Brazil President Lula to China March 26-31, with Meatpacker Execs

Yellen backtracks on adopting universal deposit insurance | Fed says no rate cuts this year

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March 23, 2023 08:36 AM

Yellen backtracks on adopting universal deposit insurance | Fed says no rate cuts this year

In Today’s Digital Newspaper

USDA daily export sale: 123,000 metric tons corn to China during MY 2022-2023.

The Fed’s 25bp hike in rates on Wednesday marked the ninth consecutive rate increase aimed at battling inflation over the past year. It brought the benchmark federal-funds rate to a range between 4.75% and 5%, the highest level since September 2007.

Fed Chair Jerome Powell said officials had considered skipping a rate hike after banking stress intensified last week. And he hinted that Wednesday’s increase could be their last one for now depending on the extent of any lending pullback that follows a bank run earlier this month. New projections showed almost all 18 officials who participated in the meeting expect the fed-funds rate to rise to at least 5.1%, implying one more quarter-point increase and no rate cuts this year.

The Swiss National Bank moved forward with a 50bp rate hike overnight which showed policy makers’ increased confidence in the global banking system and continued commitment to reign in inflation pressures.

The Bank of England raised interest rates for an eleventh time in a row after being dealt a blow on inflation this week. The Bank raised rates by a quarter of a percentage point to 4.25%, as had been widely expected.

U.S. meat exporters are closely watching China’s growing imports from Brazil. And that will likely be on the agenda when Brazil’s president journeys to China later this month. Lula has invited several meatpacker execs to go with him. More in China section.

More EV tax credit rules coming next week. The Biden administration is preparing to release next week a slew of requirements to claim EV tax credits worth up to $7,500 per vehicle,

USDA, dubbed the Department of Announcements, proposed another huge program. An additional 20,000 schools in poor neighborhoods would have the option of serving breakfast and lunch for free to all their students under the latest proposal, a step toward a potential expansion of universal free meals by more than 50%. An average of 28.2 million students a day ate hot meals through the school lunch program in December 2022, the most recent month for which statistics are available, according to the USDA. School breakfast participation averaged 14.3 million students a day.

MARKET FOCUS

Equities today: Global stock markets were mixed overnight. U.S. Dow opened up around 100 points higher and is currently around 200 points higher. In Asia, Japan -0.2%. Hong Kong +2.3%. China +0.6%. India -0.5%. In Europe, at midday, London -1.1%. Paris -0.6%. Frankfurt -0.8%.

U.S. equities yesterday: The Dow fell 530.49, 1.6%, to 32,030.11. The S&P 500 lost 65.90, 1.6%, to end at 3,936.97. The Nasdaq lost 190.15, 1.6%, to 11,669.96.

Agriculture markets yesterday:

Corn: May corn rose 3 3/4 cents to $6.33 1/2, ending the session above the 20-day moving average.
Soy complex: May soybeans fell 18 1/2 cents at $14.48 1/2, nearer the session low and hit a 3.5-month low. May soybean meal dropped $9.00 at $451.60, near the session low and hit a six-week-low. May bean oil closed down 160 points at 54.64 cents, near the daily low and hit an eight-month-low.
Wheat: May SRW plummeted 19 3/4 cents to $6.63 1/2, after marking a 20-month intraday low at $6.54. May HRW fell 9 cents to $8.11 1/4, while Spring wheat ended 12 3/4 cents lower at $8.33.
Cotton: May cotton rose 43 points to 78.28 cents and nearer the daily low.
Cattle: April live cattle futures fell 12.5 cents on the day to close at $162.3, over $1.50 higher off the daily low. Most-active April feeder futures fell 32.5 cents to $197.375 but closed well off the intraday lows.
Hogs: Hog futures remained under pressure Wednesday, with the nearby April contract falling 97.5 cents to $76.075. The cash hog and wholesale pork markets remained weak.

Ag markets today: Corn futures built on Wednesday’s corrective gains overnight, while soybeans and wheat bounced after recent losses. As of 7:30 a.m. ET, corn futures were trading 2 to 6 cents higher, soybeans were 2 to 4 cents higher and wheat futures were mostly 5 to 10 cents higher. Front-month crude oil futures were around 50 cents lower, and the U.S. dollar index was modestly firmer.

