Evening Report | June 14, 2023

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Corn producers: Increase old- and new-crop sales, hedgers buy calls for reownership... The current rally in corn futures is near its median length based on past weather markets. Corn producers should use the price strength to increase old- and new-crop sales. We advise hedgers and cash-only marketers to sell another 10% of 2022-crop to get to 85% priced. For 2023-crop, hedgers should sell 25% of expected production to get to 50% forward priced for harvest delivery and reown 25% in December call options short-dated to August (July 21 expiration). Our fill was 17 cents. Cash-only marketers should sell 10% of expected 2023-crop production to get to 35% forward priced.

Soybean producers: Increase old-crop sales, make initial new-crop sales... Soybean futures have rallied sharply from their spring lows and are butting up against resistance. We advise hedgers and cash-only marketers to sell another 10% of 2022-crop to get to 80% priced. We also advise selling an initial 10% of expected 2023-crop production for harvest delivery.   

Fed pauses, but signals more rate hikes ahead... The Federal Reserve kept interest rates unchanged following the two-day Federal Open Market Committee meeting, as expected, snapping a string of 10 consecutive rate hikes. The post-meeting statement said, “Holding the target (interest rate) range steady at this meeting allows the committee to assess additional information and its implications for monetary policy.”

While the Fed chose to pause this month, the updated economic projections from Fed officials signaled rates will likely rise another 50 basis points by the end of this year. The median so-called “dot plot” projections show the benchmark lending rate rising to a range of 5.50% to $5.75% by the end of the year, up from the current 5.00% to 5.50%, with half of the 18 Fed officials projecting rates at that level. Three see rates rising even higher, with one above 6.00%. Only two of the 18 Fed officials expect rates to hold at the current level, with four projecting a 25-basis-point increase.

In his post-meeting press conference, Chair Jerome Powell noted the Fed has “covered a lot of ground and the full effects of our tightening have yet to be felt.” As a result, “it makes sense to go at a more moderate pace. When we see inflation really flattening out and starting to soften, I think we'll know that it’s working.” Powell also noted the labor market remains very tight and the Fed will want to see a gradual slowdown in wage growth as part of the process of taming inflation.

Producer prices fell more than expected in May... The U.S. producer price index (PPI) for final demand dropped 0.3% in May after rising 0.2% in April. On an annual basis, PPI rose 1.1%, the smallest year-over-year gain since December 2020. Core PPI, which strips out food, energy and trade services components, was unchanged from April and rose 2.8% annually.

Thompson answers our farm bill questions... Following are highlights of what House Ag Committee Chair Glenn “GT” Thompson (R-Pa.) told us relative to the new farm bill.

• Do the current issues between House Speaker Kevin McCarthy and the far-right House GOP members mean no additional funding for a new farm bill?

“No, absolutely not. There’s no real bearing or implications that I see with a small group of folks who have really tried to hold the House hostage here. You know, Speaker McCarthy has been a great ally. To me, a great ally in the farm bill process so far. I mean, he understands the seriousness of it, the logistics to make it happen, what’s needed. One important point is: We’ve never had Republican leadership rowing in the same direction when it comes to a farm bill as it now is with Speaker McCarthy, Scalise, Stefanik and Whip Emmer. They are all great champions and proponents for the farm bill. We're working together on everything from member education, to quite frankly, future whip operations. As our Budget Views and Estimates letter said, there really is no better return on investment when it comes to federal funding. The agriculture industry provides 46 million jobs, $2.6 trillion in wages, over $947 billion in tax revenue, and $202 billion in exports, and $8.6 trillion in economic output. That is why agriculture is this nation's number-one industry.”

• You listed those figures and they’re good ones for the ag sector. Does that mean you've convinced House Speaker McCarthy for additional funding beyond the baseline because some mainstream farm groups say they'd rather have an extension than a baseline farm bill?

“An extension is short sighted, and it really falls short of us making the refinements needed. I use a baseball analogy when it comes to the farm bill: We’re rounding first base, and that means we’re really doing a great job and probably beginning to wrap up the fact-finding, the audit phase. And we’re going to be, I think, on course to do this by what I've always committed to completing a farm bill on time. We’ve made the case again that a successful farm bill enhances our farm safety net for our producers and a baseline funded bill does not mean that we can’t make program improvements. But whether the bill passes this year or after an extension, but I’m not rooting for the extension. We must invest in the safety net for our farmers and ranchers. I think the Speaker heard that loud and clear from those in attendance in Tulare, California, when we were at the world agriculture exposition. Many of those were his own constituents, by the way, in the central valley. We need to find new dollars. And I think one of the allies that we haven’t had is quite frankly Budget Chairman Jody Arrington (R-Texas). He’s a great aggie himself. I think there are efficiencies that can bring us some new dollars, just as we look at incorporating some of the disaster relief that we normally spend in an emotional way. Anytime you do that you don’t do it efficiently. The Senate usually puts in some additional legislation on must-pass pieces of legislation. It would spend a lot of money and not all that very smartly. By incorporating some of that disaster relief into crop insurance, we will enhance crop insurance, make it more attractive for more subscriptions. At the same time. I think we can do that by spending less money, so we'll bring new dollars in and that's just one of a number of ideas we have when there’s a recognition that in certain areas, certain titles of the farm bill, we need to find some new dollars.”

