Evening Report: Winter wheat conditions unexpectedly decline

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Corn, soybean harvest both 95% done... As of Sunday, USDA reported 95% of harvest for both the corn and soybean crops was completed, one point less than traders surveyed by Reuters anticipated. Corn harvest was three points ahead of its five-year average, while soybean harvest was a point behind normal for this date. This marked the final corn and soybean harvest update on the season.

Cotton harvest three-quarter complete... Cotton harvest advanced 10 points over the past week to 75% done. That was four points ahead of the five-year average for the date. Texas had cut 70% of its crop, which was nine points ahead of average. Georgia’s harvest was 67% done, 11 points behind average.

Winter wheat condition declines... As of Sunday, USDA rated 44% of the U.S. winter wheat crop as “good” to “excellent,” down two points from the previous week. Traders expected the portion of crop rated in the top two categories to remain at 46%. USDA also noted a two-point increase in the “poor” to “very poor” categories to 22%. USDA will release one more national winter wheat condition rating report next Monday.

USDA reported winter wheat planting was 96% completed and the crop was 86% emerged, both one point behind the respective five-year averages.

Cold Storage Report: October meat stocks reflect stronger-than-normal seasonal trends... Beef stocks build far more than average during October, while pork stocks declined much more than normal, according to USDA’s Cold Storage Report.

Beef stocks at the end of October totaled 477.1 million lbs., up 37.4 million lbs. (8.5%) from September whereas the five-year monthly increase was 13.6 million pounds. Despite the stronger-than-normal rise, beef stocks fell 23.2 million lbs. (4.6%) from October 2020 and were 4.2 million lbs. (0.8%) less than the five-year average for the month.

Pork stocks at 439.6 million lbs. dropped 30.3 million lbs. (6.4%) from September, compared with the five-year average decline of 17.5 million lbs. during the month. Pork stocks fell 7.5 million lbs. (1.7%) from October 2020 and were 118.4 million lbs. (20.9%) under the five-year average.

Total poultry stocks at 1.063 billion lbs. dropped 92.3 million lbs. (8.0%) from September and 228.3 million lbs. (17.7%) from last year. Chicken breast meat stocks fell 81.0 million lbs. (33.4%) from last year’s record level in October.  

Biden will keep Powell as Fed chair... President Joe Biden plans to nominate Jerome Powell for a second term as head of the Federal Reserve. He will nominate Dr. Lael Brainard to serve as vice chair.

Biden said, “I’m confident that Chair Powell and Dr. Brainard’s focus on keeping inflation low, prices stable, and delivering full employment will make our economy stronger than ever before. Together, they also share my deep belief that urgent action is needed to address the economic risks posed by climate change, and stay ahead of emerging risks in our financial system. Fundamentally, if we want to continue to build on the economic success of this year we need stability and independence at the Federal Reserve – and I have full confidence after their trial by fire over the last 20 months that Chair Powell and Dr. Brainard will provide the strong leadership our country needs.”

Biden said the two Fed members “share the administration’s focus on ensuring that economic growth broadly benefits all workers. That’s why they oversaw a landmark re-evaluation of the Federal Reserve’s objectives to refocus its mission on the needs of workers of all backgrounds. And they’ve advanced key priorities that the President shares, like addressing the financial risks posed by climate change, and staying ahead of emerging risks to our financial system.”

“America needs steady, independent, and effective leadership at the Federal Reserve so it can advance its dual goals of keeping inflation low and prices stable, as well as creating a strong labor market that broadly benefits workers with better jobs and higher wages,” Biden noted, saying he has “full confidence in Powell and Brainard’s experience, judgment, and integrity to continue delivering on those mandates and to help build our economy back better for working families.”

Biden still has three vacant seats on the Federal Reserve Board of Governors to fill, including the important position of Vice Chair for Supervision. He intends to make those appointments beginning in early December and is “committed to improving the diversity in the Board’s composition.”

U.S., others plan oil reserves release; OPEC+ may reassess output plans... President Biden is preparing to announce the release of oil from the nation's Strategic Petroleum Reserve (SPR) in concert with several other countries as soon as Tuesday, Bloomberg reported. The U.S. move, likely in conjunction with India, Japan and South Korea, would be an unprecedented effort by major oil consumers to tame prices after OPEC+ countries rebuffed U.S. calls to significantly boost production. China also said it’s working to release some oil from its strategic reserves.

The situation remains in flux and the plans could change but the U.S. is reportedly considering a release of more than 35 million barrels over time, according to one of Bloomberg’s sources. Citi analysts say the total release could 100 million to 120 million barrels – or higher.

Other reports note OPEC+ could adjust plans to raise oil production if large consuming countries release crude from their reserves. “OPEC is sending a signal that if these players do this, they have some barrels they can withhold and will offset the impact of a release,” Phil Flynn, senior analyst at Price Futures in Chicago told Reuters.

As we reported last week, a U.S. Energy Information Administration official said would have a short-term impact on gas prices, a sentiment echoed by many private analysts.

