Copper surge | IEA cuts 2024 global oil demand growth | Presidential debates | New farm bill
Today’s Digital Newspaper |
Modified format as I am in en route to DC from a speech at a Fastmarkets conference.
— Financial markets: Asian and European stock indexes were mixed overnight. In Asia, Japan +0.1%. Hong Kong closed. China -0.8%. India -0.2%.In Europe, at midday, London +0.3%. Paris -0.2%. Frankfurt +0.4%. U.S stock index futures shifted higher after the CPI data before being basically unchanged ahead of the update.
— A surge in copper futures in New York, triggered by a short squeeze, has led to a rush to divert copper from other regions to the U.S. Comex copper futures hit a new record high of $5.1280 a pound. The sharp price increase is causing traders in China to hastily arrange shipments to American warehouses. Short-squeeze rallies occur when traders, pressured by margin calls or the threat of having to deliver physical material (or pay a large rollover fee) as contracts near expiry, are forced to exit their positions.
— The International Energy Agency (IEA) reduced its 2024 global oil demand growth forecast to 1.1 million barrels per day (bpd), down by 140,000 bpd from its previous outlook, due to weaker demand in developed OECD countries. Factors such as poor industrial activity and a mild winter, particularly in Europe, contributed to this adjustment. This revised forecast contrasts with OPEC’s, which predicts 2024 demand growth at 2.25 million bpd. For 2025, the IEA projects oil demand growth at 1.2 million bpd, slightly up from its prior outlook, while OPEC estimates a 1.85 million bpd increase.
— In April 2024, the annual inflation rate in the U.S. eased to 3.4% from 3.5% in March. The Consumer Price Index (CPI) rose by 0.3% from the previous month, down from 0.4% in the prior two months and below the expected 0.4%. Significant contributors to this monthly increase were the indexes for shelter and gasoline, which together accounted for over 70% of the rise. Core inflation slowed to 3.6% annually, the lowest since April 2021, down from 3.8% in March and February. The monthly core inflation rate also eased to 0.3%, matching forecasts. The report comes after the U.S. said yesterday that producer prices climbed more than projected last month.
Economists cautioned that one month of encouraging data was far from enough to set inflation worries to rest. “I would characterize it as a small step in the right direction,” said Stephen Stanley, chief U.S. economist at Santander.
Market impact: The two-year Treasury yield, which is sensitive to changes in interest rate expectations, fell sharply after the numbers were released, as investors appear to have dialed back how long they expect interest rates to stay elevated for.
— Fed Chair Jerome Powell reiterated a cautious approach to monetary policy, citing the strong U.S. economy and persistent inflation. Speaking in Amsterdam, Powell expressed expectations for inflation to decrease monthly to lower levels seen last year but acknowledged lower confidence in this forecast. He downplayed the likelihood of an imminent interest rate hike, suggesting it is more probable that the Fed will maintain the current policy rate. Powell also noted that part of the job market’s strength is due to immigration, with new workers entering and finding employment. His remarks came ahead of the key Consumer Price Index update and reflected his post-May 1 Federal Open Market Committee (FOMC) meeting views on the economic and policy landscape.
— Americans are increasingly falling behind on their credit card bills, with nearly one in five users having maxed out their borrowing, according to the Federal Reserve Bank of New York. Younger people (under 30) and residents of low-income neighborhoods are particularly likely to be at or near their credit limits. This rise in debt indicates that borrowers are feeling the strain of rising prices and high interest rates.
— Walmart is laying off and transferring hundreds of corporate employees to its Arkansas headquarters. Chief People Officer Donna Morris stated in a memo that the move aims to bring more employees back to the office following the Covid-19 pandemic. While employees officially returned to the office in February 2022, many working remotely or in offices in Dallas, Atlanta, and Toronto are now asked to relocate. The company is building a new headquarters in Bentonville, Arkansas. Walmart is also preparing to release a highly anticipated earnings report on Thursday.
— Red Lobster is expected to file for bankruptcy as soon as next week. The largest U.S. seafood chain is seeking to negotiate with creditors and landlords. Recently, it closed around 99 locations, auctioning off over 50 restaurants and their equipment. The chain has faced financial troubles due to decreased foot traffic during the pandemic, higher interest rates, and a failed all-you-can-eat shrimp promotion. Majority owner Thai Union Group previously announced plans to exit the chain due to its prolonged financial struggles.
