Big Oil Mergers Continue as Chevron Corp. Agrees to buy Hess Corp. in $53 Billion Deal

Farm bill extension now seen as very likely

Jim Wiesemeyer

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October 23, 2023 09:11 AM

Farm bill extension now seen as very likely

Today’s Digital Newspaper

MARKET FOCUS

Chevron Corp. agreed to buy Hess Corp. in a deal worth $53 billion
Americans fall behind on car payments
Busiest week of third-quarter earnings season
Ten-year Treasury yields rose above 5% for the first time since 2007
Federal Reserve rate moves squeezing key U.S. ally: South Korea
Europe considering extending emergency gas price cap
Ag markets today
The other peak oil: Why olive oil is so expensive right now
Orange juice prices are at record highs — and could keep climbing
Ag trade update
St. Lawrence Seaway workers strike, disrupting cargo shipments between Montreal and Lake Erie
NWS weather outlook
Pro Farmer First Thing Today items

CONGRESS

GOP House leadership will take days to complete
Mitch McConnell declares full recovery from health issues, urges swift resolution to House speaker vacancy

ISRAEL/HAMAS CONFLICT

Fighting has intensified along Israel’s border with Lebanon
U.N. raises alarm as Israel prepares for ground offensive in Gaza: 222 hostages held by Hamas
Israel removes Greta Thunberg from national curriculum over Gaza solidarity post
More on explosion at Gaza’s al-Ahli Arab Hospital last Tuesday

RUSSIA & UKRAINE

IKAR raises Russian grain production, export forecasts

POLICY

Disagreements over farm bill funding priorities stall progress amid budgetary cuts proposals
Vilsack to hold press call Tuesday announcing significant support for American producers

CHINA

China Sept. forex outflows highest since 2016
China’s hog herd growing, putting pressure on prices
Ten years of China’s Belt and Road: what has $1 trillion achieved?
China rattles foreign firms again with arrests, Foxconn probe

ENERGY & CLIMATE CHANGE

Navigator CO2 ventures cancels $3.5 billion carbon capture pipeline amid regulatory challenges

LIVESTOCK, NUTRITION & FOOD INDUSTRY

Avian influenza case detected in Buena Vista County, Iowa, commercial turkey flock

POLITICS & ELECTIONS

Trump will be holding a rally in Hialeah, Fla., on day of third GOP presidential debate in neighboring Miami
Montanans’ anger over wealthy outsiders could help re-elect Tester

OTHER ITEMS OF NOTE

Biden administration cancels over $48 billion in student loan debt through alternative programs

MARKET FOCUS

— Equities today: Asian and European stocks were mostly lower overnight. U.S. Dow opened around 130 points lower and is currently down around 50 points. Equity futures in Australia, Japan and China indicate early losses of almost 1%, after the S&P 500 on Friday broke the 200-day moving average — seen by some as a bearish signal — and the VIX, Wall Street’s “fear gauge,” jumped to its highest since March. In Asia, Japan -0.8%. Hong Kong closed. China -1.5%. India -1.3%. In Europe, at midday, London -0.5%. Paris -0.2%. Frankfurt -0.8%.

U.S. equities for the week & Friday: All three major indices ended Friday with losses and registered weekly declines. The Dow was down 1.6% for the week, the Nasdaq fell 3.2% and the S&P 500 was off 2.4%. On Friday, the Dow fell 286.89 points, 0.86%, at 33,122.28. The Nasdaq lost 202.37 points, 1.53%, at 12,983.81. The S&P 500 declined 53.84 points, 1.26%, at 4,224.16.

— It will be the busiest week of third-quarter earnings season, with nearly a third of S&P 500 companies scheduled to report this week. Some of the key firms due to report include Amazon, Microsoft, Meta Platforms, Coca-Cola, AbbVie, and Chevron.

— The ten-year Treasury yields rose above 5% for the first time since 2007, as investors begin to anticipate that the Federal Reserve will keep interest rates higher for longer to keep inflation down. The U.S. economy has proven resilient to tighter monetary policy, suggesting a delayed path to interest-rate cuts.