Technical viewpoints from Jim Wyckoff:

On tap today:

• Bank of England releases its interest-rate decision at 8 a.m. ET. UPDATE: The Bank of England raised the key bank rate by 25bps to 4.25% as expected.

• U.S. jobless claims are expected to rise to 198,000 in the week ended March 18 from 192,000 one week earlier. (8:30 a.m. ET) UPDATE: The number of Americans filing for unemployment benefits fell by 1,000 to 191,000 on the week ending March 18, compared to expectations of 197,000. The result pointed to further evidence of a stubbornly tight labor market, in line with the hot payroll figures for February and the Federal Reserve’s outlook of low unemployment. The four-week moving average, which removes week-to-week volatility, fell by 250 to 196,250. On a non-seasonally adjusted basis, initial claims fell by 4,659 to 213,425, with notable declines in California (-2,411) and Illinois (-1,135).
• U.S. current-account deficit is expected to narrow to $214 billion in the fourth quarter from $217.11 billion the prior quarter. (8:30 a.m. ET)
• USDA Weekly Export Sales report, 8:30 a.m. ET.
• U.S. new home sales are expected to fall to an annual pace of 650,000 in February from 670,000 the prior month. (10 a.m. ET)
• Kansas City Fed’s manufacturing survey is expected to fall to minus 2 in March from 0 one month earlier. (11 a.m. ET)
• U.S. Treasury Secretary Janet Yellen appears before a House panel at 3 p.m. ET.
• President Joe Biden will make his first visit to Canada since taking office to meet with Prime Minister Justin Trudeau and to address to the country’s parliament, according to the White House. Trudeau, a fellow liberal, is closely aligned with Biden on many policies. Still, there are some areas of disagreement on trade and immigration that will be hashed out during the visit, set to occur today through Friday.

Two most important comments made Wednesday by Powell and Yellen.

Fed Chair Jerome Powell, speaking to reporters after the 25bp rate hike said a rate cut isn’t in the Fed’s “base case” and noted that the recent collapse of Silicon Valley Bank likely resulted in tightening in financial conditions. Powell said the tightening in financial conditions from recent events could add up to the equivalent of a rate hike, “or perhaps more,” but repeatedly cautioned the impact on the economic outlook was highly uncertain. Market impact: Two-year Treasury yields tumbled almost a quarter-percentage point by the close.

Bottom line: The Fed is likely done or almost done with rate hikes, but it will be up to the economic and inflation data ahead.

Treasury Secretary Janet Yellen, meanwhile, told lawmakers that regulators aren’t considering a blanket guarantee for all U.S. deposits without congressional approval.

The Swiss National Bank raised interest rates by half a percentage point, despite the recent turmoil at Credit Suisse and in the wider banking sector. In a statement, the bank said that measures announced by Switzerland’s federal government to support Credit Suisse had “put a halt to the crisis.” It did not rule out further hikes as inflation continues to rise.

Market perspectives:

• Outside markets: The U.S. dollar index was up slightly following sharp losses Wednesday. Nymex crude oil futures prices are lower and are trading around $70.00 a barrel. The benchmark 10-year U.S. Treasury note yield is presently yielding 3.472%.

• Rates for bulk shipping’s largest capesize vessels are declining on reduced steel output from China.

• NWS weather outlook: Strong to severe thunderstorms become a significant concern this afternoon and continuing through Friday from the southern Plains, to the Mid-South, and possibly into the Ohio Valley Friday night... ...Widespread heavy rain and flash flooding setting up across the mid-Mississippi Valley and Ohio Valley this evening through Friday night... ...A rapidly intensifying low pressure system will likely bring very strong winds, heavy rain/thunderstorms into the Ohio Valley as heavy snow could develop across the Midwest into lower Michigan early Saturday morning... ...Unsettled weather and chilly temperatures with locally heavy mountain snowfall to continue across the West... ...Very warm temperatures will prevail through the end of the week across much of the South and through the southern portion of the East Coast...

