Evening Report | July 14, 2023
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Your Pro Farmer newsletter is now available... USDA didn’t cut new-crop soybean carryover as much as expected in the July Supply & Demand Report, which triggered knee-jerk selling. But the market bounced back, signaling traders feel USDA should have cut its soybean yield projection. The corn data was mostly neutral, as the cut to projected yield offset much of the increase in acreage, which caused corn to be a follower – in both directions. The wheat data was bearish compared to pre-report expectations, though spring wheat crop concerns in the U.S. and Canada allowed the market to avoid sustained selling after the report. While conditions have improved since late June, the drought footprint is still wide, meaning traders will continue to closely monitor weather developments and forecasts. On economic front, U.S. consumer and producer price inflation fell to multiyear lows, causing traders to increase odds the Fed will raise interest rates one more time later this month and then pause the monetary tightening, which triggered a sharp selloff in the U.S. dollar. We cover all of these items and much more in this week’s newsletter, which you can access here.
Black Sea grain deal down to 11th hour – again... Russia has not made any statements on the extension of the Black Sea grain deal, Interfax news agency reported. Earlier today, Turkish President Tayyip Erdogan said he was in agreement with Russia’s President Vladimir Putin that the deal should be extended. Some reports construed Erdogan’s comments to mean an extension of the deal was forthcoming. But Russia continue to insist it would only extend the deal if there are concessions. United Nations Secretary-General Antonio Guterres is still waiting for a response from Russian President Vladimir Putin on a proposal to extend the deal in exchange for connecting a subsidiary of Russia’s agricultural bank to the SWIFT international payment system.
U.S. Secretary of State Antony Blinken on Friday pushed for Russia to extend and expand the Black Sea deal, accusing Moscow of using the agreement “as a weapon” by threatening to end it. “If Russia is not going to end its horrific war of aggression against Ukraine, at the very least it could extend the Black Sea Grain Initiative so that these food products can get out to the world, keeping prices down, keeping supply up,” Blinken said.
Perspective: There could be several twists and turns on this front during the weekend as seemingly all entities except Russia are clamoring for an extension. Even if the deal ends, Black Sea grain exports would continue, though there would just be more uncertainty with shipments.
U.S. export, import prices fall in June... Prices for U.S. exports decreased 0.9% in June, after declining 1.9% the previous month. Prices for agricultural exports fell 1.6% in June following a 2.4% decline the previous month. Lower prices in June for soybeans, fruit and nuts more than offset higher meat prices. Compared to June 2022, export prices fell 12.0%, with the price of agricultural exports down 9.8%, the largest annual decline since March 2016.
U.S. imports dropped 0.2% last month following a 0.4% decline in May. Compared to June 2022, import prices dropped 6.1%.
Global trade landscape continues to face difficulties... World goods trade fell by 1.4% in April and was 3.5% below its peak in September. Exports have generally suffered across the world, except in regions dominated by the Commonwealth of Independent States (CIS) led by Russia, and in China. A leading exports index indicates the contraction has been ongoing for more than a year, hinting at prolonged economic struggles. Consistent high inflation and escalating interest rates are continuing to affect consumer demand negatively, particularly for goods that were in high demand during the pandemic, such as electronics and furniture, many of which were sourced from Asia. However, one positive aspect amid these difficulties is the reduction of freight rates, which in some instances, are reported to have dropped below pre-pandemic levels. But overall, the outlook for a swift recovery in global trade remains bleak, given the current economic factors, according to trade analysts.
U.S. consumer sentiment soars to 22-month high... Preliminary data indicates U.S. consumer sentiment in July jumped to the highest level since September 2021. The University of Michigan’s index of consumer sentiment rose 8.2 points (12.7%) from the previous month and soared 21.1 points (41.0%) versus July 2022. Both the index of current conditions and index of consumer expectations posted notable increases.
Surveys of Consumers Director Joanne Hsu said, “All components of the index improved considerably, led by a 19% surge in long-term business conditions and 16% increase in short-run business conditions. Overall, sentiment climbed for all demographic groups except for lower-income consumers. The sharp rise in sentiment was largely attributable to the continued slowdown in inflation along with stability in labor markets.”
Protecting U.S. farmland... Members of the House Select Committee on the Chinese Communist Party proposed a bipartisan bill titled the Protecting U.S. Farmland and Sensitive Sites from Foreign Adversaries Act. This bill aims to expand the scope of the Committee on Foreign Investment in the U.S. (CFIUS), enabling them to consider U.S. food security during reviews specifically regarding any potential impact of foreign acquisition of agriculture-related biotechnology. The bill emphasizes that certain foreign transactions, particularly those related to real estate purchases near sensitive locations, would compel the respective foreign governments or residents to mandatorily file CFIUS reviews. Nations specifically mentioned in this context include China, Cuba, Iran, Russia and Venezuela, but only under Nicolás Maduro’s rule.
The bill would necessitate the Secretary of Agriculture to vote on any transactions involving farmland or agricultural tech but refrains from making him or her a definitive member of the CFIUS. Another addition suggested by the bill is creating a "presumption of non-resolvability," implying the inevitability of a review for transactions near military locations with unresolved national security concerns. The list of sensitive locations will be expanded to include all military bases, university-linked research centers funded by defense, critical telecommunication nodes, intelligence sites, and other sensitive locations.
Perspective: The issue of farmland purchases, especially by China, has bipartisan support in Congress, so some type of farmland security bill will eventually pass.