— Agriculture markets Friday:

Corn: December corn futures fell 9 1/2 cents before closing at $4.95 1/2, settling near the session low, though marking a 2 1/4 cent gain on the week.
Soy complex: November soybeans fell 13 1/4 to $13.02 1/4 but rose 22 cents on the week, while December meal rose 90 cents to $423.90 and gained $33.90 week-over-week. December soyoil rose 28 points to 53.39 cents but gave up 99 points on the week.
Wheat: December SRW wheat futures fell 8 cents to $5.86 and near the session low after hitting a five-week high early on. For the week, December SRW gained 6 1/4 cents. December HRW wheat futures lost 6 1/4 cents to $6.70 and near the session low. On the week, December HRW rose 1 cent. December spring wheat fell 8 1/4 cents to $7.30 ¾ but gained 8 3/4 cents on the week.
Cotton: December cotton fell 187 points to 82.40 cents and lost 366 points on the week.
Cattle: December live cattle futures closed down 67 1/2 cents to $184.625 and near the session low. For the week, December live cattle fell $2.125. November feeder cattle futures lost $2.275 to $242.225 and near the session low. Prices hit a nearly four-month low today and for the week dropped $9.35. r
Hogs: Hog futures continued their seasonal breakdown Friday, increasing the discounts built into the nearby contracts. Nearby December futures dove $2.00 to $66.00 at Friday’s close; that marked a weekly drop of $3.55.

— Ag markets today: Soybeans led overnight losses, while corn and the winter wheat markets faced lighter selling. As of 7:30 a.m. ET, corn futures were trading fractionally lower, soybeans were mostly 9 cents lower, winter wheat markets were 1 to 3 cents lower, while spring wheat futures were 2 to 4 cents higher. Front-month crude oil futures were around 50 cents lower. and the U.S. dollar index was marginally weaker.

Bearish Cattle on Feed report. All three categories in Friday’s Cattle on Feed Report came in on the bearish side of pre-report expectations, with On Feed up 0.6%, placements up 6.1% and Marketings down 10.6% from year-ago levels. Cattle futures are expected to face pressure from the report data today.

Cash hog index continues to fall. The CME lean hog index is down another 66 cents to $79.79 (as of Oct. 19), extending its seasonal price decline. December lean hog futures finished last Friday at a $13.79 discount to today’s cash quote. Meanwhile, the pork cutout value firmed 84 cents on Friday to $87.97.

— Quotes of note:

“The subprime borrower is getting squeezed,” said Margaret Rowe, senior director with the asset-backed securities group at Fitch. “They can often be a first line of where we start to see the negative effects of macroeconomic headwinds.”
“You’re going to continue to be able to generate 5%-plus out of a money market until the Fed decides to move rates lower.” — Michael Green, chief strategist at Simplify Asset Management, told Investor’s Business Daily l
“Q-Day.” — The term that computer science experts use to explain the moment when super-powerful quantum computers will emerge in the marketplace and potentially render today’s encryption and privacy protocols powerless, leaving government and corporate secrets vulnerable.
Deficits. “It’s really quite striking how the paths have diverged.” — Christian Keller, chief economist at Barclays, discussing how the U.S. deficit is growing while deficits among European countries are shrinking.

— ‏‎Federal Reserve rate moves are squeezing a key U.S. ally. The South Korean won has fallen about 7% against the dollar this year, as the gap between Korean and U.S. interest rates has widened.

— Record-high delinquency rates on auto loans signal financial distress among Americans. Americans are experiencing the highest delinquency rates on auto loans in nearly three decades, with the percent of subprime auto borrowers at least 60 days past due reaching 6.11% in September, the highest on record since 1994. Rising interest rates, high car prices, and borrowing costs are making it difficult for many car owners to make their monthly payments. This situation highlights financial distress amid a mixed economic backdrop and suggests challenges in consumer spending. The issue is expected to persist with the Federal Reserve signaling prolonged higher interest rates. For individuals with lower credit scores, interest rates for new and used cars are significantly higher, making car ownership increasingly unaffordable. The rise in delinquency rates is also expected to lead to an uptick in vehicle repossessions, further affecting individuals’ financial stability. Link to more via Bloomberg.

