Evening Report | July 25, 2023

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USDA’s July 25 Cold Storage Report… stated the June 30 total for U.S. beef stocks at 411.9 million pounds, implying consumer demand for beef remained robust last month.

While domestic cattle slaughter and beef production declined substantially from year-ago levels, the indicated 13.8 million pound reduction in beef stocks exceeded last year’s 9.3 million-pound drop, as well as the five-year average decline of 5.7 million pounds.  The latest total is 105 million pounds below the year-ago total and 29 million under the five-year average. It also represents the lowest total since August 2019. 

Ending June pork stockpiles tumbled 42 million pounds from May to 490.2 million pounds. The decline compares to year-ago and five-year average June reductions of 4.0 million and 20.3 million pounds, respectively. This latest total represents a 35 million-pound drop below the 5-year average. The low total and large monthly reduction highlight the vigorous consumer demand apparently driving the ongoing hog market rally.

June 30 broiler stocks at 861.4 million pounds marked a 27-million pound increase from May and an 87.2 million pound rise from one year ago.

USDA expects food price inflation for 2023 to be slightly lower… at 5.8% compared to the previous projection of 5.9%. The grocery store price inflation forecast has been significantly reduced by a whole percentage point to 4.9%. Food price inflation for 2024 is expected to considerably decrease compared to 2023, with an expected rise of 2.4%.

Restaurant prices are predicted to increase slightly less than before now at 7.5% as compared to the previous 7.7%. For 2024, a 6.1% rise in restaurant prices is anticipated.

Interestingly, some food categories are expected to experience price declines in 2024 including pork, eggs, and dairy products. Notably, egg prices have shown significant volatility, escalating by as much as 37.8% in February 2023, yet ultimately expected to only rise 2% over the year.

USDA’s initial forecasts often undergo revisions as seen in the fluctuations in 2023 food price inflation predictions beginning from July 2022. This dynamic forecasting, which includes various inputs like energy, labor, and maintenance costs, particularly affects restaurant prices.

For 2024, USDA projects that food price inflation will be lower than that seen in 2023 and significantly lower than the rise seen in 2022, though these are initial forecasts and subject to changes as more data comes in. However, despite the reductions, consumers will continue to pay more than the 20-year average for all types of food, marking a four-year trend. The anticipated reductions have been tied to interest-rate increases initiated by the Fed.

The U.S. House of Representatives is due to begin voting this week…on a series of Republican spending bills for fiscal 2024 which could lead to a new standoff between hardline conservatives and party leaders including Keving McCarthy.

Lawmakers are set to consider two appropriation bills that would provide $155.7 billion in discretionary spending for military construction and veterans affairs and a total of $25.3 billion for agriculture, rural development and the Food and Drug Administration for the fiscal year beginning Oct. 1

The bills are the first of 12 appropriations measures that lawmakers have been crafting to cover every aspect of government funding.

Congress has not enacted 12 appropriations since fiscal 1997. Last year, spending bills were all stuffed into a sweeping omnibus measure totaling $1.7 trillion.  

The International Monetary Fund (IMF)…estimated that Russia’s exit from the Black Sea grain deal could drive global grain prices up by 10-15%, but said it was continuing to assess the situation.

IMF chief economist Pierre-Oliver Gourinchas stated that the Black Sea grain deal has been “very instrumental” in ensuring ample supplies of grains could be shipped from Ukraine, easing price pressures on food. Its suspension would likely put upward pressure on prices, he said.

Gourinchas stated “we’re still assessing where we’re going to land, but you would be thinking somewhere in the range of 10 to 15% increase in prices of grains is a reasonable estimate.”

Earlier today, the IMF forecast that global headline inflation would fall to 6.8% in 2023 from 8.7% in 2022 and drop to 5.2% in 2024, with core inflation declining more gradually to 6.0% in 2023 and then 4.7% in 2024.

India’s July edible oil imports…were set to jump to a record 1.86 million metric tons, nearly 60% more than normal as refiners raised purchases to build stocks for festivals amid uncertainty over supplies from the Black Sea.

Higher purchases by the world’s biggest importer of vegetable oils could help Malaysia and Indonesia bring down palm oil stocks and continue to support benchmark futures. It would also help support soyoil and help key sunflower oil-producing Black Sea countries in reducing inventories.

Around 1.5 million tons of edible oils were discharged at various Indian ports in the first 24 days of July and another 386,000 tons are expected to be discharged in the remaining seven days for a total of 1.86 million tons, according to average estimates from dealers and cargo surveyors.

“Importers are keeping good volume on hand due to the Russia-Ukraine crisis and don’t want to be out of oil in any case.” Said Rajesh Patel, managing partner at GGB Research, an edible oil trader and broker.

Brazil’s Paranagua port export volumes reach 50-year high…Exports through the eastern corridor of Brazil’s second busiest port totaled 11.1 MMT in the first half as the highest volume for a single semester since the port’s establishment 50-years ago, according to Paranagua port authorities.

Officials at the publicly owned port cited a significant increase in grain shipments across the board, but highlighted soybeans, noting volume exports increased 22.4% after Brazil harvested a record crop in 2023.

Soy exports represented 6.5 MMT of the total shipped via Paranagua, or almost 60%, stated authorities. Soymeal shipments totaled nearly 24% of total shipments, while corn represented around 17% or 1.9 MMT.

Argentina will include corn in the new “agri-dollar” …preferential exchange rate scheme and will increase the volume of corn authorized for export from 20 MMT to 26 MMT, according to the country’s Secretariat of Agriculture, Livestock and Fisheries earlier today.

Farmers have already sold nearly 14.6 MMT of corn, leaving around 11.4 MMT potentially for sale under the new agri-dollar scheme.

The government stated Monday it expected to generate $2 billion in revenue from the program, which started on July 24 and runs through August 31 and sets an exchange rate of 340 pesos to the dollar for agricultural exports.

Economic activity in Mexico rose 4.3%... from the corresponding period of the previous year in May of 2023, surpassing market expectations of 3.6% and accelerating from the upwardly revised 2.7% expansion in the previous month, in line with recent evidence that the Mexican economy remains resilient to higher interest rates.

Output was considerably higher for manufacturing (3.9% vs 0.7% in April) and services (4.7% vs 3.6%), while growth slowed for primary activities (1.3% vs 2.1%). On a seasonally adjusted monthly basis, economic activity stalled in May, holding the 0.9% increase in the prior month.