Dysfunctional Republicans in House, Senate on Full Display Following Recent Votes/Inaction

U.S. pork producers in price vice last seen in 1998 and 1999 | Farm bill going backwards

MARKET FOCUS

• Yellen says commercial real estate losses a worry
• New York Community Bancorp cut to junk status
• Bonds issued by a German state-owned lender slump
• Cleveland Fed President Mester: confidence to cut rates ‘later this year’
• Hedge funds/proprietary trading firms trading U.S. Treasuries labeled dealers by SEC
• Gold prices in China reach unprecedented levels
• Credit card debt has escalated
• Natural gas producers Woodside Energy & Santos end talks about potential merger
• Ag markets today
• Aussie red meat exports reach record in 2023
• India considers extending rice export tax
• Ag trade update
• NWS weather outlook
• Pro Farmer First Thing Today items

CONGRESS

• Senate GOP abandons bipartisan deal, raising doubts on negotiation skills

ISRAEL/HAMAS CONFLICT

• Hamas proposes 3-phase plan in response to Israel proposed deal
  

POLICY

• Final Phase 1 ERP payments to be made
• House Democrats propose farm bill principles, but blast GOP conservatives
• Kansas AG calls for limiting land sales to foreign entities
  

CHINA

• Yellen wants to visit China this year
• Beijing replaces top securities regulator as it seeks to restore investor confidence
• China’s EV sales drop for first time in five months
• China announces plans to bolster support for its electric vehicle (EV) industry
• China’s forex reserves decline in January
  

TRADE POLICY

• Biden’s trade chief views tariffs as vital for balancing U.S./China trade relations
  

ENERGY & CLIMATE CHANGE

• NCGA urging Biden administration to prioritize biofuels over electric vehicles
• E15 fuel update
  

LIVESTOCK, NUTRITION & FOOD INDUSTRY

• Dairy recall
• 2023 was most severe financial downturn in 25 years for Iowa and U.S. pork producers
  

HEALTH UPDATE

• Flu activity is on the rise in parts of the U.S. after several weeks of decline
  

POLITICS & ELECTIONS

• Nikki Haley comes second in a Nevada race with no direct competition
• Donald Trump was dealt a major blow
  

OTHER ITEMS OF NOTE

• NALC lawyers discuss uncertainty over Prop 12 and WOTUS with state ag officials

— Equities today: Asian and European stock markets were mixed in overnight trading. U.S. Dow opened around 120 points higher. In Asia, Japan -0.1%. Hong Kong -0.3%. China +1.4%. India -0.1%. In Europe, at midday, London -0.4%. Paris -0.2%. Frankfurt -0.3%.

U.S. equities yesterday: All three major indices registered modest gains. The Dow was up 141.24 points, 0.37%, at 38,521.36. The Nasdaq rose 11.32 points, 0.07%, at 15,609.00. The S&P 500 rose 11.42 points, 0.23%, at 4,954.23.

— Moody’s Investors Service downgraded New York Community Bancorp’s credit rating to junk status, citing concerns over the bank’s financial risks and governance challenges. This decision follows a week of significant decline in the lender’s shares, triggered by reductions in shareholder payouts and increased reserves for potential loan losses. NYCB’s stock closed at its lowest level since 1997, plummeting by an additional 22% on Tuesday alone. The overall decline in market value for the bank over the past week totals $4.5 billion, raising concerns across the U.S. regional banking sector.

Treasury Secretary Janet Yellen said the losses being seen in U.S. commercial real estate, one of the issues impacting NYCB, are a concern but that regulators are on the case. She said higher interest rates, increased vacancies due to a shift in working patterns and the maturing of a wave of real estate loans this year are “going to put a lot of stress on the owners of these properties.”

European and Asian banks are on the hook, too. Shares in Japan’s Aozora Bank and Switzerland’s Julius Baer have sunk in recent weeks after both disclosed risks from souring commercial real estate loans.

— Hedge funds and proprietary trading firms trading U.S. Treasuries will be labeled dealers by the SEC — a tag that brings greater compliance costs and scrutiny. The agency boosted oversight of trading by the firms, which are increasingly responsible for liquidity in the world’s biggest government bond market. The new regulations also apply to market participants in other government bonds, equities and other securities.