— Bayer ag sales decline. Sales of seeds and ag chemicals fell by 3% in the first quarter of 2024 compared to the same period in 2023, mainly due to lower herbicide and fungicide volumes, though the company said its “Crop Science Division outperformed in a difficult market.” Link for details.
— The estimated impact of Red Sea disruptions on vessel demand suggests the current situation is adding around 3% to global shipping requirements, according to a report from Clarksons Research.
— Ag markets: Corn, soybeans and wheat rebounded from Tuesday’s losses during the overnight session, led by gains in wheat. As of 7:30 a.m. ET, corn futures were trading 2 to 3 cents higher, soybeans were 5 to 6 cents higher and wheat futures were 8 to 12 cents higher. The U.S. dollar index was around 150 points lower and front-month crude oil futures were down about 40 cents.
Wholesale beef market picking up steam. Wholesale beef prices jumped another $5.44 for Choice and $6.64 for Select on Tuesday, adding to Monday’s strong gains. Despite the surge in prices this week, spot movement has totaled 234 loads, including 121 yesterday. That suggests strong retailer demand is fueling the resurgent wholesale prices.
Cash hog fundamentals remain in neutral. The CME lean hog index is up 7 cents to $91.29 as of May 13, continuing to hold just below the seasonal peak to date in late April. The pork cutout value dropped 93 cents to $101.51 on Tuesday, as declines in bellies, loins and butts more than offset higher prices in the other cuts. The pork cutout is holding below its mid-April seasonal peak to date.
Overnight demand news: Thailand purchased 60,000 MT of optional origin feed wheat. Japan purchased 23,428 MT of feed wheat and 380 MT of feed barley. Jordan tendered to buy up to 120,000 MT of optional origin milling wheat.
— USDA daily export sale: Private exporters reported sales of 180,000 metric tons of soybeans for delivery to unknown destinations. Of the total, 120,000 metric tons is for delivery during the 2023-2024 marketing year and 60,000 metric tons is for delivery during the 2024-2025 marketing year.
— Reuters: CME, Euronext to launch wheat spread contract. The CME Group and Euronext exchanges are planning to launch joint futures contracts on the spread between CBOT wheat and Euronext milling wheat futures, Reuters reported. One will be cleared by the CME and traded in dollars while the other will be cleared by Euronext and traded in euros. Traders that are not registered on both exchanges would be able to trade the futures, the Reuters contacts said, with final details of the contracts still being worked on. It is not clear when the launch will take place. The CME in 2016 launched European wheat futures contracts but a lack of activity in the market saw the exchange cancel them two years later.
— Day 1 HRW wheat tour results. On Day 1 of the Wheat Quality Council’s HRW wheat tour, scouts found an average yield of 49.9 bu. per acre on samples taken from central and northern Kansas, up from 29.8 bu. per acre along the same routes last year and the five-year (2018-23; no tour in 2020) average of 42.7 bu. per acre. Scouts reported varied conditions and yield potential from the fields sampled. There was a prevalence of stripe rust, but concerns over drought outweighed those worries. Scouts will sample fields in western and southern Kansas today on routes from Colby to Wichita.
— SovEcon cuts Russian wheat crop estimate. Black Sea consulting firm SovEcon cut its Russian wheat crop estimate to 85.7 MMT, down 3.9 MMT from its prior outlook due to recent frost damage.
— House Ag Committee Chair GT Thompson (R-Pa.) and Senate Ag Chair Debbie Stabenow (D-Mich.) met to discuss the upcoming farm bill, with a House committee markup scheduled for May 23. Thompson expressed a commitment to resolving differences between the House and Senate versions of the bill, emphasizing the need for significant funding beyond the $5 billion identified by Stabenow.
Additionally, House Ag Committee Democrats are set to meet with Stabenow and House Minority Leader Hakeem Jeffries (D-N.Y.) to discuss the bill and potentially support the Senate’s version. “I’ve been a part of six farm bills…this is the hardest one I ever,” said Stabenow during a White House meeting on rural economic development. “They’re always difficult, but at this stage, we’re usually beyond the politics of nutrition and food, and we’re down to actually, you know, negotiating a farm bill. And that hasn’t happened yet.” If the Dems vote in unison against the House farm bill approach, they will use their consistent arguments regarding food stamp/TFP and conservation program funding.
Of note: Thompson wants to require future reviews of the costs of a healthy diet to be cost-neutral, unlike the 2021 Biden administration update that resulted in a $250 billion increase in SNAP benefits over 10 years. Sen. John Boozman (R-Ark.), ranking member on Senate Ag, and other Republicans want to return to cost-neutral reviews. The House farm bill proposal is estimated to save $28 billion over 10 years.
