Evening Report | May 26, 2023

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

Your Pro Farmer newsletter is now available... U.S. corn planting and crop emergence continues to run well ahead of average. While the crop is off to a fast start, futures rebounded last week in what could turn into a summertime rally. The corn market typically rallies at least once during the growing season, with the May to late-June window the most common timeframe. Export demand remains a headwind for corn, soybeans and wheat, as the recent string of poor weekly sales data continued. A surplus of cheap wheat is replacing corn and soybean meal in Chinese feed rations – and reducing demand for imports. The U.S. Supreme Court delivered another major ruling for agriculture, this time siding against EPA’s jurisdiction over water regulations. The broader market focus is on the U.S. debt-limit fiasco, which will come down to the 11^th hour – again. In our page 4 feature we analyze key impacts that could have on agriculture and the writing of a new farm bill. We cover all of these items and much more in this week’s newsletter, which you can access here. 

Memorial Day schedule... All markets and government offices are closed on Monday, May 29 for Memorial Day. As a result, there will be no Pro Farmer market updates next Monday. Grain markets resume trading at 7:00 p.m. CT on Monday, May 29 with the overnight session, while livestock markets reopen at 8:30 a.m. CT on Tuesday, May 30. Have a safe and happy holiday weekend.

Some possible key elements of a coming debt-limit package...

• Debt limit would be increased or suspended into 2025.
• Domestic spending over two years would be capped, though by how much is murky.
• Defense spending would be allowed to rise 3% per year, in line with President Biden’s budget request.
• In a win for Republicans, Congress would take back $10 billion of the $80 billion it had allocated to the IRS to bolster enforcement.
• Work in progress: Stiffer work requirements for social safety net programs.
• Almost complete: Overhauling how domestic energy and power projects are approved (permitting). Fast-tracking permits stands to greenlight new oil and gas pipelines and other fossil fuel infrastructure, a priority for many Republicans and some Democrats in Congress, including Sen Joe Manchin (D-W.Va.) A compromise under discussion was to pair modest changes to NEPA, such as setting a mandatory time frame for approving energy projects, with measures to upgrade the nation’s power grid for renewable energy.
• The agreement could include a measure to upgrade the nation’s electric grid to accommodate renewable energy.
• Next Tuesday is emerging as the likely day for a House vote. The Senate would then have to act quickly to send it to President Joe Biden’s desk before June 1, the date by which Treasury Secretary Janet Yellen has said her department could run out of cash.
• Major unknown: Will the votes be there in both chambers to clear a package that will have big numbers of naysayers from each political party.

PCE inflation hotter than expected... The personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, rose 4.4% annually in April, up from a 4.2% rise in March. Core PCE, excluding food and energy prices, increased 4.7% from year-ago, up from a 4.6% rise last month.

The inflation data came in hotter than expected, prompting traders to boost their bets the Fed will raise interest rates again after the June 14 Federal Open Market Committee meeting. Fed fund futures now reflect around 60% odds of another 25-basis-point increase to rates next month, whereas they were around 60% in favor of a pause prior to the inflation data.

Report: Farm bill is a high-stakes climate fight flying below the radar... As Congress works on reauthorizing the farm bill, the Center for American Progress (CAP) contends this legislation presents an important opportunity for private landowners, farmers, ranchers and rural communities to contribute to climate change mitigation and prevent loss of nature. However, CAP also warns there’s a risk of extreme views prevailing, potentially leading to the removal of farm bill program investments that were implemented in the 2022 Inflation Reduction Act (IRA). Such a move could be a major setback for climate, conservation and rural prosperity efforts, it says.

The agricultural sector is responsible for 10% of U.S. emissions, and the farm bill’s voluntary incentive programs offer several opportunities to reduce emissions and boost carbon storage through better practices and land use. Furthermore, about 76% of all nature loss in the U.S. occurs on private lands, where the farm bill provides the most significant source of conservation funding, the report notes.

The CAP analysis encourages lawmakers to build on IRA’s investments, including $19.5 billion for conservation and climate-smart agriculture and $13.3 billion for farm bill energy programs. It advises that lawmakers should prioritize specific policies aimed at improving ecosystem and community resilience, preserving wildlife habitats, protecting drinking water, enhancing water quality, increasing recreational opportunities, improving energy reliability, cutting costs, addressing inequities and reducing greenhouse gas emissions.

Dow, New Energy Blue unveil deal to make renewable plastic from corn residue... Dow Inc. and New Energy Blue have announced a long-term supply agreement to produce bio-based ethylene from renewable agricultural residues, specifically corn stover, which comprises stalks and leaves. The financial specifics of the deal were not disclosed.

This agreement is a first of its kind in North America, as it enables the production of plastic source materials from corn stover. It also marks Dow's inaugural agreement in the region to use agricultural residues for plastic production.

Under the agreement, Dow will aid the design of New Energy Freedom, a new Iowa facility that aims to process 275,000 MT per year of corn stover. This facility is expected to yield commercial quantities of second-generation ethanol and clean lignin. Almost half of the produced ethanol is planned to be converted into bio-based ethylene feedstock for Dow’s products.

The agreement includes potential commercial supply options for the next four New Energy Blue projects, aiming to expand production and support farmers by providing a stable market for agricultural residues. The five projects combined are projected to reduce over 1 MMT of greenhouse gas emissions.

Benefits change pulls down SNAP customer grocery spending... The expiration of the Supplemental Nutrition Assistance Program (SNAP) Emergency Allotments (EAs) has led to a decrease in grocery spending by SNAP participants, according to consumer data specialist Numerator. The EAs, which ended on March 1, 2023, allowed all SNAP households to receive an additional $95 per month in benefits or an additional benefit up to the maximum for their household size. After the EAs expired, average spending per SNAP grocery trip dropped from $36.62 in January to $32.92 in April. Non-SNAP grocery spending fell just over $1 during the same period.

Numerator's SNAP Trip Tracker data shows SNAP users are buying fewer items and opting for cheaper options. From January to April, the average number of items bought per SNAP grocery trip fell from 10 to 9.2, and spending per item dropped from $3.66 to $3.57.

Moreover, SNAP participants have reduced purchases across various consumable categories, notably proteins and prepared foods. Categories least affected include beverages, pasta, dairy and produce. Although grocery trips using SNAP benefits are typically larger than non-SNAP trips, the overall volume of SNAP trips, basket sizes and units per basket have decreased since the end of EAs.

As SNAP recipients focus on absolute price, they are shifting towards value and private brands, leading to significant increases in private label purchases since February. SNAP consumers are also changing retail channels, moving away from warehouse clubs and supermarkets to smaller-format retailers such as fuel/convenience stores and dollar stores.

     Brands and retailers are keen to understand the impact of the reduction in SNAP funding, as it represents billions of dollars in consumer spending now lost. Numerator aims to provide insights and guidance on how to proactively support this at-risk consumer group.