Evening Report | April 19, 2023

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Fed’s Beige Book provides economic update… In its National Summary, the Fed stated that overall economic activity was little changed in recent weeks, with expectations of future growth mostly unchanged as well. Consumer spending was generally seen as flat to down slightly amid continued reports of moderate price growth. Employment growth moderated during the period with several Districts reporting a slower pace of growth than in recent Beige Book reports. Overall prices rose moderately during the reporting period, though the rate of price increases appeared to be slowing.

Fed’s District agriculture summaries… Atlanta: Agricultural conditions were mixed. Domestic supplies of chicken exceeded demand as the Avian Flu limited exports. Though foreign demand for poultry improved as some countries loosened import regulations. Demand for eggs exceeded supply but softened in response to elevated prices. Cattle supply remained low, and beef producers expressed concerns that falling chicken prices may cause consumers to substitute chicken for beef. Demand for cotton and soybeans fell from already low levels. Reduced cotton plantings are expected this year as discretionary spending softens.

Chicago: With input costs remaining elevated and many product prices down, lower agricultural incomes are expected in 2023 compared with a strong 2022. Cattle prices increased as the U.S. herd was squeezed by a harsh winter. Egg prices rose while dairy and hog prices moved lower. Prices for agricultural land continued to increase, reportedly at a slower pace.

St. Louis: District agriculture conditions changed little from the previous report. Acres planted to corn, cotton, rice and soybeans increased around 1% compared with last year; outcomes were similar for all District areas. Cotton and soybeans were planted in lesser quantities, while corn and rice acreages increased.

Minneapolis: Agricultural conditions were stable at strong levels entering the planting season. Most contacts reported farm incomes continued to increase from a year earlier, while capital spending was steady. Though persistent wintry weather, including a severe snowstorm, has delayed preparation for spring planting in many areas.

Kansas City: The tenth District reported strong economic and credit conditions, noting elevated commodity prices continue to support profit opportunities for many producers. Farm loan repayment rates improved at a gradual pace in the first quarter and indicators of credit challenges were limited. Agriculture bankers throughout the region reported their liquidity position was adequate to meet current demand and deposit withdrawals, though the impact of higher interest rates on borrower finances and farmland markets is a growing concern. More broadly, drought and elevated production costs continued to affect many areas of the region.

Dallas: Drought conditions persisted in the western part of the district while soil conditions were quite favorable elsewhere. The La Niña pattern has ended, and rainfall is expected to increase moving into summer and fall. Cotton acres are expected to be significantly lower this year, with producers favoring crops with a relatively higher price and drought tolerance. Cattle prices increased dramatically over the past six weeks and were up from the same time last year, with demand remaining solid.

San Francisco: Activity in agriculture and resource-related sectors decelerated slightly. Exports of agricultural goods weakened, while domestic demand was mixed. Growers in the Pacific Northwest reported weaker sales overall, producers in California reported strong, stable demand for fresh produce and other agricultural goods. Persistent rains and flood conditions in California affected plant pollination, delaying the planting of crops such as tomatoes and cotton and casting doubt on the viability of some orchard crops.

Moffitt: USDA focused on eradicating bird flu, preventing ASF from reaching America... USDA Undersecretary for Marketing and Regulatory Programs Jenny Lester Moffitt told lawmakers the agency remains focused on eradication to tackle the ongoing Highly Pathogenic Avian Influenza (HPAI) outbreak. “At this stage of the outbreak, continuing our current strategy of eradication or ‘stamping out’ HPAI is our best and most effective option,” she said during a House Agriculture Subcommittee on Livestock, Dairy and Poultry hearing Tuesday.

She noted USDA’s Agricultural Research Service (ARS) continues to work on developing a vaccine effective against the currently circulating strains of the virus. “This work is ongoing, and it will still be a while before a vaccine could be commercially available and easily applied. Even then, there would be many factors we would weigh before authorizing its use, especially with respect to the likely trade impacts of a vaccination campaign,” she said, adding that discussions with stakeholders and trade partners on the issue are ongoing.

Regionalization agreements have proven to be an effective tool for mitigating the trade impacts of the current HPAI outbreak, Moffitt noted.

House Republicans will reportedly propose to lift the debt limit by $1.5 trillion or until March 31, 2024, whichever comes first. House GOP leadership plans to release text of the bill today.

Details: House Republicans’ debt limit bill would pair a $1.5 trillion increase in the debt ceiling with $4.5 trillion in savings, Speaker Kevin McCarthy (R-Calif.) said Wednesday. The bill unveiled Wednesday, dubbed the Limit, Save, Grow Act, proposes reverting discretionary spending for non-defense programs to fiscal year 2022 levels, while proposing limiting growth to 1% annually over the next decade.

McCarthy comments…“Now that we’ve introduced a clear plan for Responsible debt limit increase, they have no more excuse and refuse to negotiate,” McCarthy said on the House floor.

