Diesel Prices Continue High as Europe Announces Ban on Russian Diesel Fuel

The real Title I safety net for many farmers: Insurance programs

Strong labor market keeps investors on edge about the Fed. With employers ramping up hiring across industries, investors say it is difficult to imagine the U.S. slipping into recession soon. Other investors worry that it might in fact be bad news for the markets if it pushes the Federal Reserve to tighten monetary policy more than they expect. This week, investors will get a look at data on consumer sentiment and hear from Fed Chair Jerome Powell, who is scheduled to make remarks Tuesday at the Economic Club of Washington, D.C.

“I think that recession is off the table for Q1 and in Q2 of this year.” — Gary Cohn, vice chairman of IBM and former head of the National Economic Council during the Trump administration, speaking on CBS

The recent firestorm over a Chinese surveillance balloon that floated across the continental U.S. illustrated the mistrust and tensions between the two powers. But both countries may be trying to avoid an escalation, the New York Times reports (link).

Pressure is mounting on President Joe Biden to hit back against China after the U.S. sent divers to salvage what they believe is spy equipment from the Chinese balloon shot down off South Carolina.

China’s Vice Foreign Minister Xie Feng lodged a formal diplomatic protest with the U.S. Embassy in Beijing. “China will resolutely safeguard the legitimate rights and interests of the company concerned, and reserves the right to make further responses if necessary,” Xie said. Meanwhile, another balloon spotted over Latin America belongs to China and was used for flight tests, Chinese Foreign Ministry spokesperson Mao Ning said during a press briefing today.

Sevens Report: “The Chinese spy balloon drama dominated weekend headlines but it’s unlikely to materially alter U.S./China relations and as such shouldn’t be an influence on markets.”

Almost 200,000 Russian troops have been killed and wounded in Ukraine, Western officials said.

Ukrainian troops are defending “every street, every house, every stairwell” in Bakhmut, a Russian paramilitary leader said. Some Ukrainian troops told the New York Times they were increasingly pessimistic about holding the city.

Europe has announced a ban on Russian diesel fuel and other refined oil products. In a statement, U.S. Treasury Secretary Janet Yellen said the G7 price cap plan “builds on the price cap on Russian crude oil exports that we set in December and helps advance our goals of limiting Russia’s key revenue generator in funding its illegal war while promoting stable global energy markets.” The aim is to allow Russian diesel to continue flowing to places like India and to avoid a sudden price increase while reducing profits to Moscow. Europe will need to find new sources for diesel, turning instead to the United States, India, and the Middle East. At one point, it got 10 percent of its diesel from Russia.

Equities today: Global stock markets were mixed overnight. U.S. stock indexes are pointed toward lower openings.

Major names reporting earnings this week:

• Monday: Pinterest, Tyson Foods (after the bell)
• Tuesday: Hertz (before the bell); Chipotle (after the bell)
• Wednesday: Yum Brands, Uber (before the bell); Disney, Mattel (after the bell)
• Thursday: PepsiCo (before the bell); PayPal (after the bell)
  

U.S. equities Friday: The Dow was off 128 points, 0.4%, to end at 33,926. The S&P 500 was down 43 points, 1%, to close at 4,136, while the Nasdaq Composite dropped 194 points, 1.6%, to finish at 12,007.

For the week, the S&P 500 saw its fourth weekly gain in five weeks, up 1.6%, as investors bet inflation is headed lower. The Nasdaq surged 3.3% for a fifth straight weekly advance. The Dow Jones average was the week’s outlier, falling 0.3%.

Stock funds posted a positive January as the market advanced. The average U.S.-stock fund rose 7.8% in January, according to Refinitiv Lipper data, after declining 18.4% for all of 2022.

International-stock funds were up 8.7% in January, after declining 17.1% for all of 2022.

Bond funds rose. Funds focused on investment-grade debt (most common type of fixed-income fund) advanced 3.4% in January, after declining 13.5% for all of 2022.

