Evening Report | November 29, 2023
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Livestock producers: Extend cash feed coverage... Your corn-for-feed and soymeal coverage expires at the end of November. With corn trading at value levels and the sharp drop in soymeal the past two weeks, we advise livestock producers to extend corn-for-feed and soymeal coverage by four weeks in the cash market through December. Be prepared to further extend coverage, especially for corn, if the market shows signs of a seasonal low.
U.S. Q3 GDP growth greater than initially estimated... The U.S. economy grew at an annualized rate of 5.2% during the third quarter, up from an initial reading of 4.9%. Primarily, the upward revision came from increases in nonresidential fixed investment, which includes structures, equipment and intellectual property. The category showed a rise of 1.3%, which still marked a sharp downward shift from previous quarters. Government spending also helped boost the third quarter estimate, rising 5.5% for the July-through-September period. However, consumer spending saw a downward revision, now estimated at 3.6%, compared with 4% in the initial figure.
The personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, increased 2.8% for the period, a 0.1 percentage point downward revision, but up from 2.5% during the previous quarter. Core PCE, minus food and energy costs, increased 2.3% from the previous quarter, easing from a 3.7% rise in the second quarter and below the preliminary estimate of 2.4%.
PCE data for October will be released on Thursday.
Fed’s Beige Book: Economic activity slowing... The Fed’s Beige Book highlighting economic activity across the 12 districts noted, “On balance, economic activity slowed since the previous report, with four Districts reporting modest growth, two indicating conditions were flat to slightly down and six noting slight declines in activity... The economic outlook for the next six to 12 months diminished over the reporting period.” The report stated agricultural conditions were “steady to slightly up.” Specific to agriculture, individual districts reported:
Atlanta: “Demand for agriculture rose slightly in recent weeks. Recent cattle herd liquidation constrained the supply of beef, driving prices up. Meanwhile, the supply of dairy was down as high beef prices led to an increase in dairy cows being slaughtered, resulting in higher dairy prices. Poultry farmers expressed growing optimism as stronger demand allowed some to turn a profit again after losing money amid low prices. Most row crops produced strong yields, but demand for cotton remained low.”
Chicago: “Projected farm income in the District was little changed over the reporting period as both expenses and expected revenues moved lower. Despite widespread drought, there were reports of record yields across multiple states and crop types, including corn, soybeans, tomatoes and wheat. One contact mentioned that early and dry spring planting contributed to better-than-expected crop yields. Corn and soybean prices dropped to their lowest levels in over two years, while wheat prices were flat. Costs were lower for key crop inputs, including fuel and fertilizer. Egg prices edged up, milk prices were flat, and butter prices were down. Cattle and hog prices both declined.”
St. Louis: “Agriculture conditions have improved slightly since our previous report. Yields for the District's primary commodity crops were at or moderately below 2022 levels. Despite this slight decline, total corn production in the District rose relative to last year. Rice production also rose, reaching levels over 33% higher than in 2022, while soybean production dipped slightly below 2021-22 levels and cotton production returned to 2021 levels. Commodity crop prices fell but remained at or above typical levels for the 2015-2020 period and stayed relatively stable throughout the reporting period. District contacts reported a mixed outlook but were generally less pessimistic than in previous reports. A Louisville contact attributed the moderate improvement in outlook to higher-than-expected yields and prices for crops such as corn and soybeans.”
Minneapolis: “District agricultural conditions deteriorated slightly since the last report. Despite better-than-expected crop production, lenders responding to the Minneapolis Fed’s third-quarter survey of agricultural credit conditions, conducted in October, reported lower farm incomes and capital spending over the period relative to a year earlier. Contacts expressed concern over the impact of rising interest costs as borrowing increases.”
Kansas City: “The agricultural economy and farm credit conditions in the District softened last month alongside a moderate decrease in agricultural commodity prices. Agricultural bankers reported borrower liquidity deteriorated slightly from strong levels, and loan repayment rates were slightly lower than a year ago. Farm income declined faster in areas with more intense drought and more corn and wheat production. Agricultural real estate values remained firm. Cattle prices remained strong, supporting credit conditions in other portions of the District. Contacts cited elevated production expenses and high financing costs as ongoing concerns.”
