happened to change that outlook especially regarding the debt-limit legislation?

     Peterson: “Yes. I think the most significant thing that's happened and maybe what happened is it looks like the work requirements for SNAP are going to be dealt with and the leaders of the Ag committees look like they're taking that off of the table. So that's probably the most significant thing that could have happened, because that's what killed the last few farm bill. So it's huge. There are Democrats complaining about it. There's Republicans complaining about it, but I think a very good development.

     “I think this issue has been overblown, you know, and there's a group out there that gets it stirred up. We've had work requirements since 1996. So this is not anything new. One of the problems is we haven't done a very good job of administering the program. So if you don't have a job, you've got be trying to get a job.

     “So taking this off the table is a huge plus for getting this farm bill done. And I'm now somewhat optimistic that this is going to happen because all of the leaders of the Committee are committed to getting this bill done. They are working together.

     “I think the only stumbling block now is that all these folks coming to the table that want additional money for new programs or existing programs. And you've got people out there pushing hard to bring extra money into the farm bill process. But given what's happened to this debt ceiling on the other side of this, I think it points out how difficult it's going to be to get any additional money beyond the baseline into the process because the Republicans are not going to stand for any revenue increases. And Democrats will not stand for any spending cuts.

     “Also, trying to take money from one part of the farm bill and put it in another I think is a big problem. So additional funding is going to be potentially a bugaboo.”

AgriTalk: Talk about the recent update of CBO scoring of the farm bill:

     Peterson: “It didn't help anything. The way they scored this… I've had problems with them in the past, you know, under scoring, I don't know how they come up with some of this stuff. But it was not helpful to the whole situation. Now, like I say, there's so many groups now that are coming to the table. We have not been there before, asking for money asking for it to become part of the mandatory spending. I don't know how that's gonna happen. So whether people are going to be willing to stand for a status quo bill and to make some changes within each title. That's going to be the question. You have some of the Southern crops that have a whole different situation than the people in the Midwest who have had relatively higher prices and they have been able to deal with input costs better. But in the south, who have not seen any increase in their price for their products, and they've probably had higher increases in in input costs than anybody else. So you've got a difference of opinion. Think about how any money should be spent and that's going to be difficult to untangle.”

AgriTalk: Will there be an attempt or is there any room to raise the reference prices on the safety net?

     Peterson: “That's kind of what I was getting to. I think that rice needs an increase in reference points. Not so much for corn and soybeans. I think my own view is that any new money there probably is better spent in crop insurance. Just a 10% increase in reference prices costs $20 billion. In the case of corn and soybeans, there's not going to be any money in my opinion. So you're putting a whole big price tag on something that's not going to benefit producers. So that's going to be the big issue.”

AgriTalk: Could they pull in the money that was spent by USDA on the climate smart farming projects? Put that in the conservation title and count it as part of the baseline?

     Peterson: “First of all, it can't be done. Second, the Commodity Credit Corporation (CCC) funding situation started back under President Trump when he used the CCC for the market facilitation payments. That's kind of what started all this other stuff. And so now, when you can't figure out how to get something through Congress, the administration is just using the CCC to get around that. Some Republicans don’t like that. But I remind them that some of the same guys that are complaining now wanted to double the CCC funding from the $30 billion maximum level that's been there forever to $60 billion because Trump was maybe going to bump up against the cash. Now when Biden is using it, they want to get rid of it. In both cases it is really not what it was intended for. But, you know, I don't think anybody at this point is going to be able to change it. Who's going to take the administration on?”

AgriTalk: Bottom line it for us? What are the odds of getting a farm bill done this year now?

     Peterson: “Well, I think they've improved significantly, but I don't think it's a slam dunk at this point. You know, some folks in the Midwest, not all people, but some of the people in the Midwest, look at this and say, ‘Well, you know the current farm bill isn't perfect, but you know, we could live with an extension.’ But in the south, that's a different situation. There is a lot of momentum to try to get this done. And I think the members want to get this done. One of the things that bothers me is I think a lot of them are counting on new money. I find it hard to believe that they're going to come up with a way to put more money into a new farm bill.”