Agriculture markets Friday:

• Corn: March corn futures rose 2 1/4 cents to $6.77 1/2 and closed near mid-range. For the week, March corn lost 5 1/2 cents.
• Soy complex: March soybeans dropped 2 1/4 cents to $15.32 but gained 22 1/2 cents on the week. March meal futures rose $4.70 to $496.50 after trading as high as $500.40, a new lifetime contract high, while March soyoil fell 188 points to 59.06 cents. Soybeans ended the week largely range-bound.
• Wheat: March SRW wheat futures fell 4 1/4 cents at $7.56 3/4 and nearer the session low after hitting a four-week high early on today. For the week, prices rose 6 3/4 cents. March HRW futures lost 7 3/4 cents to $8.73, nearer the daily low and for the week rose 3 3/4 cents. March HRS futures slipped 3 1/4 cents to end the week at $9.21 1/2. That was unchanged from last Friday.
• Cotton: March cotton slipped 96 points to 85.43 cents and was down 126 points on the week.
• Cattle: Expiring February live cattle futures rose 52.5 cents to $160.275 while most-active April ended the week at $164.125, up 30 cents on the day and up $3.30 on the week. March feeder futures gained 17.5 cents to close at $186.10; that represented a weekly advance of $2.575.
• Hogs: Nearby February lean hog futures slid 32.5 cents to $75.025 Friday, while most-active April climbed 47.5 cents to $86.475. That represented a weekly rise of 2.5 cents.
  

President Joe Biden spent the weekend at Camp David working on his State of the Union speech, according to White House officials. Following his speech, the president will head to Madison, Wis., on Wednesday. Biden will be in Tampa, Fla., Thursday. On Friday, Biden and VP Harris will meet with governors at the White House as the National Governors Association holds its winter meeting in Washington. Other Cabinet officials will crisscross the country doing events as well.

The Fed ahead. Despite analysts and traders keeping different viewpoints than the Federal Reserve, the Fed appears set on hiking interest rates 25 basis points at its March 22 and May 3 FOMC meetings. Chair Jerome Powell speaks Tuesday in D.C. and has consistently stressed he wants to see progress in two key areas before pausing: The labor market, where job and wage gains have not eased enough, and services other than housing, where price rises have not slowed at the same pace. The Fed may ease sooner only if the U.S. economy starts to rapidly weaken. But Powell still thinks he and the Fed can execute a soft landing.

States are flush with cash, which could soften a possible recession. State governments are entering 2023 with record-high reserves, which could help the overall economy weather a recession this year, the Wall Street Journal reports (link). Unlike the federal government, most state and local governments must balance their budgets every year. That means that a fall in tax revenues must be offset, most often by cutting spending and laying off workers, which exacerbates economic downturns. Healthy reserves could make such cuts unnecessary, the WSJ article concludes.

Market perspectives:

• Outside markets: The U.S. dollar index is stronger amid rising U.S. Treasury yields. The yield on the benchmark U.S. 10-year Treasury note is presently fetching 3.612%. Meantime, Nymex crude oil futures prices are slightly up and trading around $75.50 a barrel.

• Walsh: West Coast port talks getting through tricky issues. Labor Secretary Marty Walsh said that the Biden administration is actively involved in West Coast port-labor talks, with the parties slowly making progress on some of the biggest sticking points. “I’ve been in steady contact… I talked to all sides,” Walsh said Friday in an interview on Bloomberg Television. “They were able to work through some of the more tricky issues out there.”

• Sugar prices in Italy and Spain are 51% higher than they were a year ago. In Germany the price has risen by 63%. A poor European harvest and unfavorable weather in Brazil, the world’s biggest sugar exporter, are partly to blame. But the main culprit is soaring natural-gas prices. Heating sugar beets is energy-intensive, and with fuel prices set to remain high, Europe’s biggest sugar company is predicting another price rise this year. Link for details.

