Evening Report | September 9, 2021

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Conab once again lowers its Brazilian corn crop forecast… Brazilian government statistics agency Conab now estimates Brazil’s total corn crop at 85.75 MMT, a 901,000-MT decline from its August production estimate and a 16.4% retreat from 2019-20. The decline was driven by yet another cut to the safrinha corn crop. Conab expects Brazil to export just 22.0 MMT of corn in 2021, a 1.5-MMT retreat from its forecast last month. It maintained its corn import forecast of 2.3 MMT.

Brazil’s soybean crop will likely total 135.91 MMT, Conab forecasts. That represented a modest, 63,000-MT decline from its forecast last month. The stats agency expects Brazil to export 83.61 MMT of soybeans in 2021, a 190,000-MT increase from its August forecast.

Conab also lowered its Brazilian wheat crop estimate from 8.59 MMT to 8.16 MMT, but that would still be a 30.8% year-over-year surge in production.

Brazil’s cotton output is now estimated at 2.36 MMT, a slight increase from Conab’s forecast last month but a 21.5% retreat from last year’s 3.00 MMT crop.

USDA will update its Brazilian crop and export forecasts tomorrow. Last month, it estimated Brazil’s corn crop at 87.00 MMT, its soybean crop at 137.00 MMT and its wheat crop at 7.70 MMT.

Abiove raises Brazilian bean crop peg, but trims its export forecast… Brazil’s 2021 soybean crop likely totals 137.9 MMT, forecasts the oilseed crushers association Abiove, up 400,000 MT from the group’s August estimate. But its soybean export forecast moved in the opposite direction, with Above now forecasting Brazil will export 86 MMT of soybeans in 2021, a 700,000-MT retreat from its August estimate. The crush organization expects Brazil to import 900,000 MT of soybeans, more than double its previous 400,000-MT projection. Despite a reduction in the country’s biodiesel blending mandate, Abiove expects Brazil to crush 46.5 MMT of soybeans this year.

Blockades cleared from Brazil’s highways… Federal police have reportedly cleared blockades erected by striking truckers in Brazil—a situation that caught traders’ attention but did not disrupt exports. Meatpacker associations also said the blockades have not impacted movement of perishable or live cargo around the country, though some have expressed concern about rising feed costs. The trucker blockades came after President Jair Bolsonaro called for action against Brazil’s Supreme Court at a political rally earlier in the week. Bolsonaro has since privately pushed truckers to end the blockades and will reportedly meet with allied truckers leading the protests today.

Ukraine expanding its export capacity… Ukraine’s port of Pivdennyi (near Odessa) today announced plans to build a new export terminal. Construction of the Black Sea port that’s meant to handle around 2.7 MMT of grain and 200,000 MT of vegetable oils annually will likely begin in 2022 and will take nearly four years to complete. Ukraine has been an increasingly important force on the global grain export market, with the country emerging as a top supplier of corn to China.

USDA announces grants to act as bridge for those still awaiting government relief payments… As signaled earlier this week by Ag Secretary Tom Vilsack, USDA today announced it will soon publish requests for applications for two new grant programs — the Pandemic Response and Safety (PRS) Grant program and the Seafood Processors Pandemic Response and Safety Block Grant program — that are meant to “support agriculture stakeholders who haven’t yet received substantial federal financial assistance in responding to the Covid-19 crisis. The grant programs are intended to assist small businesses in certain commodity areas, such as small-scale specialty crop producers and processors, meat processors, farmers markets, seafood facilities, etc. USDA details that of the $700 million set aside for these relief efforts, approximately $650 million is available for PRS grants and the remaining $50 million is available for SPRS.

Vilsack opens another hornet’s nest on stepped-up basis proposal via WSJ op-ed… Vilsack penned an op-ed in the Wall Street Journal titled, “Biden’s Tax Changes Won’t Hurt Family Farmers; Changes to the step-up in basis are needed to ensure that wealthy investors pay their fair share.” He writes: “Folks ask me, what about farmers? Won’t this mean they have to sell the farm to pay the tax? No, because President [Joe] Biden’s proposal includes special protections for family-owned business, including family farms. Under the proposal there are two key protections for farmers. First, if a farmer is passing along the farm to his or her children so that they can keep the farm going, no tax is due until they decide to stop farming or sell the farm. That is true for all other family businesses too. Second, the proposal exempts up to the first $2.5 million in gain from taxation. So even if a farmer’s heirs decide to sell the farm, they only pay tax on any gain above that exemption. The $2.5 million exemption means that more than 95% of families won’t face any new tax.”

Vilsack’s bottom line: “Keeping step-up in basis doesn’t protect farmers, it protects investors. The people who are going to pay tax under the proposal have never plowed an acre. Don’t let lobbyists use American farmers as a smoke screen to keep a system that allows the rich to pass on their wealth tax-free.”

 Neither USDA nor the White House has ever released its analysis that showed very few farmers would be negatively impacted by the tax proposals. Transparency is needed on this topic. No one is even sure who at USDA or in the Biden administration did the analysis.

Meanwhile, the American Farm Bureau Federation, National Cattlemen’s Beef Association and others sent a letter to the leaders of the Senate Finance and House Ways and Means Committees on Wednesday, asking them to maintain existing federal estate tax code provisions as they draft their portions of the spending bill.

