Evening Report | Aug. 3, 2021
Click here for weekly Commitments of Traders charts.
Check our advice monitor on ProFarmer.com for updates to our marketing plan.
CME/Purdue Ag Economy Barometer signals farmers nervous about rising input costs… After a sharp drop during May and June from April’s elevated level, the Ag Economy Barometer produced by CME Group and Purdue University stabilized during July at a reading of 134, down three points from June and the lowest reading in a year. This also marked a return to where sentiment readings generally held from 2017 to 2019. The index on current conditions fell six points in July to a reading of 143 as principal crop prices fell. The index on future expectations edged two points lower to 130.
The farm financial performance index rose three points to 99, which was down nearly 30% from its April peak but still well above year-ago. “Ag producers’ sentiment regarding their farms’ financial condition was more optimistic when prices for corn, soybeans, and wheat were surging last fall, winter, and early spring but viewed in a longer-run context, recent sentiment readings suggest farmers remain cautiously optimistic about financial conditions on their farms,” today’s report notes.
The farm capital investment index fell four points from June to July as producers reined in plans for farm building and grain bin purchases; machinery purchase plans also eased, with producers increasingly concerned about rising costs. Fifty-one percent of producers surveyed expect input prices to climb 4% or more over the next year. Thirty percent expect costs to soar 8% or more and 18% expect a 12% jump.
Farmers remain bullish about farmland values, though expectations are being tempered by increases already underway. Forty-seven percent of the corn and soybean growers surveyed expect cash rental rates to rise in 2022.
Brazil’s corn imports could triple this year… Brazil typically imports between 1.0 MMT and 1.3 MMT of corn each year, with the bulk of the grain trucked across the border from neighboring Paraguay, says South American Crop Consultant Dr. Michael Cordonnier. But this year’s small safrinha corn crop means Brazil may need to import 3.5 MMT to 4.0 MMT for 2021, forecasts the Brazilian Foreign Trade Secretariat, who adds the country has already imported 1.1 MMT of corn.
Brazilian corn imports from Argentina are already beginning to pressure domestic prices. But Cordonnier adds two things could change that scenario: “a problem with U.S. corn production, which would increase international corn prices, or a weakening of the Brazilian currency compared to the U.S. dollar, which would make corn imports more expensive.”
Brazil’s sugarcane crop also burned by frost… Brazil’s center-south sugar crop will likely total 34.6 MMT, estimates the brokerage StoneX. This is down 1.1 MMT from its May projection, as the firm believes frosts have shrunk the crop. That would be more than a 10% drop from last year’s record production. StoneX warned its sugar production forecast could slide further as the market is still working to get a handle on damage from three rounds of frost during June and July.
Cordonnier said an assessment by Conab indicates frosts have “significantly” impacted south-central Brazil’s sugarcane crop by burning off many leaves, with the crop already struggling due to drought. Producers are working to quickly harvest the damaged crop to avoid further deterioration and to stimulate regrowth, he reports.
Even before this latest weather hit, there was a push to lower the amount of ethanol blended into fuel from the current 27%. Further reduction in crop size and any resulting price rise could add fuel to that fire. Around 90% of Brazil’s ethanol is made from sugar cane with the rest coming from corn. Brazil’s corn crop has also been dramatically reduced by drought and frost.
Food vs. fuel debate resurfaces… Reuters reports that a trade group representing some of America’s biggest baked goods companies is urging the Biden administration to ratchet back its biofuel ambitions, arguing that using fuel made from crops could raise the cost of donuts, bread and other foods. It appears they are now taking on biodiesel because of a lack of oilseed supplies. The American Bakers Association told Reuters it met with the Environmental Protection Agency last week to urge the agency to reduce blending mandates, especially for biodiesel. They want the Biden administration to lower biodiesel blending mandates to 2019 levels or at least to “hold the line” on any growth, said Robb MacKie, president of the association. An EPA spokesman confirmed the meeting but did not provide any other details.
Around 40% of U.S. soy oil consumption goes into producing fuel; the remainder primarily goes into food, government data shows.
Carbon capture language included in infrastructure measure; more sought via reconciliation... Carbon capture backers got some of the provisions they want in the physical infrastructure bill moving in the Senate, but say they want to expand federal incentives in a budget reconciliation measure ahead. The $550 billion infrastructure bill includes the SCALE Act, which is touted as the biggest effort to date for scaling up projects that capture and store carbon dioxide. The legislation includes billions of dollars in demonstration projects to divert and store carbon dioxide, the most prevalent greenhouse gas.
Carbon capture developers and some environmental groups are pushing House and Senate leadership to make boosting the incentives a priority in any next round of legislative packages moving after infrastructure. That includes the $3.5 trillion reconciliation package.
U.S. construction spending inched ahead in June, supported by strong demand for housing… Most other segments — from energy and manufacturing to retail and office to highway and street construction — have been lagging through the pandemic. “The recovery remains uneven as supply chain disruptions and labor shortages constrain builders’ ability to move projects past the planning stages,” said Grant Thornton economist Yelena Maleyev. “The rise of the Delta variant [of Covid] will remain the number one risk to the outlook as it affects the return to offices and schools.”
China to auction imported corn from the U.S. and Ukraine later this week… China’s state grain buyer Sinograin announced it will auction nearly 220,000 MT of imported corn from the U.S. on Aug. 6. It will also auction nearly 50,000 MT of corn imported from Ukraine on that date. Recent auctions of imported grains from the two countries have been met with tepid demand. The auctions are part of China’s ongoing efforts to tame food price inflation.
Navigable waters rule pushed by Arkansas GOP senators… Senators John Boozman and Tom Cotton, both Republicans from Arkansas, offered legislation to codify former President Donald Trump’s 2020 Navigable Waters Protection Rule. The bill seeks to block EPA from imposing regulations along the same lines as what the senators call a “heavy-handed” Obama-era waters of the United States (WOTUS) rule, according to a joint statement. “As we repeatedly reminded the Obama administration, giving the federal government the authority to control virtually every ditch, pond and puddle on private land in Arkansas and nationwide is unlawful and will have terrible consequences. Now the Biden administration is determined to follow the same playbook,” Boozman said.
Tyson mandates vaccinations for its workforce, meatpacking union has some reservations… Tyson Foods announced it will mandate vaccinations for its workforce, a decision Chief Executive Donnie King said the company did not make lightly. “We have spent months encouraging our team members to get vaccinated – today, under half of our team members are.” This comes amid a surge in the Delta variant of Covid-19 and updated guidance from the U.S. Centers for Disease Control and Prevention that unvaccinated and fully vaccinated individuals in hot spots wear masks indoors.
Tyson said it is negotiating with unions about requiring vaccines for unionized workers who account for around a third of its hourly workforce. JBS USA is also holding talks with unions about vaccine mandates; the meat processor already requires vaccines for new corporate employees.
United Food and Commercial Workers International Union, the U.S.’s largest meatpacking union, says it is concerned about Tyson implementing a mandate before the U.S. Food and Drug Administration has fully approved vaccines.
New animal welfare rules could cause a bacon shortage in California... At the beginning of next year, California will begin enforcing an animal welfare proposition approved overwhelmingly by voters in 2018 that requires more space for breeding pigs, egg-laying chickens and veal calves. According to the Associated Press, while national veal and egg producers are optimistic they can meet the new standards, only 4% of hog operations now comply with the new rules. “That means that unless the courts intervene or the state temporarily allows non-compliant meat to be sold in the state, California will lose almost all of its pork supply, much of which comes from Iowa, and pork producers will face higher costs to regain a key market,” the AP item said.