• NWS weather: Heavy snow over parts of the Cascades and Northern Intermountain Region... ...Snow over parts of the Great Basin, Rockies, Upper Great Lakes, Upper Mississippi, and the Northeast... ...Pockets of rain/freezing rain over parts of the Upper Midwest and into the Northeast.

— The EU agreed to a cap of $100 per barrel on exports of Russia’s refined-oil products, such as diesel, that took effect on Sunday. Fuel oil and other low-value exports will be capped at $45. A cap of $60 already applies to Russian crude. Insurers and shippers are prohibited from dealing in items covered by the cap unless they were bought below or at the designated price.

• As Russia’s forces close in on the battered city of Bakhmut, Ukraine’s president said his troops would hold firm. Standing alongside EU leaders in Kyiv on Friday, Volodymyr Zelensky declared that “no one will give away Bakhmut.” Meanwhile, America announced a new $2.2 billion aid package that includes longer-range precision missiles.
  
• Ukraine’s defense minister, Oleksii Reznikov, will be replaced following a corruption scandal. Reznikov’s deputy resigned after media reports accused the defense ministry of graft, but Reznikov had said he would step down only if Volodymyr Zelenskyy, the country’s president, asked him to. Kyrylo Budanov, the head of military intelligence, will reportedly take his post.
  
• Ukrainian military to start training on Leopard tanks today. Amid aggressive efforts to reclaim occupied territory from Russia, Ukrainian troops will begin training today with Germany’s Leopard 2 tanks, the country’s defense minister Oleksiy Reznikov said. Germany agreed to provide the tanks last month following international pressure to step up its military support and commit to sending its sought-after vehicles.
• Grain from Ukraine hits EU farmers with pain: Just wait until Kyiv joins the EU. So says a Politico report (link) which says Ukraine hopes to join the EU within two years, “but that’s just not going to happen. Why? Its hugely productive farm sector is already swamping neighboring EU countries with produce and its supersized agribusinesses would blow up the bloc’s $386 billion Common Agricultural Policy.”
• WSJ: Moscow, Tehran advance plans for Iranian-designed drone facility in Russia. The Wall Street Journal reports (link) that Moscow and Tehran are moving ahead with plans to build a new factory in Russia that could make at least 6,000 Iranian-designed drones for the war in Ukraine, the latest sign of deepening cooperation between the two nations, said officials from a country aligned with the U.S.

• EU leaders vowed more support for Ukraine but will, for now, withhold accelerated membership to the bloc.

— Many farmers say the crop insurance program is the farm program. With revenue assurance options in crop insurance established before the farm bill started aiming for something similar, farmers are increasingly blending marketing with their crop insurance programs. That is why most farmers (both crop and livestock and dairy producers) focus on the fate of the insurance programs, including possible negative amendments relative to Congress, than discussions about the Title 1 safety net talks in the ongoing farm bill debate. Plus, farmers have some skin in the game relative to the sometimes-hefty checks they write for insurance.

— The Japanese government has approached Bank of Japan Deputy Governor Masayoshi Amamiya about succeeding Haruhiko Kuroda at the helm of the central bank, according to a Nikkei report that sent the yen tumbling. Japan’s deputy government spokesman later refuted the report.

— China’s vice-foreign minister, Xie Feng, submitted a formal complaint to the American embassy in Beijing over the Chinese balloon that America shot down over the Atlantic on Saturday. He claimed that the decision to destroy the device “seriously violated the spirit of international law.” China has denied that the balloon, which the Pentagon detected flying over sensitive military sites, was used for surveillance.

— U.S., Brazil to join India’s global push to boost biofuels demand. The U.S. and Brazil, two of the world’s largest biofuels markets, are joining an India-led International Biofuels Alliance that will aim to boost demand for the lower-emissions energy source. Further details will be outlined during the three-day India Energy Week forum opening Monday in Bengaluru.