House ag panel reveals incomplete reconciliation spending… The House Ag Committee unveiled what they said is their budget reconciliation package. However, it only totals $66 billion out of the $89 billion they are supposed to spend, suggesting the summary is not comprehensive. The panel left out additional conservation funding that they had said they would include, providing additional evidence the summary is not complete. Topline strategic investments detailed by the summary include:

• $7.75 billion in investments in agricultural research and infrastructure.
• Over $18 billion in rural job-promoting investments to ensure those living in rural America, on tribal lands, and our insular areas have access to clean water and reliable and efficient renewable energy. This funding will also support investment in renewable biofuels infrastructure important to farmers and our fight against climate change, and flexible funding for rural community growth.
• $40 billion in investments in forestry programs to help combat forest fires and contribute to healthy, resilient forests.

Meanwhile, those expecting the Democrats to include a bipartisan broadband bill and bipartisan WHIP+ extension will be disappointed. Instead, Democrats are expected to include WHIP+ in a forthcoming Continuing Resolution to keep the government funded, apparently to try and force Republicans to vote for an increase in the debt ceiling (rumored WHIP+ funding level is up to $9 billion).

The Senate Ag Committee budget instructions include additional spending totaling $135 billion because, unlike the House ag panel, the Senate Ag Committee has jurisdiction over child nutrition.

USDA announced investment in renewable energy infrastructure for rural areas… Vilsack also announced USDA will invest $464 million to build or improve renewable energy infrastructure to help rural communities, ag producers and businesses lower energy costs in 48 states and Puerto Rico. USDA details that it will finance $129 million of these investments via the Rural Energy for America Program, which is meant to help ag producers and rural small businesses purchase and install renewable energy systems and make improvements in energy efficiency. The other $335 million in investments will go through the Electric Loan Program, loans that help “build or improve 1,432 miles of line to strengthen reliability in rural areas.” Around 30% of the funds will be used for investments in smart grid technology.

Biofuel, farm groups hit EPA for not asking court to toss 2018 SREs... A coalition of farm and biofuel groups is knocking the Environmental Protection Agency for asking the DC Circuit Court of Appeals to remand 31 small refinery exemptions (SREs) granted in 2018 without vacating the waivers. Biofuel proponents contend the waivers are invalid considering the 10th Circuit Court of Appeals’ previous ruling limiting the granting of the exemptions — even after parts of that decisions were struck down by the Supreme Court. The biofuel groups said that while they are encouraged the Biden administration is keen to review the waivers, they disagree with “EPA’s motion to remand without a deadline and without addressing the SREs’ ongoing damage to the biofuel industry.” Instead, the groups said EPA should also ask the court to vacate the SREs “or at the very least, EPA should ask the court to set a deadline by which the reconsideration of these petitions must be completed.”

EPA planning new wastewater regulations… EPA today released a preliminary plan to undertake new rulemakings to reduce contaminants from key industries, including nutrient discharges associated with meat and poultry products. In its Preliminary Effluent Guidelines Program Plan 15, EPA says its studies have prompted it to initiate three new rulemakings. It says revised effluent limitation guidelines (ELGs) and pretreatment standards are warranted for:

• Meat and poultry products category to address nutrient discharges.
• Organic chemicals, plastics and synthetic fibers category to address per- and polyfluoroalkyl substances (PFAS) discharges from facilities manufacturing PFAS.
• Metal finishing category to address PFAS discharges from chromium electroplating facilities.

Preliminary Plan 15 also initiates the rulemaking process to “consider strengthening the effluent limits applicable to certain ELG waste streams from coal power plants that use steam to generate electricity.” You can find more details or submit comments here.

Tyson Foods ‘categorically rejects’ conclusions drawn by USDA, NEC in a White House press briefing… The Biden administration on Wednesday released a report via a blog detailing the drivers of consumer inflation in the food sector, “none of which are related to industry consolidation or scale,” said Tyson Foods. The increase in beef prices is due to “unprecedented market conditions,” Tyson said, repeating what the firm told the Senate Judiciary Committee in August. “Multiple, unprecedented market shocks, including a global pandemic and severe weather conditions, led to an unexpected and drastic drop in meat processors’ abilities to operate at full capacity” Tyson explained. “This led to an oversupply of live cattle and an undersupply of beef, while demand for beef products was at an all-time high. So, as a result, the price for cattle fell, while the price for beef rose. Today, prices paid to cattle producers are rising.” Labor shortages also played a role, Tyson said.

Tyson Foods said it now pays its frontline workers an average of $22 per hour, including full medical benefits. It added: “We recently announced additional paid sick leave and vacation benefits starting in 2022. The company is also piloting childcare programs and providing access to vaccinations for all of its U.S. workers.”

Regarding claims of consolidation impacts, Tyson wrote, “It is inaccurate to suggest that consolidation in the meat processing industry is leading to higher prices for consumers. In fact, evidence of healthy competition can also be found by looking at historical outcomes. For example, we have seen a rise in availability and quality of beef, while the price has become more affordable over the past quarter-century: data shows that while the concentration of the industry has remained relatively constant for close to 30 years, quality has significantly improved. Furthermore, … the historical ratios of margins of cow and calf producers and feeders versus processors, including Tyson, show that cow and calf and feeder margins outpace processor margins in almost every year except the most recent.”

Tyson said its scale allows it to operate efficiently, “which keeps costs down for consumers,” adding that the firm relies on “independent farmers and want them to succeed, because without a steady pipeline of livestock, we can’t run our business.”

Meanwhile, the North American Meat Institute, which represents meat processors, argued that rising prices are primarily due to a persistent labor shortage that’s affecting many parts of the economy. “Issuing inflammatory statements that ignore the fundamentals of how supply and demand affects markets accomplishes nothing,” Mark Dopp, NAMI’s chief operating officer, said in a statement. “Meat and poultry markets are competitive and dynamic with no one sector of the industry consistently dominating the market at the expense of another.”