CR Update: The Certainty of Uncertainty

News/Markets/Policy Updates: Dec. 19, 2024

— Equities today: Asian and European stock indexes were mostly lower overnight. U.S. Dow opened up around 300 points. In Asia, Japan -0.7%. Hong Kong -0.6%. China -0.4%. India -1.2%. In Europe, at midday, London -1.1%. Paris -1.3%. Frankfurt -0.9%.

U.S. equities yesterday: Stocks plummeted in the wake of the Fed meeting conclusion and post-meeting presser from Fed Chair Powell. The Dow dropped 1,123.03 points, 2.58%, at 42,326.87. Most of the index’s losses have been due to a handful of its price-weighted average constituents, like UnitedHealth, which has tumbled nearly 20% since the fatal shooting of Brian Thompson and President-elect Trump’s promise to “knock out [the drug industry] middleman.” UNH rose on Wednesday, and the Dow is only down about 6% since its last all-time high, with some of its post-election gains even intact. The Nasdaq fell 716.37 points, 3.56%, at 19,392.69. The S&P 500 lost 178.45 points, 2.95%, at 5,872.16.

The Federal Reserve on Wednesday cut its key interest rate by a quarter percentage point and indicated a more cautious approach to additional cuts in the future. The Fed said it anticipates only two more cuts in 2025, two less than what it had expected in September. “Today was a closer call but we decided it was the right call,” Fed Chair Jerome Powell said at his post-meeting news conference. Powell’s message in his press conference was that the economy is doing great, and the central bank wants to see more progress on inflation before cutting rates again. That doesn’t necessarily mean that overall inflation has to go down though, according to the Fed’s projections. They show headline inflation ticking up and core inflation (which excludes food and energy) dropping — alongside two rate cuts next year. Powell also repeatedly expressed confidence about the strength of the economy. “I feel very good about where the economy is,” he said. “I expect another good year next year.”

— TikTok’s last chance. The U.S. Supreme Court will hear arguments on Jan. 10 regarding a law that could potentially ban TikTok, ByteDance’s social media app, in the United States. The law, set to take effect nine days later, would require ByteDance to sell TikTok or compel platforms like Google and Apple to cease supporting it. TikTok, with an estimated 170 million American users, has surged in popularity, making the decision highly consequential.

— CFIUS raises concerns over Nippon Steel’s US steel acquisition. The Committee on Foreign Investment in the United States (CFIUS) continues to express national security concerns regarding Nippon Steel’s proposed acquisition of US Steel, according to a letter reviewed by Reuters. Despite three revised proposals from Nippon Steel, the CFIUS remains unconvinced that the mitigation measures adequately address potential risks. “The Committee has not yet reached consensus on whether the mitigation measures proposed by the Parties would be effective... or whether they would resolve the risk to U.S. national security arising from the Transaction,” the letter stated. The committee must decide by December 23 whether to approve, extend the review, or recommend cancellation of the deal. Nippon Steel maintains that its proposal represents the best opportunity for US Steel’s future. However, both President Joe Biden and President-elect Donald Trump have voiced opposition to the transaction. The latest correspondence suggests the deal’s approval remains uncertain.

— Missouri farmers sue Tyson Foods and Cal-Maine over anticompetitive practices. Missouri farmers allege Tyson Foods and Cal-Maine Foods conspired to block other buyers from purchasing Tyson’s Dexter facility, violating state antitrust laws. Tyson is accused of breaking its commitment to avoid antitrust behavior during the facility’s sale. Farmers who invested heavily in specialized infrastructure for Tyson say they face severe financial losses. The closure of the Dexter plant left farmers without nearby processing options, rendering their farms nearly worthless. Cal-Maine, the largest U.S. egg producer, acquired the Dexter facility in March 2024 to convert it for egg production. The company has proposed contracts to former Tyson farmers, offering terms far less favorable than previous agreements. Tyson seeks federal exoneration, while Missouri officials press for the facility’s resale to another poultry processor. Farmers must either shut down operations or take on debt to convert their farms to meet Cal-Maine’s requirements, with reduced earnings.