Dallas: “Recent rainfall improved soil moisture over the past six weeks, though much of the District remained in drought. Crop production was substantially higher this year across the board—wheat, cotton, corn, sorghum, and soybeans—largely due to drought conditions being less severe than last year, particularly in the Texas panhandle. Cattle prices declined over the reporting period but remained elevated, and contacts noted a continued tight supply of cattle and resilient demand for beef amid high prices.”
San Francisco: “Conditions in the agriculture and resource-related sectors were mixed. Across the District, crop yields were generally at or above historical averages, particularly for apples. Domestic demand from the food services and retail sectors was solid but showed some signs of easing in recent weeks, and exports for some products such as nuts rose. Producers commanded lower prices for products such as fish and nuts and expected apple prices to fall due to the strong harvest. Costs for fuel, packaging, labor, and equipment rose, while irrigation and international shipping costs declined. One contact in Utah cited notable reductions in the cost of feeding livestock as ample growth of grasses on grazing lands lowered demand and prices for hay.”
JPMorgan: 2024 election to boost dollar on trade-war tension... JPMorgan predicts the U.S. dollar is likely to strengthen due to the potential for a divisive U.S. election contest between President Joe Biden and former President Donald Trump. The bank believes such a contest would raise the prospects of a trade war, and investors should pay attention to the impact of potential trade tariffs on currencies. The strategists at JPMorgan suggest renewed tariff risk would be supportive for the dollar. While the focus has been on the Chinese yuan, there is the possibility of the impact broadening to other foreign exchange rates.
The bank notes that if the current polling trends persist, a Biden/Trump matchup is likely, and it points out that under Biden’s leadership, tariffs imposed by Trump have largely remained in place. JPMorgan emphasizes that any expansion of U.S. tariffs on nations and trading blocs beyond China, including Europe, Mexico and broader Asia, could significantly affect the strength of the dollar. They estimate a universal 10% tariff could boost the trade-weighted value of the dollar by 4% to 6%, impacting growth-sensitive currencies in a widening trade war.
However, the bank suggests that fiscal policy may have less impact on currency markets as the election unfolds. While fiscal changes were significant factors in foreign exchange risk during previous elections, it’s less clear now whether fiscal policy can distinguish U.S. growth from that of other countries.
India to talk up biofuels at COP28 confab... India plans to showcase the Global Biofuels Alliance (GBA) at the UN Climate Conference (COP28) Nov. 30-Dec. 12 in the United Arab Emirates (UAE). The marquee alliance with India, the U.S. and Brazil as its founding members was launched at the G20 summit hosted by New Delhi in September, and has grown rapidly, with a total of 22 countries having agreed to join the group. The alliance has an eye on the OPEC+ grouping, of which UAE is a member, but is yet to find support from Saudi Arabia and Russia. The plan also involves holding an industry roundtable on what GBA would mean for the industry.
GBA’s focus is on speeding up biofuel adoption, creating new biofuels, setting internationally recognized standards and codes, identifying global best practices and ensuring industry participation to have quantifiable outputs.
Return of bird flu brings test for French vaccination strategy... The first outbreak of highly pathogenic avian influenza (HPAI) this season on a farm in France has put the industry on watch to see if the country’s strategy of vaccinating birds will prove effective. As we reported on Tuesday, France’s ag ministry confirmed an outbreak of HPAI in a turkey flock in northwestern France.
“The new outbreaks are a stress because with these viruses one never knows if the ‘dike’ will be strong enough,” Marie-Pierre Pe, director of France’s duck and foie gras industry group CIFOG, told Reuters, referring to the preventative vaccinations. France aims to vaccinate over 60 million ducks but only 70% have received a first shot and 40% been fully vaccinated so far, Pe said.
France is the first large exporter to vaccinate poultry against bird flu, braving trade barriers from countries that fear the virus could spread without being noticed.
The vaccine is not supposed to fully protect birds from catching the disease but would limit its spread and thus avoid massive preventive culls. It comes in addition to standard biosecurity and control measures.
