Assessing Russia wheat crop damage | Dollar continues to rally | New farm bill | Lighthizer
Today’s Digital Newspaper |
Modified format as I am en route to Chicago for a speech on Tuesday for Fastmarkets.
— Financial markets: Asian and European stock indexes were mixed overnight. In Asia, Japan -0.1%. Hong Kong +0.8%. China -0.2%. India +0.2%. In Europe, at midday, London +0.1%. Paris -0.2%. Frankfurt -0.1%.U.S. stock indexes are pointed to toward slightly higher openings. Futures on the S&P 500 and Nasdaq 100 edged higher. Treasury yields and the dollar were steady. The focus will be the U.S. CPI report on Wednesday. The report is forecast to show underlying U.S. inflation probably moderated in April for the first time in six months.
After sliding 4.2% last month, the S&P 500 has risen 3.7% so far in May and is less than 1% from its record high. Strong corporate profits have helped drive the spring rally—with more than 80% of the S&P having reported Q1 results, companies are on pace to have boosted earnings by 7.8%, compared to expectations of 5.1%.
— Ag markets: Corn and soybeans modestly pulled back from Friday’s strong gains during the overnight session, while wheat traded mixed. As of 7:30 a.m. ET, corn futures were trading 1 to 3 cents lower, soybeans were 4 to 5 cents lower and wheat futures were trading within a penny of each side of unchanged. Front-month crude oil futures were around 50 cents higher, and the U.S. dollar index was modestly weaker this morning.
Wholesale beef prices slumping, but retailer demand is strong. Choice boxed beef prices fell another 82 cents on Friday, while Select dropped $1.59, extending the recent slide in wholesale prices. The positive news is that movement totaled 155 loads and averaged 130.2 loads last week, signaling strong underlying retailer demand.
Cash hog fundamentals appear ready to restart seasonal climb. The CME lean hog index is up 4 cents to $91.32 as of May 9. While that’s still 32 cents below the April high, there has been only one daily decline this month. The pork cutout value firmed $1.34 on Friday to $99.77, the highest level since April 23, led by a $7.13 jump in butts.
Weekend demand news. South Korea purchased 68,000 MT of corn expected to be sourced from South America or South Africa. Indonesia tendered to buy 300,000 MT of 5% broken grade white rice from unspecified sources.
— Assessing Russia’s wheat crop damage. World Weather Inc. speculates permanent wheat damage from recent freezes is not likely to be more than 6%; winter rapeseed likely suffered damage on 40% of crop area. However, a much larger part of Russia’s Southern Region, eastern Ukraine and western Kazakhstan is dealing with drought. Lost wheat production because of drought could be many times greater than that which is lost from recent freezes.
— IKAR cuts Russian wheat production, export forecasts. Russia’s IKAR agricultural consultancy cut its forecast for Russia’s wheat crop to 86 MMT from 91 MMT previously. Its 2024-25 wheat export forecast was lowered 3.5 MMT to 47 MMT. IKAR forecasts total grain production at 135 MMT and exports at 59.5 MMT, down 5 MMT, respectively. Russia’s ag ministry kept its grain production forecast at 132 MMT.
— Ukrainian grain exports reached 43.2 million metric tons (MMT) by May 13 for the 2023-24 marketing year, just behind 43.6 MMT at this point in in the 2022-23 marketing year. The total included 24 MMT of corn, 16.4 MMT of wheat, and 2.24 MMT of barley. Exports totaled 1.85 MMT so far in May.
— The planned weekend demolition of Key Bridge wreckage outside the Port of Baltimore was postponed until today.
— Grocery prices have risen more than 25% compared with prepandemic levels, BofA analysts said. First-quarter visits to Walmart rose 3.9% from a year earlier, with an influx of higher-income shoppers. Walmart last month launched its Bettergoods private-label products to boost profit and compete with national brands.
— FedWatch: Chicago Fed President Austan Goolsbee told the Wall Street Journal that housing hasn’t behaved the way economists expected. Market rents aren’t slowing as quickly despite the record number of new apartments because demand has risen from higher immigration, more hiring, and rising wages.
Of note: Fed Chair Jerome Powell could update his views on the U.S. economy and rates on Tuesday when he appears on a panel with Klaas Knot, the head of the Dutch central bank, who is also a member of the governing council of the European Central Bank.
