Evening Report | February 12, 2024

Check our advice monitor on ProFarmer.com for updates to our marketing plan.

Cotton producers: Increase old-crop sales... Cotton futures remain overbought, despite today’s corrective pullback. While there could be more upside potential, funds actively added to their net long position last week and the increased volatility on the daily price chart suggests a market top could be in the works. We advise cotton hedgers and cash-only marketers to sell another 10% of 2023-crop in the cash market to get to 80% priced. We are willing to give new-crop futures an opportunity to extend further to the upside before advancing 2024-crop sales.

Argentina weather takes a big turn for the better... After excessive heat and dryness caused crop stress late last month and the first days of February, relief came via rains and cooler temps last week. Additional rainfall is expected this week. World Weather Inc. says, “A frontal boundary will bring the first round of rain to the region today and Tuesday. After a period of drier weather Wednesday into Friday, scattered showers will evolve over the weekend. Additional rain this week will help keep soil moisture near current levels in the south while bolstering moisture across northern and west-central Argentina. The environment will either improve or remain favorable for the coarse grains, oilseeds, cotton and other crops. Production potential will remain mostly unchanged.”

Argentina loses some soybean acres to extreme heat... The Rosario Grain Exchange said 100,000 hectares of soybeans in Argentina’s core production area were lost due to “irreversible stress symptoms” after extreme heat that lasted two weeks. The figure is equivalent to 10% of double-crop soybeans planted after wheat. The exchange estimated 500,000 hectares in total in that core zone were in fair to poor condition, with one-fifth of that amount considered to be lost. The fair-to-poor rating went from 10% to 26% in a week. It noted 40% of the area is in good condition and 10% was very good.

A recovery of crops depends on how much and when it rains in the region, the exchange noted.

Russia proposes increase to grain export quota... Russia’s agriculture ministry proposed to increase the grain export quota for this year to 28 MMT, Russian news agency Interfax reported, citing a draft government decree. An additional quota of 4 MMT of grain will be added to the current quota of 24 MMT, Interfax reported.

Ukraine seeks action over Polish farmers for grain spillage... Kyiv urged Warsaw on Monday to “hold to account” Polish farmers for stopping three trucks at a border crossing between Poland and Ukraine and spilling the Ukrainian grain they were carrying. Sunday’s incident near the Yahodyn-Dorohusk checkpoint, reported by the Polish news agency PAP, was during a wider protest by Polish farmers against European Union agriculture policies, including allowing cheap grain imports from Ukraine.

“The spoiling of Ukrainian grain on the Polish border is unacceptable. Any farmer should know how much hard work it takes to produce grain, especially during wartime,” Ukrainian Foreign Minister Dmytro Kuleba wrote on X (formerly Twitter). “For the sake of friendly Ukrainian-Polish relations, the perpetrators of this provocation must be held to account.”

As we reported in “First Thing Today,” Poland plans to start quality checks on all grain shipments from Ukraine as Polish farmers continued nationwide protests against EU policies, including allowing grain imports from the neighboring country.

CBO releases new baselines for USDA’s mandatory funded programs... The Congressional Budget Office (CBO) last week released a new baseline for USDA mandatory funded programs – that will not likely take place until May it appears. The report forecasts the projected cost of certain programs over the next 10 years. CBO is forecasting the Price Loss Coverage (PLC) program, which triggers payments when market prices fall below certain reference prices, will cost $28 billion from 2024 through 2034. The previous 2023-2033 forecast, issued last May, projected $33.1 billion. The Agriculture Risk Coverage program is now projected to cost $15.6 billion, down from the $28.4 billion forecast for 2023-33.

CBO also raised its forecast for spending through the Commodity Credit Corporation (CCC) by about $5 billion over the next 10 years. Key leaders have suggested capping or eliminating USDA’s Section 5 authority under the CCC in the next farm bill, which would give Congress a greater say in how the funds are used by any given administration and could save $8 billion over 10 years.

Rice producers and risk management... A Southern Ag Today article shows how rice producers face lower production risk compared to other crops but still grapple with price risk. Traditionally, they’ve relied on government programs like Price Loss Coverage (PLC) but while some crops are expected to see an increase in the Effective Reference Price driven by a higher Olympic average marketing year average price (e.g., corn and soybeans), the ERP for rice is expected to remain at the Statutory Reference Price of $14.00/cwt. The 2024-25 marketing year average price will likely not fall below $15.00 per cwt. based on the average of the November 2024, January 2025 and March 2025 Rough Rice futures contracts, suggesting the PLC program will likely not trigger a payment for rice. The article suggests combining PLC with area crop insurance like Supplemental Coverage Option (SCO) and Enhanced Coverage Option (ECO) to mitigate price risk further. This strategy offers downside protection while allowing for higher price guarantees.

Malanga comments on economy, Fed policy... Dr. Vince Malanga, president of LaSalle Economics, says companies are embracing a motto of “doing more with less,” focusing on cost-cutting measures and spending discipline to improve performance. This emphasis on efficiency, he says, is driven by the need to justify new projects amid tighter financial conditions and the increasing adoption of AI technology for streamlining operations.

Despite what Malanga says is Federal Reserve Chair Powell’s reluctance to acknowledge a productivity revival, data shows a significant increase in nonfarm productivity, with current indicators suggesting continued strength. This productivity growth, coupled with moderate wage increases and commodity prices, is expected to support profit margins and help alleviate inflation pressures in the short term.

However, Malanga notes that concerns remain about potential economic shocks, such as China’s deflation and global real estate issues.

The Fed’s policy decisions, heavily reliant on economic data, risk overlooking the positive trend of cost discipline and excess capacity, which Malanga says could lead to restrictive policies hindering growth. Adapting policy to align with improving productivity would be beneficial for economic growth and federal finances. While the Fed typically follows market cues in policy changes, Malanga says proactive adjustments like rate cuts or modifications to quantitative tightening could ease liquidity strains and support government borrowing needs, preventing a worse outcome amid looming debt refinancing challenges.

Highlights of February NABE Economic Policy survey... The National Association for Business Economics (NABE) survey this month revealed the following.

• Fiscal policy views align with previous surveys, with a slight increase (57%) in respondents believing it’s “too stimulative” compared to August 2023 (54%) and March 2023 (53%).
• Most respondents view monetary policy as “about right,” but there’s a shift in those who see it as “too stimulative” (8%, down from 12% in August 2023) and “too restrictive” (21%, up from 14% in March and August 2023).
• A majority predicts elevated CPI inflation, with 67% foreseeing it staying above 2.5% through 2024.
• Only 25% expect a recession in 2024, with 24% already perceiving it or predicting it in different quarters, while 22% anticipate it in 2025 and 36% in 2026 or later.
• Concerns about geopolitical and economic risks include the Middle East conflict affecting oil prices and supply chains, a stagnant Chinese economy, and U.S. election instability, with around 50% seeing substantial probability for each event.