— More crossover SUVs to qualify for EV tax credits in U.S. reversal. The Biden administration will allow more crossover SUVs to qualify for the newly revamped electric vehicle tax credit following lobbying by automakers such as General Motors and Stellantis. The change announced Friday by the Treasury Department effectively expands the number of buyers who can take advantage of a $7,500 consumer tax credit by broadening the definition of how a sport-utility vehicle is defined.

— Indonesia to suspend some palm oil export permits in bid to boost domestic supplies, cool prices. Indonesian officials are signaling the country will suspend some palm oil export permits as they seek to boost domestic supplies and bring down cooking oil prices ahead of holiday. Luhut Pandjaitan, a senior cabinet minister, said on Instagram the action was coming as palm oil exporters had accumulated large export quotas last year and now have little reason to supply cooking oil to the domestic market, according to Reuters.

Under Indonesian policy, export permits are issued to companies that have met their Domestic Market Obligation (DMO) by selling a portion of their products domestically. Under the DMO, exporters are allowed to send out volumes six times of what they sell on the domestic market. “Exporters can use those export fights after the situation has calmed,” Luhut said. Another official was cited by Reuters as indicating exporters held around 5.9 million tonnes of export permits at the end of January.

Lower global palm oil prices and export levies are dampening export efforts, the report said.

— Summary:

• Global Covid-19 cases at 671,747,867 with 6,844,896 deaths.
• U.S. case count is at 102,592,201 with 1,111,495 deaths.
• Johns Hopkins University Coronavirus Resource Center says there have been 669,600,840 doses administered, 269,064,626 have received at least one vaccine, or 81.66% of the U.S. population.

— Buttigieg reiterates he won’t seek Senate seat in Michigan. Transportation Secretary Pete Buttigieg said on Sunday he wants to stay in his current position when asked if he would run for the open Senate seat in Michigan after he and his family recently moved to the state. “I’m planning to vote in that election as a resident of Michigan,” he told Jake Tapper on CNN’s State of the Union. “But, look, the job that I have is, first of all, I think the best job in the federal government. It can be really tough and demanding, with all of the problems that the transportation system has confronted, but also incredibly rewarding.” Sen. Debbie Stabenow (D-Mich.) announced last month that she will not be running for re-election in 2024, leaving Democrats. The race will likely be competitive, but most pollsters predict a Democrat will win.

— The Koch network may oppose Donald Trump in 2024. The alliance of political and advocacy groups and ultrawealthy conservative donors plans to get involved in the Republican presidential primary, according to an internal memo, according to the New York Times. But it didn’t call out Trump by name, leaving open the possibility of falling in line should he secure the GOP presidential nomination.

— Legislation scheduled to come to the House floor this week includes a measure eliminating the Covid vaccine mandate for foreign travelers entering the United States, as well as two Republican joint resolutions related to the D.C. government. One would bar D.C. from allowing undocumented immigrants from voting in local elections, while the other “disapproves” of the District’s revised criminal code.

— Retreats. Both Democrats and Republicans will hold their respective party retreats on Wednesday.

— Pakistan’s former president died. Pervez Musharraf, the former military ruler of Pakistan and a U.S. ally after the Sept. 11 attacks, died at 79. The former leader, who had seized power via coup and was president from 2001 to 2008, died in Dubai following a long illness, having survived numerous assassination attempts over the course of his life.

WASDE | Crop Production | USDA weekly reports | Crop Progress | Food prices | Farm income | Export Sales weekly | ERP dashboard | California phase-out of gas-powered vehicles | RFS | IRA: Biofuels | IRA: Ag | Student loan forgiveness | Russia/Ukraine war, lessons learned | Election predictions: Split-ticket | Congress to-do list | SCOTUS on WOTUS | SCOTUS on Prop 12 | New farm bill primer | China outlook | Omnibus spending package |