— Ag markets today: SRW wheat futures fell to contract lows overnight, while HRW and HRS contracts held above their recent lows. Corn followed wheat to the downside, while soybeans posted mild corrective gains. As of 7:30 a.m. ET, corn futures were trading around a penny lower, soybeans were 1 to 2 cents higher, SRW wheat was 6 to 8 cents lower, HRW wheat was 4 to 5 cents lower and HRS wheat was 3 to 4 cents lower. The U.S. dollar index and front-month crude oil futures were both modestly lower this morning.

Wholesale beef prices weakened for a second straight day on Wednesday, with Choice down 79 cents to $314.84 and Select down $2.95 to $285.55. The $315.00 and $285.00 levels have become the comfort zone for both packers and retailers.

The CME lean hog index is up another 18 cents to $84.16 as of Dec. 17, the fourth gain in the last six days. While the net gain during that span is only 84 cents, the index is showing signs of a potential seasonal bottom. The pork cutout firmed $1.58 on Wednesday to $96.35, as gains in ribs, hams and bellies offset losses in the other cuts.

— Agriculture markets yesterday:
• Corn: December corn fell 6 1/4 cents to $4.37 1/4, marking the lowest close since Dec. 5.
• Soy complex: January soybeans fell 25 cents to $9.51 3/4, near the daily low and hit a contract low. January soybean meal lost $7.70 to $279.50, near the session low and hit a contract low. January soybean oil fell 107 points to 39.55 cents, near the session low and hit a three-month low.
• Wheat: March SRW wheat futures fell 3 3/4 cents to $5.41 1/4, a contract low close, while March HRW wheat fell 3 3/4 cents to $5.48 3/4, ending nearer the session low. March HRS futures fell 3 cents to $5.92.
• Cotton: March cotton fell 61 points to 68.08 cents, near the session low and closed at a contract low close.
• Cattle: Cattle and feeder futures continued their slide Wednesday, with expiring December cattle falling 95 cents to $191.30 and most-active February losing $1.425 to $188.325. January feeders slid 47.5 cents to $257.00.
• Hogs: February lean hog futures climbed 50 cents to $83.70 and settled nearer session highs.

— Bank of England holds rates steady amid global monetary shifts. The Bank of England (BOE) maintained its key interest rate at 4.75%, resisting the push for cuts despite a struggling UK economy and surging wages. This marks the second pause in three meetings, though three of nine policymakers voted for a reduction to 4.5%, signaling growing dissent. The BOE faces a challenging mix of rising wages and slowing growth, with inflation still above the 2% target. The UK’s economic forecast is bleak, with stagnation predicted for Q4 and a contraction already in October. The BOE signals gradual rate cuts ahead, though policymakers remain divided.

— Bank of Japan holds rates steady amid uncertainty. The Bank of Japan (BOJ) maintained its short-term policy rate target at 0.25%, with Governor Kazuo Ueda emphasizing the need for further data on wage trends and economic policies under President-elect Donald Trump before considering a rate hike. Ueda noted that while Japan’s economic trajectory aligns with BOJ forecasts, the sustainability of wage increases remains uncertain. The decision was not unanimous, as board member Naoki Tamura advocated for a rate hike to 0.5% due to rising inflationary pressures. The BOJ’s next meeting is scheduled for Jan. 23-24, with attention turning to the Jan. 9 regional economic report for potential rate hike indicators.