— Ag markets today: Corn futures fell to contract lows overnight, while soybeans posted double-digit losses and wheat followed to the downside. As of 7:30 a.m. ET, corn futures were trading 2 to 4 cents lower, soybeans were 10 to 13 cents lower and wheat futures were 1 to 2 cents lower. Front-month crude oil futures were around 60 cents higher, and the U.S. dollar index was about 125 points lower.

Late-week cash cattle trade likely. Packers are likely to delay cash cattle negotiations as long as possible given negative margins. We doubt feedlots will be willing sellers at steady/lower prices, despite slightly larger showlists, especially after Thursday’s surge in cattle futures. All signs point to cash cattle trade being pushed deep into the week, with feedlots having the upper hand.

February hogs now at discount to cash index. The CME lean hog index is up another 30 cents to $73.86 as of Feb. 5, extending the seasonal price rise. After losses the past four days, February lean hog futures finished Tuesday at a 38.5 cent discount to the cash index, suggesting traders sense the seasonal rally may soon pause. The premium in April hogs declined to $7.42.

— Agriculture markets yesterday:

• Corn: March corn futures closed down 4 cents at $4.38 3/4, near the session low and closed at a contract-low close.
• Soy complex: March soybeans rose 3 1/4 cents to $11.99 1/2, a near mid-range close. March soymeal fell $2.30 to $358.80, while March soyoil rose 61 points to 45.94 cents, each ending the session high range.
• Wheat: March SRW futures rallied 4 3/4 cents to $5.95, closing nearer session highs. March HRW futures rose 4 1/2 cents to $6.18 1/2. March spring wheat rose 2 1/4 cents to $6.93 1/4.
• Cotton: March cotton rose 50 points to 87.54 cents, forging a high-range close.
• Cattle: April live cattle futures jumped $3.725 to $186.075, settling near session highs. March feeder futures surged $3.925 to $246.675, also settling near session highs.
• Hogs: April lean hogs closed down 95 cents at $81.25, nearer the session low and hit a two-week low.
  

— Quotes of note:

• Fedspeak. Federal Reserve Bank of Cleveland President Loretta Mester said that policymakers will probably gain confidence to cut interest rates “later this year” should the economy continue to progress in line with expectations. But, she said, there is no need to rush to cuts. “It would be a mistake to move rates down too soon or too quickly without sufficient evidence that inflation was on a sustainable and timely path back to 2%,” she said. Her comments precede several Fed officials speaking on Wednesday including Patrick Harker, Adriana Kugler, Susan Collins, Tom Barkin and Michelle Bowman.
  
• “I do have a concern about commercial real estate,” Treasury Secretary Janet Yellen said in her testimony before the House Financial Services Committee. “I believe it’s manageable although there may be some institutions that are quite stressed by this problem. The higher interest rate environment, and in some cases, particularly the case in office building shifts due to the pandemic, coupled with many commercial real estate loans coming due and needing to be refinanced in a context where vacancy rates in some cities are quite high, is going to put a lot of stress on the owners of these properties. And so the banking agencies are very focused on the banks managing through these situations. They’re, in some cases, working to make sure that loan loss reserves are built up to cover losses, that dividend policies are appropriate, that liquidity is adequate.”
  
• Mea culpa. Less than a month into the recommendation, traders at J.P. Morgan have issued a mea culpa on their cautious call on U.S. stocks, with the trade desk now saying it is “tactically bullish.”
  

— Credit card debt has escalated as consumers contend with elevated interest rates, with delinquencies surging over 50% last year, according to the New York Federal Reserve. This trend coincides with a rise in overall consumer debt to $17.5 trillion. Delinquencies aren’t limited to credit cards but extend to mortgages and auto loans as well. Wilbert van der Klaauw, an economic research advisor at the New York Fed, highlighted that this uptick reflects heightened financial strain, particularly among younger and lower-income households. Despite these challenges, consumers are acquiring debt at a pace comparable to pre-pandemic levels.

Market perspectives:

— Outside markets: The dollar was weaker ahead of trade data, with most foreign currencies higher against the greenback. The yield on the 10-year U.S. Treasury note was higher, around 4.12%, with a mixed tone in global government bond yields. Crude oil markets were firmer ahead of U.S. gov’t inventory data due later this morning, with U.S. crude around $73.90 per barrel and Brent around $79.15 per barrel. Gold and silver were weaker ahead of US trading, with gold around $2,048 per troy ounce and silver around $22.33 per troy ounce.

