British Prime Minister Liz Truss Reigns After Six Turbulent Weeks in Office

Diesel supply of just 25 days poses problem for President Biden and Democrats

USDA daily export sales: 201,000 metric tons of soybeans received in the reporting period for delivery to China during the 2022-2023 marketing year; 132,000 metric tons of soybeans for unknown destinations during 2022-2023 marketing year.

Big weekly sales of US soybeans to China. USDA Weekly Export Sales data for the week ended Oct. 13 included total net sales of U.S. soybeans totaling 2,335,600 tonnes, the largest weekly business since net sales of 2,751,110 tonnes the week ended Nov. 14, 2021. A big portion of the weekly business was to China with net sales of 1,976,154 tonnes. Other business for 2022-23 for China included net sales of 3,392 tonnes of corn, net reductions of 429 tonnes of sorghum and net sales of 10,124 running bales of Upland Cotton. Net sales for 2022 of 2,025 tonnes of beef and 3,047 tonnes of pork to China were also reported.

U.K. Prime Minister Liz Truss’ gov’t teetered, and she resigned. After just six weeks on the job, Truss was facing pressure from multiple sides to quit after her government plunged U.K. markets into chaos with its proposals to cut taxes for the wealthy while the nation deals with high levels of inequality and a cost-of-living crisis. Truss told a heated session of Parliament on Wednesday that she was a “fighter, not a quitter” but this morning did just that in resigning. Truss fired Home Secretary Suella Braverman for what was described as a national security breach, adding to turmoil in her government. Speaking from Downing Street, Truss said she was stepping down as leader of the Conservative Party as she could not deliver the mandate on which she was elected. There will be an election within the party to select her replacement as leader and prime minister, she added, which will be “completed within the next week.” Truss said she will stay on as prime minister until her successor is chosen.

The Japanese yen hit a 32-year low against the U.S. dollar. Japan’s central bank refuses to raise interest rates, while other major central banks are raising rates. There is speculation the Bank of Japan will have to step and sell U.S. dollars to support the yen again. Japan’s problem: For a government that’s deeply in the red (debt servicing costs accounted for about 23% of the initial fiscal 2022 budget), a spike in rates stemming from any hawkish shift would be far from welcome.

Turkey slashes interest rates by 150 basis points despite inflation at 83%, from 12% to 10.5%. Market analysts expected a 100 basis-point cut, so the move still managed to take many by surprise despite the increasing regularity of Turkey’s slashing of interest rates. Turkish President Recep Tayyip Erdogan vocally espouses the unorthodox belief that raising interest rates increase inflation, rather than the other way around, and has called the raising of rates “the mother of all evil.”

By contrast, big emerging markets including Mexico and Brazil are better off, because investors are getting positive returns there after those central banks mounted steep rate hikes.

Ukraine has been forced to introduce rolling blackouts nationwide today after the country lost at least 40% of its power-generating capacity following days of Russian attacks on energy infrastructure targets. Ukraine’s national energy company said Wednesday it needs to apply the restrictions on consumers to make the system “work in a balanced way.” The announcement comes as Russia continues to inflict serious damage at power facilities with Iranian-supplied drones, officials said.

Ukraine said its exports of agricultural products have recovered to around prewar levels. Data from Ukraine’s Ministry of Agrarian Policy and Food shows the country shipped 6.9 million metric tons of grain, vegetables and edible oils last month, almost matching the 7.1 million tons exported in September last year. Exports have accelerated this month, the ministry said, with shipments of agricultural products since the start of the Autumn season hitting 10.4 million tons so far — one million tons more than the entire summer season. Farmers, meanwhile, have planted fewer crops this year, and Russia still controls a large slice of Ukrainian farmland.

Diesel supply of just 25 days poses problem for President Biden and Democrats. The Biden administration calls diesel supplies “unacceptably low,” with retail prices rising for more than two weeks.

Election Day 2022 is 19 days away. Election Day 2024 is 747 days away.

