Evening Report | September 8, 2021

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White House: Meatpacker consolidation raising grocery bills… The Biden administration is taking clear aim at major meat packers, saying they’ve squeezed consumers and farmers while recording record profits. In a blog post published Wednesday, three senior economic aides to President Joe Biden said consolidation in beef, pork and poultry processing has raised prices and hurt consumers. “The meat-processors are generating record profits during the pandemic, at the expense of consumers, farmers, and ranchers,” the blog authors, including National Economic Council Director Brian Deese. “Absent this corporate consolidation, prices would be lower for consumers and fairer for farmers and ranchers.”

Price increases for those meats make up half of the rise in food prices since late 2020, they said, fueling inflation that has generated political pressure on Biden. The administration is pressing Congress to make cattle markets more transparent.

The Justice Department is investigating big meatpacking companies to determine whether they are violating antitrust laws. The probe started in the last year of the Trump administration, and the Biden administration is pushing forward, with plans to issue additional civil investigative demands, according to a person familiar with the matter.

Separately, the department is conducting a criminal investigation of price-fixing by chicken producers. The investigation has led to criminal charges against companies and executives, including Pilgrim’s Pride Corp. and its former chief executive officer. Tyson Foods Inc. has said it’s cooperating in the probe.

 

Vilsack concerned about effect of drought on meat prices that are already rising… USDA Secretary Tom Vilsack at a White House press briefing said meat prices are already on the rise and could go higher due to a prolonged drought in western states. That is why USDA is expanding its help for producers in drought-stricken areas to cover feed transportation costs for livestock that rely on grazing. USDA is updating its Emergency Assistance for Livestock, Honey Bees and Farm-raised fish Program (ELAP) to cover those costs for drought impacted ranchers. Vilsack said the move should provide some relief soon as ranchers make their herd management decisions for fall and winter. Producers will be able to apply for the feed transportation assistance later this month through their local Farm Service Agency offices.

ELAP already covers the cost of hauling water during drought, and this change will expand the program to cover feed transportation costs where grazing and hay resources have been depleted. This includes places where:

     • Drought intensity is D2 for eight consecutive weeks as indicated by the U.S. Drought Monitor;

     • Drought intensity is D3 or greater; or

     • USDA has determined a shortage of local or regional feed availability.

Cost share assistance will also be made available to cover eligible cost of treating hay or feed to prevent the spread of invasive pests like fire ants.

Under the revised policy for feed transportation cost assistance, eligible ranchers will be reimbursed 60% of feed transportation costs above what would have been incurred in a normal year. Producers qualifying as underserved (socially disadvantaged, limited resource, beginning or military veteran) will be reimbursed for 90% of the feed transportation cost above what would have been incurred in a normal year.

A national cost formula, as established by USDA, will be used to determine reimbursement costs which will not include the first 25 miles and distances exceeding 1,000 transportation miles. The calculation will also exclude the normal cost to transport hay or feed if the producer normally purchases some feed. For 2021, the initial cost formula of $6.60 per mile will be used (before the percentage is applied) but may be adjusted on a state or regional basis.

To be eligible for ELAP assistance, livestock must be intended for grazing and producers must have incurred feed transportation costs on or after Jan. 1, 2021. Although producers will self-certify losses and expenses to FSA, producers are encouraged to maintain good records and retain receipts and related documentation in the event these documents are requested for review by the local FSA County Committee. The deadline to file an application for payment for the 2021 program year is Jan. 31, 2022.

 

Bigger corn, bean crop estimates expected… USDA’s September Crop Production Report will feature the first objective yield surveys for corn and soybeans. Based on the average pre-report estimates from a Reuters survey, traders expect USDA’s crop pegs to increase from last month. USDA will also update its cotton crop estimate, which traders expect to increase as well.

The final 2021 wheat crop estimate will come at the end of the month via the Small Grains Summary.

