Evening Report | March 21, 2024

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Upper Midwest will remain area of concern through spring... The extended forecast from the National Weather Service calls for elevated chances of above-normal temperatures for April-June across much of the country, including most of the major corn and soybean production areas. The exception is far western/northwestern areas of the Corn Belt, which are expected to see “equal chances” for normal, above-normal and below-normal temps. The 90-day outlook calls for above-normal precipitation over the southeastern quadrant of the country, including the southern Corn Belt, Mid-South, Delta and Southeast. Above-normal precip is also expected over most of Nebraska and Kansas and all but northeastern South Dakota. The northern and far northwestern Corn Belt is expected to see “equal chances” for precip. An area of below-normal precip is likely in the far southwestern Plains, including much of the Texas Panhandle and West Texas.

The Seasonal Drought Outlook calls for drought to persist across much of Iowa, though some improvement is likely in southwestern areas of the state. Drought is also expected to persist across most of Minnesota and a large portion of Wisconsin.

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Winter wheat drought footprint down to 12%... As of March 19, the U.S. Drought Monitor showed 44% of the U.S. was covered by abnormal dryness/drought, down two percentage points from the previous week. USDA estimated 12% of U.S. winter wheat areas were covered by drought, down two points from the previous week.

In HRW areas, dryness/drought covered 66% of Kansas, 34% of Colorado (virtually none in wheat-heavy eastern areas of the state), 44% of Oklahoma, 46% of Texas, 39% of Nebraska (all in the eastern half of the state), 63% of South Dakota and 95% of Montana.

In SRW areas, dryness/drought covered 89% of Missouri, 47% of Illinois, 14% of Indiana, 5% of Ohio, 74% of Michigan, 17% of Kentucky and 35% of Tennessee.

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Big jump expected in February cattle placements... USDA’s Cattle on Feed Report Friday afternoon is expected to show the March 1 feedlot inventory up 0.9% from year-ago at 11.755 million head. That would be the sixth straight month of year-over-year increases in feedlot numbers. After a sharp drop in the number of calves moved into feedlots in January, placements last month are expected to have jumped 6.4% from last year. Marketings are expected to be up 3.8%. The extra day for leap year likely helped inflate both placements and marketings.

Concerns expressed about Chinese purchases of U.S. farmland... The House Ag Committee held a hearing on Wednesday addressing concerns about China’s purchases of U.S. farmland, with both Democrats and Republicans expressing worry about potential threats to national security. Although there was no consensus on how to address the issue, measures have been taken, such as including provisions in a fiscal 2024 spending bill to better track foreign purchases of agricultural land, particularly those from China, Russia, North Korea and Iran.

Concerns were raised about the risks posed by such purchases near military installations. Despite bipartisan agreement on the issue, there were differences in approach, with Republicans emphasizing the need to protect U.S. interests while Democrats cautioned against overreaction that could lead to discrimination.

Nova Daly, former deputy assistant secretary for investment security at the Treasury Department under President George W. Bush, warned lawmakers that farmland purchases near U.S. military installations “present clear and pressing risks to U.S. national security.” Improved tracking of such foreign purchases under the fiscal 2024 spending measure was a good first step, Daly said, highlighting provisions adding the agriculture secretary to the Committee on Foreign Investment in the United States, an interagency panel tracking foreign transactions. But Congress should strengthen those provisions to give that foreign investment committee more tools to prioritize “time sensitive” purchases where they pose significant national security concerns, he testified at the committee hearing.

The debate also touched on the broader implications for trade relations with China and the potential impact on U.S. agriculture. Some states have taken steps to restrict foreign ownership of farmland, with South Dakota recently enacting legislation targeting specific nations. However, there are concerns within the agriculture industry about the potential for a trade war and the negative impact it could have on exports, particularly soybeans.   

Josh Gackle, President of the American Soybean Association (ASA), emphasized the importance of maintaining economic ties with China while addressing geopolitical concerns. Soybeans are a significant U.S. export, with China being the largest market. Gackle highlighted the devastating effects of tariffs imposed during the trade war, which led to a sharp decline in soybean exports to China and significant financial losses for farmers. Despite the resumption of shipments through tariff exclusions, uncertainties remain, posing risks to farmers and exporters. Gackle urged policymakers to protect market access in China and pursue measures to support U.S. agriculture, including maintaining China's Permanent Normal Trade Relations (PNTR) status, passing a comprehensive farm bill, and engaging in negotiations for free trade agreements. He emphasized the importance of certainty for soybean growers amid ongoing geopolitical issues and trade uncertainties.

Rep. Mike Gallagher (R-Wis.), who chairs the Select Committee on the Chinese Communist Party, said he believes the agriculture sector is China’s next target. “The CCP’s acquisition of land in the United States, its investments in U.S. agricultural technology, and its collection of U.S. farm data and trade secrets represent offensive maneuvers designed to degrade U.S. preparedness and competitiveness,” he said.

CBO budget baseline warns of escalating debt, budget deficits... The Congressional Budget Office’s (CBO) March 2024 Long-Term Budget Outlook forecasts a significant increase in federal debt held by the public, reaching 166% of Gross Domestic Product (GDP) by the end of 2054, more than double pre-pandemic levels. Under this outlook, deficits are expected to escalate rapidly over time, with the budget deficit projected to grow from 5.6% of GDP in fiscal year (FY) 2024 to 8.5% of GDP ($7.3 trillion) in 2054. This represents over two times the historical average of 3.7% of GDP.

The persistent gap between spending and revenue is cited as the primary driver of the projected debt and deficits. Spending is expected to rise significantly, particularly in areas such as Social Security, healthcare, and interest costs, growing from 23.1% of GDP in FY 2024 to 27.3% in 2054. Meanwhile, revenue growth is projected to be more gradual, increasing from 17.5% of GDP to 18.8% over the same period.

CBO also warns of the exhaustion of reserves in four major federal trust funds over the next three decades, including the Highway Trust Fund, Social Security and Medicare. This depletion of reserves poses additional challenges to the long-term fiscal outlook.

Of note: CBO’s projections are based on current law assumptions, which include the phasing out or expiration of certain tax and spending provisions. However, alternative scenarios could result in even faster debt growth.

Rising debt levels carry various risks and threats to the budget and economy, including slower income growth, increased interest payments, upward pressure on interest rates, limited fiscal space for emergencies and a burden on future generations.

BOE keeps rates unchanged... The Bank of England (BOE) maintained its benchmark interest rate at 5.25%, its highest level since 2008, as policymakers awaited clearer signals indicating that the country’s persistent inflationary pressures had subsided. The announcement came a day after data revealed the nation’s consumer inflation rate had dropped to 3.4%, its lowest level in almost two-and-a-half years.