Market perspectives:

— Outside markets: The U.S. dollar index was firmer as most currencies were higher against the greenback. The yield on the 10-year U.S. Treasury note has continued to hold around 5% after reaching that mark ahead of U.S. trading. Crude oil futures are lower, with U.S. crude around $87.45 per barrel and Brent around $91.60 per barrel. Gold and silver were lower ahead of economic data, with gold around $1,990 per troy ounce and silver around $23.33 per troy ounce.

— Chevron to acquire Hess for $53 billion, bolstering presence in Guyana and solidifying U.S. oil industry dominance. Chevron Corporation announced its plans to purchase Hess Corporation for $53 billion in an all-stock transaction. This acquisition will provide Chevron with a significant stake in Guyana, one of the world’s emerging oil-producing nations, thereby enabling the company to enhance production growth and deliver better returns to investors. The deal includes a premium of approximately 10% to the 20-day average share price for Hess shareholders, valuing the company at $60 billion, including debt. This marks the second major consolidation in the U.S. oil industry in recent weeks, following ExxonMobil Corp.'s $58 billion acquisition of Pioneer Natural Resources Co. The move further cements the position of U.S. oil majors in the global industry, with Chevron set to gain 30% ownership of over 11 billion barrels-equivalent of recoverable resources in Guyana.

Of note:

Chevron will pay $171 per share for Hess in an all-stock transaction.
The acquisition will bolster Chevron’s presence in Guyana, an emerging oil-producing nation.
The deal is expected to enhance production growth and investor returns.
Chevron will gain 30% ownership of over 11 billion barrels-equivalent of recoverable resources in Guyana.
The transaction is set to close in the first half of 2024, pending approval from Hess shareholders and regulatory authorities.

Bottom line: This acquisition reflects a strategic move by Chevron to strengthen its position in the global oil and gas industry and tap into the potential of Guyana’s oil reserves.

— Europe is considering extending an emergency gas price cap because of fears that conflict in the Middle East and an incident of pipeline sabotage might elevate prices this winter, the Financial Times reports (link/paywall).

— Global olive oil prices surge. Olive oil prices have skyrocketed, more than doubling over the past year, creating challenges for American consumers and businesses alike. Factors such as drought in Spain, a major olive oil producer, and unfavorable weather conditions in Italy, Greece, and Portugal have severely impacted olive oil production. The U.S., primarily importing from Spain and Italy, faces the consequences of these global disruptions, resulting in significantly higher prices for consumers. A roughly 25-ounce bottle of extra virgin olive oil, for instance, has seen a nearly 22% price increase in just a year. Rising olive oil costs are attributed to weather-related irregularities in Mediterranean olive oil production, contributing to the recent surge in food prices and global inflation. Although some businesses have explored alternative sources in the Southern Hemisphere, the overall impact of Mediterranean shortages remains a significant concern, with consumers potentially having to bear the burden of these rising costs. Link to more via the New York Times.

— Orange juice prices are at record highs — and could keep climbing. Prices at the grocery store are up more than 10% from last year. Prices for frozen concentrate orange-juice futures have more than tripled since late 2021, with prices setting records week after week. In grocery stores, a gallon of orange juice on average cost $9.18 during the four-week period ending Oct. 7, up more than 10% from the same time last year. Link to details via the WSJ.

— Ag trade update: Taiwan tendered to buy 52,000 MT of U.S. milling wheat. Iran tendered to buy 180,000 MT of corn.