The following expectations are generated by survey work by Reuters (Bloomberg for cotton).

Expectations for 2021
U.S. Production

                Corn     

 

Production
(bil. bu.)

Yield
(bu. per acre)

Average est.

14.942

175.8

Range

14.710-15.120

173.6-178.1

USDA Aug. est.

14.750

174.6

 

Soybeans

 

Production
(bil. bu.)

Yield
(bu. per acre)

Average est.

4.377

50.4

Range

4.310-4.440

49.5-51.2

USDA Aug. est.

4.339

50.0

 

Cotton

 

Production
(mil. bales)

Yield
(lbs. per acre)

Average est.

17.69

NA

Range

17.00-18.45

NA

USDA Aug. est.

17.26

800

 

 

Changes to the corn, soybean and cotton crop estimates will impact the new-crop balance sheets, with traders expecting bigger ending stocks projections for all three markets in 2021-22. The wheat carryover projection is expected to decline from last month.

Globally, USDA’s major cuts to key production forecasts that led to a sharp reduction in 2021-22 wheat ending stocks were the headliner in August. This month, traders expect just modest fine tuning to the global wheat production and ending stocks forecasts. Expectations for bigger U.S. corn, soybean and cotton ending stocks are expected to push global carryovers up for all three from last month.

 

Expectations for
U.S. Carryover

Corn – billion bushels

 

2020-21

2021-22

Average est.

1.169

1.382

Range

1.100-1.277

1.018-1.612

USDA August

1.117

1.242

 

Soybeans – million bushels

 

2020-21

2021-22

Average est.

166

190

Range

110-190

132-260

USDA August

160

155

 

Wheat – million bushels

 

2020-21

2021-22

Average est.

NA

616

Range

NA

579-652

USDA August

844*

627

*Marketing year ended June 30

Cotton – million bales

 

2020-21

2021-22

USDA

NA

3.43

Average est.

NA

2.82-4.40

USDA August

3.20

3.00

 

Expectations for
Global Carryover

Corn – MMT

 

2020-21

2021-22

Average est.

NA

286.01

Range

NA

281.50-290.50

USDA August

280.75

284.63

 

Soybeans – MMT

 

2020-21

2021-22

Average est.

NA

96.89

Range

NA

91.20-98.70

USDA August

92.82

96.15

 

Wheat – MMT

 

2020-21

2021-22

Average est.

NA

279.03

Range

NA

276.00-288.00

USDA August

288.83

279.06

 

Cotton – million bales

 

2020-21

2021-22

Average est.

NA

87.67

Range

NA

86.44-89.00

USDA August

91.78

87.23

 

 

FSA releases September certified acreage two days early… FSA was scheduled to release its second batch of certified acreage data on Friday -- after USDA’s September crop reports. But the data appeared on the FSA site today – two days early.

As of Sept. 1, FSA reported corn planted/failed acres at 91.2 million acres, up from 90.3 million acres reported in August.

For soybeans, FSA reported planted/failed acres at 86.2 million acres, up from 85.3 million acres last month.

FSA reported planted/failed acres of 10.9 million acres of upland cotton and 119,733 acres of extra-long staple (pima) cotton. The upland cotton acres rose marginally and ELS acres also just slightly increased from the August figures.

FSA will update certified acreage through January. NASS announced earlier it will start incorporating the FSA acreage data into its corn and soybean crop estimates this month due to the “completeness” of the data – one month earlier than normal.

 

Canadian wheat, canola stocks bigger than expected… Stats Canada estimates Canadian wheat stocks totaled 5.7 MMT at the end of July, up 3.7% from year-ago and well above expectations of 4.8 MMT. The increase was led by bigger commercial stocks (up 7.1% to 3.5 MMT), which more than offset lower on-farm stocks (-1.3% to 2.2 MMT). Stats Canada noted wheat exports increased 10.1% to 26.4 MMT on strong global demand, particularly from China.

