Federal Judge Declares Exemption in Massachusetts Farm Animal Act Unconstitutional

Cocoa surges | India rice prices record high | Senate to hold votes on aid to Ukraine, Israel, Taiwan  

Modified report. I am in Fargo to speak at the AgCountry Farm Credit Services meeting.

— Equities today: Asian and European stock markets were mixed in overnight trading. U.S. stock index futures are set to open modestly higher.  In Asia, Japan +0.1%. Hong Kong -0.8%. China closed. India +0.2%. In Europe, at midday, London +0.1%. Paris -0.1%. Frankfurt +0.1%.

     Equities yesterday: All three major indices rose, with the S&P 500 finishing at a new record close. The Dow was up 48.97 points, 0.13%, at 38,726.33. The Nasdaq rose 37.07 points, 0.24%, at 15,793.71. The S&P 500 ended up 2.85 points, 0.06%, at 4,997.91 — the S&P 500 crossed 5,000 for the first time ever during trading on Thursday, but it couldn't sustain the level.

     Japan’s Nikkei 225 stock index breached the 37,000-point line for the first time in 34 years. A cheap yen has padded the bottom line of firms that make money abroad while corporate-governance reforms have boosted optimism.

— The Bureau of Labor Statistics today releases its annual revisions to the Consumer Price Index. The revisions can affect the previous five years of data.

— Ag markets today: Corn faced followthrough selling overnight, while soybeans more than erased Thursday’s gains and the wheat market was mixed. As of 7:30 a.m. ET, corn futures were trading 2 cents lower, soybeans were 6 to 9 cents lower, SRW wheat was 1 to 2 cents higher, HRW wheat was mostly a nickel lower and HRS wheat was fractionally to a penny lower. Front-month crude oil futures and the U.S. dollar index were both near unchanged this morning.

     Cash cattle trade remains quiet. The standoff between packers and feedlots continued Thursday with little movement, though signs point toward higher cash prices. Feedlots appear unwilling to move cattle at steady/weaker prices and packers may need supplies to fill out near-term slaughter runs unless they decide to further cut hours to manage tight supplies.

     Cash hog rally stalls. The CME lean hog index is down 2 cents to $74.00 as of Feb. 7, the first daily decline since Jan. 12 and only the fourth since the beginning of the year. February lean hog futures finished Thursday at a 70-cent discount to today’s cash quote, suggesting traders anticipate cash prices will decline more ahead of the contract’s Feb. 16 settlement. The premium in April hogs declined to $6.35 as of Thursday’s close.

— Poor weather conditions and conflict in the Red Sea continued to drive cocoa prices to all-time highs. Cocoa futures reached record highs in New York due to a market shortfall, driven by adverse weather in West Africa, the main global cocoa producer. Extreme weather conditions, including earlier rains and a subsequent dry spell, have led to crop disease and delayed harvesting, threatening production.

     As a result, cocoa prices have doubled over the past year, impacting chocolate makers like Hershey and increasing consumer costs for confectionery products. The cocoa rally is expected to persist for another 18 months to three years, with global supplies falling short of demand for the third consecutive season. Paul Davis, head of cocoa at Sucres et Denrees SA, cited by Bloomberg News (link), warns that prices could reach $6,000 a ton. While some growers are expanding production, it takes time for new trees to bear beans, exacerbating supply constraints.

     Despite surging prices, the cocoa industry faces longstanding challenges of poor returns for growers, necessitating higher incomes to encourage investment in farming improvements. Meanwhile, new deforestation regulations in the European Union, effective from late this year, may further increase cocoa prices. These regulations aim to improve environmental sustainability but may initially raise costs for consumers.

     Perspective from commodity analyst Jim Wyckoff: “I’ve seen a lot in the markets over the past five decades, but today’s (Thursday’s) price action in cocoa futures is a new one for me. March cocoa was up $422 a ton, just today! $422 is larger than most yearly trading ranges dating back to 1980. The ICE cocoa futures market this week skyrocketed to a record high of nearly $6,000 a metric ton. In around 12 months’ time the price of cocoa has more than doubled.”