— St. Lawrence Seaway workers strike, disrupting cargo shipments between Montreal and Lake Erie. Workers at the St. Lawrence Seaway have gone on strike, leading to an immediate disruption in cargo shipments along the waterway connecting Montreal and Lake Erie. The strike follows unsuccessful negotiations between the union and the employer, particularly on the issue of wages. The St. Lawrence Seaway Management Corporation (SLSMC) cited the impasse, with the union seeking wage increases and inspiration from automotive industry negotiations. The halt in operations is expected to impact the North American economy and supply chain, particularly the movement of essential commodities like grain. The SLSMC has applied to the Canada Industrial Relations Board for an order related to the movement of grain during the strike. Over 100 vessels outside the system are affected by the situation, while negotiations, which began in June, remain at a standstill. The strike comes after nearly $16.7 billion worth of cargo, including grain and iron ore, transited through the seaway last year. Link for more.

— NWS weather outlook: Heavy rain chances and flash flood potential increases across the Southern Plains early this week... ...Some locally heavy rainfall possible for the Upper Great Lakes Tuesday... ...Impactful snow to enter parts of the Northwest, Northern Rockies, and northern High Plains on Tuesday.

Items in Pro Farmer’s First Thing Today include:

• Grains mostly weaker overnight
• Argentina headed for runoff vote in presidential election

CONGRESS

— Mitch McConnell declares full recovery from health issues, urges swift resolution to House speaker vacancy. Senate Republican leader Mitch McConnell (R-Ky.) said he has fully recovered from health concerns that had raised questions about his well-being, including a serious fall at a political fundraiser and instances of freezing during public speaking engagements. In an interview on CBS’s Face the Nation, McConnell reassured that he is in good shape and back to work. He also urged House GOP members to promptly select a new speaker to address the legislative branch’s current paralysis caused by a speakership vacancy. While Democrats control the Senate, the House has been unable to fill the speakership position for almost three weeks, resulting in an impasse after the ousting of Kevin McCarthy by right-wing dissidents and rebels. McConnell emphasized the importance of resolving this issue and its potential impact on the perception of the United States globally. He also shared his alignment with President Joe Biden on foreign-policy matters, including aid for Israel and Ukraine, while opposing the decoupling of these issues. Biden has requested nearly $106 billion in emergency funding for these purposes, with the U.S. gov’t facing an impending funding deadline in November. McConnell noted that Senate Republicans will give the supplemental budget request a serious review and may recommend changes.

ISRAEL/HAMAS CONFLICT

— Fighting has intensified along Israel’s border with Lebanon, with Israeli forces and Hezbollah fighters exchanging fire Saturday in several areas along the border.

— U.N. raises alarm as Israel prepares for ground offensive in Gaza: 222 hostages held by Hamas. The Israel Defense Forces revealed that 222 individuals are currently held hostage by Hamas, a number higher than previously estimated. Meanwhile, the U.S. has committed to a “continued flow” of aid into the Gaza Strip. This announcement followed the arrival of a second convoy of trucks carrying humanitarian supplies into the besieged enclave from Egypt. The White House’s commitment to aid was made following a phone call between President Joe Biden and Israel’s Prime Minister, Binyamin Netanyahu.

Despite these humanitarian efforts, the United Nations has stressed that Gazans require “much more” assistance as Israel persists in its bombardment, signaling preparations for a ground offensive in the region. Israel’s defense minister has indicated that such an offensive is imminent.

— Israel removes Greta Thunberg from national curriculum over Gaza solidarity post. Israel’s education ministry has decided to eliminate references to climate activist Greta Thunberg from the national curriculum. This decision comes in response to a social media post by Thunberg, where she was seen on X (formerly Twitter) holding a sign that read “stand with Gaza.” The education ministry cited her stance on this issue as disqualifying her from being considered “an inspiration and educator for Israeli students.”

— The explosion at Gaza’s al-Ahli Arab Hospital last Tuesday that U.S. officials estimate killed between 100 and 300 people was likely caused by the breaking up of a rocket that was fired from within Palestinian territory, an analysis by the Associated Press concluded. Meanwhile, the Wall Street Journal issued a similar conclusion based on its review.

RUSSIA/UKRAINE

— IKAR raises Russian grain production, export forecasts. Russian agricultural consultancy IKAR estimates Russia’s grain production at 142.2 MMT, up 600,000 MT from its prior forecast. The firm raised its 2023-24 grain export forecast by 300,000 MT to 65 MMT.