Canola stocks decreased 48.6% to 1.8 MMT, the lowest level since July 2017, but still quite a bit above trade expectations of 1.2 MMT. On-farm stocks fell 50.3% to 1.1 MMT. Commercial stocks dropped 45.6% to 704,000 MT. Stats Can noted canola crushing increased 2.8% to a record 10.4 MMT as world demand for vegetable oils remained high. Exports of canola rose 4.9% to 10.5 MMT, as a result of strong global demand, largely due to higher shipments to China.

 

CF Industries declares force majeure at Louisiana complex… CF Industries in Donaldsonville, Louisiana, closed its complex that has 19 plants, including six ammonia and five urea facilities producing nitrogen-based products, ahead of Hurricane Ida. According to a letter dated Sept. 3 seen by Bloomberg, CF Industries said, “due to these circumstances, CF Industries Sales, LLC has declared an event of force majeure affecting the production and shipment of product from the CF Donaldsonville, LA nitrogen complex.”

 

Activity ramping up at OMB on proposed RFS levels... There have been 13 meetings held or scheduled by the Office of Management and Budget (OMB) on the proposed Renewable Fuel Standard (RFS) levels from EPA. The National Biodiesel Board (NBB) and NATSO (represents travel plazas and truck stops) and some of their individual members have already had meetings and sessions this week are on tap with the American Fuel and Petrochemical Manufacturers (AFPM), the Renewable Fuels Association (RFA), Center for Biological Diversity and American Petroleum Institute (API).

Another seven sessions are scheduled for next week, including the Coalition for Renewable Gas, World Energy, Growth Energy, PBF Energy, National Corn Growers Association (NCGA), Society of Independent Gasoline Marketers of America (SIGMA) and American Bakers Association (ABA).

We support renewable fuels and the green agenda, but soybean oil [prices] have tripled. Our members are worried that they may not be able to buy any oil,” said Robb MacKie, chief executive of ABA. The trade group, which counts Krispy Kreme, Bimbo Bakeries USA and Pepperidge Farm as members, recently met officials at the Environmental Protection Agency to urge lower federal mandates for biofuels.

 

NCBA calls on Biden administration to remain vigilant on Brazilian beef… The discovery of two positive atypical BSE cases in Brazil prompted the National Cattlemen’s Beef Association (NCBA) to issue a statement calling on USDA and the Office of the U.S. Trade Representative (USTR) to “remain vigilant in enforcing our standards,” said NCBA CEO Colin Woodhall, pointing out that it was key to hold Brazil “accountable.” Emphasizing the cases in Brazil pose no threat to the U.S. or to U.S. beef, Woodhall said it was key for USDA to “to examine Brazil and to continue implementing science-based safeguards that ensure all imported beef meets the same rigorous science-based food safety and animal health standards as American beef.”

 

Hedge fund takes on railroad barons… Canadian National’s bid to buy Kansas City Southern and create a rail network that stretches across North America is facing a new challenge. This week, the longtime railroad investor TCI Fund Management started a proxy battle to oust the railroad company’s CEO, Jean-Jacques Ruest. TCI wants Canadian National to stop pursuing the acquisition and overhaul its board. Canadian National’s bid “exposed a basic misunderstanding of the industry and the regulatory environment,” TCI argues.

Along with its stake in Canadian National, TCI also owns nearly 42% of Canadian Pacific, making the hedge fund the company’s largest shareholder, according to the market data firm Sentieo. Even though the size of TCI’s investment in Canadian National is slightly bigger than its Canadian Pacific stake — about $4.1 billion compared with roughly $4 billion, a person familiar with the investments tells the New York Times’ DealBook — the hedge fund TCI’s dual investments raise questions about whether its efforts to stop the Canadian National deal also serve to strengthen its investment in Canadian Pacific.

A spokesperson for Canadian National said the company “values input” from all of its shareholders and will continue to “make carefully considered decisions” in line with its priorities.

 

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