—  Federal judge declares exemption in Massachusetts farm animal act unconstitutional, impacting pork industry. In a recent legal development, Triumph Foods led a challenge against an exemption within the Prevent Cruelty to Farm Animals Act, also known as Question 3, and a federal judge in Massachusetts has deemed this exemption unconstitutional as of February 5.

     Details: Judge William Young from the U.S. District Court for the District of Massachusetts concluded that the exemption violated the dormant Commerce Clause and could be severed from the rest of the law, leaving the remainder intact. Question 3 mandates that pork companies in Massachusetts comply with sow housing space requirements. However, the exemption allowed pork from federally inspected facilities in Massachusetts to be sold on-site at these plants, bypassing traditional retail locations. This exemption applied to three pork processing plants in Massachusetts.

     Of note: Judge Young highlighted that for Triumph Foods, an out-of-state processor, to benefit from this exemption, they would need to establish their own federally inspected facility within Massachusetts, which would contravene the Commerce Clause according to Supreme Court precedent. Consequently, out-of-state pork processors face higher costs compared to in-state counterparts when selling pork in Massachusetts. Young noted, “the only way Triumph would be able to take advantage of the slaughterhouse exception would be to open its own federally inspected facility within the Commonwealth of Massachusetts, which the Supreme Court has held violates the Commerce Clause. Instead, Triumph and other out-of-state pork processors must face higher costs to sell pork into Massachusetts than those of their counterparts in Massachusetts.”

     Triumph now has 30 days to file a summary judgment motion asserting that the Federal Meat Inspection Act supersedes state law. The court rejected Massachusetts's motion to dismiss the case.

     Triumph Foods expressed satisfaction with the ruling, emphasizing its broader implications beyond the pork industry, particularly in safeguarding the federal government's oversight of food safety and consumer choice. They anticipate further legal challenges to the remaining aspects of the law.

     “We are thrilled on the progress this ruling has brought for the industry, but it is more meaningful than just pigs and pork chops. USDA has consistently ensured that Americans have access to the safest food products in the world, and this process should not be infringed by individual state laws, as food offerings should be driven by consumer choices,” said Matt England, president and CEO of Triumph Foods. “We look forward to demonstrating how the remaining portion of the law intrudes into the federal government’s role, and are hopeful the disruption to the country's supply chain soon comes to an end.”

     Background: Question 3 was initially passed by Massachusetts voters in 2016. The U.S. Supreme Court's ruling against challenges to California's Proposition 12, a law similar to Question 3, in May 2023, indicates a broader legal context surrounding animal confinement laws. In October 2023, 13 attorneys general filed an amicus brief opposing Question 3.

— Ukraine’s 2024 spring crop seedings likely to be unchanged. Ukraine expects its 2024 spring seedings area to be the same as last year, though it could be slightly lower in a worst-case scenario, Ag Minister Mykola Solsky told Reuters. Ukrainian farmers seeded a total of 12.75 million hectares of spring crops in 2023, including 4 million hectares of corn, 5.3 million hectares of sunflowers and 1.78 million hectares of soybeans. Solsky said farmers reduced winter wheat seedings due to poor weather last fall, which could cause them to increase the area sown to spring wheat. Ukraine sowed 280,000 hectares of spring wheat last year. Solsky said farmers’ shortage of funds caused by the war and difficulties with exports had forced them to save money and use lower quality wheat seed. While winter wheat has survived the winter so far without serious damage, the quality of this year’s harvest was a potential concern.