— GAO report highlights USDA’s $161 billion financial support to farmers (2019–2023). The Government Accountability Office (GAO) report (link) provides a comprehensive overview of the financial assistance provided by USDA to agricultural producers from fiscal years 2019 through 2023. Here are the key details:

Financial assistance overview. USDA distributed a total of $161 billion in financial assistance to agricultural producers over the five-year period. This substantial sum was allocated through various programs, including:

• Supplemental assistance programs (42% of total)
• Crop insurance program (33% of total)

• Other farm bill authorized programs

  Distribution of assistance:

• On average, about 1 million agricultural producers received assistance each year.
• More than 90% of producers received an average of $12,000 per year
• Less than 10% of producers received an average of $272,000 per year
• The top 10 producers received an average of $18 million per year
• Individual assistance ranged from a few dollars to $215.2 million for a single producer in 2022

The number of historically underserved producers participating in USDA financial assistance programs increased significantly:

• From 84,000 to 183,000 over the five-year period
• This includes new farmers, veterans, and people subject to racial or ethnic prejudice

Livestock and poultry producers. Participation of livestock and poultry producers also saw a substantial increase:
· From 76,000 to 243,000 producers over the five-year period

Top recipients by state: Texas, North Dakota, and Iowa received the most assistance, in that order.

(GAO)

Market perspectives:

— Outside markets: The U.S. dollar index was weaker, with the euro, yen, and British pound all gaining against the greenback. The yield on the 10-year U.S. Treasury note has continued to track higher, trading around 4.53%, with a higher tone in global government bond yields. Crude oil futures were weaker, with U.S. crude around $70.50 per barrel and Brent around $73.20 per barrel. Gold and silver futures were under significant pressure, with gold around $2,630 per troy ounce and silver around $29.95 per troy ounce.

— Port of Los Angeles sees record container flows in November; economic strength and geopolitics fuel surge in cargo movement. In a year of record-breaking container volumes, the Port of Los Angeles continued its strong performance in November, handling 884,315 twenty-foot equivalent units (TEUs). This marks a 16% increase year-over-year and 15% above the port’s five-year average for the month. Year-to-date, the port has processed over 9.3 million TEUs, up 19% from 2023.

Executive Director Gene Seroka attributed the growth to a robust U.S. economy, strong consumer spending, and geopolitical factors such as East Coast labor disputes and frontloading in anticipation of potential trade policy changes. November imports rose 19%, while exports increased 11%.

Efforts to improve efficiency and support exports, including new infrastructure investments and enhanced rail services, are yielding results. December volumes are forecasted to reach near-record levels, driven by pre-Lunar New Year shipments. Challenges, including automation debates and evolving trade dynamics, remain, but the port is poised for continued growth.

Seroka addressed the East Coast port labor impasse: “All we want is fair bargaining and a quick resolution to these debates, but understanding that automation at port terminals is one of the most polarizing issues that we have to discuss today. I trust that incoming President Trump will have the same mindset of keeping folks at the table, and moving the dialogue forward [as Biden officials did to end the strike by dockworkers in October]. It is my view that all ports in the United States need to be running at top speed to fuel this economy.” He continued: “There are forecasts for a strong economy in 2025, and we don’t want a segment of the supply chain to hold that back. The workers have to be paid, and have to have good work rules in this collective bargaining agreement. In Los Angeles we are running at about 80% of capacity and we have room to grow if there are continued shifts of cargo our way. I am confident we have room to grow here should we be able to help out and in a short period of time, be the gateway of choice for others while this negotiation is ongoing.”

Seroka on port rail service: “We’ve had our ups and downs this year; it’s been very interesting. Six to seven weeks ago, rail dwell time was nearly 8 1/2 days. Today it’s under 4 1/2. We had 8,800 containers [sitting] nine days or longer; today it’s about 1,500. We’ve seen Union Pacific and BNSF working around the clock trying to help solve these issues, with engine power, crewing and railcars trying to match up imports and exports better than ever, working with stakeholders to get the cargo out. No one’s claiming victory; there’s a lot more work to do.”

Seroka on port automation: “Automation at the Port of Los Angeles spans two terminals: TraPac at Wilmington and Pier 400, the APM Terminals facility. Long Beach container terminal also has an automated facility in place today. So three of 12 terminals have an automated environment. Automated stacking cranes, straddle carriers and rail-mounted gantry cranes in Los Angeles, and in the Port of Long Beach there’s a guided automated vehicle concept. The results have been mixed thus far. Some have opined that productivity is not that great, but the costs have been dropped and longer hours of operation can be obtained.

