Dems to Huddle Re: House Farm Bill Proposal Some Dems Find Farmer Friendly

Dem farm bill strategy is like GATT: General agreement to talk and talk

MARKET FOCUS

• U.S. economy is cooling
• Fed’s Barkin: Full impact of rate hikes by central bank yet to come through
• Citadel founder Griffin: Fed will likely cut rates in Dec. if it elects to hold Sept.
• Apple to hold iPad events today, working on its own AI chip
• SF Fed study: U.S. pandemic savings have finally been spent
• In April 2024, farmer sentiment experienced a significant downturn
• Social Security’s trust fund faces depletion by 2033 despite economic boost
• Ag markets today
• Southern Brazil flooding affects 10 poultry, pork plants
• International robusta coffee prices soar due to several factors
• Ag trade update
• NWS weather outlook
• Pro Farmer First Thing Today items

CONGRESS

• Marjorie Taylor Greene delays plans to oust House Speaker Mike Johnson

ISRAEL/HAMAS CONFLICT

• Israel rejects ceasefire proposal accepted by Hamas
  

RUSSIA & UKRAINE

• U.S. army confirms detention of soldier visiting Russia for alleged criminal misconduct
• Ongoing dispute between Russian gov’ and grain traders escalates
  

POLICY

• Farm bill update: Talk and talk and talk
• Slight change in ERP payments
  

CHINA

• China’s forex reserves fall more than expected in April
• China adds to gold reserves
  

TRADE POLICY

• Big rise expected in global trade
  

ENERGY & CLIMATE CHANGE

• More clarity urged for GREET/SAF
  

LIVESTOCK, NUTRITION & FOOD INDUSTRY

• CDC asks states to distribute protective gear to farm workers re: H5N1
• Dairy and beef cattle markets U.S.: varied impacts due to spread of H5N1
  

HEALTH UPDATE

• Peanut recall
  

OTHER ITEMS OF NOTE

• Boeing’s Starliner launch postponed

— Equities today: Asian and European stock indexes were mixed overnight. In Asia, Japan +1.6%. Hong Kong -0.5%. China +0.2%. India -0.5%. In Europe, at midday, London +1%. Paris +0.3%. Frankfurt +0.6%. U.S. stock indexes are pointed to toward mixed openings. U.S. Dow opened up around 50 points on favorable EU economic data and strong bank earnings from UBS and UniCredit offset escalating geopolitical tensions in Gaza. Geopolitically, Israeli tank units seized a critical Rafah border crossing with Egypt as ceasefire talks reportedly continue, however the market impact is limited this morning with oil futures slightly lower. Focus will be on the Fed’s Kashkari who speaks mid-morning (11:30 a.m. ET). The market is looking for more confirmation of sooner-than-later rate hikes in 2024.

U.S. equities yesterday: The Dow closed up 176.59 points, 0.46%, at 38,852.27. The Nasdaq gained 192.92 points, 1.19%, at 16,349.25. The S&P 500 was up 52.95 points, 1.03%, at 5,180.74.

— Apple has been working on a chip to run artificial-intelligence software in data-center servers, the Wall Street Journal reported (link), a move that could give Apple an edge in the AI race. At an event today, Apple will focus on iPads and related accessories, such as the new generation of the iPad Pro with an OLED display. It will be the first device powered by the new M4 chip, making it more powerful than the latest Mac and giving it the possibility of new AI capabilities. Upgrades to the Magic Keyboard and Apple Pencil are also expected.

— Ag markets today: Corn, soybeans and wheat pulled back from Monday’s strong gains during the overnight session. Key today will be whether buyers show up on the overnight price weakness as they did yesterday. As of 7:30 a.m. ET, corn futures are trading mostly a penny lower, soybeans were 2 to 3 cents lower, SRW wheat was 4 to 5 cents lower, HRW wheat was 11 to 12 cents lower and HRS wheat was mostly 8 cents lower. Front-month crude oil futures were modestly weaker, while the U.S. dollar index was around 150 points higher.

Wholesale beef prices strengthen. Wholesale beef prices firmed on Monday, with Choice up $4.56 and Select $2.10 higher, though movement slowed to 78 loads. It appears packers are trying to heel deeply negative cutting margins by pushing wholesale prices higher after the flurry of retailer purchases amid the recent drop in prices.