— India’s rice prices continue record climb. Prices of parboiled rice exported from India extended their rally, rising for a fourth consecutive week to a record high as supplies remained limited. India’s 5% broken parboiled variety was quoted at a record $542 to $550 per metric ton this week, up from last week’s $537 to $546. Thailand’s 5% broken rice prices were quoted at $630 per metric ton, down from last week's $640 rate as market activity slowed. Vietnam’s 5% broken rice was offered at $635 to $640 per metric ton, unchanged from a week ago.

— Treasury Secretary Janet Yellen tried to defend the Biden administration's economic approach amid ongoing concerns over high food costs. Yellen asserted that while some prices remain elevated, wages have also significantly increased. When challenged by Sen. John Kennedy (R-La.), who likened supporting Bidenomics to a "fungal infection," Yellen argued that rising wages offset the impact of higher prices. Despite interruptions, Yellen emphasized that Americans are generally better off financially, with the median worker able to purchase the same basket of goods as in 2019 and have $1,400 left over to save or spend. There has been a nearly 30% increase in food prices from January 2018 to December 2023, impacting consumer perceptions of inflation. While the Biden administration attributes soaring food costs to "greedflation" and corporate profits, Republicans blame federal investment under Bidenomics for exacerbating inflation.

— USDA to monitor poultry industry compliance with new transparency rule. USDA informed the poultry industry of its intention to closely observe compliance with a new final rule aimed at enhancing transparency and disclosure in processing companies' contracts with poultry growers. Despite industry and lawmaker requests for a delay, the rule is set to come into effect on Feb. 12.

— Chief U.S. agricultural negotiator, Doug McKalip, discussed timelines for resolving the U.S./Mexico corn dispute under the USMCA, while highlighting recent advancements in U.S./European trade relations. McKalip praised recent EU approvals of U.S. biotech applications and emphasized the importance of strengthening the U.S./UK trade relationship post-Brexit.

     He anticipates resolution of the USMCA dispute with Mexico this year, emphasizing the need for scientific rigor in regulatory decisions.

     McKalip's remarks were made during the National Association of State Departments of Agriculture's 2024 Winter Policy Conference, where he underscored the administration's efforts to support farmers and expand agricultural trade opportunities globally.

— Senate to hold votes beginning Friday evening on aid to Ukraine, Israel and Taiwan. In a significant move, 17 Republican Senators showed their support in a pending measure for military aid for Ukraine, Israel, and Taiwan, despite intra-party tensions over border security and Donald Trump's opposition. The vote, which passed 67-32, aims to bolster Ukraine's air defenses, aid Israel with bombs and air defenses, and enhance Pacific defenses. But some Republicans, including J.D. Vance (Ohio) and Lindsey Graham (S.C.), opposed the aid, with Vance calling it a "middle finger to voters."

     Senate Majority Leader Chuck Schumer (D-N.Y.) announced plans to keep the Senate in session despite an impending recess week, emphasizing the need to continue working on pending legislation until completion. Both parties must reach an agreement on how to handle potential amendments to the legislation, with several GOP senators highlighting the importance of securing such a deal for their continued support. Schumer committed to facilitating a "fair and reasonable" amendment process.

     Various Republican senators are pushing for amendments addressing border-related issues, non-lethal aid to Ukraine, humanitarian aid in Gaza, compensation for radiation victims, inclusion of a strict immigration bill, and a provision to ban Chinese ownership of American farmland. Sen. Rand Paul pledged to prolong the amendment process to express his opposition to the bill's allocation of funds to other countries before addressing domestic issues.

     It's not just Republicans seeking amendments. Sen. Tim Kaine (D-Va.) aims to remove language in the bill that grants Israel special treatment regarding the congressional notification process for foreign weapons sales, advocating for equal standards for all nations while preserving the president's emergency waiver authority.

     Outlook: The vote on proceeding to the legislative vehicle for the foreign aid package will be at 7 p.m. ET this evening, at a simple majority threshold. Schumer then is expected to file cloture on the substitute amendment sometime after the vote this evening. That would set up a cloture vote on Sunday. Without an agreement to speed the process, final passage for the legislation would be sometime early next week, likely by Tuesday, sources signal. The bill's eventual passage in the Senate is likely, though challenges may arise in the House.

