CFI Industries and Nutrien Report Strong Second Quarter Profits

News/Markets/Policy Updates: Aug. 8, 2024

— Equities today: U.S. Dow opened around 200 points higher. The Japanese benchmark index Nikkei 225 closed Thursday down 0.7%, snapping a two-day winning streak. South Korea’s KOSPI Composite Index fell 0.5%, dragged lower by semiconductor and battery stocks. The Shanghai Composite traded flat. In Asia, Japan -0.7%. Hong Kong +0.1%. China flat. India -0.7%. In Europe, at midday, London -1.2%. Paris -1.2%. Frankfurt -0.8%.

U.S. equities yesterday: U.S. equities finished the day lower after trading in positive territory into midafternoon. The Dow lost 234.21 points, 0.60%, at 38,763.45. The Nasdaq was down 171.05 points, 1.05%, at 16,195.81. The S&P 500 fell 40.53 points, 0.77%, at 5,199.50.

— Berkshire now owns more short-term Treasury bills than the Fed, a potential sign of bearishness on Buffett’s part. Link for details.

— Both CFI Industries and Nutrien reported strong second-quarter profits, surpassing expectations. CF Industries attributed their success to increased ammonia production and higher nitrogen prices, which compensated for lower volumes and pricing. The company reported net sales of $1.57 billion and net earnings per share of $2.30, both exceeding expectations.

Nutrien’s profits were driven by higher potash sales in offshore markets. The company forecasted 2024 potash sales volumes between 13.2 million and 13.8 million metric tons (MMT), slightly narrowing their previous lower-end forecast. However, Nutrien noted that core profits for their retail sales are expected to decline due to high inventories and subdued demand in Brazil, which affected margins last year.

— Ag markets today: Corn and soybeans faced mild followthrough selling overnight, while wheat posted modest corrective gains. As of 7:30 a.m. ET, corn futures were trading fractionally lower, soybeans were mostly a penny lower and wheat futures were 2 to 4 cents higher. The U.S. dollar index was around 120 points lower, and front-month crude oil futures were trading just above unchanged this morning.

Light cash cattle trade at lower prices. Light cash cattle trade started in the Southern Plains at $1.00 lower prices on Wednesday. While movement was light, that may be enough to set a lower tone for the week. Bids and asking prices weren’t well established in the northern market.

Cash hog fundamentals weakening. The CME lean hog index is down 23 cents to $93.10 as of Aug. 6, the third straight daily decline. The pork cutout dropped $1.99 on Wednesday to $100.32, led by a $7.62 drop in primal bellies, though all cuts except hams declined.

— Agriculture markets yesterday:

• Corn: December corn fell 4 1/2 cents to $4.00 3/4, a near mid-range close.
• Soy complex: November soybeans fell 8 cents to $10.18 3/4 and near mid-range. September soybean meal closed down $7.00 at $323.60, nearer the session low and hit a two-week low. September soybean oil closed up 122 points at 42.07 cents and near the session high.
• Wheat: December SRW wheat fell 4 1/2 cents to $5.62, while December HRW fell 6 cents to $5.72 1/4, each forging low-range closes. September spring wheat fell 6 3/4 cents to $5.85 3/4.
• Cotton: December cotton rose 43 points to 67.73 cents, near mid-range after hitting a contract low early on.
• Cattle: Anticipation of cash market weakness likely capped rally attempts in live cattle futures Wednesday, with the nearby August contract working up 30 cents to $182.275 and most-active October rising 22.5 cents to $179.275. The expiring August feeder cattle contract slipped 37.5 cents to $242.625, whereas September feeders fell $1.675 to $238.90.
• Hogs: October lean hog futures plunged $1.825 to $74.575 and settled near session lows. Nearby August futures sank 67 1/2 cents to $90.60.

— Of note:

• The odds of a U.S. recession by the end of the year are now about 35%, according to JPMorgan — up from about a 25% chance at the start of July. The bank cited a sharper-than-expected weakening in labor demand.

• “My guess is there will be a lot fewer department stores 10 years from now.” — Property appraiser Donald Bouchard of Lincoln Property, on the changing retail real-estate market.