Pork cutout nearing $100 again. The pork cutout firmed $1.38 to $99.50 on Monday, fueled by strong gains in bellies, loins and ribs. Just as importantly, movement improved to 305.4 loads. Meanwhile, the seasonal rise in the CME lean hog index is showing signs of stalling, as it is down 16 cents to $90.80 as of May 3, marking declines in five of the past eight days.

— Agriculture markets yesterday:

• Corn: July corn rose 8 3/4 cents to $4.69, marking the highest close since Jan. 25.
• Soy complex: July soybean futures rallied 33 3/4 cents to $12.48 3/4, marking the highest close since Jan. 24. July meal futures exploded $15.40 higher to $387.60, settling on session highs. July bean oil futures popped 76 points to 43.84 cents.
• Wheat: July SRW wheat rose 26 1/4 cents to $6.48 3/4 today and near the session high. Prices hit a more-than-three-month high. July HRW wheat gained 25 cents at $6.75 1/4, nearer the session high and hit a five-month high. July spring wheat futures rallied 11 cents to $7.25 1/2.
• Cotton: July cotton fell 100 points to 77.06 cents, nearer the session low.
• Cattle: June live cattle closed up 30 cents at $176.975 and near the daily high. August feeder cattle fell $1.875 to $252.875 and near mid-range.
• Hogs: June lean hogs led the hog futures complex lower today, closing 77.5 cents lower to $98.175.
  

— Quotes of note:

• U.S. economy is cooling. The Fed’s latest loan officers survey shows renewed weakening in demand for industrial loans and a decline in household demand for credit in the first quarter of the year. Another New York Fed survey released on Monday showed Americans are bracing for another round of higher housing costs. New York Fed boss John Williams said Monday that at some undefined point the U.S. central bank will lower its interest rate target. “Eventually we’ll have rate cuts” but for now monetary policy is in a “very good place,” he said.
  
• The Fed’s Thomas Barkin said that the full impact of rate hikes by the central bank is yet to come through, and he anticipates that restrictive policy will slow the economy and cool inflation toward the 2% target. Neel Kashkari is set to speak today. He takes part in a moderated conversation on the U.S. economy at the Milken Institute Global Conference in Beverly Hills, California.
  
• Citadel founder Ken Griffin said the Federal Reserve will likely cut rates in December if it elects to hold off in September, predicting a move this year even as the central bank has tracked with his calls for a cautious approach. “There is still a question of will inflation actually decelerate enough by then,” Griffin said Monday at the Milken Institute Global Conference in Beverly Hills. Wage growth and de-globalization “take away from the constant deflationary trend that has helped the pricing of goods for frankly most of our adult lifetime.”
  

— San Francisco Fed study: U.S. pandemic savings have finally been spent. According to a study (link) by the Federal Reserve Bank of San Francisco, U.S. households have depleted the extra savings they accumulated during the pandemic. Economists Hamza Abdelrahman and Luiz Oliveira, who have been tracking this trend, indicated that as of March 2024, pandemic-era savings have not only been spent but have gone into negative territory. This follows a period from March 2020 to August 2021, during which households amassed $2.1 trillion in excess savings, largely due to government support and reduced spending opportunities during lockdowns.

The spending of these savings has been rapid; households were drawing down at a rate of $70 billion monthly, which increased to $85 billion last fall before reversing to a deficit of $72 billion in March. Despite the depletion of pandemic savings, the continuation of consumer spending is expected as long as there are other financial supports like income growth or further debt.

However, recent earnings reports from companies like Amazon and Starbucks suggest a shift towards more budget-conscious behavior among consumers. This aligns with predictions from Bloomberg Economics, which foresees a slowdown in consumer spending in 2024 compared to the robust pace of 2023. The New York Fed President, John Williams, also noted a cautious spending trend, especially among lower- and moderate-income households, who are not only exhausting their pandemic reserves but are also experiencing rising delinquency rates on credit cards and auto loans. Despite these challenges, the overall economy remains healthy, albeit growing at a slower rate.

— In April 2024, farmer sentiment experienced a significant downturn, as reported by the Purdue University/CME Group Ag Economy Barometer. The overall sentiment index dropped by 15 points to 99, marking the lowest level since June 2022 and only slightly higher than the reading in April 2020. Both components of the barometer saw declines, with the Current Condition Index falling 18 points to 83, its lowest since May 2020, and the Future Expectations Index decreasing by 14 points to 106. This decline in sentiment was attributed to farmers’ concerns over their current financial conditions and anticipated financial challenges in the upcoming year. The survey for this data was carried out between April 8 and 12, 2024.

