Evening Report | December 26, 2023

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Brazil’s Mato Grosso harvests early, second cotton planting advances…Grain growers in Brazil’s main agricultural state began reaping their soybeans from the 2023-24 cycle, a season marked by hot and dry weather that accelerated the crop cycle and hurt yields, farmers said.

Through last Friday, producers in the state had harvested around 1% of the planted area in Mato Grosso, or 121,000 hectares, according to farmer-backed research firm Imea. The data suggests the earliest known start of the soy harvest in Mato Grosso.

Others invested in early planting of second-cotton, which is sowed after the soy in the same areas and represent about 85% of production in the state.

El Niño threatens rising prices for sweet raw materials…The El Niño weather pattern, characterized by a rise in sea temperatures in the eastern Pacific, is causing concerns about the cost of certain raw materials, especially those with a sweet taste. This pattern has led to extreme weather conditions and supply issues, causing futures contracts for orange juice, cocoa, coffee, and sugar to surge in price. El Niño is a natural climate phenomenon associated with increased storms and droughts. Rabobank, an agribusiness bank, predicts that major sugar-exporting countries like Thailand, India, and Australia will be heavily affected by El Niño. However, the global impact of these disruptions may take some time to fully materialize.

Office of the U.S. Trade Representative (USTR) has extended the exclusions on Section 301 tariffs on Chinese goods…These exclusions, which were previously set to expire on Dec. 31, have now been extended through May 31, 2024. Additionally, USTR has announced the opening of a public comment docket on Jan. 22 for existing exclusions. The purpose of this extension is to facilitate a structured transition as the exclusions come to an end. It will also consider cases where there is evidence that additional time might lead to changes in sourcing to the United States or other countries, aligning with statutory factors and objectives. This extension will play a role in coordinating further decisions on these exclusions within the context of the ongoing four-year review process.

China grants licenses for GMO corn and soybean production…China granted licenses to 26 domestic seed companies including Beijing Dabeinong Technology and China National Seed, allowing them to produce, distribute and sell GMO corn and soybean seed in specific provinces.

This development is seen as a significant step toward enabling commercial cultivation of GMO corn and soybeans in China.

Approximately 670,000 hectares (1.66 million acres) of GMO corn are planned for planting across eight provinces. However, it’s worth noting that the Chinese government continues to maintain tight control over the GMO seed industry.

Experts anticipate that China's economic growth will slow down in the upcoming year…with a projected rate of 4.6%, following this year's expected expansion of 5.2%. Several factors contribute to this slowdown, including a slump in the real estate market and stagnant consumption.

A survey of 25 China specialists revealed that most expect this year's growth to be in line with Beijing's official target of around 5%. Additionally, 12 out of 19 economists who provided growth forecasts in the previous poll have raised their outlook.

However, there are concerns about the property sector's impact on economic growth. S&P Global Ratings predicts a 4.6% growth rate for 2024 but suggests a downside scenario of 2.9%, particularly depending on developments in the property sector. The sluggish housing market and weak consumer confidence are among the top risks cited by economists. Concerns also revolve around Beijing's ability to implement effective stimulus measures. China's troubled real estate sector remains a significant challenge, with major indebted developers facing financial difficulties. Banks are hesitant to provide additional loans without clear regulations in place.

To address local governments' financial challenges due to a drop in land rights sales, Beijing issued new government bonds. However, there are doubts about the effectiveness of these measures, with concerns that the ability to support the economy through public investments may have limits.

On the currency front, economists expect the yuan (renminbi) to gradually rebound, influenced by expectations of U.S. Federal Reserve rate cuts in the coming year.

Geopolitical tensions, such as those between the U.S. and China, continue to pose risks to the Chinese economy. Demographic challenges, including a declining population and youth unemployment, also affect the economic outlook.

In the long term, experts predict notable slowing of Chinese economic growth due to demographic factors, deleveraging, and de-risking, with real GDP growth slowing to 3% by 2034.

China’s yuan is quietly gaining ground. A surge in the global use of the Chinese currency could complicate the impact of any future Western sanctions. Link for details via the WSJ.

Massachusetts seeks dismissal of Q3 animal welfare law challenge…The state of Massachusetts has requested the dismissal of a lawsuit challenging its Question 3 (Q3) animal welfare law. They argue that Triumph Foods' complaint lacks merit as the company cannot demonstrate harm resulting from the related regulations. The Q3 standards, which regulate pork sold in Massachusetts, came into effect on Aug. 24. Triumph Foods claims that Q3 violates the Commerce Clause and other provisions of the U.S. Constitution.

U.S. District Judge William Young previously rejected most of the complaint in October but maintained a claim that the law discriminates against out-of-state producers. Massachusetts, in its motion to dismiss on Dec. 18, pointed out that all Triumph products are sold through Seaboard Foods under a 2004 agreement. State officials argued that Triumph has not proven that Seaboard cannot continue to meet its obligations under the agreement despite Massachusetts' policies. Therefore, they contend that the entire amended complaint should be dismissed for lack of jurisdiction.