“As for the International Longshore and Warehouse Union contract language dating to 2008, maybe some promises have not been lived up to. And maybe jobs lost to automation have been deeper than what was anticipated. Yet longshore productivity in LA-Long Beach is up about 32% over the past decade. Could it have been more? Possibly. Our job is to bring as much cargo in here and create as many job opportunities and work hours that are possible. And we want to keep going in that direction.”
The port is developing a goods movement campus to train new workers and offer upskilling for older workers.

Seroka on Mexico trade flows: “We’re seeing a surge in manufacturing in Mexico, not in finished products from China but inputs that go into the manufacturing sector. Here in Los Angeles we’re enjoying some of that business as well. Whether it’s cargo that comes into LA and gets trucked down to Mexicali on the Baja Peninsula, or taking a doublestack train over to El Paso to cross the Zaragoza Bridge into Juarez, or continue on into Nuevo Laredo crossing at Laredo, Texas.”

— Indonesia to raise crude palm oil export tax to 10%. Indonesia plans to increase the crude palm oil (CPO) export tax to 10% from the current 7.5%, aiming to fund expanded biodiesel subsidies, according to Chief Economic Minister Airlangga Hartarto. The higher levy will take effect once the finance ministry finalizes the regulation. With the biodiesel program set to rise to 40% (B40), subsidy needs are projected to surge by 68%, per estimates by the palm oil fund agency (BPDPKS). While no changes were announced for refined palm oil products’ export taxes (currently 3%-6%), the government plans to allocate 15.62 million kiloliters of unblended biodiesel to fuel retailers in 2025, up from 13.4 million for the current B35 program.

— India doesn’t need wheat imports, will allow sugar exports if surplus supply. India’s food secretary says there’s no need for wheat imports and he expects domestic prices to moderate soon. He also said India may allow sugar exports if there are surplus supplies after meeting domestic consumer demand and ethanol blending requirements.

— India exchange extends suspension of futures trading in key farm commodities. The Securities and Exchange Board of India (SEBI) extended the suspension of futures trading in key farm commodities, including soybeans, crude palm oil, wheat, and others, until Jan. 31. Initially imposed in 2021 to curb food price inflation, the suspension has been periodically extended, most recently set to expire on Dec. 20, 2024. This shorter extension fuels speculation that trading might resume in early 2025.

— USDA daily export sales:
· 227,200 MT soybeans received in the reporting period to unknown destinations. Of the total, 152,200 metric tons is for delivery during 2024-2025 and 75,000 metric tons is for delivery during the 2025-2026 marketing year.

— Ag trade update: South Korea purchased 201,000 MT of corn – 65,000 MT expected to be sourced from South America and 136,000 MT from unspecified origins – 86,800 MT of U.S. milling wheat and 40,000 MT of Canadian wheat. Japan purchased 77,220 MT of milling wheat via its weekly tender, including 55,420 MT U.S. and 21,800 MT Australian. Thailand purchased 100,000 MT of feed wheat – one cargo each of U.S. and Australian.

— NWS outlook: Clipper system to bring periods of heavy snow to the Upper Midwest Thursday with some light to moderate accumulations for the Appalachians/Interior Northeast Friday... ...Well above average temperatures and mild conditions continue across the West... ...Frontal passages will bring colder temperatures to much of the eastern U.S. through the end of this week and into the weekend.

(NWS)

Items in Pro Farmer’s First Thing Today include:
· Wheat and corn lower, beans higher overnight
· Wholesale beef prices retreat again
· Cash hog index rises again
· Strategie Grains expects big jump in EU wheat production

— Senate passes WRDA 2024, awaiting likely presidential signature. The Water Resources Development Act (WRDA) of 2024 cleared the Senate on Wednesday with an overwhelming bipartisan vote of 97-14. This passage in the Senate followed the House’s approval of the bill on Dec. 10, where it passed with a vote of 399 to 18. It is now headed to President Biden for likely final approval. This bipartisan legislation authorizes critical U.S. Army Corps of Engineers water resources projects.