— Social Security’s trust fund faces depletion by 2033 despite economic boost; Biden proposes wealthy pay more to extend solvency. Despite a healthier economy boosting tax revenues and temporarily strengthening Social Security’s financial status, the retirement trust fund is still on track to deplete its reserves by 2033. At that point, without further legislative action, payroll taxes would only be able to cover 79% of the promised benefits, up slightly from last year’s projection of 77%. This potential 21% reduction in benefits could significantly impact the approximately 53 million retirees and dependents who rely on these payments. Among these beneficiaries, a substantial portion of older adults depend on Social Security for at least half of their income —3 7% of men and 42% of women aged 65 and older.

The demographic challenge of falling birthrates exacerbates the issue, as fewer workers are available to support an increasing number of retirees, which threatens the sustainability of the system. Similarly, the trust fund that subsidizes Medicare Part A (hospital benefits) is forecasted to be exhausted by 2036, although this is a delay from earlier predictions due to lower-than-expected spending.

In response, President Joe Biden has proposed ensuring the solvency of Social Security and Medicare by increasing the financial contributions from wealthier Americans and reducing prescription drug costs, without cutting benefits or privatizing the programs. Conversely, former President Donald Trump has hinted at potential cuts to entitlement programs, though specifics are lacking from both sides.

The next steps likely involve congressional action to reform Social Security, possibly by raising the full retirement age from 67, requiring younger workers to stay in the workforce longer before receiving benefits. This measure aims to maintain promised benefits for current retirees and those nearing retirement, addressing the urgent need for a long-term solution to preserve these critical safety nets.

Market perspectives:

— Outside markets: The U.S. dollar index was, with the British pound weaker and the euro steady against the U.S. currency. The yield on the 10-year U.S. Treasury note was weaker, trading around 4.46%, with a lower tone in global government bond yields. Crude oil futures turned lower, with U.S. crude around $78.25 per barrel and Brent around $83.10 per barrel. Gold and silver were weaker, with gold around $2,323 per troy ounce and silver around $27.49 per troy ounce.

— The dollar held firm on Tuesday, pushing higher again against Japan’s yen to as high as 154.65 despite the two suspected bouts of Japanese intervention last week to support the yen. Japan’s top currency diplomat Masato Kanda once again on Tuesday said Japan may have to take action against any disorderly, speculative-driven foreign exchange moves.

Of note: Bank of Japan Governor Kazuo Ueda discussed yen moves with the premier and said he’s carefully watching the impact on prices.

— Southern Brazil flooding affects 10 poultry, pork plants. Torrential rains and flooding has killed livestock, blocked roads and forced meatpackers to partially or fully halt operations at 10 pork or poultry plants in Rio Grande do Sul, Brazil, meat lobby ABPA said. ABPA said these plants have been struggling with a shortage of animals for slaughtering and lack of employees at the plants. ABPA said Rio Grande do Sul could face a shortage of poultry and pork products until the production systems resume, which could take more than 30 days. The state accounts for 11% of Brazil’s total chicken production and for 19.8% of pork supplies, ABPA data showed.

— International robusta coffee prices have soared due to several factors, including unfavorable weather conditions, heightened demand in Asia, and the surprising impact of durian fruit’s popularity in China. Besides weather challenges like the El Niño-induced drought in Southeast Asia, there’s a notable shift among Vietnamese farmers from coffee to durian cultivation, driven by the lucrative Chinese market for the fruit. This shift has reduced the land available for coffee cultivation, exacerbating the supply crunch. Vietnam, a leading producer of robusta coffee, has seen a significant drop in coffee production. The global dynamics are also shifting, with some major companies substituting the cheaper robusta for the more expensive arabica due to rising transport and fuel costs. The increase in local consumption within Southeast Asia, fueled by both a growing economy and the spread of Western coffee culture, is further straining the robusta coffee supply, pushing prices to record highs.

— Ag trade update: South Korea purchased 68,000 MT of corn to be sourced from South America. Japan is seeking 114,077 MT of milling wheat in its weekly tender. Egypt tendered to buy an unspecified amount of vegoils from multiple sources.