— House Ag Chair GT Thompson (R-Pa.) is keeping the door open for some changes to the proposed House farm bill (link) to woo some Dems to vote for the measure when the panel marks it up May 23. Complete text of the bill is expected this week. Link to The Week Ahead for more info on the 38-page detailed summary of the bill, plus some analysis.
— USDA and the Department of Health and Human Services (HHS) announced new initiatives to tackle the issue of highly pathogenic avian influenza (HPAI) in dairy cattle. The measures include providing personal protective equipment (PPE) for workers, with financial support for affected sites that participate in a study by the USDA and the Centers for Disease Control and Prevention (CDC). Financial assistance includes up to $2,000 per month for sites providing PPE, $1,500 for developing biosecurity plans, and $100 for producers using an in-line sampler in their milk systems. Additionally, up to $2,000 per month will be available for safe milk disposal, and up to $10,000 will cover increased veterinarian costs.
USDA will cover the cost of shipping samples for testing to the National Veterinary Services Laboratories (NVSL), with a cap of $50 per shipment for two shipments per month. In total, support could amount to $28,000 per location over the next 120 days. There is also up to $98 million in funds from the Animal and Plant Health Inspection Service (APHIS) earmarked to compensate for lost milk production and to manage the movement of lactating cattle.
On the health services side, HHS will invest an additional $101 million through the CDC and the Food and Drug Administration (FDA) to mitigate the risks of the H5N1 virus and support testing, prevention, and treatment initiatives.
Link for additional information.
— Chinese authorities plan to issue long-dated government bonds valued at 1 trillion yuan (approximately $140 billion) to stimulate economic spending. This decision follows the release of disappointing economic data. Unlike typical government bonds, these long-dated bonds will be designated for specific uses. Premier Li Qiang earlier indicated potential applications for these funds, including initiatives related to food security, energy, and manufacturing sectors.
— China’s consumer prices rise, factory deflation persists. China’s consumer price index rose 0.3% from year-ago in April, the third straight month of consumer inflation amid ongoing recovery in domestic demand. Food prices fell 2.7%, the 10th consecutive monthly decline. China’s producer prices declined by 2.5% versus last year, the 19th straight month of contraction in factory-gate prices.
— Several Asian governments have responded to the depreciation of their currencies against a robust U.S. dollar. Asian currencies have weakened due to the relatively strong American economy and its sustained high interest rates, prompting actions ranging from verbal interventions to interest rate hikes and direct market interventions.
Particularly, the Japanese yen has significantly declined, with suspected gov’t interventions to stabilize it after it fell to a 34-year low. The gap in yields between U.S. and Japan is a primary factor in the yen’s weakness. Currency analysts are closely watching upcoming U.S. economic data, such as the Consumer Price Index, as it will heavily influence the future movements of the dollar against Asian currencies.
In South Korea, efforts to stabilize the won have included forex interventions, which have somewhat stemmed its decline. Similarly, Indonesia raised its benchmark interest rate unexpectedly to support the rupiah, which had fallen to a four-year low.
The Indian rupee is one of the most stable Asian currencies despite reaching its lowest ever rate against the dollar recently.
Most Asian countries, except Malaysia, have sufficient forex reserves to cover more than six months of imports, a threshold considered adequate for economic stability.
— The Biden administration is reportedly preparing to impose significantly higher tariffs on Chinese electric vehicles (EVs) and other clean energy products to protect American manufacturers. According to a report by the Wall Street Journal, the U.S. plans on Tuesday to increase tariffs on Chinese EVs from 25% to 100%, making it nearly impossible for these vehicles to be competitively priced in the U.S. market. This move is part of a broader strategy to shield domestic industries from the competitive pressures of lower-cost Chinese products, which are often subsidized by the Chinese government.
The rationale behind these tariffs is to prevent Chinese EVs, which are priced much lower than American equivalents, from dominating the U.S. market. The average cost of an EV in the U.S. is $47,500, whereas in China, it is around $28,000. The Biden administration’s approach represents a significant escalation in the trade conflict between the U.S. and China, particularly in the realm of climate technology.
This decision has been met with criticism from various quarters who argue that it could hinder efforts to reduce emissions by making it more expensive to adopt EV technology in the U.S. Critics point out that if the goal is to encourage EV adoption to combat climate change, introducing tariffs on lower-cost EVs could be counterproductive. Additionally, some European industry leaders, such as the CEOs of BMW and Volkswagen, have expressed concerns that such tariffs could adversely affect their business interests in China, indicating a preference for open markets over protective measures.