— The huge container ship Dali that struck the Francis Scott Key Bridge had electrical problems the day before departing the Port of Baltimore, according to a preliminary report by National Transportation Safety Board (NTSB) investigators. The ship experienced a “blackout” about ten hours before leaving the port, and although the crew restored power, a second blackout occurred, leading them to change the ship’s electrical system configuration. The NTSB report indicates it is still unclear how these incidents are related to the events of the following morning when the Dali lost power twice just before crashing into one of the bridge’s supports.
— The Biden administration has initiated a new $1 billion weapons deal for Israel. This move comes despite a pause on the shipment of 2,000-pound and 500-pound bombs to Israel due to concerns about their use in densely populated areas, such as Rafah, where over a million people are sheltering. The new deal indicates that longer-term arms deals will continue.
— U.S. Court of Appeals for the District of Columbia Circuit upheld the Renewable Fuel Standard (RFS) mandates for 2020-2022. The court ruled that the Environmental Protection Agency (EPA) lawfully exercised its discretion in setting these biofuel mandates. The decision faced challenges from oil refiners, who argued that the mandates were too high and that emergency waivers were unfairly denied, and from some cellulosic ethanol producers, who contended the levels set for their fuel were too low. The court concluded that the EPA complied with the law and reasonably exercised its discretion, noting the agency’s efforts to minimize hardships from the delayed issuance of the 2022 standards. The EPA issued the rule in 2022 and retroactively adjusted the standards for 2020.
— China is mulling a proposal to have local governments across the country buy millions of unsold homes, Bloomberg reports (link), saying it would be one of its most ambitious attempts yet to salvage the property market. Local state-owned enterprises would be asked to help purchase unsold homes from distressed developers at steep discounts using loans provided by state banks, according to two of the people. Many of the properties would then be converted into affordable housing.
— China leaves key policy rate unchanged. The People’s Bank of China (PBOC) kept the rate on 125 billion yuan ($17.28 billion) in one-year MLF loans to some financial institutions unchanged at 2.50%. With the same amount in MLF loans set to expire this month, the operation resulted in zero fresh fund injection or withdrawal from the banking system. PBOC injected 2 billion yuan through a seven-day reverse repurchase operation, holding borrowing costs steady at 1.8%.
— Argentina cut its benchmark interest rate for a sixth time under President Javier Milei as his government sees inflation edging lower while it shrinks the central bank’s balance sheet. The monetary authority lowered its key rate to 40% from 50%, according to a statement published on its website Tuesday. Borrowing costs have now fallen from a high of 133% last December. On Monday, International Monetary Fund’s staff signed off on the eighth review of Argentina’s $44 billion program. If approved by the IMF’s executive board, that move would give the country some $800 million in breathing room to honor debt repayments to the Washington-based lender.
— China reacted angrily to the Biden administration’s announcement of new tariffs on electric vehicles (EVs), critical minerals, and some solar equipment. The Chinese Ministry of Commerce stated that China would take “resolute measures to safeguard its own rights and interests” and demanded that the U.S. cancel the additional tariffs. The specific actions China will take are not yet clear and may take time to develop. The U.S. tariffs might not come into effect until August, as the Office of the US Trade Representative (USTR) will first conduct a public comment period.
Of note: A spokesman for the Chinese Embassy in Washington, Liu Pengyu, described the tariffs as a disappointing “political maneuver” that he said was in violation of World Trade Organization rules. “We hope the U.S. can take a positive view of China’s development and stop using overcapacity as an excuse for trade protectionism,” Liu said. He added that Beijing had not determined how it would respond, but noted that the U.S. exported large quantities of soybeans to China and that Tesla, the American electric car manufacturer, sold hundreds of thousands of cars that it made in China last year.
Meanwhile, U.S. Trade Representative Katherine Tai said the government is monitoring Chinese moves in Mexico and remains on alert for any sign new factories there could be used to gain access to the American car market. Separately, Treasury Secretary Janet Yellen said she hoped Beijing would respond “in a rational way” and that she didn’t expect U.S. consumers to face meaningfully higher prices as a result of the tariffs.
— “NOPA was not proactively pushing for tariffs.” In response to rumors that UCO tariffs may be increasing in the Section 301 tariff review of China, NOPA said it “reached out to administration officials accordingly. That said, NOPA continues to be concerned about the surge of UCO imports into the U.S. and as such continues to examine workable solutions that can address the impact on our domestic market,” said NOPA President & CEO Kailee Tkacz Buller.
