Evening Report | November 2, 2023

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Winter wheat drought footprint declines in scope and intensity... As of Oct. 31, the U.S. Drought Monitor showed 54% of the U.S. was covered by abnormal dryness/drought, down four percentage points from the previous week. USDA estimated 42% of U.S. winter wheat areas were covered by drought, down seven points from the previous week. 

In HRW areas, dryness/drought covered 84% of Kansas (8% D3 or D4), 42% of Colorado (virtually none of the wheat-heavy eastern part of the state), 50% of Oklahoma (1% D3, no D4), 86% of Texas (11% D3 or D4), 40% of Nebraska (11% D3 or D4), 16% of South Dakota (no D3 or D4) and 37% of Montana (1% D3, no D4).

In SRW areas, dryness/drought covered 75% of Missouri (2% D3, no D4), 35% of Illinois (no D3 or D4), 63% of Indiana (no D3 or D4), 40% of Ohio (no D3 or D4), 23% of Michigan (no D3 or D4), 74% of Kentucky (no D3 or D4) and 66% of Tennessee (no D3 or D4).

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Exchange cuts Argentine wheat crop estimate, recent rains a ‘blessing’ for corn and beans... Adverse weather during the growing season caused the Buenos Aires Grain Exchange to cut its 2023-24 Argentine wheat crop estimate by 800,000 MT to 15.4 MMT. Recent rains have provided relief to corn and soybean crops but have not been enough to compensate the damage caused by frosts and a drought that previously hurt wheat, the exchange said.

Meanwhile, the Rosario Grain Exchange called recent rains across key production areas of Argentina a “blessing” for corn and soybean farmers.

Is ERP for 2022 as bad as it sounds?... It’s a self-imposed disaster. Congress provided roughly $3.2 billion to address natural disasters that occurred during the 2022 calendar year for crop losses and an additional $470 million for livestock losses which has already been programmed. USDA elected to follow a two-track system like the previous ERP phases for 2020 and 2021 but with some serious and harmful deviations, according to ag consulting firm Combest-Sell. Track 1 will utilize existing crop insurance data to send pre-filled applications to eligible producers, just as Phase I had done in the previous program. Track 2 will attempt to utilize Schedule F tax records to aid on a revenue-based approach, akin to the approach under Phase 2 in the prior program.

There are some major, harmful departures from previous disaster programs that are deeply concerning, according to Combest-Sell. It says USDA has established a “progressive” payment factor to fit total payments within budget that will severely restrict assistance to full-time farm and ranch families. This “progressive” factor cuts deepest on those who faced the largest losses. Customarily, when a factor is required to fit payments within budget, one uniform factor is applied. But in this case the factor looks more like a payment limitation rewarding smaller losses and punishing larger losses.

For example, a farmer with a calculated loss of $100,000 in 2020 would have received $75,000, plus a refund of some portion of the crop insurance premium paid for the farm so as not to punish producers for buying insurance. For 2022, the same farmer with a $100,000 calculated loss will receive $11,250 after applying the progressive factor and the limitations on premium refunds. “This is a backdoor pay limit that violates the intent of Congress and the plain letter of the law,” says the consulting firm. “Congress explicitly required the ERP for 2022 to employ the same payment limitations as the previous program.”

ICGA calls for federal scrutiny of fertilizer prices, seeks inclusion in new farm bill... Farmers in Iowa are advocating for federal lawmakers to examine the pricing practices of fertilizer companies and assess the impact of rising costs on both farmers and consumers. The Iowa Corn Growers Association (ICGA) has drafted language that they aim to incorporate into the upcoming farm bill. The proposed addition focuses on “reviewing competition and transparency in the fertilizer industry,” with the provision mandating an assessment of fertilizer pricing by USDA. If adopted, this requirement would serve the dual purpose of helping farmers comprehend the reasons behind recurring fertilizer price hikes and providing Congress with “adequate information on the exertion of market power by companies within the industry,” as highlighted by ICGA.

Vilsack emphasizes commitment to future ag leaders at National FFA Convention... USDA Secretary Tom Vilsack highlighted USDA’s commitment to the future of agriculture during his address at the 96th National FFA Convention and Expo in Indianapolis. A Memorandum of Understanding (MOU) was signed formalizing a partnership between USDA and the National FFA Organization. The MOU aims to prepare more students for careers in food, agricultural science, natural resources and related fields. USDA will also communicate available internship opportunities to FFA members and alumni, identify areas where student or youth perspectives can benefit USDA programs, and collaborate with FFA to provide such representation.

Vilsack emphasized USDA’s vision to secure the future of American agriculture, with a focus on enabling farms of all sizes to succeed. This involves transforming the agricultural system to support small and mid-sized farms, strengthen local rural economies, enhance food security and safety, and create opportunities for all producers and communities.