POLICY UPDATE

— Disagreements over farm bill funding priorities stall progress amid budgetary cuts proposals. House Agriculture Chairman Glenn Thompson’s (R-Pa.) proposal to offset farm bill priorities, including crop subsidies, with $50 billion in cuts, primarily from climate change and public nutrition programs, was swiftly rejected, highlighting ongoing disputes surrounding the farm bill. A growing number of lawmakers are signaling the need for a one-year extension of the 2018 Farm Bill as a potential solution (link for more).

Rep. David Scott (D-Ga.) shared the $50 billion list with Democratic members of the House Ag Committee last week. Politico reported (link) some Democrats were unhappy with Scott’s negotiating strategy. It also quoted Thompson as saying he was aware that “whatever I identify on this list, we’re not going to be able to get all of that or maybe even much of it.”

As noted frequently, the primary point of contention is higher reference prices, with potential costs running into the tens of billions. With no new funding available, any new initiatives must be balanced within the farm bill. Senate Ag Chairwoman Debbie Stabenow (D-Mich.) has firmly opposed cuts to SNAP (Supplemental Nutrition Assistance Program/food stamps) and the redirection of the $20 billion allocated to USDA conservation programs by the 2022 IRA/Climate Bill).

Thompson’s proposal also involved diverting the $20 billion to finance higher reference prices and preventing updates to the Thrifty Food Plan. Farm groups are prioritizing higher reference prices to facilitate subsidy payments to crop growers, while some Republicans view the $20 billion for climate mitigation as available for other purposes.

Of note: Politico today reports every Democrat on the House Ag Committee signed a letter (link/pdf) demanding G.T. Thompson and ranking member David Scott reject cuts to the Inflation Reduction Act via the farm bill.

— Vilsack to hold press call Tuesday announcing significant support for American producers. USDA Secretary Tom Vilsack will host a press call Tuesday, where he will announce “a significant investment” to support American farmers through new funding opportunities “to help maintain and develop markets for their commodities and contribute to global food security efforts through bolstering international food aid.”

CHINA UPDATE

— China Sept. forex outflows highest since 2016. Capital outflows from China rose sharply to $75 billion in September, the largest such monthly amount since 2016, Goldman Sachs’ preferred gauge of foreign exchange flows showed, underscoring intensifying depreciation pressure on the yuan. September’s outflows, nearly 80% higher than the $42 billion seen in August, were driven by current account outflows as foreign investors’ net selling of equities and bonds slowed, Goldman Sachs said in a report. There was $35 billion in net outflows via onshore outright spot transactions last month, as well as $45 billion of net yuan payment from onshore to offshore, Goldman said.

— China’s hog herd growing, putting pressure on prices. China’s hog production is still growing, a farm ministry official said, with a higher-than-normal number of breeding sows set to maintain downward pressure on prices. China had 42.4 million sows at the end of September, unchanged from the previous month, but 3.4% higher than the normal level, Chen Guanghua, head of the animal husbandry and veterinary bureau at the ag ministry said. “The level of pig losses may even be greater than that of the same period this year,” he said, urging farmers to adjust their production.

— Ten years of China’s Belt and Road: what has $1 trillion achieved? The massive infrastructure initiative has granted Beijing additional influence, but critics question whether the cost has been worth it. Link/paywall to Financial Times article for details.

— China rattles foreign firms again with arrests, Foxconn probe. Chinese authorities are again shaking the confidence of foreign companies in the country with a series of arrests across industries and an investigation into Foxconn Technology Group, Apple Inc.’s most important partner and one of the largest employers in China. Link to details via Bloomberg.

ENERGY & CLIMATE CHANGE

— Navigator CO2 ventures cancels $3.5 billion carbon capture pipeline amid regulatory challenges. The news broke Friday that Navigator CO2 Ventures abandoned its plans for a $3.5 billion, 1,300-mile carbon capture pipeline, spanning across five states, due to unpredictable regulatory and governmental processes. The project, known as the Heartland Greenway, faced difficulties, including a permit denial in South Dakota, permit withdrawals in Illinois, and ongoing regulatory issues in Iowa.

