Evening Report | March 14, 2024

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U.S. switches calculation method for China’s soy imports... USDA has started using global exporters’ data to estimate China’s soybean imports because a wide gap emerged between shipping figures from producing nations and Chinese customs data, a USDA official told Reuters. Chinese customs data that USDA historically used to estimate imports had previously aligned with export data from producers like the U.S. and Brazil, said Joanna Hitchner, who oversees soybean supply and demand estimates for USDA’s World Agricultural Outlook Board. But the numbers began deviating in 2023, and USDA this month increased its estimate for China’s 2022-2023 imports by 3.6% from February to reflect exporters’ data, she said. Hitchner said she did not know why Chinese import data and exporters' data diverged.

USDA this month also increased its estimates for China’s soybean crush from 2020-21 to 2022-23, following a years-long review of in-country estimates and supply data. “We don’t take changing our methodology lightly,” Hitchner said. “This is a very thought-out move for the crush.”

With such a wide variance between USDA and Conab on Brazil’s soybean and corn crop estimates, we asked Hitchner about forecasting production there and whether changes to that process are also needed. We’ll report those details if/when she or someone else at USDA responds.

Brazil looking to use Peruvian port for ag exports... Brazil is interested in exporting soybeans, corn and other products through Peru’s Chancay port, Peruvian Economy Minister Jose Arista said, according to state news agency Andina. Brazilian Planning Minister Simone Tibet visited the port, which is still under construction, earlier this week and spoke with Arista about the possibility of using it as an export route. Majority owner Cosco Shipping Ports has said the port is set to open at the end of this year.

IGC expects record global grain, soybean production in 2024... The International Grains Council’s (IGC) initial forecast for 2024-25 projects global grain production rising to 2.332 billion MT, up 28 MMT from last year. The increase was fueled by an expected 11-MMT jump in global wheat production to 799 MMT and a 6 MMT rise in the global corn crop to 1.233 billion MT.

IGC expects 2024-25 global soybean production to surge 23 MMT to a record 413 MMT.

Despite the bigger production projection, global wheat ending stocks are expected to decline 3 MMT to 262 MMT in 2024-25. Global corn and soybean ending stocks in 2024-25 are projected to increase 11 MMT and 10 MMT, respectively, with carryover pegged at 297 MMT for corn and 75 MMT for soybeans.

Slight shift in winter wheat drought; up in HRW areas, down in SRW states ... As of March 12, the U.S. Drought Monitor showed 46% of the U.S. was covered by abnormal dryness/drought, down one percentage point from the previous week. USDA estimated 14% of U.S. winter wheat areas were covered by drought, unchanged from the previous week, as increases in HRW areas were offset by drought improvements in SRW states. There is virtually no D3 or D4 drought in winter wheat areas.

In HRW areas, dryness/drought covered 62% of Kansas, 33% of Colorado (none in wheat-heavy eastern areas of the state), 45% of Oklahoma, 49% of Texas, 32% of Nebraska (mostly in southeast and east-central areas), 47% of South Dakota and 95% of Montana.

In SRW areas, dryness/drought covered 96% of Missouri, 56% of Illinois, 38% of Indiana, 13% of Ohio, 79% of Michigan, 15% of Kentucky and 50% of Tennessee.

Click here to view related maps.

U.S. producer prices rise more than expected.... The U.S. producer price index (PPI) for final rose 0.6% compared to the previous month, which is the largest monthly increase since August 2023, surpassing market expectations of a 0.3% increase. The increase was driven primarily by a surge in goods prices, which rose 1.2%, marking the highest increase in six months. This surge in goods prices was mainly influenced by a significant 4.4% rise in energy costs and a 1.0% increase in food prices. On an annualized basis, PPI accelerated 1.6%, the largest gain since September.

Core PPI, which excludes food and energy costs, increased 0.3% from the previous month and 2.0% annually.

The PPI data is the last piece of the inflation puzzle available before the Federal Reserve’s March 19-20 rate-setting meeting. The Fed’s preferred inflation measure — the personal consumption expenditures price index – will be released after next week’s monetary policy meeting.

With consumer and producer inflation running hotter than expected, the Fed will keep interest rates unchanged next week. Traders continue to expect the first Fed rate cut to come in June, with two more reductions likely by year-end.