During his speech, Vilsack discussed recent investments in rural America, which aim to increase revenue for farms, promote economic development in rural areas, and provide more opportunities across the country. He highlighted the importance of today's youth in shaping tomorrow's food system and encouraged all producers to succeed.

USDA publishes final rule on organic livestock and poultry standards... USDA’s Agricultural Marketing Service (AMS) released its final rule on organic livestock and poultry standards, slated to go into effect primarily on Jan. 2, 2024, though certain operations may have until 2029 for full implementation. The rule includes guidelines for space requirements for poultry and other provisions. According to AMS, the costs associated with complying with this rule are expected to outweigh the benefits for producers who adhere to the new standards. USDA has taken into consideration extensive public comments, with 94% of respondents supporting the provisions the agency was preparing to implement. USDA aims to ensure that organically produced foods adhere to a transparent and consistent standard, maintain consumer confidence in USDA organic products, align with outdoor access expectations, and promote interstate commerce in organic products.

BOE keeps rates unchanged... The Bank of England (BOE) decided to keep its key lending unchanged at 5.25% for the second consecutive meeting, aligning with market expectations. This decision comes as BOE policymakers continue to evaluate the impact of persistent high inflation and indications of an economic deceleration. Notably, three policymakers voted in favor of a rate hike during this meeting, compared to four who supported such a move in September.

Russia shifts away from oil supply cuts, while Saudi Arabia bears burden to balance market... Russia seems to be scaling back its commitment to support oil prices through supply cuts alongside its OPEC+ partner Saudi Arabia. Despite reaffirming its cooperation in the oil market, Russian crude exports are on the rise, according to a Bloomberg investigation. In the summer, Saudi Arabia and Russia announced unilateral output reductions in addition to their OPEC+ commitments. Russia initially pledged to cut exports by 500,000 barrels per day in August, later reducing it to 300,000 barrels per day in September, with an extension through the end of the year. The reduction was based on the average level of overseas shipments in May and June.

While Russia initially complied, its commitment has not matched Saudi Arabia’s determination. Saudi Arabia has significantly reduced oil production by nearly 1.5 million barrels per day since April, resulting in reduced exports. In contrast, Russia’s seaborne crude exports in October were down only 70,000 barrels per day from the May-June average, compared to a 250,000-barrel-per-day reduction in September.

There is no indication the burden of Russia’s export reduction has fallen on direct pipeline flows, primarily to China, either through East Siberia or Kazakhstan. These pipeline flows have remained stable.

Russia’s reluctance to cut exports aligns with its need for oil revenue, especially in the face of declining natural gas exports and the financial demands of its activities in Ukraine. The potential for further increases in Russia’s oil exports exists, as seaborne crude shipments are still around 580,000 barrels per day below their peak.

Meanwhile, Saudi Arabia continues to shoulder the responsibility of balancing the oil market at a price level it deems acceptable. However, this unilateral approach is taking a toll on the kingdom's economy. In the third quarter, Saudi Arabia experienced its largest economic contraction since 2020, with GDP falling by 4.5% year-on-year, primarily due to a 17% decline in the oil sector. The kingdom also posted a substantial budget deficit of $9.5 billion in the third quarter.

Of note: The upcoming meeting of OPEC+ oil ministers on Nov. 26 may witness calls for greater burden-sharing among members, including Russia, to address the growing challenges in the oil market.

Highway Trust Fund faces depletion; alternative tax solution lacks adequate time for testing... The Highway Trust Fund, which serves as the primary source of funding for road repairs in the United States, is facing a shrinking balance due to factors such as improved gas mileage in vehicles and the rapid transition to electric vehicles (EVs). The federal gas tax rate, unchanged since 1993, has contributed to this issue. According to the Congressional Budget Office (CBO), the fund is projected to run out of money by 2028. Unfortunately, the proposed alternative plan to maintain the fund’s solvency does not provide sufficient time for testing an alternative tax system before Congress formulates its next road funding bill.

Two years ago, President Joe Biden’s infrastructure law allocated funds to explore a national per-mile tax as an alternative to the traditional gasoline tax, which would collect revenue based on how far vehicles travel rather than the amount of fuel they consume. However, progress on implementing this program has been slow, and it is expected to take too long to test as an alternative to the gas tax.

The entire process, including establishing an advisory board, conducting public outreach and running a pilot program, is estimated to require about seven and a half years to complete. This timeline extends beyond the scheduled reauthorization of the surface transportation law in 2026.

Both Democratic and Republican lawmakers now acknowledge the current funding system for road infrastructure is unsustainable. The declining number of vehicles contributing to the Highway Trust Fund or paying user fees for road usage has had a detrimental impact on the fund, according to House Transportation and Infrastructure Chair Sam Graves (R-Mo.).