Equities today: Global stock markets were mostly lower overnight. U.S. Dow opened down slightly and then turned higher around 50 points. Markets analyst Jim Wyckoff says: “Traders and investors are trying to determine if the U.S. stock indexes have put in major market bottoms, or have just seen upside price corrections in downtrends that are still in place on the daily bar charts.” In Asia, Japan -0.9%. Hong Kong -1.4%. China -0.3%. India +0.3%. In Europe, at midday, London -0.3%. Paris flat. Frankfurt -0.8%.

U.S. equities yesterday: The Dow ended down 99.99 points, 0.33%. at 30,423.81. The Nasdaq declined 91.89 points, 0.85%, at 10,680.51. The S&P 500 was down 24.82 points, 0.67%, at 3,695.16.

Something to watch: The S&P’s three-month realized correlation — a gauge of how closely the top weighted stocks in the index move relative to each other — has climbed to its highest level since July 2020.The problem is that, as correlations rise, it becomes increasingly difficult for fund managers to outperform the broader market. It also means they’re increasingly dependent on where the biggest names in the benchmark are headed. It makes next week’s results from Apple, Microsoft, Alphabet and Amazon even more crucial as they account for about 20% of the index’s total weight.

Agriculture markets yesterday:

• Corn: December corn fell 2 3/4 cents to $6.78 1/4, the contract’s lowest settlement since Oct. 6.
• Soy complex: November soybeans rose 1/2 cent to $13.72 1/2. December soymeal fell 10 cents to $401.70. December soyoil rose 190 points to 70.64 cents, the contract’s highest closing price since June 17.
• Wheat: December SRW wheat fell 8 1/4 cents to $8.41 1/4, a four-week low. December HRW wheat dropped 2 3/4 cents to $9.41 3/4. December spring wheat fell 2 1/2 cents to $9.53 1/2.
• Cotton: December cotton fell the 400-point daily limit to 78.40 cents, the lowest close for a nearby contract since April 2021.
• Cattle: October live cattle rose 87.5 cents to $149.35, the highest close for a nearby contract since August 2015. December live cattle jumped $1.575 to $151.35, a two-month high. November feeder futures advanced 25 cents to $178.075.
• Hogs: December lean hog futures rose 90 cents to $87.375, the contract’s highest close since Sept. 20.
  

Ag markets today: Supportive outside markets helped fuel a corrective rebound in grain and soy futures overnight. As of 7:30 a.m. ET, corn futures were trading around 3 cents higher, soybeans were 5 to 8 cents higher and wheat was 9 to 12 cents higher. Front-month crude oil futures were nearly $2 higher and the U.S. dollar index was around 450 points lower this morning.

Technical viewpoints from Jim Wyckoff:

On tap today:

• U.S. jobless claims are expected to rise to 230,000 in the week ended Oct. 15 from 228,000 one week earlier. (8:30 a.m. ET) UPDATE: The number of Americans filing new claims for unemployment benefits fell by 12,000 to 214,000 in the week ending Oct. 15, well below market forecasts of 230,000. The results halted expectations of a loosening labor market that emerged with previous releases in October, backing the aggressively hawkish rhetoric by the Federal Reserve and strengthening bets of prolonged restrictive monetary policy. On a non-seasonally adjusted basis, initial claims rose fell by 20,003 to 178,369, with notable decreases seen in Florida (-3,856) and California (-2,354). The four-week moving average, which removes week-to-week volatility, rose by 1,250 individuals to 212,250.
• Philadelphia Fed’s manufacturing survey is expected to rise to minus 5 in October from minus 9.9 one month earlier. (8:30 a.m. ET) UPDATE: The Philadelphia Fed Manufacturing Index in the U.S. edged up 1 point but remained negative at -8.7 in October of 2022, below market expectations of -5. The indicators for general activity and new orders remained negative, and the shipments index was little changed at a low but positive reading. The firms continued to report higher employment on balance, and both price indexes indicate overall increases in prices. The survey’s future general activity indexes suggest that the surveyed firms expect declines overall over the next six months.
• U.S. existing-home sales are expected to fall to an annual rate of 4.7 million in September from 4.8 million one month earlier. (10 a.m. ET)
• Conference Board’s leading economic index for September is expected to fall 0.3% from the prior month. (10 a.m. ET)
• Federal Reserve speakers: Philadelphia’s Patrick Harker on the economic outlook at 12 p.m. ET, governor Lisa Cook brief introductory remarks at a conference in Spartanburg, S.C., at 12:30 p.m. ET, governor Philip Jefferson and Cook at a conference on careers in economics at 1:30 p.m. ET, and governor Michelle Bowman welcoming remarks at a Fed community development seminar at 2:05 p.m. ET,