— NWS weather outlook: There is an Enhanced Risk of severe thunderstorms over parts of the Ohio Valley on Tuesday and over parts of the Southern Plains, Middle/Lower Mississippi Valley, and Ohio/Tennessee Valleys on Wednesday... ...There is a Slight Risk of excessive rainfall over parts of the Ohio Valley on Tuesday and over parts of the Middle/Lower Mississippi Valley and Ohio/Tennessee Valleys on Wednesday... ...Heavy snow over the higher elevations of the Northern Rockies.

Items in Pro Farmer’s First Thing Today include:

• Grains pull back overnight.
• HRW CCI rating inches up, SRW reading declines
• Cordonnier further cuts Argentine corn crop forecast

— Rebel GOP Rep. Marjorie Taylor Greene (R-Ga.) has decided to delay her plans to push a motion to oust House Speaker Mike Johnson (R-La.) from his position. She announced that she will hold further meetings (another one today) with Johnson before deciding her next steps. This pause in her efforts raises questions about the potential success of any move to remove Johnson, especially as Democratic leaders in the House have already expressed their support for Johnson, indicating they would oppose Greene’s initiative.

— Rafah action begins. Benjamin Netanyahu, Israel’s prime minister, said that the country’s war cabinet had “unanimously decided” to “continue its operation” in Rafah in southern Gaza. Earlier Israel told more than 100,000 people in the area to evacuate. Israel seized control of the Rafah checkpoint on the border between Egypt and Gaza last night, Reuters reports, amid a series of Israel Defense Forces strikes on the surrounding city where 1.4 million Palestinians are sheltering. Meanwhile Hamas said it had approved a ceasefire deal for Gaza proposed by Egypt and Qatar. Netanyahu said that the proposal was “far from meeting Israel’s core demands” but that negotiations would continue.

Of note: President Joe Biden will address antisemitism today when he delivers a keynote address at the US Holocaust Memorial Museum’s Days of Remembrance ceremony at the U.S. Capitol.

— U.S. army confirms detention of one of its soldiers in Russia for alleged criminal misconduct adds another layer of complexity, especially with the soldier being accused of stealing from a woman. The fact that he was stationed in South Korea but visiting Russia when this occurred makes the international implications more significant. The ongoing efforts to free other detained American citizens, such as Wall Street Journal journalist Evan Gershkovich, who faces spying charges, indicate broader issues of diplomatic negotiations and legal challenges between the two countries. These cases often involve intricate legal and diplomatic maneuvering, and the outcomes can significantly affect the relationships between the countries involved.

— Ongoing dispute between the Russian government and grain traders, specifically Rodnie Polya (formerly known as TD RIF), has escalated with Russia significantly reducing the firm’s export quota. This reduction amounts to nearly 1.2 million metric tons, setting their new quota at 2.78 million metric tons. Additionally, the Russian Agriculture Ministry has completely nullified the export quota for Louis Dreyfus Vostok and other companies, though specific details on the quantities affected were not provided.

This development is part of a broader policy by Russia to control grain exports, having established a total grain export quota of 29 million metric tons for the second half of the 2023-24 marketing year, spanning from Feb. 15 to June 30. Such measures can have significant implications for global grain markets, potentially affecting prices and supply chains internationally.

— Slight change in ERP payments. Payments under Phase 2 of the Emergency Relief Program (ERP) edged up to $886.1 million as of May 5, up from $886.09 million the prior week. Totals for ERP Phase 1 and total ERP payments were largely unchanged.

— China’s forex reserves fall more than expected in April. China’s foreign exchange reserves, the world’s largest, fell $44.83 billion to $3.201 trillion last month, as the dollar strengthened against other major currencies. The yuan depreciated 0.28% against the dollar, while the dollar strengthened 1.8% against a basket of other major currencies in April.

— China adds to gold reserves. China’s central bank added 60,000 troy ounces of gold to its reserves in April, extending the period of consecutive purchases to 18 months despite high prices. China held 72.80 million ounces of gold at the end of April, valued at $167.96 billion. Gold demand from global central banks has been elevated for two years, supporting prices. The People’s Bank of China was the largest official sector buyer of gold in 2023 with net purchases of 7.23 million ounces (224.9 MT), according to the World Gold Council (WGC), the most for a single year since at least 1977. WGC expects global central banks to slow purchases of gold in 2024 but to keep them higher than they were prior to 2022.

