Evening Report | June 28, 2022

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H&P Report to show further hog herd contraction... Analysts expect Wednesday’s USDA Hogs & Pigs Report to show the U.S. hog herd continued to contract, with the average estimate for the June 1 inventory down 0.7% from year-ago. The breeding herd is expected to be down 1.1% and the market hog inventory down 0.7%. Analysts expect spring farrowings declined 1.4%, with summer and fall farrrowing intentions likely to be down fractionally from last year.

Consumer confidence tumbles, stoking recession fears… U.S. consumer confidence dropped to a 16-month low in June as high inflation fueled concern the economy would slow significantly or drop into recession in the second half of the year, based on a report from the Conference Board. The Conference Board's consumer confidence index dropped 4.5 points to 98.7 for June, the lowest since February 2021. Consumers' assessment of current business and labor market conditions were little changed. But their short-term outlook for income, business and labor market conditions were the weakest since March 2013, which the Conference Board said suggested “weaker growth in the second half of 2022 as well as growing risk of recession by year end.” The report triggered a nosedive in U.S. stocks, with the S&P 500 index down 2.0% at today’s close.

Crop ratings erode in wake of extreme Midwest heat… Corn and soybeans futures climbed today as lower-than-expected USDA ratings indicated extreme heat earlier this month had crops under stress. USDA late Monday reported 67% of the U.S. corn crop in either “good” or “excellent” condition as of Sunday, down from 70% a week earlier. USDA rated 65% of the U.S. soybean crop good-to-excellent, down from 68% a week earlier and contrary to expectations the number would hold unchanged. December corn gained 6 1/4 cents to $6.59 1/4. November soybeans surged 29 3/4 cents to $14.62 1/2.

Russia changes export formula as ruble soars… Russia, the world's largest wheat exporter, will change its formula for calculating grain and sunflower oil export taxes to support shipments amid a strong ruble currency, Reuters reported. Russia has continued exporting grains but faced problems with logistics and payments caused by Western sanctions. The strong ruble is another issue, hampering exports along with a high export tax. The currency is trading at a seven-year high to the U.S. dollar due to capital controls. “Recently we have seen a trend towards a gradual increase in global grain and oilseed prices, and a simultaneous strengthening of the Russian rouble,” Vladimir Ilyichev, deputy economy minister, said in a statement. The change in the formulas will reduce the impact of the dynamic of the ruble-dollar exchange rate on the size of the export taxes and support exports “while ensuring the stability of our domestic prices,” the ministry said.

Growth Energy files another suit, this time over EPA’s approach to small refinery RFS compliance... The biofuel lobbying group is challenging an alternative compliance approach for refineries to meet their obligations under the Renewable Fuel Standard (RFS), which it says excuses refiners from having to comply with their blending obligations under the law. Recall that in April, EPA denied small refinery exemptions for 31 facilities “but declined to hold affected refiners accountable for meeting any blending obligations for that year,” Growth Energy said in a release. “Instead, EPA crafted a novel ‘alternative compliance’ approach that excused these refiners from ever having to comply with their 2018 blending obligations.”

“EPA reaffirmed this approach when it excused [three] additional refiners whose petitions for 2016 and 2017 SREs it denied for the first time,” Growth Energy said. “EPA’s ‘alternative’ approach to RFS compliance provides no actual alternatives for refineries to meet their biofuel blending obligations.” The group filed its petition concerning the 2016-18 compliance years in the U.S. Court of Appeals for the District of Columbia Circuit.

Growth Energy has been successful in its prior court challenges relative to the RFS, including the case that prompted EPA to revisit the 2018 SREs by a specific date and got the agency to commit to announcing the final 2020, 2021 and 2022 RFS levels by June 3 and another that got it to commit to releasing proposed 2023 RFS levels by Sept. 16.

Fertilizer production could see another negative impact... Slowing delivery of Russian natural gas in Europe is starting to reach into industrial supply chains. The dwindling gas supplies are proving a threat to chemical giant BASF’s vast manufacturing hub in Germany, the Wall Street Journal reports, raising alarms at the world’s largest integrated chemical complex and beyond. Because BASF and other chemicals companies sit at the beginning of most industrial supply chains, a disruption in operations would reverberate beyond the sector. Experts say it would threaten Europe’s economy at a time of high inflation and slowing growth.

Chemicals companies are more vulnerable than other industrial players because natural gas is critical for most of their processes. Some 60% of the gas BASF consumes in Europe is used for power and steam generation. The other 40% goes to raw material for its products.

Indonesia expands palm oil export quotas… Indonesian palm oil companies will be offered larger export quotas under new plans to adjust rules on local cooking oil sales, officials said today, part of government efforts to improve domestic distribution after a months-long price crisis, Reuters reported. Indonesia stunned global markets late in April by banning shipments of the edible oil for three weeks to try to bring down high domestic cooking oil prices. Since lifting the ban, palm oil companies have been required to sell part of their output to the local market, a so-called Domestic Market Obligation (DMO), in return for export permits for volumes five times the portion sold locally. New rules are being drafted so companies can choose to sell unbranded cooking oil in packaging at the same price as that of bulk cooking oil, to make logistics smoother, a trade ministry official said.

Filling stations impose bigger credit-card “holds” amid high fuel prices … Gas stations are putting bigger holds of up to $175 on customers’ cards when they swipe. When drivers insert a credit or debit card at the pump, the gas station doesn’t know how much fuel they will buy and it places a hold on the account for an amount set by the gas station. Merchants authorize the payment networks to lift the hold once the final total of the payment is determined, though the holds can take hours and sometimes longer to settle — raising risks of overdraft penalties for debit-card users and eating into credit limits during the holds. Visa and Mastercard raised the limit for gas station holds to $175 from $125 earlier this year. The holds are set based on the largest allowed gas transactions. As gas prices rose, $125 was no longer enough for customers with larger vehicles to fill up their tanks on a single transaction.

European Central Bank leader Christine Lagarde is trying to tamp down concerns about a potential recession this year in the eurozone. “We have markedly revised down our forecasts for growth in the next two years,” she said today. “But we are still expecting positive growth rates due to the domestic buffers against the loss of growth momentum.” Lagarde also said the central bank would raise rates faster, if needed, to curtail inflation.