— Sec. of State Antony Blinken warned that an Israeli victory over Hamas may be followed by “chaos, by anarchy and ultimately by Hamas again.” Blinken’s remarks came amid fresh battles between Israeli forces and Hamas troops in northern Gaza. Meanwhile, Israel continued to expand its assault on the southern city of Rafah, despite growing international condemnation.
During a Sunday interview on CBS’ Face the Nation, Blinken — who spoke to Israeli officials on Sunday — said the heavy bombs were the only weapons being held up at this point: “What we’ve been clear about is that if Israel launches this major military operation to Rafah, then there’s certain systems that we’re not going to be supporting and supplying for that operation. But at present, the only thing that we’ve delayed and are holding back are these high payload bombs, because we’re in an ongoing conversation with Israel, given the impact that those weapons can have, when they’re used in densely populated areas, including an area like Rafah….”
— An article (link) from the Wall Street Journal profiles Robert Lighthizer, a key figure in former President Donald Trump’s administration, known for reshaping U.S. trade policy. Lighthizer, who served as the U.S. Trade Representative, played a significant role in redirecting the trade agenda to prioritize domestic manufacturing and lessen the emphasis on global trade deals and organizations like the WTO. His approach also favored the use of tariffs.
Since his tenure, Lighthizer has continued to advocate for a more radical shift in global trade practices, particularly focusing on the elimination of trade imbalances. He believes that these imbalances, exemplified by the U.S. trade deficit and China’s surplus, are not natural economic phenomena but are instead the result of protective and industrial policies from other countries. He argues that balanced trade should be the ultimate goal, where every country should export to the capacity that it needs to import, aiming for global equilibrium over time.
Lighthizer suggests that addressing these imbalances could involve the use of tariffs and possibly capital controls. He also discusses other potential strategies like imposing a market access charge on foreign investments in U.S. assets, a measure aimed at countries with excessive savings. His views reflect a skepticism towards free trade that has gained traction in recent years, especially with the recognition of its impact on the U.S. manufacturing sector and economic security.
Despite his retirement, Lighthizer remains influential and is considered for roles in a potential second Trump administration. He also emphasizes the importance of security alliances, such as NATO and partnerships in Asia, as fundamental to America’s global strategy, underscoring that economic strength, military power, and technological superiority are what truly forge alliances, rather than mere trade relationships alone.
— A federal judge in Texas has temporarily blocked a new federal rule that aimed to limit credit card late fees to $8 per month. This ruling comes as a victory for banking and credit card companies who argued that the rule was unconstitutional and filed a lawsuit to prevent its implementation. The $8 cap, which was introduced in March and set to take effect tomorrow, was projected by the Consumer Financial Protection Bureau to save American households approximately $10 billion annually.
— Nov. 5 elections: In in a series of recent Times/Siena polls, former President Donald Trump is leading in five out of six key swing states when matched against President Joe Biden. Specifically, Trump leads in Georgia, Nevada, Arizona, Pennsylvania, and among likely voters in Wisconsin. Biden, however, has a slight edge among likely voters in Michigan and among registered voters in Wisconsin. Trump’s lead is primarily driven by increased support from young voters and voters from Black and Hispanic communities, as analyzed by Nate Cohn of the New York Times.
In related Senate races, Democratic candidates are leading in Pennsylvania, Wisconsin, Arizona, and Nevada. This points to a possible discrepancy between presidential and Senate race preferences in these states.
— Flash flooding is a looming threat across the U.S. South this week, as severe storms are expected to hit regions with already saturated ground. This includes parts of Texas, which recently experienced significant rainfall leading to the rescue of hundreds. Currently, over 13 million people are under flood watches, an alert that spans from Central Texas to the Florida Panhandle, affecting areas like those north of Houston that are already grappling with recent heavy rains. The region has been hit hard by multiple rounds of storms, with the latest bringing tennis ball-sized hail and severe conditions to Texas and Louisiana, leading to tornado watches and flash flood warnings issued by the National Weather Service.
KEY LINKS |
WASDE | Crop Production | USDA weekly reports | Crop Progress | Food prices | Farm income | Export Sales weekly | ERP dashboard | California phase-out of gas-powered vehicles | RFS | IRA: Biofuels | IRA: Ag | | Russia/Ukraine war, lessons learned | | SCOTUS on WOTUS | SCOTUS on Prop 12 pork | New farm bill primer | | Gov’t payments to farmers by program | Farmer working capital | USDA Ag Outlook Forum |