AgriTalk: Should the pork industry be looking to legislation to override California's Prop 12?

     Peterson: “Yes. I think that's something that they should look at. Whether it's going to be sustained in the court system is a question because we've kind of been through this before on eggs. But we should not allow one state to try to use its economic power to make the rest of the country follow whatever they want. I think that's a bad precedent, and should be changed.”

— SNAP “cuts” in debt-limit measure pop reaction from both political parties. The debt ceiling agreement between President Joe Biden and House Speaker Kevin McCarthy (R-Calif.) proposes stricter work rules for able-bodied adults in their early 50s receiving benefits under the Supplemental Nutrition Assistance Program (SNAP).

     Background. Currently, able-bodied adults without dependents aged 18 to 49 can only receive SNAP benefits for three months in three years unless they record 20 or more work hours per week. The new bill would lower the age limit to 54 and limit states' abilities to grant exemptions.

     While these changes have been championed by Republicans as a cost-saving measure, the Congressional Budget Office (CBO) estimates that they would increase spending by $2.1 billion over the next decade due to exemptions for homeless people, veterans, and young adults who recently aged out of foster care.

     The estimates have caused unrest in both parties. Some Republicans believe the CBO has inaccurately estimated the effects, while some Democrats argue that although the changes might offset each other in budget terms, vulnerable individuals could still lose their food aid.

     “CBO could be wrong, but around here, CBO is God,” Sen. Chuck Grassley (R-Iowa), an Agriculture committee member, said Wednesday. “And it takes 60 votes to overrule God. So I guess that you have to believe them even if they’re wrong.” Grassley said even if the estimates are correct, there is a “social good and economic good” to getting SNAP recipients into the workforce. The position indicates that many agriculture-focused Republican lawmakers will not be swayed solely by the CBO estimate in supporting the debt bill’s changes to SNAP.

     Rep. Jim McGovern (D-Mass.), a progressive and anti-hunger advocate, said the CBO numbers highlight how complicated it is to sort out the various groups relying on SNAP. While he appreciates the Biden administration’s exemption of individuals such as veterans, he said excluding one group of recipients while covering another doesn’t offset a negative effect to those who lose their food benefits — even if the CBO estimates don’t show a decline in spending. “Hundreds of thousands of people will lose their benefit,” McGovern said. “Republicans are insisting on these work requirement provisions without even knowing who would be adversely impacted.”

     Despite the criticisms, the CBO maintains its nonpartisan stance and acknowledges that actual effects on the deficit could vary from their estimates due to future legislative, judicial, or executive actions.

     The impact of the bill will depend on how states implement changes to SNAP rules, which is still uncertain. Senate Ag Chair Debbie Stabenow (D-Mich.) has stated that these provisions are "settled" and won't be revisited in the upcoming new farm bill.

— Report: SNAP time limit would hit California hardest. The Center on Budget and Policy Priorities has stated that one in six older Americans who would be affected by the expansion of SNAP (Supplemental Nutrition Assistance Program) work requirements lives in California. Link to report. The debt ceiling bill cleared by the House would limit the food stamp benefits of able-bodied adults without dependents (ABAWDs) in a three-year period unless they work at least 80 hours a month. Under current rules, individuals ages 18 through 49 can’t receive SNAP benefits for more than three months in three years if they don’t meet additional work requirements. The measure would increase the age limit to adults ages 50 to 52 in fiscal 2024 and then up to age 54 beginning in fiscal 2025.

     Analysts from the Center estimate that 750,000 people would risk losing benefits if the proposal becomes law as is now likely. The new rules would expand on the 90-day limit established by the 1996 welfare reform law, which currently applies to ABAWDs aged 18 to 50. They also note that nearly half (48%) of those who would be newly at risk are women, and many of those affected could face serious barriers to employment.