Update on WHIP+... Many producers inform us they have already received the last 10% of WHIP+ payments for those eligible for 2019-crop payouts. The big issue now is what happens and when regarding the already authorized WHIP+ program for 2020 and 2021, including livestock payments. There are some complications and issues regarding the coming WHIP+ details. Because commodity prices have gone up dramatically for many producers and the Harvest Price Option (HPO) is automatic unless the producer opted out, farmers who have revenue crop insurance coverage could be iced out of any WHIP+ assistance, despite huge yield losses. Why? Because under the WHIP+ formula, expected revenue would be based on an APH policy price election (determined during price discovery in late February) while the indemnity of a producer will be based on the substantially higher HPO price election. Hence, when the indemnity is subtracted, it would wipe out any WHIP+ payment. Netting out premiums paid from the indemnity that is subtracted will certainly help but it will not alone do the trick.

Experts at Combest, Sell & Associates say USDA will need to use the HPO price on both the expected revenue and the crop insurance indemnity received or at least to use the APH price election on both the expected revenue and as a proxy in calculating crop insurance indemnities that must be subtracted if the program is to work. Short of that, producers devastated by drought and other natural disasters will not receive much if anything and USDA will be left flush with unused disaster dollars.

Timeline: The new WHIP+ regulations are currently being written. It does not and perhaps will not follow program details of the past. USDA was instructed to simplify a very complex program and to expedite payments. Those tasks are very hard for bureaucrats to fulfill. Thus, it will likely take more time than most want. Many contacts say to expect payments in 2022, not this year.

Is USDA Secretary Tom Vilsack out of touch?... The question in large part comes from farmers who have heard him recently and wonder if he is only focusing on small-sized producers and not on the part of the ag sector generating most of the production. Others recall this seems like a replay of sorts to Vilsack's initial tenure at USDA in the Obama administration when during his first year the focus was on small farmers and largely away from production agriculture.

Former EPA administrator wonders why it’s taking so long for RFS decisions... Andrew Wheeler, who served as administrator of the Environmental Protection Agency (EPA), from 2018-21 wrote in an op-ed in the Wall Street Journal:

“For the first three years of the Trump administration, the EPA, which I administered beginning in 2018, fulfilled its obligation to set annual renewable-fuel volumes. Last year we were delayed in setting the 2021 targets because the huge decline in gasoline consumption due to Covid-19 made it impossible to provide sound projections of 2021 gasoline sales by the November deadline. The EPA’s decisions on pending small-refinery waivers were delayed by a Supreme Court case, HollyFrontier Cheyenne Refining v. Renewable Fuels Association. The justices decided it in June, directing the government to continue the small-refinery waiver program. But given the pandemic, the Trump administration in 2020 extended the compliance deadlines under the program to stabilize the gasoline market.

“The Biden administration… has inexplicably delayed decisions on the (RFS) waivers and proposals for the annual volumes for 2021 and 2022 under the RFS. Gasoline consumption returned to pre-Covid levels months ago, and the government has had five months to implement the Supreme Court decision. The EPA could and should have set the 2021 renewable-fuel volumes earlier this year. Decisions on the 2019 small-refinery hardship petitions could and should already have been made as well, as the Energy Department completed the technical analysis supporting decisions on the petitions in 2020. These petitions are typically received and acted upon following the compliance year once the refineries and DOE have the economic data.”

Regarding RINs, Wheeler notes that there are almost no 2019 credits left and “the cost of those available has risen exponentially from $0.20 at the end of 2019 to over $1.50 this past August. Prices of credits have more than doubled since the beginning of this administration.” He then again wonders why the delay in announcements: “Because of the delay in making the small-refinery decisions since the Supreme Court ruling, many small refineries face crippling penalties or insolvency. This will mean a loss of jobs, often in places where good-paying jobs are hard to find. This uncertainty will add costs to producing domestic gasoline and will send prices at the pump even higher. Months ago, the EPA and Energy Department had the data to grant or deny small-refinery waivers. The only thing lacking is the political will to greenlight those decisions.”

Wheeler’s bottom line: “If the administration doesn’t act, Congress needs to step in and revise the RFS in a manner that simplifies the program, particularly the volume requirement versus the small-refinery waiver system. Further delays will jeopardize small refineries, American workers and the public.”

Wall Street Journal: Return to normal supply-chain operations won’t come until next year... Global supply-chain woes are beginning to recede, but shipping, manufacturing and retail executives say that they don’t expect a return to more-normal operations until next year, the Wall Street Journal reports. In Asia, Covid-related factory closures, energy shortages and port-capacity limits have eased in recent weeks. In the U.S., major retailers say they have imported most of what they need for the holidays. Ocean freight rates have retreated from record levels. Still, executives and economists say strong consumer demand for goods in the West, ongoing port congestion in the U.S., shortages of truck drivers and elevated global freight rates continue to hang over any recovery. The risk of more extreme weather and flare-ups of Covid-19 cases can also threaten to clog up supply chains again.