— Gold prices in China have reached unprecedented levels as the Lunar New Year approaches, yet consumer demand remains strong despite concurrent stock market volatility. Traditionally, the holiday season prompts heightened purchases of luxury items like jewelry, and this year’s robust demand for gold stands out amidst a backdrop of market turmoil. The surge in gold purchases underscores its reputation as a reliable store of value during times of economic uncertainty, attracting a growing number of adherents. Link to details via Bloomberg.

— Natural gas producers Woodside Energy and Santos ended talks about a potential merger, which would have created a $57 billion energy giant.

— Aussie red meat exports reach record in 2023. Australia’s sheep meat exports surged to a record high and beef shipments reached their highest since 2019 last year. Shipments of beef increased to China, South Korea and the U.S., three out of four of Australia’s main export markets. Aussie meat exports are likely to be even larger in 2024 thanks to low U.S. beef output and strong Chinese demand.

— India considers extending rice export tax. India is considering extending the tax on parboiled rice exports beyond March, ET Now reported, citing government agency sources.

— Ag trade update: Jordan tendered to buy 120,000 MT of optional origin milling wheat. Bangladesh tendered to buy 50,000 MT of optional origin milling wheat. South Korea tendered to buy 88,800 MT of rice – 55,500 MT of U.S. of non-glutinous brown medium-grain rice and 33,500 MT of Chinese non-glutinous brown medium and short-grain rice.

— NWS weather outlook: Moderate to locally heavy rainfall continues for California and the Desert Southwest... ...Heavy Snow for higher elevations of the Intermountain West; wintry mix for the Northern Plains... ...Temperatures will continue to run above average for the central/eastern U.S. with record breaking warmth for parts of the Upper Midwest/Great Lakes.

Items in Pro Farmer’s First Thing Today include:

• Grains under pressure overnight
• Best rains in central Buenos Aires since late December

— Senate GOP abandons bipartisan deal, raising doubts on negotiation skills. Senate GOP leaders have scrapped a bipartisan agreement that linked foreign aid with border security, a compromise they had previously insisted upon. This move, seen as rejecting their own desired trade-off, has left Democrats questioning their ability to negotiate. Despite endorsements from conservative groups like the border patrol union, the Wall Street Journal, and the Chamber of Commerce, the GOP’s shift towards cultural battles over economic issues has led to internal discord and failed House votes, including attempts to impeach Homeland Security Secretary Alejandro Mayorkas and provide aid solely to Israel. The GOP’s strategy, characterized by Sen. Mitt Romney (R-Utah) as prioritizing unpassable proposals for political gain, reflects a party driven by former President Donald Trump’s combative approach. While House Republicans plan to retry the impeachment of Mayorkas, it’s unlikely to succeed in the Senate. Some Republicans suggest separating foreign aid from border security, a move that could garner bipartisan support and pave the way for a comprehensive aid package.

As for the failed Mayorkas impeachment vote, Rep. Mike Gallagher (R-Wis.) — a respected former Marine officer and committee chair — made good on threats to oppose the articles, joining Reps. Ken Buck (R-Colo.) and Tom McClintock (R-Calif.), who have long argued that policy differences aren’t grounds for impeachment. House Speaker Mike Johnson (R-La.) Johnson and the rest of the GOP leadership team appeared to assume that Rep. Al Green (D-Texas.) — who’d been in the ER for surgery yesterday — wouldn’t show. But in a dramatic moment, he was wheeled into the chamber wearing scrubs to cast the decisive vote.

— Hamas proposes 3-phase plan in response to Israel proposed deal. The full Hamas response to a proposal for a ceasefire and the delivery of humanitarian aid in exchange for the release of hostages held in Gaza proposes three phases, each lasting 45 days. The response would include the withdrawal of Israeli troops from Gaza, a massive humanitarian effort, and freedom of movement for people throughout Gaza. The Hamas response to the “Framework Agreement” was delivered to Qatari and Egyptian mediators, the organization said. An Israeli official familiar with the negotiations told CNN Wednesday there is “no way” Israel will accept the Hamas counterproposal.