Items in Pro Farmer’s First Thing Today include:

• Grain market price strength overnight
• Crushers association raises Brazil soybean crop forecast
• Malaysia CPO export duty remains at 8%
• Cold Storage Report out this afternoon
• Cash cattle trade mixed
• Cash hog index posts another sharp drop

RUSSIA/UKRAINE

— Ukraine appeared to be gearing up for a spring counteroffensive against Russia. Ukrainian President Volodymyr Zelenskyy — fresh off a trip to the divided city of Bakhmut — will speak via videolink to EU leaders meeting in Brussels to iron out the details of a joint ammunition purchase program for Kyiv.

POLICY UPDATE

— Republicans press EPA’s Regan on WOTUS rule. Several Republican members during a Wednesday hearing questioned EPA administrator Michael Regan about his decision to issue a rule governing which U/S/ waterways fall under federal jurisdiction before the Supreme Court issues an opinion on the matter in Sackett v. EPA, expected before the end of this term. “We recognize that the Sackett case will have some impact on the rule,” Regan said. “But what we didn’t want to do was wait until after June, wait for the Supreme Court, and then start a two-year process, which would have left farmers and ranchers in limbo.”

Regan said the January WOTUS rule — which codifies a pre-2015 definition of waters of the U.S. — carefully embeds two post-2015 Supreme Court rulings, as well as eight exemptions requested by the agricultural sector.

Sen. Markwayne Mullin (R-Okla.) said the decision by the EPA and the Army Corps of Engineers to issue their rule while the issue is still before the Supreme Court amounts to “just gambling” that the court won’t overturn it. Sen. Pete Ricketts (R-Neb.) called the agency’s new WOTUS rule “an expansion of executive power.”

Republicans also grilled Regan on the Biden administration’s roughly $12 billion budget proposal for fiscal 2024, saying the agency is already flush with cash. Regan said the increased budget request is meant to shore up the EPA’s workforce, which is near the lows of the Reagan administration, at a time when the agency is tasked with implementing the Inflation Reduction Act and the bipartisan infrastructure law. Sen. Shelley Moore Capito (R-W.Va.) said the agency should be able to handle its responsibilities with the nearly $41 billion it received from the new climate law, calling the request “mind-boggling in this time of fiscal restraint.”

CHINA UPDATE

— China said it had driven away an American warship that had illegally entered its waters in the South China Sea. A spokesperson for China’s army accused the U.S. of undermining peace and stability in the region, where tensions between the two sides have recently increased. The U.S. Navy denied the claim, saying the ship was carrying out “routine operations.”

— China to U.S.: lift trade tariffs. The U.S. should lift all tariffs levied on China as soon as possible and meet in the middle on trade differences, Shu Jueting, a spokesperson for China’s commerce ministry said. Shu said China never deliberately pursued a trade surplus with the U.S. and tariffs have seriously interfered with the normal bilateral trade.

— China to resume some Brazilian beef imports. China resumed imports of Brazilian boneless beef aged under 30 months starting today, China’s customs authority announced. Sales of Brazilian beef to China were voluntarily halted by Brazilian authorities on Feb. 23, following the discovery of an atypical case of bovine spongiform encephalopathy (BSE).

Meanwhile, Brazil President Lula to visit China March 26-31. Lula is leading a large delegation, including 69 meatpacking executives, on the trip. Also on the likely agenda: economic and business ties between the two countries, a discussion of the Ukraine War and perhaps support from Lula for the PRC’s proposal for resolving it.

— China opposes a forced sale of TikTok. China said it would strongly oppose any forced sale of TikTok, responding for the first time to a Biden administration demand that the video app divest itself from its Beijing-based parent ByteDance or face a nationwide ban. CEO Shou Zi Chew is on deck to testify before U.S. lawmakers today about the app’s safety measures to protect minors and efforts to firewall U.S. user data from foreign access. It’s largely expected that members of the House Energy and Commerce Committee will grill Chew as the app faces bans from governments globally because of security concerns, with the Biden administration threatening to follow suit.

ENERGY & CLIMATE CHANGE

— Treasury Dept. to release more Biden EV tax credit rules next week: The Biden administration is preparing to release next week several requirements to claim electric vehicle tax credits worth up to $7,500, including standards for the batteries and critical minerals that are meant to encourage more North American production and cut out supplies from China. ome foreign carmakers have complained their electric models made outside North America won’t qualify for the long-awaited incentive created by the Inflation Reduction Act. The Biden administration has been negotiating for months with automakers, foreign countries and lawmakers on the guidance.