• “Eventually I have to leave. I know that. I might be chairman for a year or two. I have a while to go before I’m out of the company.” — Jamie Dimon of JPMorgan Chase addresses the bank’s succession question. At an investor day presentation in May, Dimon, who has been CEO of the lender for 18 years, signaled that his time in the role was drawing to a close.

— Overall consumer credit rose at an annual rate of 2.1% in June, totaling $8.9 billion, below the expected $10 billion, according to data from the Federal Reserve. Notably, revolving credit declined by 1.5%, marking the second drop in three months, following a 6.1% increase in May and a 1% decrease in April. In contrast, nonrevolving credit grew by 3.4%, up from 2.3% in May. These figures suggest a potential slowdown in consumer spending, though household debt is not yet a significant concern.

However, a separate report from the New York Fed highlighted a rise in credit-card delinquency rates (more than 30 days overdue) to 9.1% over the past year, the highest since 2011. Total credit card debt reached a new high of $1.14 trillion, with serious delinquencies (more than 90 days overdue) at 7.18%, the highest in 13 years. Despite these “elevated” delinquencies, the pace of increases has slowed, prompting discussions that the Fed may have delayed rate cuts for too long.

— Lower gas prices. The recent economic concerns that have unsettled global markets may lead to a positive outcome for American consumers this fall: lower gas prices. As of August 2024, the average gas price in the U.S. is around $3.44 per gallon, which is lower than the previous year by approximately 37.2 cents. Several factors contribute to this potential decline in gas prices:

1. Economic slowdown and oil prices: Concerns about a slowing economy in the U.S. and China have led to reduced expectations for global oil demand. This has resulted in a decrease in oil prices, with the West Texas Intermediate crude oil trading at its lowest level in six months. A drop in oil prices typically translates to lower gas prices, as gasoline prices tend to move by about 25 cents with a $10 swing in the price of oil.

2. Seasonal trends: Gas prices often decline in the fall as the summer driving season ends, leading to reduced fuel demand. Additionally, the transition from summer-grade gasoline to a cheaper winter blend can further decrease prices at the pump.

3. Market volatility: The recent volatility in global stock markets, driven by fears of a U.S. recession and poor economic data, has contributed to a risk-averse environment. This has led investors to seek safer assets, indirectly affecting commodity prices, including oil.

4. Production and supply factors: The U.S. is on track to produce record amounts of crude oil, which could help cushion against potential supply disruptions and keep gas prices stable. However, factors such as limited refinery capacity and geopolitical tensions, particularly in the Middle East, could still pose risks to this outlook.

According to GasBuddy, gas prices are expected to average around $3.38 per gallon for 2024, with potential fluctuations depending on various factors such as geopolitical events and natural disasters. The Energy Information Administration (EIA) also expects gas prices to remain lower than in previous years, despite potential increases in crude oil prices due to OPEC+ production cut. While these factors suggest a potential for lower gas prices, uncertainties remain, such as the possibility of geopolitical conflicts affecting oil supply or weather-related disruptions impacting refinery operations.

Market perspectives:

— Outside markets: The U.S. dollar index was weaker, with the euro firmer and the British pound pivoting around unchanged. The yield on the 10-year U.S. Treasury note was weaker, around 3.92%, with a lower tone in global government bond yields. Crude oil futures were narrowly, with U.S. crude firmer around $75.30 per barrel and Brent weaker around $78.30 per barrel. Gold and silver futures were higher, with gold around $2,449 per troy ounce and silver around $27.06 per troy ounce.

— Mining giant Glencore abandoned its plan to spin off its coal business after shareholders urged the company to continue mining the fossil fuel. This move suggests a shift away from the sustainable-investing trend that has dominated finance in recent years. Glencore CEO Gary Nagle noted that the environmental, social, and governance (ESG) “pendulum has swung back over the last nine or 12 months.” Despite global efforts to reduce reliance on highly polluting fossil fuels, coal consumption reached record highs last year, driven by growth in China and India. Glencore, one of the world’s largest producers of thermal coal for electricity generation, earned over $10 billion from coal-mining operations in the first half of the year. However, the company sees its future growth in steelmaking coal, which is in high demand in China. Link to more via the Wall Street Journal.