Fedspeak update: Federal Reserve Bank of Chicago President Charles Evans said the Fed may need to tighten more if price pressures get worse. Meanwhile, Bank of St. Louis President James Bullard expects “front-loading” will be done by early next year and sees a shift to keeping policy sufficiently restrictive with small adjustments as inflation cools.

Fed’s Beige Book turns blue. U.S. businesses are becoming more pessimistic about economic conditions in the face of high inflation and rising interest rates, the Federal Reserve said in a report. The Fed’s 12 regional reserve-bank districts said business contacts noted “growing concerns about weakening demand,” according to the central bank’s latest compilation of economic anecdotes from around the country, known as the Beige Book. The U.S. economy expanded modestly on net, but conditions varied by district with four noting flat activity and two a decline.

The Federal Reserve’s preferred inflation measure, the core consumer price index, might not capture the full picture of what’s in store for inflationary trends, says Harvard economist Jason Furman. He instead suggests a new index that accounts for current asking prices of new rents, which yields a promising decline in the three-month change of core CPI since hitting a peak in July 2021.

Some companies are trying to stick departing employees with a bill for how much it cost to train them. “Training repayment agreement provisions” apply to roughly 10% of U.S. workers, according to one study, and can cost employees thousands of dollars on their way out.

Market perspectives:

• Outside markets: The U.S. dollar index was weaker despite several foreign currencies being weaker against the greenback, including the yen which dropped to a 32-year low. The yield on the 10-year US Treasury note has eased, trading around 4.13%. Crude prices were moving higher, with US crude around $87.20 per barrel and Brent around $93.90 per barrel. Gold and silver futures were registering advances, with gold above $1,642 per troy ounce and silver above $18.70 per troy ounce.

• The yen slid to 150 to the dollar on Thursday, its lowest value since 1990 and a psychological milestone. The Bank of Japan recommitted itself to its policy of bond-buying, laying out $667 million for purchasing new government debt, to prevent the bonds’ prices from sinking too low. But the central bank is expected to hang on to its near-zero interest rates that have contributed to the yen’s depreciation.

• Bond guru Jeffrey Gundlach said Treasury yields may peak between now and Dec. 31 at multiyear highs. Gilts fell as the U.K. gov’t teetered on the brink of collapse.

• Recession alert: In the U.S., the spread between the 3-Month Treasury bill and 10-Year Treasury note yields, which is widely viewed as the most consistent, accurate and “fastest” recession-indicator across the yield curve, inverted on Tuesday, substantiating expectations for a U.S. recession in the next 12 months.

• We now have a “Biden put” for energy prices. The discussion of buying crude for the SPR near $70/barrel was slightly bullish but only from a “price floor” (or “Biden put”) standpoint as the market was already trading comfortably above that area coming into the week, says the Sevens Report. WTI ended the day higher by 2.51%.

• Biden administration looking to counter extremely low diesel supplies. Bloomberg reports (link) diesel demand is surging in the U.S. while supplies remain at the lowest seasonal level ever, according to government data released Wednesday. The shortage of the fuel used for heating and trucking is a key worry for the Biden administration heading into winter — and ahead of the November election. National Economic Council Director Brian Deese told Bloomberg TV Wednesday that that diesel inventories are “unacceptably low” and “all options are on the table’ to build supplies and reduce retail prices.”

Retail diesel prices in Iowa were up 9 cents this week with a statewide average of $5.14. One year ago, diesel prices averaged $3.40 in Iowa. The current Iowa diesel price is 18 cents less than the national average of $5.32.

• Ag trade: Japan purchased 97,482 MT of wheat in its weekly tender, including 34,912 MT U.S., 34,090 MT Canadian and 28480 MT Australian. Saudi Arabia tendered to buy 535,000 MT of hard milling wheat.