Keys: It adjusts the cost-share ratio for inland waterways projects to 75% federal funding and 25% Inland Waterways Trust Fund (IWTF). It provides 100% federal funding for projects under the Bipartisan Infrastructure Law. It reauthorizes FEMA’s National Dam Safety Program through 2028. It streamlines Corps processes and enhances economic development through funding mechanisms.

— Putin stands firm on Ukraine amid mounting pressures. Russian President Vladimir Putin signaled no urgency to end the war in Ukraine during his annual question-and-answer session, emphasizing Russia’s resilience and ongoing territorial gains despite significant challenges. With President-elect Donald Trump pledging a swift resolution to the conflict, Putin downplayed the possibility of immediate peace talks, stressing the need for lasting security guarantees for Russia.

The event highlighted Russia’s escalating military expenditures, new missile capabilities, and a shifting geopolitical landscape, including the collapse of the Assad regime in Syria, which has diminished Moscow’s influence in the Middle East. Domestically, the Kremlin faces mounting economic pressures, with inflation and labor shortages threatening stability.

— China’s soybean appetite continues in weekly USDA update. USDA weekly Export Sales data for the week ended Dec. 12 included sales activity for China of net sales of 7,776 metric tons of sorghum, 648,241 metric tons of soybeans, and 7,936 running bales of upland cotton. Activity for 2024 included net sales of 624 metric tons of beef and 931 metric tons of pork, with 2025 activity of net sales of 476 metric tons of beef and net reductions of 943 metric tons of pork.

— Chinese banks raise mortgage rates for the first time since 2021. Some Chinese commercial banks in cities such as Guangzhou, Qingdao and Nanjing have raised first-home mortgage rates by 5 to 20 basis points since November to as high as 3.1%, Chinese media reported. Some 17 out of the 42 cities with available data lifted first-home mortgage rates in November, according to figures from Data Motion, the first increase since October 2021. The increases underscore the mounting pressure on Chinese banks, which have been pushed by Beijing to cut mortgage rates to spur home purchases after property developers were hit by a debt crisis.

— Potential impact of broad tariffs on U.S. agriculture. The proposed sweeping tariffs on U.S. imports by the incoming Trump administration could have severe consequences for the American agricultural sector, as highlighted by economists during a Wednesday Joint Economic Committee hearing.

Extensive damage to farm income: Ed Gresser, director for trade and global markets at the Progressive Policy Institute, warned that the impact on U.S. agriculture would be “quite extensive.” He estimated that tariffs on major trading partners like Canada, Mexico, and China could affect up to 10% of all farm income, creating significant financial challenges for farmers.

Market disruptions and export losses: The proposed tariffs risk destabilizing existing trade agreements, such as the U.S.-Mexico-Canada Agreement (USMCA), potentially jeopardizing tariff-free trade with two of the nation’s top agricultural export markets. Furthermore, escalating tariffs on Chinese goods could undermine already declining exports to one of the U.S.’ largest agricultural trade partners.

Retaliatory measures: Historical precedent suggests that U.S. trade policies targeting major partners like China often trigger swift and severe retaliatory measures. For instance, during the 2018-2019 trade conflict, China responded to U.S. tariffs with significant retaliatory tariffs on American agricultural products, leading to substantial financial losses for U.S. farmers, particularly in the Midwest.

Commodity price impacts: Under various tariff scenarios, U.S. soybean and corn prices could face significant downward pressure. Studies indicate that soybean prices could fall by nearly $1 per bushel on average, while corn prices could drop by $0.13 per bushel from already low baseline levels.

Production value losses: Depending on the scenario, U.S. soybean farmers could lose an average of $3.6 to $5.9 billion in annual production value, while corn farmers might face losses of $0.9 to $1.4 billion annually.

Ripple effects on rural economies: The impact of these tariffs would extend beyond farmers, affecting rural communities where agricultural activities play a crucial economic role. The combined soybean and corn contribution to total economic output could potentially drop by $4.9 to $7.9 billion annually under different tariff scenarios.