— Big rise expected in global trade. According to a recent update from the OECD, IMF, and World Trade Organization, global trade is projected to experience a significant rebound this year, with forecasts indicating that trade growth will more than double. This comes after a period of slowdown in 2023, which was influenced by high inflation, rising interest rates, and sluggish demand. The resurgence in trade is partly attributed to a strong U.S. economy and easing inflation.

For 2024, global trade in goods and services is expected to increase by 2.3%, and further growth of 3.3% is anticipated for 2025. This marks a substantial recovery from last year’s modest 1% growth. Clare Lombardelli, the chief economist at the OECD, highlighted that this positive shift is largely a result of cyclical recovery as trade typically expands in line with broader economic progress. Additionally, China and East Asia are expected to play significant roles in driving this increased trade activity.

— More clarity urged for GREET/SAF. As the Biden administration promotes clean energy and fuel subsidies under the Inflation Reduction Act (Climate Bill) and other initiatives, leaders in the energy industry, including executives from Chevron and Exxon Mobil, are calling for clearer regulations. During the Milken Global Conference, Exxon CEO Darren Woods highlighted the need for regulatory clarity, noting that the incentives for investing in clean energy are still under development. The administration’s recent updates to the Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) model and the introduction of the Climate Smart Agriculture (CSA) Pilot Program are steps towards enabling corn-based ethanol to qualify for sustainable aviation fuel credits. However, there remains uncertainty about the future of these credits, which are set to continue through the end of this year and are expected to be updated for 2025-2027. The fate of the tax incentives beyond 2027 is another major uncertainty. This could potentially dampen investment in clean energy, despite historical tendencies to extend tax credits for renewable fuels.

— Dairy and beef cattle markets in the U.S. have experienced varied impacts due to the spread of H5N1, or highly pathogenic avian influenza, among dairy herds. A Southern Ag Today item (link) notes that recent measures, including the USDA’s mandate for H5N1 testing of lactating dairy cows before interstate transport and the FDA’s discovery of H5N1 remnants in commercial milk supplies, have led to heightened concern, though officials assert that milk and beef products remain safe.

In the dairy sector, despite these developments, market reactions have been relatively muted, the report notes. Class III milk futures did not show significant volatility even with these reports, with only a moderate increase observed around April 25, possibly linked to anticipated reductions in milk production. Analysts say this stability may be due to balancing factors: a potential drop in supply being offset by reduced consumer demand amid safety concerns, leading to stable prices but decreased production and market presence.

Conversely, the beef market has seen more pronounced fluctuations. News of a human H5N1 case in March led to significant drops in both feeder and live cattle prices, reflecting immediate consumer anxiety. Nonetheless, prices rebounded on April 25, suggesting that initial fears might be transient, the report adds. The impact of these concerns was also evident in international reactions, such as Colombia’s ban on U.S. beef imports, which could further influence market sentiments and prices.

Bottom line, according to Southern Ag Today: Overall, while current data shows some stabilization, the ongoing situation with H5N1 in dairy herds and its implications for dairy and beef markets remain dynamic and uncertain. Close monitoring is necessary as new information and market data become available, which will better clarify the longer-term impacts on these industries.

— Peanut recall. Some Planters nut products have been recalled over a possible listeria contamination, according to an announcement from the company. The two recalled products — packages of honey roasted peanuts and cans of salted mixed nuts — were recently distributed to retailers in Florida, Alabama, North Carolina, South Carolina and Georgia. As of Friday, there were no reported illnesses related to this recall. However, the company says it is investigating to identify the potential source of the contamination. Listeria can cause serious infections and is most dangerous to pregnant women and newborns, seniors and others with weakened immune systems.

— Boeing’s Starliner launch was postponed after concerns emerged with the rocket that was set to send the spacecraft’s first crewed flight into orbit. Another attempt will be made Friday. The CST-100 Starliner, a joint venture between Boeing and Lockheed Martin, was due to blast off from Cape Canaveral in Florida but a problem with an oxygen relief valve on part of the rocket prevented the launch. Boeing’s Starliner program is a private sector supplier to NASA and a rival to Elon Musk’s SpaceX.

Meanwhile, Boeing as a company suffered another blow in its aircraft division Monday after the FAA opened a new investigation into whether employees failed to perform some quality inspections on its 787 jets.

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