— The Inflation Reduction Act (IRA/Climate Bill) is projected to cost over $800 billion through 2033. Originally priced at $391 billion in 2022, the increase is partly due to high demand for credits and subsidies for renewable energy projects and electric vehicles, resulting in more significant deficit impacts than anticipated. While the Treasury Department suggests additional tax resources from the IRA could boost revenue by $851 billion over the next decade, questions remain about its deficit-reducing effectiveness. The law's support for green initiatives has attracted Chinese solar energy investment in the U.S., potentially undermining domestic greentech goals and straining relations with trading partners like the EU developing its own similar legislation. Uncertainty looms over the IRA's future, with Donald Trump threatening to overturn it if re-elected.

— Chinese investors dumping global real estate amid domestic crisis, impact uncertain. The current trend of Chinese investors and creditors is to sell off their real estate assets globally to raise cash amid a deepening property crisis in China, Bloomberg News reports (link). Despite the risks of offloading assets in a falling market, the need for liquidity supersedes these concerns. The prices obtained from these sales will provide insight into the extent of the industry's troubles, Bloomberg noted.

     The worldwide downturn, exacerbated by rising borrowing costs, has already resulted in significant losses in office property values. However, the full extent of the damage remains uncertain due to the limited number of asset sales, leaving appraisers with insufficient recent data. This lack of transparency raises concerns among regulators and the market about potential hidden losses, particularly for banks and asset owners.

     Chinese investors are now starting to sell off overseas assets acquired during a decade-long expansion spree. This includes distressed developers seeking cash to stabilize domestic operations and pay off debts. The recent crackdown on excessive borrowing by Beijing has affected even major players in the industry. As a result, properties are being sold at significant discounts, contributing to a thaw in the market freeze and improving price discovery.

     Sales of Chinese-owned assets are not limited to Europe; they also extend to other regions like Australia. This shift from buying to selling marks a significant change in the behavior of Chinese developers in these markets. However, the full impact of these disposals on the global commercial real estate market remains uncertain.

— China’s new bank loans hit record high in January. Chinese banks extended 4.92 trillion yuan in new loans in January, an all-time high, more than quadrupling December’s 1.17 trillion and exceeding the previous record of 4.9 trillion yuan in the same month last year. The increase came as the Chinese authorities try to shore up the economy and as loans tend to rise in the beginning of the year. Household loans, mostly mortgages, rose to 980.1 billion yuan and corporate loans jumped to 3.86 trillion yuan. Meanwhile, total social financing, which is a broad measure of credit and liquidity, also reached a record high of 6.5 trillion yuan.

— Iran-backed Houthi militants are escalating attacks on container ships in the Red Sea, impacting a vital trade route. Shipping leader Maersk forecasts disruptions lasting up to a year, with additional costs estimated at $1 million per vessel due to route changes. These delays and expenses raise worries of further price hikes for consumers, already grappling with inflation. Tesla has paused production due to delays in parts delivery, while Ikea warns of potential product shortages.

— Big terrorist fear: That the Houthis, or their backers in Iran, could turn to targeting undersea cables in the region that carry nearly all the data and financial communications between Europe and Asia. Link to details via Foreign Policy.

— President Joe Biden pushed back on a special counsel report that described him as an “elderly man with a poor memory” and chronicled repeated occasions where he has struggled to recall basic facts.

— Putin proposes swap of detained journalist for Russian assassin, denies interest in attacking Poland or Latvia. Vladimir Putin, Russia’s president, proposed a potential swap of Evan Gershkovich, a Wall Street Journal reporter detained in Moscow on spying charges, for a Russian assassin held in Germany. In an interview with Tucker Carlson, his first with Western media since invading Ukraine, Putin denied interest in attacking Poland or Latvia and urged America to halt its armament of Ukraine.

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