— EPA greenlights California’s gas car ban by 2035 amid potential legal clash. The Environmental Protection Agency (EPA) earlier this week approved California’s plan to ban new gasoline-powered vehicle sales by 2035 and enforce stricter emission standards for heavy-duty trucks. This decision aligns with outgoing President Joe Biden’s clean energy agenda but may face opposition from President-elect Donald Trump, who has signaled potential legal challenges.

EPA granted two waivers under the Clean Air Act, allowing California to implement the Advanced Clean Cars II rule and the Heavy-Duty Omnibus rule. Governor Gavin Newsom hailed the decision as a victory for public health and climate action, while critics, including Trump, argue it restricts consumer choice and oversteps federal authority.

The move impacts over a dozen states adopting California’s standards, covering 40% of the U.S. auto market. Environmental advocates lauded the action as a milestone for clean transportation, but Republican lawmakers have vowed to challenge it in court.

— First severe U.S. case of bird flu (H5N1) confirmed. The CDC confirmed on Wednesday (Dec. 18) the first severe U.S. case of bird flu (H5N1) in a southwestern Louisiana resident. The patient, over 65 and with pre-existing conditions, was hospitalized with severe respiratory symptoms after contact with sick and dead backyard birds. This marks the first human case linked to backyard bird exposure in the U.S. The virus, identified as the D1.1 genotype, has been recently found in wild birds, poultry, and human cases in British Columbia and Washington state. This differs from the B3.13 genotype associated with cattle. Authorities are conducting genetic sequencing for mutations and monitoring the patient’s contacts. The Louisiana Department of Health is actively providing testing and treatment.

This case is among 61 human H5 bird flu cases reported since April 2024, most of which were mild and linked to farmworkers. The CDC emphasizes that the risk of person-to-person transmission remains low.

— California declares state of emergency amid bird flu surge. California Governor Gavin Newsom declared a state of emergency Wednesday (Dec. 18) in response to escalating bird flu cases. The move coincided with the U.S. Centers for Disease Control’s confirmation of a severe H5N1 case in Louisiana, marking the first such instance in the country.

While the public risk remains low, Newsom emphasized proactive measures to contain the outbreak. California’s emergency declaration enables a statewide response, including enhanced testing and surveillance. Since 2022, over 4 million birds have succumbed to the virus, with 34 human cases reported in California, primarily among agriculture workers.

The state advises vaccination against flu and Covid-19 to reduce co-infection risks and warns against raw milk consumption as nearly 25% of dairies are under quarantine.

— Beagle Brigade Act advances to President Biden for signature. The Beagle Brigade Act, a bipartisan initiative, has passed Congress with overwhelming support and is now awaiting President Joe Biden’s likely signature. This legislation provides critical funding and authority to the USDA’s National Detector Dog Training Center in Georgia, which trains dogs, including beagles, to safeguard U.S. agriculture by detecting foreign pests and diseases at ports of entry. The measure authorizes and funds the National Detector Dog Training Center under USDA’s APHIS. Ot deploys trained dogs to U.S. entry points like airports and border crossings to detect agricultural threats. It was backed by bipartisan sponsors and industry groups like the NPPC, emphasizing its role in preventing $138 billion in annual economic and environmental losses.

— Migrants rethink risks amid Trump’s immigration crackdown. In the aftermath of Donald Trump’s election victory, driven in part by his hardline immigration promises, migrants are reconsidering their paths to the United States. Recent policy shifts under the Biden administration have already tightened the asylum process, and Trump’s impending takeover could further limit options. Migrants waiting in Mexico to request asylum now face heightened uncertainty, as changes under a Trump administration could block this route entirely. For those attempting clandestine crossings, the risks include low-paying, hazardous jobs and the constant threat of deportation. Many migrants are hesitating, opting to wait for asylum appointments amid growing fears of a sweeping deportation campaign promised by Trump.

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