     According to the Center, 118,000 Californians would be most at risk, followed by 47,000 people in Illinois, 45,000 in New York, and 44,000 each in Florida and Texas.

     However, the bill would also remove the 90-day limit for military veterans, homeless people, and young adults exiting the foster care system. Despite this, the Congressional Budget Office (CBO) has estimated that SNAP enrollment would grow by 78,000 because more people would benefit from the new exemptions than would lose access to food stamps.

— The Dairy Margin Coverage (DMC) program has activated additional payments due to the national average margin for April falling to $5.84 per hundredweight (cwt). These payments are set in motion when the national average margin drops below the margin trigger levels selected by the producer.

     For Tier 1 coverage, which includes coverage between $6 per cwt. and $9.50 per cwt., payments will vary from 16 cents per cwt for those with $6 coverage levels to $3.66 per cwt for those with $9.50 coverage levels.

     For Tier 2 coverage, which spans from $6 per cwt to $8 per cwt, payments will fluctuate from 16 cents per cwt for $6 coverage and $2.16 per cwt for $8 coverage.

     The processing of these payments started on June 1.

— Harvey Pitt, who became the SEC’s youngest general counsel and later returned as chair died on Tuesday at the age of 78. Pitt was appointed by President George W. Bush in 2001, ran the agency in the turbulent period after the Sept. 11 attacks and implemented new regulations passed in the wake of the Enron accounting scandal.  

— New York Fed names Bloomberg alum as chief risk officer. The Federal Reserve Bank of New York has appointed Mihaela Nistor as its chief risk officer and head of its risk group. Nistor most recently served as global head of enterprise risk management for financial news and information provider Bloomberg. Nistor previously was chief risk officer for HSBC Americas Private Banking.

— The Caixin China General Manufacturing PMI unexpectedly rose to 50.9 in May 2023 from 49.5 in April. Output rose the most in 11 months, new order growth was at 2 year-high, and foreign sales continued to increase. Meantime, buying activity expanded the least in 4 months; while employment fell at the steepest pace since February 2020, with backlogs down for the first time in 5 months. Delivery times got even shorter as suppliers kept sufficient stocks.

     On the cost side, input prices fell for the second month on the back of better supply chains and lower prices of metals, food, and fuel.

     Selling prices dropped solidly, due to intense market competition.

     Sentiment slipped to a 7-month low, on concerns over lingering uncertainty, particularly from overseas. "Current economic growth lacks internal drive and market entities lack sufficient confidence," highlighting the importance of restoring demand," said Dr. Wang Zhe, an economist at Caixin Insight Group.

     Of note: Bloomberg Economics said the data may be misleading as they’re based on a relatively small sample size with a tendency to over-correct for seasonal factors. And exports are expected to weaken in the coming months, adding to downward pressure on manufacturers.

— U.S. Secretary of State Antony Blinken has criticized China for its apparent refusal to engage in discussions with senior Pentagon leaders following an incident described as "unnecessarily aggressive.” This incident involved a close encounter between military aircraft over the South China Sea last week. A video released by the U.S. military shows a Chinese J-16 Shenyang fighter jet passing in close proximity to an American RC-135 surveillance plane, causing turbulence for the latter's crew.

     Blinken expressed concerns over this "dangerous" event and highlighted the importance of maintaining open lines of communication between the defense ministers of the two countries. This comes after a report that China had declined a meeting request from U.S. Defense Secretary Lloyd Austin at a security summit in Singapore.

     China has criticized the U.S. for its portrayal of the incident, with the Foreign Ministry accusing the U.S. of endangering China's national security by conducting regular close-up reconnaissance using ships and planes.