Canadian canola crush record-large in 2023... Statistics Canada reported that domestic processors crushed 10.523 MMT of canola last year, up 20% from the 8.769 MMT crushed in 2022 and surpassing the previous record of 10.29 MMT set in 2020. Canola oil production amounted to 4.422 MMT, an increase of 21.1% from 3.651 MMT in 2022.

Stats Can attributed the record 2023 crush to high prices and increased exports of canola oil. The bulk of Canadian canola oil exports goes to the U.S. amid rapidly expanding demand from the renewable diesel sector. Demand is ramping up in Canada as well, with annual renewable diesel production capacity expected to jump from less than 500 million liters currently to more than 4 billion liters by the end of 2027. Canadian canola crush capacity is set to grow, rising from the current 11.4 MMT to just over 17 MMT over the next five years.

Senate Ag GOP staff unveils report on conservation in new farm bill... The Republican staff of the Senate Agriculture Committee published a report on conservation in the farm bill. Senate Ag Committee Chairwoman Debbie Stabenow (D-Mich.) has said she is unwilling to reprogram conservation money in the Inflation Reduction Act (IRA/Climate Bill), but the GOP report says, “Any discussion about ‘protecting IRA resources’ that does not begin with prioritizing additional baseline for the conservation title risks missing out on this investment.”

The report discusses a potential bipartisan solution to address a looming “conservation cliff” resulting from IRA. This act allocated significant funds for climate-smart agriculture and forestry activities (CSAF), but these funds are set to expire by 2031, creating uncertainty for conservation efforts. The proposal suggests moving the IRA funds into the farm bill to create permanent funding streams for conservation activities.

Key takeaways from the GOP staff report include:

• Congress has an opportunity to increase funding for conservation, natural resource preservation, and wildlife habitat needs by moving IRA funds into a bipartisan farm bill.
• By reallocating IRA funds, there could be a substantial increase in conservation spending over the next 25 years, totaling more than $44 billion, which is three times larger than the expiring IRA resources.
• Moving IRA funds into the farm bill could represent a historic bipartisan investment, benefiting farmers, ranchers, foresters, conservationists and other stakeholders.
• By utilizing Section 257 of the Balanced Budget and Emergency Deficit Control Act of 1985, the new increased funding levels for conservation programs would continue into perpetuity, subject only to Congressional reauthorizations.
• The report suggests rescinding funding for IRA agriculture conservation programs in fiscal years 2025 and 2026, redirecting these funds to provide nearly $1.8 billion per year for local communities, farmers and ranchers for conservation efforts.
• The report emphasizes the urgent need for Congress to act to address the conservation cliff, highlighting the demand for conservation program spending that exceeds available funds.
• The proposal involves various stakeholders, including farmers, ranchers, foresters and conservationists, who rely on voluntary conservation programs to meet their local conservation needs.
• Redirecting IRA funds into the farm bill could help improve soil health, water quality and quantity, reduce greenhouse gas emissions and sequester carbon, contributing to the economic and environmental sustainability of farming for generations to come.

Nondefense programs spared from automatic cuts despite funding deadline uncertainty... The Congressional Budget Office (CBO) stated that nondefense programs won’t face automatic spending cuts even if Congress doesn’t pass its remaining six spending bills by the April 30 deadline. This forecast has significance in the funding dispute between Republicans and Democrats, potentially averting a partial government shutdown. According to CBO, defense programs could still face a 1% cut, amounting to a reduction of up to $11 billion. Initially, concerns arose that nondefense programs, including Democratic priorities, might face a larger cut, possibly up to 5% or $41 billion, based on earlier estimates.

However, a recent forecast from CBO, based on the six government funding bills passed by Congress last week, suggests that nondefense programs could be shielded from cuts. This development could provide Democrats with more leverage in the funding negotiations. President Joe Biden signed a package containing six of the 12 annual government funding bills over the weekend, providing full-year funding for several departments and offices.

These six bills were drafted based on a spending top-line agreement aligned with the bipartisan debt limit deal from the previous year. Currently, lawmakers are still negotiating the remaining six bills, which include funding for key departments such as Defense, Labor, Health and Human Services, Education and Homeland Security. In the interim, these offices are funded through a stopgap measure, maintaining spending at fiscal year 2023 levels.

Taking into account the stopgap measure and the funding bills passed last week, CBO stated that nondefense funding is $3 billion below the $736 billion cap, indicating that no sequestration of nondefense budgetary resources would be necessary. However, the final decision regarding whether sequestration is required and the calculation of any percentage reductions, rests with the Office of Management and Budget.