• NWS weather: Anomalous warmth shifts into Central U.S., while temperatures moderate a bit in the East... ...Critical Fire Weather Risk over parts of eastern Montana... ...Unsettled weather arrives over the Northwest this weekend.

Items in Pro Farmer’s First Thing Today include:

• Corrective buying overnight
• Exchange cuts Argentine wheat crop forecast
• Firm raises EU wheat crop forecast, cuts corn production
• China leaves interest rates unchanged (details in China section)
• China to sell more wheat reserves
• China encourages farmers to sell more hogs (details in China section)
• Higher cash cattle trade, but most feedlots waiting
• Discount narrowing in December hog futures

— Summary: More sanctions could be in the works on word that Russia has deployed Iranian-made Shahed-136 “kamikaze” drones to bolster its efforts on the battlefield. Western powers say usage of the UAVs would violate U.N. Security Council Resolution 2231, which restricted certain transfers from (or to) Iran. More than 220 drones targeting critical infrastructure have reportedly been shot down over the past month, while Kyiv has invited U.N. Secretary-General Antonio Guterres to inspect some of the remains it has collected. Iran has repeatedly denied supplying any military hardware to Russia, while the Kremlin has warned the United Nations against investigating its use of drones in Ukraine. “Otherwise, we will have to reassess our collaboration with them, which is hardly in anyone’s interests,” Russia’s Deputy U.N. Ambassador Dmitry Polyanskiy declared. The events are playing out as U.N. officials negotiate with Moscow to extend and widen a July 22 deal that resumed Ukraine Black Sea grain and fertilizer exports (the pact could expire in November if an agreement is not reached).

• Ukraine’s national energy company told citizens to “charge everything” as it plans to restrict electricity energy usage following Russian air strikes on power plants. Volodymyr Zelenskyy, Ukraine’s president, said 30% of the country’s plants had been damaged. Electricity supply will be limited only on Thursday for now, but Ukrenergo — Ukraine’s national energy company whose offices were struck by a drone on Monday — warned there may be more such restrictions during winter.
• Zelenskyy urged Ukrainian men in regions occupied by Russian forces to resist conscription into Vladimir Putin’s military. His comments came after Putin imposed martial law in illegally annexed regions of Ukraine.

• Grain export deal update. Several Russian officials continue to send less than positive signals on the prospects for continuing the grain deal that facilitated exports of Ukrainian grain and agricultural products via the Black Sea. Russian Foreign Ministry spokeswoman Maria Zakharova said the country was ready to boost food and fertilizer exports, but said the U.S. is still preventing such an action as they are “blackmailing” and “persecuting” those trying to trade with Russia.

  Russian First Deputy Permanent Representative to the U.N. Dmitry Polyanskiy told reporters there must be practical results for Russia for it to back the extension of the grain deal. “We will look at the practical results, not some kind of wishful thinking,” he said, adding, “practical results are very modest.” He also said Russia was not yet convinced the deal needed to be extended, labeling the export of Russian fertilizer and food products “the most important thing.”

  Russia also warned on cooperation with the U.N., with Polyanskiy saying they would reassess their cooperation with UN Secretary General Antonio Guterres and his staff if they were to send experts to Ukraine to inspect downed drones the West said were made in Iran.
  

— Thorny new farm bill issue: push by some for permanent disaster aid. This is a sensitive topic because few want to oppose it publicly because it would help farmers at least in the short run. But longer run policy concerns are major because while several years of ad hoc disaster payments have not impacted the long-established crop insurance program and its delivery stem, if farmers know there would be a disaster program in the offing, that could negatively impact participation and buy-up coverage in the current private/public insurance program.

Some suggest reforming and expanding Title I programs that would deal with the bulk of the disaster aid provided via ad hoc programs the past several years… with some exceptions.

— China leaves interest rates unchanged. China kept its benchmark lending rates unchanged for a second straight month on Thursday, in line with expectations, as authorities held off unleashing more monetary stimulus to avoid stark policy divergence with other major central banks. The one-year loan prime rate (LPR) was kept at 3.65%, while the five-year LPR was unchanged at 4.30%. The steady LPR fixings came after the People’s Bank of China left the rate of its medium-term policy loans unchanged.