     Tensions between the U.S. and China have been high over various issues, including disputes over Taiwan and China's regional ambitions. These tensions were further heightened by the discovery of a Chinese surveillance airship over the U.S. earlier this year, which was perceived as part of a large-scale surveillance program run by the Chinese military. The Chinese government, however, claimed it was a weather balloon that had been blown off course.

     Blinken expressed his hope to reschedule his visit to Beijing, emphasizing the importance of managing the U.S./China relationship responsibly. He suggested that cooperation should be sought where possible for the benefit of both countries and the global community, but at the very least, there needs to be certain guardrails in place to manage the relationship.

— There has been a 26.2% decrease in the number of U.S. companies applying to export sensitive technologies to China between 2021 and 2022, according to Thea Rozman Kendler, assistant secretary of commerce for export administration at the Commerce Department’s Bureau of Industry and Security. This significant drop is likely due to the increased scrutiny by the U.S. gov’t over exports, especially those that could potentially be used for military purposes.

     Reasons why. Kendler indicated in her comments to the Senate Banking, Housing and Urban Affairs Committee that the decline could be a result of companies' reluctance to submit license applications for transactions they believe are likely to be rejected. This is due to the increased scrutiny the Commerce Department is putting on know-your-customer checks and its advice on export red flags.

     The U.S. has recently tightened restrictions on exports of advanced technology to China, including imposing new restrictions on advanced semiconductors and chip-making equipment in October. Kendler said these restrictions are being applied with "scalpel-like" precision to hinder China's military modernization efforts.

— Over 60 House Republicans have written a letter insisting that U.S. Trade Representative Katherine Tai initiate a formal dispute against Mexico over its decision to prohibit certain types of genetically modified corn. This issue has been a significant concern for representatives from corn-producing states since Mexican President Andrés Manuel López Obrador declared import restrictions on bioengineered corn at the end of 2020. Mexico is a crucial market for U.S. corn exports. Link to letter.

     Background. In March, Tai informed the House Ways and Means Committee that Mexico's policies could harm American farmers. She also stated that she would consider implementing further action under the U.S.-Mexico-Canada Agreement (USMCA) if the technical consultations initiated earlier in March did not resolve the issue.

     The letter: The lawmakers argue in the letter that, given the lack of meaningful action by Mexico to change its policy, it is now time to take those additional steps. The letter, led by Rep. Adrian Smith (R-Neb.), chair of the House trade subcommittee, emphasizes that Mexico's failure to abide by its agricultural commitments under USMCA should be addressed with the same intensity that the U.S. Trade Representative has used in approaching other aspects of the agreement, including labor. The letter emphasizes that the USMCA must be enforced in its entirety.

— Renewable energy capacity is predicted to grow by a third in 2023, largely driven by a significant push into solar and wind power by China, according to a forecast by the International Energy Agency (IEA). The IEA expects renewable capacity to increase by 107GW, reaching 440GW, which equals the total installed power capacity of Germany and Spain combined. This expected growth is attributed to governmental support, concerns about energy security, and increased competitiveness of renewables against fossil fuels, outweighing rising interest rates, investment costs, and supply chain challenges.

     China, set to account for 55% of global annual capacity additions in 2024, is anticipated to further strengthen its position as a renewable energy leader. The country is promoting large-scale solar projects and smaller-scale installations for public institutions and state-owned businesses. It's also likely to drive a nearly 70% global rebound in wind power capacity in 2023 after deploying less than expected in 2022 due to Covid-19 restrictions.

     In the U.S. and Europe, supply chain issues have caused a delay in wind projects planned for 2022 until 2023. Solar electricity panels, however, are projected to account for two-thirds of the total increase in renewable capacity for 2023. Manufacturing capacity for these panels is expected to more than double to 1,000GW by 2024, led by China, the U.S., India, and Europe. Based on current trends, the world will have sufficient solar manufacturing capacity to meet the IEA’s net-zero greenhouse gas emissions scenario by 2050.  