LIVESTOCK, FOOD & BEVERAGE INDUSTRY

— USDA proposes expanding school meal programs in low-income areas. USDA on Wednesday said it planned to lower the threshold of a program aimed at making it easier for schools and school districts in low-income areas to offer free meals to all students, without requiring their parents to apply for the benefits. Currently schools are eligible to participate in this program, known as “community eligibility,” if 40% of their students receive food stamps or participate in another safety-net program tied to household income. USDA on Wednesday proposed lowering that threshold to 25%, allowing a larger number of schools to opt into the program.

Republicans believe eligibility should be based on individual family income, and that the government shouldn’t be paying meals for families who can afford them. “All of us believe that if you have kids, and particularly low-income families who aren’t getting nutritious meals, we want to support that” effort to feed them, Sen. John Thune (R., S.D.), a member of GOP leadership, told reporters Wednesday. “The question is where do you draw those lines around eligibility?”

The White House requested $15 billion over 10 years to bolster the program as part of its most recent budget proposal. The administration estimated those changes would help feed 9 million more students.

Bottom line: An additional 20,000 schools in poor neighborhoods would have the option of serving breakfast and lunch for free to all of their students under the USDA proposal. Link for details. There is a 45-day public comment period.

— Billionaire farmers Stewart and Lynda Resnick are going all-in on selling the latest innovation in citrus: seedless lemons. The husband-and-wife duo behind Wonderful Company, the makers of Halos, Pom Wonderful and Fiji Water, are “redefining the lemons category,” and expect to sell 60 million pounds of the novelty fruits this year. In 15 years, they want their exclusively licensed, seedless version to control 25% of the U.S. fresh lemon market, now dominated by Sunkist with 50%. That would mean 10 million cartons, or 400 million pounds, of seedless lemons grown annually by Wonderful on at least 15,000 acres in California and Mexico. Link for more via Forbes.

HEALTH UPDATE

— Senators pressed Moderna‘s chief executive Wednesday for clarity on how patients can benefit from the company’s assistance program to help patients access the Covid-19 vaccine once the public health emergency ends.

CONGRESS

— Norfolk Southern CEO Alan Shaw told a congressional panel the railroad’s stock buybacks haven’t left the carrier short of funds for safety improvements. Shaw dodged several questions about worker safety and the company’s support for safety requirements included in rail legislation from Sens. Sherrod Brown (D) and J.D. Vance (R) of Ohio.

— Biden’s Cabinet secretaries and other administration officials appear before committees today for hearings on the president’s fiscal 2024 budget request, including:

Treasury Secretary Janet Yellen and Office of Management and Budget Director Shalanda Young at House Appropriations
Secretary of State Antony Blinken at House Appropriations
Defense Secretary Lloyd Austin and Joint Chiefs of Staff Chairman Gen. Mark Milley at House Appropriations
Energy Secretary Jennifer Granholm at House Appropriations
Transportation Secretary Pete Buttigieg at Senate Appropriations
Veterans Affairs Secretary Denis McDonough at House Veterans’ Affairs
Government Accountability Office chief Gene Dodaro at House Appropriations

OTHER ITEMS OF NOTE

— Canada’s population grew by 2.7%, to nearly 40 million, in 2022, the biggest annual rise in more than half a century. The increase, which amounted to 1 million more people, was driven almost entirely by migration. The government has actively sought out immigrants, including refugees from Afghanistan and Ukraine, as it seeks to ease labor shortages.

— Cherry blossoms at the National Mall in Washington, D.C., are projected to hit peak bloom ahead of schedule this year after an unusually warm winter. Those cherry blossoms could peak as early as today, nearly two weeks earlier than the historical average of April 4, according to the National Park Service, which has data that go back to the 1920s. Peak blooms have been moving up in the calendar. Over the past 10 years, the peak bloom on average has been March 27, said Mike Litterst, a spokesman for the National Park Service.

KEY LINKS

Policy Updates