— China encourages farmers to sell more hogs. China’s state planner has increased its coordination with large-scale hog farms to ensure stable supplies, as it tries to cool soaring prices in the world’s largest pork market. China’s largest hog producers have agreed to “undertake social responsibilities,” said the National Development and Reform Commission (NDRC) said. The companies will take the lead in ensuring supply and price stability in the market, release fattened hogs in a timely manner and speed up the slaughter pace when necessary, it added. Beijing has already issued several warnings to farmers urging them to stop holding back hogs from slaughter to wait for higher prices.

— European Union leaders will meet on Thursday to discuss the continent’s energy crisis and the war in Ukraine. On the agenda will be emergency measures proposed by the European Commission in Brussels that would compel the EU’s 27 governments to jointly purchase some natural gas. That would prevent European countries from bidding against each other, and thus driving up prices. With national governments pushing different remedies to the crisis, diplomats are playing down the chance of sweeping actions such as price caps on gas imports.

Of note: China late last month added 15 million metric tons of oil products to its export quotas, potentially triggering more shipments to Europe.

— President Joe Biden on Wednesday awarded $2.8 billion in grants to boost battery production for electric vehicles (EVs). The funds, which come from the $1 trillion infrastructure law, will go to companies in at least 12 states. The Energy Department said the projects will help develop lithium to supply about 2 million EVs each year, graphite to supply about 1.2 million EVs annually, and nickel to supply about 400,000 EVs every year.

Reuters reports (link) Sen. Lindsey Graham (R-S.C.) on Wednesday said he will hold a hearing on electric vehicle batteries and sourcing issues if Republicans take control after the November elections. Graham, who would be Budget Committee chair under GOP control, said the hearing would look at the impact on automakers on the shift to EVs.

Meanwhile, with the midterm elections near, Biden urged oil companies to invest their profits in more production instead of buybacks. Gas prices are well below their peak from earlier this year, but they’re still high, and voters are worried most about inflation and the economy.

— New rules could allow DOE to build gasoline, diesel supplies. Changes in the new rules to purchase oil for the Strategic Petroleum Reserve (SPR) indicate the gov’t could have set in place a process to build supplies of gasoline and diesel, according to Bloomberg. Under the plan, the Department of Energy (DOE) could buy fuels either on a fixed-price contract or a new index-priced contract. It also changes the framework of exchange agreements where companies are loaned fuel or oil to be repaid later.

Some indicate the new process for building emergency reserves could end up limiting U.S. fuel exports.

— Farm-state lawmakers urge EPA to set highest ethanol mandate ever. The coming EPA regulatory reset of the Renewable Fuel Standard (RFS) should push the corn ethanol target above 15 billion gallons for the highest annual mandate ever and allow E15 to be sold year-round, said farm-state senators on Wednesday. In a letter (link) to EPA administrator Michael Regan, the senators urged the agency to establish “robust and expanded” biofuel mandates. Link to more info on the request.

— Nestlé, the world’s biggest food company, reported growth of 8.5% in sales across the nine months to September, its sharpest rise in 14 years. The business increased its prices by 7.5% in the same period, without losing a significant number of customers. Food everywhere is becoming more expensive: the cost of food in Britain rose 14.6% in the 12 months to September.

— Summary:

• Global Covid-19 cases at 626,372,967 with 6,573,398 deaths.
• U.S. case count is at 97,083,662 with 1,066,584 deaths.
• Johns Hopkins University Coronavirus Resource Center says there have been 627,854,963 doses administered, 265,111,489 have received at least one vaccine, or 80.47% of the U.S. population.

— Federal officials working on the Covid-19 response made well-timed trades when the pandemic began, the Wall Street Journal reports (link). In January 2020 — when the U.S. public was largely unaware of Covid’s threat, but health officials were on high alert and girding for a crisis — a deputy to top health official Anthony Fauci reported 10 sales of mutual funds and stocks totaling between $157,000 and $480,000. Collectively, officials at another health agency, the Department of Health and Human Services, reported 60% more sales of stocks and funds in January than the previous 12 months’ average, driven by a handful of particularly active traders.

