Evening Report | December 7, 2023

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Winter wheat drought footprint continues to gradually recede... As of Dec. 5, the U.S. Drought Monitor showed 55% of the U.S. was covered by abnormal dryness/drought, down one percentage point from the previous week. USDA estimated 37% of U.S. winter wheat areas were covered by drought, down one point from the previous week and well below 73% at this time last year.

In HRW areas, dryness/drought covered 89% of Kansas (7% D3 or D4), 68% of Colorado (2% D3 or D4), 58% of Oklahoma (1% D3, no D4), 66% of Texas (6% D3 or D4), 40% of Nebraska (11% D3 or D4), 12% of South Dakota (no D3 or D4) and 42% of Montana (no D3 or D4).

In SRW areas, dryness/drought covered 92% of Missouri (1% D3, no D4), 69% of Illinois (no D3 or D4), 97% of Indiana (no D3 or D4), 35% of Ohio (no D3 or D4), 37% of Michigan (no D3 or D4), 81% of Kentucky (no D3 or D4) and 97% of Tennessee (22% D3 or D4).

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Pork exports jump, beef shipments slump... The U.S. exported 572.2 million lbs. of pork in October, up 11.0% from September and 5.7% more than last year. Those were the second largest October pork exports behind 2020. Through October, pork shipments topped the same period last year by 6.9% at 5.566 billion lbs., led by a big surge to Mexico.

U.S. beef exports totaled 241.5 million lbs. during October. While that was up 4.3% from September, shipments dropped 20.5% from year-ago. Through October, beef exports trailed the same period last year by 14.9% at 2.556 billion pounds. Of the top six export destinations for U.S. beef, only Mexico showed a year-over-year increase.

USDA responds to criticism regarding management of ERP for 2022 losses... A USDA spokesperson explained the main issue is a lack of funding from Congress for the Emergency Relief Program (ERP) for 2022 losses. Congress allocated only $3.2 billion to cover losses totaling over $10 billion. This funding gap forced USDA to make difficult choices to prioritize assistance for those in greatest need. The spokesperson added that if members of Congress are dissatisfied with these choices, they should advocate for more resources to enable USDA to fully compensate farmers for their losses. 

Some Republican House and Senate members have expressed their concerns to USDA Secretary Tom Vilsack, particularly regarding the new payment formula used for ERP in 2022. They believe this formula, different from the one used in 2020 and 2021, may result in significant producers receiving minimal or no assistance.

Comments: USDA is not being totally informative on this topic. It initially provided an estimate of the disaster funding needed that was woefully underestimated. USDA now says it notified lawmakers of the $10 billion in estimated damages, but Congress chose to authorize only $3.2 billion. Congress is also at fault here because while lawmaker criticism has accelerated recently, we and others talking with farmers clearly noted the major problems with USDA’s implementation of the program months ago. Farm-state lawmakers had time to act and like so many other things in Congress, they did not act. Meanwhile, USDA’s suggestion that Congress simply provide more funding is not the whole answer. Congress should no longer assume USDA is going to implement disaster aid programs in a favorable manner relative to production agriculture and instead for a select group of underserved farmers and other nuances. USDA claims the agency’s new methodology will result in around 170,000 farmers receiving more aid.

Bottom line, according to a lawyer contact: “USDA is talking nonsense. USDA has dealt with this in the past and has always calculated total benefits to each producer and then applied one factor to pare payments back, so they fit within budget. But this administration politicized the payments by applying six different factors to fully indemnify some farmers and punitively harm others who suffered the greatest loss. In other words, it applied a backdoor pay limit. It also arbitrarily limited refund of premiums and fees paid to ‘underserved’ farmers. In doing so, USDA plainly broke the law. If USDA does not comply with the law and Congress does not step in and defend the law it passed, then it will be up to a court. Courts look at deliberate violations of the law with a jaundiced eye in establishing remedies.”

Challenges in forecasting CCC discretionary spending faced by CBO... A Southern Ag Today article discusses the challenges faced by the Congressional Budget Office (CBO) in forecasting discretionary spending by the Commodity Credit Corporation (CCC). CCC plays a crucial role in various government programs related to agriculture and commodity prices. Here are the key points:

• CBO’s role: CBO is responsible for forecasting federal government spending, which includes predicting the expenditures of agencies like CCC.
• Forecasting challenges: Forecasting CCC spending is a complex task that involves predicting not only macroeconomic variables but also discretionary spending by executive branch agencies. This discretionary spending is authorized by Congress and includes various programs and initiatives.
• Changes in restrictions: From 2012 to 2017, Congress imposed restrictions on the Ag Secretary’s discretionary use of the CCC Charter Act. However, these restrictions were lifted in fiscal year 2018.
• Creative use of authority: Both the Trump and Biden administrations have used the CCC Charter Act’s Section 5 in innovative ways to fund various programs. For example, during the U.S./China trade war, the Trump administration authorized substantial financial assistance to producers through the Market Facilitation Program (MFP).
• Baseline updates: CBO updates its baseline projections regularly, but historically, it did not include a separate line item for forecasting additional discretionary spending.
• Recent changes: In the January 2020 baseline, CBO began including a long-term forecast of $100 million per year in “Other CCC Spending” under CCC Charter Act Authority. This reflected the likelihood of continued discretionary spending.
• Spending discrepancy: Actual spending under Section 5 has averaged $10.7 billion over the last six years, significantly higher than CBO’s current forecast of $1 billion per year.
• Future projections: Given recent spending trends and ongoing priorities, the article questions whether CBO will increase its forecasted spending under CCC Charter Act Authority in its upcoming spring baseline update. It suggests that recent spending levels could become the norm, especially if the current administration is re-elected.

Xi urges EU/China trade partnership, supply chain trust... During a meeting in Beijing, Chinese President Xi Jinping expressed his desire for the European Union (EU) and China to become key trade partners and build trust in supply chains. Key points from the meeting include:

• High-quality development: President Xi stated China is focused on high-quality development and high-level opening up, emphasizing its willingness to consider the EU as a crucial economic and trade partner.
• Mutual cooperation: Xi indicated China wants to see the EU as a trusted partner in industrial and supply chain cooperation to achieve mutual benefits and win-win results.
• In-person summit: This meeting marked the first in-person summit between Chinese and EU officials in four years. Discussions were expected to cover various economic concerns and issues, including data flows and market access.
• Tensions and criticism: There have been tensions between the EU and China, particularly concerning the EU’s efforts to secure its supply chains and an anti-subsidies investigation into Chinese-made electric vehicles. China criticized this investigation, urging the EU to avoid “trade protectionism.”
• Eliminating interference: Xi called for both China and the EU to “eliminate all kinds of interference,” potentially aimed at the U.S. and its efforts to restrict China’s semiconductor development.
• Balanced trade relations: European Commission President Ursula von der Leyen described her conversation with Xi as “good and candid” and expressed a shared interest in “balanced trade relations.”
• Italy’s exit from Belt and Road: Italy formally informed China of its decision to exit the Belt and Road Initiative, reflecting ongoing strains in China/EU relations.
• Belt and Road discussion: Xi and EU leaders discussed the Belt and Road Initiative during the meeting, with Xi expressing a willingness to connect it with the EU’s Global Gateway infrastructure plan.
• Challenges and concerns: Deep-seated issues, including Russia’s actions in Ukraine, trade imbalances, and Chinese overcapacity affecting European markets, pose challenges to EU/China relations.
• Economic concerns: The EU is concerned with China’s economic recovery and its potential impact on European industries and workers, given China’s growing exports and the EU’s trade deficit with China.