— $800 million grain export facility project in Louisiana canceled. The $800 million grain export facility project planned by Greenfield Louisiana LLC in Wallace, Louisiana, has been canceled after extensive delays in obtaining federal permits. The project, which had been in the works for over three years, faced significant opposition from local community groups and encountered repeated delays from the U.S. Army Corps of Engineers. The primary reason for the cancellation was the prolonged permitting process. The U.S. Army Corps of Engineers announced another six-month delay, which extended the permitting timeline to over three years. This latest delay was the fifth in the past 18 months, leading Greenfield to abandon the project. The cancellation is a significant economic blow to the region. The facility was expected to create 1,000 construction jobs and over 300 permanent positions. It was also projected to generate approximately $300 million in state tax revenue. Governor Jeff Landry criticized the Corps for yielding to pressure from special interest groups, highlighting the economic loss for St. John Parish. The project faced strong opposition from local community groups, particularly The Descendants Project, which is focused on preserving the heritage and environment of the area. The proposed site for the facility is in a historically significant area known as “Cancer Alley,” which has a high concentration of industrial facilities and associated health risks. Residents and activists argued that the facility would disrupt the rural character of the area and pose environmental justice issues. The Descendants Project, led by Jo and Joy Banner, played a crucial role in opposing the project, emphasizing the need to preserve the community’s heritage and environment.

— Exchange issues frost warning for Argentina’s wheat crop. Expected cold temps next week could cause frosts and damage crops in areas of Argentina, the Buenos Aires Grain Exchange warned, with the wheat crop most at risk. The western part of the country’s grain growing region could be affected most, it added.

— Ag trade update: Japan purchased 83,445 MT of milling wheat via its weekly tender, including 27,925 MT U.S., 27,400 MT Canadian and 28,120 MT Australian. Egypt purchased 36,600 MT of sunflower oil from unspecified origins.

— Japan issued a tsunami warning following a 7.1-magnitude earthquake that struck the southern island of Kyushu. No casualties have been reported. Japan, one of the most earthquake-prone countries, is located at the convergence of two tectonic plates in the Pacific Ocean’s “ring of fire.” In January, an earthquake in the north-central region of Noto resulted in over 240 deaths.

— NWS outlook: Debby is forecast to spread excessive rainfall, strong winds and thunderstorms up through much of the Mid-Atlantic/Central Appalachians and Northeast through Saturday morning... ...Excessive Heat concerns continue across the Deep South while cooler air settles over the Central U.S. through the end of the week... ...Monsoonal storms persist over parts of the Southwest, Four Corners and High Plains.

(NWS)

Items in Pro Farmer’s First Thing Today include:

• Wheat firmer, corn and beans weaker overnight
• Argentine soy worker strike continues
• Strategie Grains cuts EU wheat production, export forecasts
• China ramps up fight against record bond rally

— In the past 24 hours, the U.S. has struck targets in Houthi-controlled Yemen, including a ground control station, three anti-ship cruise missiles, and two drones, according to the U.S. Central Command. These actions follow claims by Houthi-led groups of attacking a container ship in the Red Sea and two U.S. destroyers in the Gulf of Aden on Wednesday. The U.S. Central Command described the behavior of Houthi forces as “reckless and dangerous,” posing a threat to regional stability. However, the U.S. has not confirmed any attacks on ships.

— President Vladimir Putin’s invasion of Ukraine has led to an unexpected Ukrainian military incursion into Russia’s Kursk region, involving up to 1,000 troops over three days. This is the first time since World War II that a foreign army has invaded Russian territory, catching the Russian military off guard and embarrassing the Kremlin.

A visibly upset Putin summoned his military and security chiefs for an explanation, while Russian military bloggers criticized top officials for incompetence. The incursion caused European gas prices to rise due to fighting near a key Russian station on the last pipeline route to Europe via Ukraine, although gas flow continues.

Ukraine has remained silent about the mission’s objectives, leading to speculation that it could be an attempt to secure territory for future negotiations or a diversionary tactic to draw Russian forces away from the frontline. The White House has expressed a need to understand the situation better but confirmed that Ukraine has not violated US rules regarding the use of American-supplied weapons inside Russia.

