Evening Report | July 26, 2023
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The Federal Reserve raised interest rates…by a quarter of a percentage point on Wednesday, citing still elevated inflation. The rate hike, the Fed’s 11th in its last 12 meetings, set the benchmark overnight interest rate in the 5.25% to 5.50% and the accompanying policy statement left the door open to another increase.
The Fed stated, “The Federal Open Market Committee will continue to assess additional information and its implications for monetary” in language slightly modified from its June statement and left the central bank’s policy options open as it searches for a stopping point to the current tightening cycle.
As it stated in June, the Fed said it would watch incoming data and study the impact of its rate hikes on the economy “in determining the extent of additional policy firming that may be appropriate” to reach its 2% inflation target.
The UK’s Defence Ministry has warned…the Russian Black Sea fleet has been deployed and is positioning to potentially block the movement of vessels in the region, according to an official update earlier today. The ministry said there is now a “realistic possibility” that vessels could form a task group to “intercept” vessels transiting the Black Sea en route to a Ukrainian port.
NATO said it was stepping up surveillance…of the Black Sea region as it condemned Russia’s exit from the Black Sea grain deal. The announcement came after a meeting of the NATO-Ukraine Council, a body established earlier this month to coordinate cooperation between the Western military alliance and Kyiv.
“NATO and Allies are stepping up surveillance and reconnaissance in the Black Sea region, including with maritime patrol, aircraft and drones,” according to the statement.
USDA’s local attaché in Canada…reports the country’s wheat acreage rose to its highest level since 2002, while 2022-23 exports rose 78% from the same period a year earlier. Wheat production is forecast to total 33.824 MMT in 2022-23, a 51% increase from the previous marketing year. The figure matches USDA’s latest official figure released in the July World Agriculture Supply and Demand (WASDE) Report. The 2023-24 wheat crop is expected to rise 35.8 MMT and is 800,000 MT higher than the USDA’s forecast in the July WASDE
Soft wheat harvest in France,…the European Union’s main grower, will rise 3.3% to 34.82 MMT this year, a “disappointing” volume mainly due to dry weather in large parts of the country, according to consultancy, Agritel. “Late frosts in April in eastern France, above all, a total lack of rain from mid-May to mid-June strongly reduced the production potential at the end of the cycle in the northern two-thirds of the country,” noted Agritel. The farm ministry had pegged the 2023 soft wheat crop at 25 million tons earlier this month.
Global rice importers…are likely to seek direct deals with governments in exporting countries as India’s ban on shipments of a key variety is squeezing supplies and igniting concerns over food security.
Buyers from Asia and Africa are likely to scramble for rice shipments as supplies tighten in the coming months following India’s decision last week to ban non-basmati white rice exports.
The ban will cut availability of the staple on world markets by about a fifth, according to traders, and could lead to importers seeking more government-to-government deals to overcome shortages and tame surging prices.
The Panama Canal Authority… announced a reduction in the average daily number of ships allowed to navigate the canal, lowering the figure from 35-36 to 32 starting July 30. This move is an attempt to conserve water amid a prolonged period of drought, according to a Reuters report from earlier this week. This decision matters because ongoing drought conditions could force the Canal Authority to reduce the depth of the canal. As a result, ships would need to carry less cargo through the canal, thereby negatively impacting the efficiency and profitability of trading operations. Supply chains for goods frequently transported through the canal - including motor vehicles, petroleum, grains, and coal - are likely to be significantly slowed.
The restrictions would particularly affect trade between China, Japan, South Korea, and certain regions of the U.S., as the Panama Canal facilitates 46% of container movement from northeastern Asia to the U.S. East Coast. If drought conditions become severe, leading to major restrictions on ship passage and canal depth, cargo ships may need to undertake longer, costlier detours.
Background information reveals that in June, the Canal Authority considered reducing the canal’s depth by six inches (approximately 15 centimeters.) However, after a brief period of rain, the decision was made to maintain the current depth limit of 44 feet (around 13.41 meters.) Panama's rainy season typically runs from May to January, and the canal depends on this period to preserve water levels. But this year’s lack of rain has made it necessary for the Canal Authority to implement water saving measures and plan for the long-term consequences of the drought.
