Evening Report | June 10, 2022

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Check our advice monitor on ProFarmer.com for updates to our marketing plan.

 

Your Pro Farmer newsletter is now available... USDA released its June Supply & Demand Report on Friday morning. We cover all of the report highlights on News page 4 this week, including our forecasts for old- and new-crop ending stocks. USDA also updated its U.S. winter wheat production estimates. U.S. and China inflation data tells two completely different stories about price pressures on the world’s two leading economies. As the world attempts to rebound from the pandemic and faces supply uncertainties due to the war in Ukraine, the World Bank warned about 1970s style stagflation developing. Meanwhile, U.S. beef export demand remains extremely strong, while pork shipments are lagging with China playing a key role on both fronts. We cover all of these items and much more in this week’s newsletter, which you can access here.

 

High pressure ridge to build, but weather expected to be generally favorable... Hotter, drier conditions are expected across the southern two-thirds of the Corn Belt, Southern Plains and Delta over the next two weeks as a high-pressure ridge builds over the middle of the country. Soil moisture is ample for normal crop development during the drier period, though there will be a need for rains in some areas by late June/early July. World Weather Inc. expects “an active pattern,” with alternating periods of rains and short-term ridging.

 

Firm raises Russian wheat crop forecast... IKAR raised its 2022 Russian wheat crop forecast to 87 MMT, up 2 MMT from last month. It expects the country to export 41 MMT of wheat in 2022-23.

USDA raised its Russian wheat crop forecast by 1 MMT to 81 MMT. It increased its 2022-23 Russian wheat export forecast by 1 MMT to 41 MMT.

 

Russian wheat export tax rises again... Russia’s wheat export tax for June 16-21 will be $131.60 per metric ton, based on an indicative price of $386.40 per metric ton. The tax is up $2.40 from the previous week and has surged of $21.10 since the end of May.

 

Smithfield closing California pork plant... Smithfield Foods, the world’s largest pork processor, will close its Vernon, California, pork processing plant in early 2023, the company announced Friday. The company attributed the plant closure to “the escalating cost of doing business in California,” without disclosing whether it was tied to the state’s Proposition 12 rule. The move is part of an overall effort to reduce its sow herd in the Western U.S., including Utah. Smithfield is also “exploring strategic options” to pull out of its hog farms in Arizona and California.

Smithfield will serve the California market with its Farmer John brand and other products from existing facilities in the Midwest.

 

Rule of 10 signals economic trouble... Strategas chief economist Don Rissmiller coined the Rule of 10 in 2011 — a theory that the U.S. economy is troubled when interest rates combined with energy prices reaches double digits. On Friday, the 30-year fixed mortgage hit 5.23% and the national average gas price rose to $5. Treasury Secretary Janet Yellen doesn’t expect the U.S. economy to fall into recession, saying “it’s amazing how pessimistic” Americans have become given the strength of the labor market. Remember... Yellen recently admitted she was “wrong about the path that inflation would take” when she stuck with her “transitory” stance much longer than private sector economists.

Mark Zandi, chief economist at Moody’s Analytics, said: “"If we get to $5.50 or $6 [gasoline], that would be consistent with $150 for a barrel of oil. I think then, we’re done. We’re in for a recession. It would be too much to bear. I think we could digest $120 [oil] if we don’t stay there too long.”

 

Consumer inflation continues to soar... The U.S. consumer price index (CPI) unexpectedly increased 1.0% in May, surging 8.6% annually — the largest annual increase since December 1981. Economists expected CPI to ease from the 8.3% rise in April but soaring fuel and food prices outpaced expectations.

Energy prices surged 34.6% over the past year, the largest increase since September 2005. Food prices jumped 10.1%, the first double-digit increase since March 1981. Excluding food and energy prices, core CPI increased 6.0%, which was down from 6.2% in April.

 

Consumer sentiment plunges amid inflation worries... Consumer sentiment plunged 14% from May, according to preliminary results of the University of Michigan’s consumer sentiment index. Consumer sentiment is down 41.3% from last year, reaching its lowest level ever, comparable to the trough reached in the middle of the 1980 recession. All components of the sentiment index fell this month, with the steepest decline in the year-ahead outlook in business conditions, down 24% from May. Consumers’ assessments of their personal financial situation fell about 20%.

Nearly half (46%) of consumers attributed their negative views to inflation, up from 38% in May. This share has only been exceeded once since 1981, during the Great Recession.

Surging gas prices weighed heavily on consumers, with half mentioning them, compared with 30% in May and only 13% a year ago. Consumers also mentioned concerns with supply shortages for the ninth consecutive month.

 

Ag economists: Higher input costs will linger even after commodity prices ease... Ag economists told the House Agriculture Subcommittee on General Farm Commodities and Risk Management Thursday that high input costs will likely persist even after commodity prices decline, adding that current farm bill commodity programs are not well equipped to deal with any such situation.

Ag commodity prices “are going to decline, but input prices are going to stay up for a while… they always do... and that’s going to a cost-price squeeze,” said Texas A&M Ag Economist and Co-director of the Agricultural and Food Policy Center (AFPC) Dr. Joe Outlaw. “At the end of the day, it’s not what you bring in, it’s the margin you’re left with, and I have tremendous concerns about where we’re headed right now,” said Glenn Thompson of Pennsylvania, the senior Republican on the House Agriculture Committee. “It will only take some softening of prices before producers may be underwater.”

Economists suggested some moves they said could help make Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) better to deal with lower prices, including providing farmers with the higher payment from either program, rather than making them elect coverage from one. Updating PLC reference prices was also suggested so they can more adequately reflect the impact of higher input prices.

Another suggestion: margin coverage like what currently is in place for dairy via the Dairy Margin Coverage (DMC) program. This would account for changes in both commodity prices and input costs. The dairy margin program issues payments when feed costs are too close to milk prices. There is a $100-a-year fee for the base level of coverage. Farmers can buy higher levels of protection.

Thompson, in line to chair the committee if Republicans win a House majority in the Nov. 8 elections, asked how a margin protection plan for row crops would compare to the current crop subsidy programs, which are triggered by low market prices. “Well, clearly, the benefit is that it would take into consideration both the cost side and the revenue side,” said Outlaw. The dairy margin program needed repeated revisions, so it would be best to test the idea with a pilot project, he said. “On the cost side, fertilizer and clearly fuel and labor — and there’s a whole lot of things that would matter for a certain set of crops that might not matter for another set of crops, so we’d have to be really careful to make sure we did it balanced. But it would be worth looking at, for sure.”

Rep. Al Lawson (D-Fla.) asked about suggestions to create a permanent disaster program. Outlaw and Joe Janzen of the University of Illinois said taxpayer-subsidized crop insurance generally was sufficient. “There’s going to be natural disasters,” said Outlaw, and it would be helpful for farmers to “understand what kind of help they might get.”

The rice grower situation was also addressed because those producers are already facing a cost squeeze because of relative flat prices as input costs surged. Outlaw urged lawmakers to consider targeted assistance to rice producers, noting that without some sort of aid soon, the U.S. could face the loss of producers and infrastructure across the rice sector.

“Most of my suggestions require additional resources that may be difficult to secure but are necessary,” said Outlaw in written testimony.

 

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