 Ahead of the bill’s release, McCarthy said it would help lead to $4.5 trillion in savings for taxpayers…partly through spending cuts, clawing back unspent coronavirus funding previously allocated by Congress and targeting the Biden administration’s student loans forgiveness decision. The bill additionally includes measures targeting aspects of the Inflation Reduction Act, a signature piece of Biden’s domestic agenda that Democrats passed without GOP support last year. It would pull roughly $70 billion in an IRS funding boost and end that legislation’s “green giveaways,” McCarthy said in an apparent reference to green energy tax credits.

Next step: The bill is expected to get a floor vote next week, with McCarthy telling reporters on Wednesday that he’s confident about the bill’s chances of passage in the days ahead. Estimates vary as to when the nation will reach the so-called “X-Date,” but some projections say the country faces a possible default threat as early as mid-June. 

Bipartisan House Caucus proposes suspending debt limit through the end of the year…A bipartisan group of moderate House lawmakers on Wednesday proposed a backup plan to set aside the U.S. debt limit through year-end, in case President Joe Biden and House Speaker Kevin McCarthy (R-Calif.) fail to reach a deal on a longer-term solution in the coming weeks. By suspending the debt limit until Dec. 31, “this will afford us time” to complete the 2024 annual federal appropriations bills and pull together a longer-term deficit-stabilization program, the House Problem Solvers Caucus said in their release. The caucus includes 31 Republicans and 32 Democrats and is chaired by Reps. Josh Gottheimer (D-N.J.) and Brian Fitzpatrick (R-Pa.).

A look back at highlights of the 2018 Farm Bill…The 2018 Farm Bill was formally known as the Agriculture Improvement Act of 2018. It was signed into law on Dec. 20, 2018. Here are some key highlights of the bill:

Commodity Programs: The bill maintained the Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) programs that provide financial support to farmers in case of low crop prices or revenue losses. It also increased loan rates for certain commodities, such as peanuts and cotton, to provide better support. The 2018 Farm Bill did make some changes related to cotton, such as the inclusion of "seed cotton" (unginned cotton that includes both the lint and seed) as a covered commodity under Title I, making it eligible for PLC and ARC programs. Prior to the 2018 Farm Bill, cotton was put back into the Title 1 program via a funding bill (cotton was taken out of Title I in the 2014 Farm Bill).

Dairy Programs: The bill created the Dairy Margin Coverage (DMC) program, which replaced the previous Margin Protection Program (MPP). This new program offers improved coverage and more affordable premiums for dairy farmers.

Conservation: The Conservation Reserve Program (CRP) acreage cap was increased from 24 million to 27 million acres, with a focus on incentivizing environmentally beneficial practices. The bill also streamlined and consolidated various conservation programs, such as the Environmental Quality Incentives Program (EQIP) and the Conservation Stewardship Program (CSP).

Hemp Legalization: The 2018 Farm Bill removed hemp from the list of controlled substances, making it an agricultural commodity and allowing farmers to grow, process, and sell hemp products, such as CBD oil.

Trade and Exports: The bill strengthened export promotion programs, such as the Market Access Program (MAP) and the Foreign Market Development (FMD) program, to help expand market opportunities for American agricultural products.

Nutrition: The bill maintained the Supplemental Nutrition Assistance Program (SNAP), such as increased funding for employment and training programs. It did not include the stricter work requirements initially proposed by some legislators. The 2018 Farm Bill required USDA to re-evaluate the Thrifty Food Program (TFP) by 2022 and every five years thereafter; TFP represents the lowest cost of a nutritious diet for a “reference” household. The cost of TFP is used to determine the maximum SNAP benefit; 2021 re-evaluation resulted in a 21% increase. Top Republicans on the House and Senate Ag panels slammed the TFP increase.

Rural Development: The bill provided funding for rural broadband initiatives, aiming to improve internet access in rural areas. It also supported programs addressing rural opioid abuse and rural mental health issues.

Research and Innovation: The bill provided increased funding for agricultural research, including the creation of new research initiatives such as the Agriculture Advanced Research and Development Authority (AGARDA).

India will overtake China as most populous country... India is on its way to become the world’s most populous country, overtaking China with almost 3 million more people in the middle of this year, data released by the United Nations showed. The report estimates India’s population at 1.4286 billion against 1.4257 billion for China this year. The United States is a distant third, with an estimated population of 340 million.

German Foreign Minister warns Beijing becoming systemic rival… Reuters reports (link) German Foreign Minister Annalena Baerbock “on Wednesday described parts of her recent trip to China as “more than shocking” and said Beijing was increasingly becoming a systemic rival more than a trade partner and competitor. The blunt remarks followed Baerbock’s visit to Beijing last week where she warned that any attempt by China to control Taiwan would be unacceptable.” In remarks to the lower house of Germany’s parliament, the Bundestag, Baerbock said “some of it was really more than shocking.”