The incursion has exposed the vulnerability of Russian border defenses, as many Russian soldiers are engaged in Ukraine, and boosted Ukrainian morale. It undermines Putin’s image as a protector of Russian citizens, as the conflict increasingly affects Russia with border regions facing constant threats of shelling and drone strikes.

For Ukraine, this event strengthens its argument that U.S. and European allies should not fear Kremlin threats of escalation and should support Ukraine in taking the fight to Russia to expedite the end of the war.

— Senate Ag Committee Chairwoman Debbie Stabenow announced that progress on the farm bill has stalled due to Republican resistance to compromise on SNAP and climate funding. Republicans are advocating for significant increases in crop subsidy spending, cuts to SNAP funding, and the use of climate funds for soil and water projects that do not mitigate carbon emissions. Stabenow supports smaller increases in crop supports, opposes SNAP cuts, and insists on strict regulations for climate funding.

“This year, we’re stuck because of an increased sense of partisanship and a desire by Republicans to really, really play politics with food,” said Stabenow during a Zoom call to rural Americans by the Harris/Walz campaign on Tuesday night.

Minnesota Governor Tim Walz, who has been instrumental in previous successful farm bills (2008, 2014, 2018), has also been active in the current discussions, Stabenow said. Walz’s efforts include “marker” bills focused on land stewardship and supporting new farmers, particularly veterans. The 2018 Farm Bill adopted several of Walz’s proposals for veterans in agriculture, providing expanded access to education, training, crop insurance benefits, and premium subsidies.

Minnesota offers tax credits and financial support for beginning farmers, including a program by the Rural Finance Authority to reduce borrowing costs and grants to help with farm down payments. Walz emphasized the vital role of agriculture in Minnesota’s economy and the importance of supporting both current and new farmers, especially in challenging times.

— USDA to be more flexible on farm loans. USDA will amend its farm loan rules, effective Sept. 25, to provide more flexibility in repayment terms for producers and to reduce the collateral required for borrowing. Zach Ducheneaux, administrator of the Farm Service Agency, said these changes aim to remove lending barriers and increase access to credit for borrowers, especially those in need. USDA serves as the lender of last resort for creditworthy producers unable to secure financing from other sources, offering direct and guaranteed loans for operating costs and farmland purchases.

Key revisions include the creation of the Distressed Borrower Set-Aside program, which allows distressed or delinquent borrowers with direct USDA loans to defer one annual loan installment at a reduced interest rate. Flexible repayment plans will also be introduced to help eligible loan applicants improve profitability and build cash reserves. These plans aim to create upfront positive cash flow, enabling borrowers to include a reasonable margin for increased working capital reserves and savings for retirement and education.

Additionally, USDA will relax loan security requirements for direct farm loans.

— New-crop soybean sales, new-crop cotton cancels mark U.S. export sales data to China. U.S. export sales activity for the week ended Aug. 1 to China included notable shifts on business for 2024-25. Activity included net sales of 63,000 metric tons of sorghum and 400,000 metric tons of soybeans, but net reductions of 603,342 running bales of upland cotton. Activity for 2023-24 included net sales of 54,505 metric tons of sorghum, 134,480 metric tons of soybeans and 225,207 running bales of upland cotton. Activity for 2024 included net sales of 741 metric tons of beef and 7,353 metric tons of pork.

— Chile’s largest steel plant, operated by CAP, has indefinitely suspended production due to “the intensification of Chinese dumping.” The Huachipato mill in central Chile has faced an influx of Chinese steel imports, leading to $500 million in losses over the past two years. The Chilean government criticized the decision as “irresponsible,” noting that around 20,000 jobs are tied to the plant.

— Chinese exporters hoarding dollars. Chinese exporters want to hold onto their dollars rather than convert them into yuan, despite the currency’s sudden sharp gains this week, bankers told Reuters. Rampant dollar hoarding by exporters has been one big factor behind the yuan’s depreciation, which hit an eight-month low of 7.2776 per dollar late July. The latest official data showed that the market’s foreign exchange settlement ratio, which measures how much foreign revenue is converted into yuan, fell to a near 2 1/2 year low of 58.1% in June.