The decision was welcomed by pipeline opponents, while two other companies, Summit Carbon Solutions and Wolf Carbon Solutions, continue to pursue carbon capture pipeline projects in the Midwest. These pipelines aim to transport carbon dioxide emissions from ethanol and other plants to underground storage sites.

Ethanol proponents argue that these pipelines are crucial for reducing the carbon footprint of the ethanol industry and receive support from the Biden administration, which offers tax credits for carbon capture projects. Summit Carbon Solutions has adjusted its timeline but plans to move forward with its project and potentially absorb Navigator’s ethanol and agricultural partners.

Despite Navigator’s withdrawal, the debate over carbon capture pipelines and their impact on agriculture and rural economies continues. Some believe that states resisting such projects risk falling behind in adopting these technologies. However, opposition remains strong due to concerns about safety, farmland damage, and landowner rights.

Navigator CEO Matt Vining expressed disappointment in discontinuing the project but thanked their supporters. Landowners who had sold easements to Navigator will retain the compensation they received.

LIVESTOCK, NUTRITION & FOOD INDUSTRY

— Avian influenza case detected in Buena Vista County, Iowa, commercial turkey flock. Officials have confirmed the presence of Highly Pathogenic Avian Influenza (HPAI), commonly known as bird flu, in Buena Vista County, Iowa, for the first time this migration season, marking a significant development since March 2023. Around 50,000 birds in a commercial turkey flock were reported to be in the operation. Governor Reynolds issued a disaster proclamation for the county (link), in effect until Nov. 19, 2023, enabling state resources to support tracking, monitoring, rapid detection, containment, disposal, and disinfection efforts. The proclamation also includes provisions to waive certain regulations related to commercial vehicles responding to affected sites. Ag Secretary Mike Naig emphasized the importance of prevention and urged Iowa farmers to take proactive measures to safeguard their birds from contact with wild birds. Signs of HPAI in birds were outlined, and a commercial turkey flock in Buena Vista County was impacted by the positive case. It’s worth noting that poultry products remain safe for consumption, and possible cases of avian influenza should be reported to the Iowa Department of Agriculture and Land Stewardship.

— Ex-officials in the United Nations’ farming wing said they were censored, sabotaged and undermined for a decade-plus after writing about the environmental damages caused by livestock’s methane emissions, the U.K.’s Guardian reports (link).

POLITICS & ELECTIONS

— Donald Trump announced he will be holding a rally in Hialeah, Fla., on the day of the third GOP presidential debate in neighboring Miami. Both the rally and the debate will happen on the evening of Nov. 8. Earlier in October, Trump urged the RNC to cancel the third debate and all future ones “to refocus its manpower and money on preventing Democrats’ efforts to steal the 2024 election.”

— Montanans’ anger over wealthy outsiders could help re-elect Tester. The Wall Street Journal reports (link) that while Montana’s shift to the right could hinder Sen. Jon Tester’s (D-Mont.) effort to win a fourth term next year, there is a frustration among residents from both parties over wealthy outsiders moving to the state, taking land and driving up prices that could serve to help Tester. The WSJ says Tester is focusing his campaign on the fact that he is a third-generation Montanan who farms land his grandparents homesteaded in 1912.

OTHER ITEMS OF NOTE

— Biden administration cancels over $48 billion in student loan debt through alternative programs. Despite the Supreme Court’s rejection of President Joe Biden’s flagship student loan forgiveness program in June, his administration has managed to eliminate more than $48 billion in student loan debt through existing federal forgiveness initiatives. These programs are designed for specific categories of borrowers, including public-sector employees, individuals defrauded by for-profit colleges, and those who have made payments for at least two decades. The Biden administration has been progressively granting debt forgiveness within these parameters, resulting in a total of $127 billion forgiven for nearly 3.6 million individuals thus far. However, Republican critics contend that some of these relief actions may be illegal and represent an effort to bypass the Supreme Court’s ruling.

KEY LINKS

Policy Updates