Of note: No agricultural or food products were included in the Biden tariff announcement.
— Study: Markup fluctuations not main driver of food inflation during the post-pandemic recovery. Price markups for goods and services have had a varied impact on the recent surge and subsequent decline of inflation. Since 2021, substantial markup increases have been observed in specific industries like motor vehicles and petroleum. However, aggregate markups, which are more indicative of overall inflation, have remained flat, consistent with previous economic recoveries over the past three decades, according to a report from the San Francisco Fed (link). These trends suggest that fluctuations in markups have not been a significant factor in the changes in inflation during the post-pandemic recovery.
— A bus crash in north-central Florida on Tuesday resulted in the deaths of eight farm workers and injuries to 45 others. The collision involved a bus carrying approximately 53 farm workers and a pickup truck, occurring about 15 miles west of Ocala. The pickup truck driver has been charged with eight counts of DUI manslaughter. At a news conference, Juan Sabines, the Mexican consul in Orlando, confirmed that all the victims were Mexican nationals in the U.S. on temporary agricultural worker visas. Link for details via CNN.
— Alsobrooks defeats Trone in Maryland Democratic Senate primary, faces Hogan in general election. In the Maryland Democratic Senate primary to replace retiring Sen. Ben Cardin (D), Prince George’s County Executive Angela D. Alsobrooks defeated Rep. David Trone in a costly and contentious race. Alsobrooks’ victory, described as a “come-from-behind” win against Trone, who heavily self-funded his campaign with over $60 million, propels her into a high-stakes general election against former Gov. Larry Hogan (R). This election offers voters the historic opportunity to send the state’s first Black person to the U.S. Senate, where only three Black women have served.
The upcoming general election is expected to be a major contest, potentially influencing control of the Senate. Hogan presents a significant challenge for Democrats, as he is a moderate Republican with a successful track record in the deep-blue state. Without Trone’s financial contributions, Democrats may need to allocate more resources to secure the seat, potentially diverting attention from other competitive races nationwide.
— Biden proposes June and September faceoffs with Trump, ditching the bipartisan debate commission; Trump accepts June debate. President Biden called on Donald Trump to debate him on television in June and September but said he would not participate in the three fall meetings organized by the Commission on Presidential Debates, which has convened presidential debates since the 1988 election. Trump on Wednesday accepted Biden’s challenge to a debate in June.
The Biden proposal, outlined in a video message and letter to the commission, called for direct negotiations between the Trump and Biden campaigns over the rules, moderators and network hosts for the one-on-one meetings. He proposed a separate vice-presidential debate in July, after the Republican nominating convention and before the Democratic nominating convention. “Donald Trump lost two debates to me in 2020, and since then he hasn’t shown up for a debate. Now he is acting like he wants to debate me again. Well, make my day, pal. I’ll even do it twice,” Biden said in the video released Wednesday that referenced the weekly break in Trump’s New York criminal trial. “So let’s pick the dates, Donald. I hear you’re free on Wednesdays.”
Biden’s team has requested that only broadcast networks that hosted Republican primary debates in 2016 and Democratic primary debates in 2020 be eligible to host this year’s events. Only four networks — CNN, ABC News, Telemundo and CBS News — hosted debates for both parties during those cycles.
— Bacon wins Nebraska’s 2nd District GOP primary. Incumbent Don Bacon beat challenger and MAGA candidate Dan Frei. While some early votes returned on Election Day remain to be counted on Friday, Bacon, of Papillion, led Frei, of Omaha 62%-38% by 12:10 a.m. Wednesday. The margin was closer than the 50-point edge Bacon’s campaign polling indicated, but wider than Frei’s last run. Democratic state Sen. Tony Vargas awaits a rematch in November.
— NWS weather: Unsettled weather spreads into parts of the Midwest, Mid-Atlantic, and Southeast today... ...Hazardous heat possible across South Florida and South Texas this week ... ...Significant flash flooding possible across portions of East Texas and Louisiana on Thursday.
KEY LINKS |
WASDE | Crop Production | USDA weekly reports | Crop Progress | Food prices | Farm income | Export Sales weekly | ERP dashboard | California phase-out of gas-powered vehicles | RFS | IRA: Biofuels | IRA: Ag | | Russia/Ukraine war, lessons learned | | SCOTUS on WOTUS | SCOTUS on Prop 12 pork | New farm bill primer | | Gov’t payments to farmers by program | Farmer working capital | USDA Ag Outlook Forum |