— RFS update. The Office of Management and Budget (OMB) has now scheduled 34 meetings to discuss the Environmental Protection Agency's (EPA) final rule on the Renewable Fuel Standard (RFS) for 2023 and beyond, with the recent addition of two more participants: Evoqua Water Technologies and VIRESCO AD. Evoqua Water Technologies is a global firm that helps its customers manage water and wastewater issues, and it's scheduled to meet on June 8. VIRESCO AD, an engineering and technology company focusing on energy and repurposing carbon-based waste, will meet on June 12.

     Given the number of scheduled meetings, it's unlikely that many more will be added, so that the OMB can finish reviewing the EPA's plan in time for it to be finalized no later than June 14. The final rule announcement is expected to take place on June 15 or 16.

     Key issues to be addressed include the EPA's decision to delay issuing the portion of their plan dealing with renewable identification numbers for electricity generated from renewable energy sources to power electric vehicles (eRINs), as well as potential adjustments to the levels for biodiesel and advanced biofuels, which include renewable diesel.

— U.S. Department of Energy (DOE) announced an investment of $46 million to promote the design and R&D of fusion power plants. This funding will be distributed to eight companies through the DOE's Milestone-Based Fusion Development Program, aligning with President Joe Biden's aim to establish a pilot-scale demonstration of fusion power within the next decade.

     The funding, spread across the fiscal years 2022 and 2023, will cover an 18-month period, although the projects may last up to five years. Any additional investment beyond the first 18 months will depend on Congressional appropriations and the satisfactory achievement of pre-established project milestones.

— Exxon and Chevron shareholders rejected a series of climate change-related proposals put forward by investors, signifying a setback for climate activists. These results follow a trend of similar climate propositions failing to win majority shareholder support at the annual meetings of UK energy majors BP and Shell. The rejection of these measures is seen as an indication that some shareholders are retreating from advocating for oil companies to adopt specific climate targets. It appears that concerns related to environmental, social, and corporate governance (ESG) issues have been overshadowed by the soaring oil and natural gas prices caused by Russia's invasion of Ukraine.

— California’s Department of Food and Agriculture (CDFA) will host three webinars in June on the implementation of Proposition 12, following the U.S. Supreme Court's decision to uphold the state law. Proposition 12 establishes minimum space requirements for certain farm animals and bans the sale of meat and egg products from animals confined in a noncompliant manner. CDFA's Animal Care Program will conduct these webinars to cover the regulations and requirements under Prop 12.

     The first webinar, scheduled for June 6, is aimed at end users, such as retailers, restaurants, and food processors.

     The second webinar, to be held on June 13, is designed for distributors, those selling or distributing a covered product to an end user in California.

     The final webinar, on June 27, will target pork producers, specifically those keeping or housing breeding pigs.    

— Cargill Inc. has decided to sell its poultry farming and processing business in China, which is the largest meat market globally, due to decreasing demand and escalating costs affecting profit margins. Bloomberg reports (link) the company has agreed to sell Cargill Protein China operations to the private equity firm DCP Capital, with the terms of the agreement remaining undisclosed. Subject to regulatory approval, the sale is anticipated to close in 2023.

     The sale occurs as meatpackers like Cargill grapple with dwindling margins, alongside inflation which is undermining demand. High grain prices are also increasing animal feed costs, posing significant challenges for the new CEO, Brian Sikes.

     Poultry farming in China is experiencing difficulties making profits due to weaker than expected consumer demand amidst Covid recovery, coupled with persistent high animal feed costs. Government data indicates that broiler chicken farmers are still unable to make profits.

     The deal encompasses all Protein China entities in Chuzhou in Anhui province, which includes both farm locations and manufacturing sites. This decision comes less than a year after the Minneapolis-based trader finalized its $4.5-billion acquisition of US chicken producer Sanderson Farms Inc., in partnership with Continental Grain Co.