• You can move around dollars even though Senate Ag Chair Debbie Stabenow (D-Mich.) has said don't go into one area to get more funding elsewhere?

“The House will chair the farm bill this time around. But I think there’s dollars to be had and common sense tells us especially when we've been going through such an emotional time of spending, look at the trillions of dollars just in the past two and a half years. We’re talking trillions of dollars. You can’t tell me some of that was not spent emotionally and was appropriated. The funding is sitting out there in different corners of the federal government. And I’m talking things specific to agriculture.”

• Will some of those refinements include a voluntary update of base acres chairman, because soybean and other grower groups want that, while others don't. But getting base acre data is like looking into a black hole trying to get accurate data. We understand your committee staff is working with USDA to get some information. Is that correct?

“We definitely are working on a deep dive on all the information we need, and base acres is one of those areas. This is something you need to have good data to be able to do. Having base acres is like winning the lottery. What about those new young and beginning farmers that do not have base acres, but we’re relying on them to feed us well into the future for decades? So their base acres is something that has come up a lot in our listening sessions across the country and it’s certainly something we’re looking at right now. We really don’t have any conclusions at this point.”

• On food stamps, we know you've been wanting to expand language beyond what the debt limit package included… you want to expand career and technical education to those excluded from the work requirements for food stamps. Is that correct?

“There’s a lot that we need to look at. I was pleased that the Speaker came to me and asked me what we should put forward in the debt ceiling. He wanted something that was going to perhaps save some money and at the same time, not blow up the farm bill process. And we were able to accomplish that. Just the fact that we reduced the percentage of waivers that states can use. We zeroed out as of the first of the year… hundreds of thousands of waivers states stockpiled basically exempting anyone from having access to the SNAP employment and career and technical education benefits. I was very disappointed of what the president and his people put into the debt ceiling package related to this. They basically excluded folks who are homeless, people who are veterans and young adults 18 year old… foster youth who all of a sudden overnight become adults and therefore some of them leave their foster homes with all their life belongings in a garbage bag. This is a pretty sad situation. They essentially put language into the debt ceiling measure that prevented anyone within those three groups of having access to the SNAP employment, career and technical education benefits that we provide by waiving that opportunity for them. That's something we need to look at.”

• Will you seek to get language in the farm bill to curtail USDA’s ability to tap the Commodity Credit Corporation Charter Act for funding. House Republicans in the FY 2024 appropriations bill includes this language. Will that also be a topic in the farm bill debate?

“It’s certainly going to be a topic. As you noted, the current proposed bill from the Ag Appropriations Subcommittee reinstated some guardrails that would limit the Secretary's discretionary authority to use the CCC and then, quite frankly, that’s where it belongs. That could be very, very helpful if it survives the appropriation process. You know, a recent GAO report reinforced the fact that the climate smart commodity pilot program should have gone through a rulemaking process. And Secretary Vilsack circumvented Congress and while I like working with the secretary… I think we have a good relationship… I was not happy with what happened there. You know, from the Ag committee’s perspective, I’m concerned that using the farm bill to legislate sideboards around USDA interpretations of the CCC authority would impede the ability of a future Ag Secretary so we should exercise our oversight authority, and we are definitely doing that at this point.”

House appropriators reviewing the Agriculture spending bill in full committee... The bill drafted by the subcommittee proposes $25.3 billion in discretionary spending for USDA, Food and Drug Administration, Commodity Futures Trading Commission (CFTC), and related agencies. Subcommittee Chair Andy Harris (R-Md.) described the bill as an attempt to maintain a balance between needs and spending. However, Democrats argued the inclusion of funds for CFTC, which was previously in the Financial Services bill in fiscal year (FY) 2023, masks reductions in the Agriculture spending bill.

The markup follows GOP leaders ceding to pressure from ultra-far-right lawmakers to tighten spending. Appropriations Chair Kay Granger (R-Texas) stated that overall appropriators would match funding levels for FY 2022 based on caps agreed upon in the debt ceiling law signed earlier this month.

However, the Senate maintains a different perspective. Senate Appropriations Chair Patty Murray (D-Wash.) has stated the Senate plans to adhere to the agreed-upon caps in the new law.

Of note: The bill would be funded in part by restricting USDA Secretary Tom Vilsack’s use of the Commodity Credit Corporation Charter Act. The provision would reinstate a restriction Republicans lifted so that then-President Donald Trump could issue payments to farmers for his trade war with China.

Bottom line: The Senate will have a far different approach to FY 2024 spending matters and thus this House bill is simply a message bill by ultra-far-right Republicans.

IRA’s clean-energy tax credits more costly than originally forecast... The Inflation Reduction Act’s clean-energy tax credits ended up costing significantly more than initially projected. Originally estimated at $270 billion for the next decade, the nonpartisan Joint Committee on Taxation now projects the cost at $663 billion, while other experts predict it could reach up to $1.2 trillion in 10 years.

This disparity has fueled a debate between Republicans and Democrats. Republicans argue that Democrats vastly underestimated the cost of the subsidies and their impact on the economy, while Democrats contend that the increased uptake of these tax credits is good for the environment.

In response to the growing cost, House Republicans are attempting to repeal some of the tax credits to offset the expense of a tax-cut package. In contrast, Democrats say the increased popularity of clean-energy credits will help the country reduce emissions and limit the damage caused by climate change.