— U.S. overtakes China as Germany’s largest trading partner. The U.S. overtook China as Germany’s biggest trading partner in the first half of 2024, according to preliminary German statistics office data. German imports and exports to the world’s largest economy totaled around 127 billion euros ($139 billion) from January to June, while for China the figure was 122 billion euros. The shift comes as Germany has said it wants to shrink its exposure to China, citing political differences and accusing Beijing of “unfair practices.”

— Update on EPA’s UCO probe. Yesterday we alerted you EPA is investigating the supply chains of renewable fuel producers, focusing on the origins of used cooking oil (UCO) used in renewable fuel production, per a Reuters report. Bloomberg reports at least two probes are nearing completion and others are expected to start soon, according to people familiar with the matter. An EPA spokesperson described the inspections as part of “routine evaluation of compliance” with U.S. biofuels policy.

— Beef export value climbs in June; pork trends lower in June but posts strong first half. June exports of U.S. beef reached the highest value in nearly two years, according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF). While June pork exports were lower year-over-year, shipments through the first half of the year remained ahead of the record value pace of 2023.

Japan, Taiwan, Canada lead strong June performance for beef export value. Beef exports totaled 110,155 metric tons (mt) in June, down 4% from a year ago but the second largest of 2024. Export value reached $938.3 million, up 3% year-over-year and the highest since August 2022. Exports trended higher to Japan and were the third largest on record to Taiwan, while shipments to Canada were the largest in nearly a decade. June exports to South Korea were below last year but rebounded compared to May. Through the first half of the year, beef export value climbed 5% from a year ago to $5.22 billion, despite a 4% decline in volume (643,733 mt).

“June beef exports performed very well in Japan, which was great to see given the significant headwinds U.S. beef has faced there this year,” said USMEF President and CEO Dan Halstrom. “Export value also rebounded nicely in Korea and shipments to Taiwan and Canada were outstanding. This made for another strong month in terms of export value per head slaughtered, which was nearly $460 in June.”

June pork exports lower, but bright spots include Korea, Central America, Caribbean. June pork exports totaled 224,392 mt, down 9% from a year ago and the lowest since September, while export value fell 5% to $659.7 million. June exports to leading market Mexico were modestly lower year-over-year but still increased in value, while shipments to Korea remained very robust. Other top performers for U.S. pork in June included Central America, the Caribbean and Canada. January-June pork exports reached 1.52 million mt, 3% above the first half of 2023, while export value increased 5% to $4.26 billion.

“June was a slower month in a few of our key destinations for U.S. pork, including Mexico and Colombia, where exports have been on a blistering pace and buying accelerated again in July,” Halstrom said. “But June was another terrific month for U.S. pork in Korea, where exports could be record-large this year. Shipments also trended higher year-over-year to Central America and Canada, and it was encouraging to see export value per head slaughtered hold firm in the $66 range.”

— Colorado continues to lead in highly pathogenic avian influenza (HPAI) cases among dairy cattle. On Aug. 5, the state reported 8 more cases, bringing its total to 62 since the outbreak began in the U.S. in March. Nationwide, there have been 47 new cases in 7 states over the past 30 days, with a total of 147 cases confirmed in 13 states since March. Four states have reported 20 or more cases: Colorado (62), Idaho (30), Michigan (27), and Texas (24).

— Illegal crossings of the U.S./Mexico border significantly decreased in July, reaching their lowest levels since 2020 and amounting to about one-fifth of their previous peak. This sharp decline highlights the effectiveness of restrictive policies implemented by both countries. U.S.-imposed measures have notably reduced the number of asylum seekers by requiring legal entry for protection requests. Concurrently, Mexican authorities have implemented a “chutes and ladders” system, where migrants are repeatedly bused from northern cities to the southern border with Guatemala, effectively trapping tens of thousands within Mexico. A migration expert described Mexico’s dual role as both a barrier and a sponge in managing the migrant flow, according to the Wall Street Journal.

— NASA is considering using SpaceX spacecraft to bring two astronauts back to Earth from the International Space Station due to issues with the Boeing Starliner that transported them there. This marks the latest setback for Boeing’s space program, which has experienced multiple challenges. Elon Musk’s SpaceX may step in to ensure the safe return of the astronauts, highlighting ongoing reliability concerns with Boeing’s space efforts.

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