     DCP Capital, led by former KKR & Co. partners, has previously invested in companies like China Mengniu Dairy Co. and COFCO Joycome Foods Ltd. The company's executive chairman, David Liu, was involved in KKR's $400 million investment in chicken meat producer Fujian Sunner Development Co. in 2015.

     Cargill's plants in Anhui, with an annual output of almost 65 million broiler chickens, also include feed production, hatching, breeding, and processing facilities. The facilities were established in 2011 to meet growing consumer demand for safe and high-quality protein products. In 2020, Cargill launched plant-based meat products under the PlantEver brand, manufactured by its operations in Anhui.

— Medicare plans to expand coverage for a new type of Alzheimer’s drugs. The first medications shown to slow cognitive decline from the disease. One of them could be granted full FDA approval as soon as this summer. People enrolled in the outpatient part of Medicare, and who meet coverage criteria, will have the cost of these drugs covered, officials said this morning.  

— Former Vice President Mike Pence will launch his 2024 presidential campaign on June 7 with an announcement video and a speech in Iowa. It will be an uphill climb for Pence, who has been polling in single digits, while Trump and Florida Gov. Ron DeSantis, who jumped into the race last week, continue to lead the field.

— Bill Ackman, the billionaire CEO of Pershing Square Capital Management hedge fund, is urging JPMorgan Chase CEO Jamie Dimon to run for president as a Democrat in 2024, after the longtime bank executive declined to rule out a future bid for public office. Ackman called Dimon “one of the world’s most respected business leaders,” and argued his business-friendly outlook, along with his support for social programs, would make him a stronger presidential candidate than top contenders Joe Biden or Donald Trump. He went on to argue Dimon could help manage the U.S.’ nearly $32 trillion debt, and is respected by people on all ends of the political spectrum.
 

— Agricultural economists from Southern U.S. universities have launched a new website (link) aimed at tracking the region's farm economy and offering comprehensive analyses of agriculture and food policy. The website, titled Southern Ag Today, provides peer-reviewed articles on a variety of issues, including crop marketing, livestock marketing, farm management, agricultural policy, trade, and agricultural law.

     The website aims to offer more than just news reporting, focusing instead on delivering timely, in-depth analysis. However, it maintains flexibility to delve into pressing issues, particularly as the reauthorization of the farm bill becomes more of a focus. “It’s drafted with the farmer and the policymaker in mind, which are two groups of people with demanding schedules and limited time on their hands,” stated Dr. Joe Outlaw, Co-Director, Agricultural & Food Policy Center, Texas A&M University. “This content is intended to provide quick, impactful analysis and context on a given topic, so they can make informed decisions.” Dr. Bart Fischer, co-director of Texas A&M's Agricultural and Food Policy Center and a former top aide to the House Agriculture Committee, says the goal is not to chase the latest headline, but to provide thoughtful analysis.

     “We have a lot of ideas for how we can continue to grow this unique, one-of-a-kind effort that is bringing together 13 different universities across the southern United States in service to producers,” explained Dr. Nathan Smith, Extension Economist and Agribusiness Program Team Director. “Top of mind is always how can we boost production agriculture.”

     Perspective: Southern Ag Today has been available for months as the system was put in place for beta testing. It will serve as a needed perspective on southern agriculture to balance the more widely reported analyses coming out of Midwest states.

— UFOs. NASA has formed an independent team to prepare a report on Unidentified Anomalous Phenomena (UAPs), also known as Unidentified Flying Objects (UFOs), which is set to be published by the end of July. UAPs are defined by NASA as events in the sky that cannot be scientifically identified as aircraft or recognized natural phenomena. The report aims to inform NASA on potential data that could be gathered in the future to understand the nature and origin of UAPs and to assess if they pose any safety risks.

     Various branches of the U.S. government, including the Pentagon, have conducted several studies on UAPs. The Pentagon released a declassified report in June 2021, but none of these studies have provided a clear answer to the public about what UAPs might be. This NASA initiative marks another effort to investigate and better understand these unidentified phenomena.

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