— The Covid-19 pandemic also helped fuel a baby boom. Close proximity among partners and increased work flexibility contributed to the 6.2% jump in U.S. birth rates last year, according to a new study.

— McCarthy suggests impeachment not on GOP agenda. House Minority Leader Kevin McCarthy (R-Calif.) is downplaying the prospect of impeaching President Biden if Republicans take control of the House next year, throwing cold water on the efforts of some in the GOP who have been clamoring to impeach the president and others in the Biden administration. In an interview with Punchbowl News published Wednesday, McCarthy said, “I think the country doesn’t like impeachment used for political purposes at all. If anyone ever rises to that occasion, you have to, but I think the country wants to heal and … start to see the system that actually works.” Asked if anyone in the administration has risen to a level requiring impeachment, McCarthy said, “I don’t see it before me right now.”

— Gas prices and election prospects in key swing states. Nevada and Arizona — swing states with competitive Senate races — are among those grappling with the highest gasoline prices in the country. More than 40% of competitive races rated by Cook Political Report with Amy Walter are in states seeing the highest increases in pump prices compared with the 2020 election. “It doesn’t get easier to sell the Democratic brand at a high gasoline price,” said Kevin Book, managing director of consulting firm ClearView Energy Partners. “To the extent that Democrats are facing Republicans who are trying to make this a referendum on Biden, the increase from 2020 is going to be unflattering.”

— Republicans projected to take House, Senate still a toss-up. With the midterm election a mere 2.5 weeks away and early voting already underway in many states, Republicans are projected to win back the House of Representatives, while the Senate is still a toss-up between the two parties. According to poll averages calculated by Real Clear Politics, Democrats would lose control of the lower chamber of Congress even if they won all 38 toss-up races. Only 176 seats were projected as safe or likely Democrat wins – too few to reach the House majority of 218.

In the Senate, three seats held by Republicans are listed as toss-ups by Real Clear Politics, compared to four seats held by Democrats. The contests in question include Sen. Raphael Warnock’s highly publicized race against Trump-endorsed Republican Herschel Walker and the re-election bids of Democratic Senators Mark Kelly of Arizona, Maggie Hassan of New Hampshire and Catherine Cortez Masto of Nevada.

— Brazil presidential race update. Jair Bolsonaro cut into Lula’s lead with less than two weeks before Brazil’s runoff vote. The incumbent now has 48% of valid voting intentions in one poll, compared with 52% for Lula. An Ipespe poll had the candidates statistically tied.

— A new lawmaker ranking scorecard is taking a holistic look at lawmaker’s actions and words when determining whether they’re working with lawmakers across the aisle. The Common Ground Scorecard, from the nonpartisan Common Ground Committee, tracks members’ statements and press releases for mentions of bipartisanship, notes if they’ve joined a caucus like the Problem Solvers and also deducts points if a member personally insults a political opponent. Lawmakers can score anywhere from -20 to 110. The average score is 29. Common Ground CEO Bruce Bond said although scores that track how much bipartisan legislation lawmakers craft is “certainly noteworthy,” it’s “not the full story.” “We want to highlight people out there that are actually making a point to let the world know that this is important to them,” Bond said. The top scoring lawmakers, each with a score of 104, are Reps. Don Bacon (R-Neb.) and Dean Phillips (D-Minn.).

— CFPB funding ruled unconstitutional. A U.S. appeals court ruled that the Consumer Financial Protection Bureau (CFPB), established to ward off predatory lending of the kind that fueled the crisis of 2007-09, is funded unconstitutionally. The CFPB has attracted the enmity of payday lenders (and other financial institutions) who resent its regulations. Its unusual funding, designed to insulate it from political influence, has become its vulnerability.

— A Wisconsin taxpayers association asked the Supreme Court to block federal student loan forgiveness, arguing it will cause a “gargantuan increase in the national debt” once funds start rolling out to borrowers later this month. It’s the latest legal challenge to President Joe Biden’s student debt proposal, though a lower court already rejected the group’s claims.

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 | Student loan forgiveness | Russia/Ukraine war, lessons learned | Election predictions: Split-ticket | Congress to-do list | SCOTUS on WOTUS | SCOTUS on Prop 12 |