— House Democrats propose farm bill principles, but blast GOP conservatives. House Agriculture Committee Ranking Member David Scott (D-Ga.) and Committee Democrats have released a memo (link) outlining the essential principles that the next farm bill should encompass to garner the backing of the House Democratic Caucus. The members stressed these principles focus on safeguarding historic climate investments and the Supplemental Nutrition Assistance Program (SNAP) a clear signal to Republicans who want to alter some of these programs.

Scott emphasized that after enduring months of Republican discord and disorder, causing delays in the farm bill’s passage, the principles document offers a transparent assessment of House Democrats’ stance on farm bill policy. He sees it as a straightforward path for both parties to collaborate in passing a robust, effective, and bipartisan farm bill.

“Unfortunately, bipartisanship has fallen victim to the right-wing extremists who are currently dominating the House Republican caucus,” said Scott during a digital news conference, although he said he has an excellent working relationship with House Ag Chairman G.T. Thompson (R-Pa.). “There’s no way…we’re going to allow $30 billion dollars [to be cut] from SNAP” by handcuffing calculations of the cost of a healthy diet, said Scott. “None of the Democrats on this committee are going to accept that.” Republicans want to empty a $15.5 billion climate account and use half of it to increase reference prices “while doing little to nothing for our small family farmers, minority farmers, and our specialty crop farmers,” said Scott.

The Democratic principles assert that a strong, effective, and bipartisan farm bill must address key objectives such as reducing hunger, supporting farmers, investing in sustainable agriculture, revitalizing rural America, lowering costs for farmers and families, promoting equity, and supporting renewable and bioenergy initiatives.

Comments: The partisan nature of this farm bill continues in both the House and Senate where conflicting issues over funding and farm bill policy matters have both chambers in a virtual holding position, if not going backwards. The issuance of principles and “creative” ideas are what one usually sees near the beginning of a farm bill process, not when it should have been concluded already. It now appears some farm-state lawmakers want an issue, not a new farm bill.

— Kansas AG calls for limiting land sales to foreign entities. Kansas Attorney General Kris Kobach urged legislators to ban foreign citizens and companies from buying more than three acres of land in the state as a safeguard against covert surveillance or drug cartel activity. Link for details.

— China appoints new securities chief to head off stock market slump. China appointed Wu Qing — a capital markets veteran —to head the nation’s securities watchdog, an appointment that will place a cumulative $11 trillion in value under his supervision ($8 trillion stock market) as one of several measures laid down by Beijing to blunt a downturn. Wu, who ran the Shanghai Stock Exchange between 2016 and 2017, has been appointed chairman and party chief of the China Securities Regulatory Commission (CSRC). He will succeed Yi Huiman, who had been in the position since 2019, state media outlet Xinhua reported on Wednesday.

— China’s EV sales drop for first time in five months. China’s new energy vehicle (EV) sales fell 38.8% versus the previous month, the first such drop since August 2023. But EV sales, which accounted for 29.9% of total sales, grew 78.8% on an annualized basis in January. China’s total vehicle sales, including those exported, totaled 2.44 million units, up 47.9% from a year earlier but down 22.7% from December

— China announced plans to bolster support for its electric vehicle (EV) industry amid trade challenges from the European Union and the United States. Several government ministries, along with four other agencies, emphasized the importance of EV exports in optimizing China’s foreign trade and published guidelines to enhance international trade rules and engage with foreign governments to create a favorable environment for the electric car industry.

The government is encouraging domestic automakers to establish overseas research and development centers and is urging the financial industry to optimize credit and international transactions, although specific details about financial support were not provided.

China’s status as the world’s largest automobile exporter, driven by electric car production, has drawn scrutiny from other markets, including the EU, which launched an investigation into potential unfair advantages from Chinese government subsidies.

The Biden administration is reportedly considering raising tariffs on Chinese-made cars.

Additionally, Chinese agencies pledged to contribute to setting international standards for EVs and batteries and ensuring the safe transportation of battery cells via rail. Industry participants welcomed the guidelines, stating that they would facilitate the internationalization of China’s automotive sector and benefit consumers worldwide.

— China’s forex reserves decline in January. China’s foreign exchange reserves, the world’s largest, fell to $3.219 trillion last month, down from December’s two-year peak of $3.238 trillion as the dollar strengthened against other major currencies. The yuan faded 1% against the dollar, while the dollar appreciated by 2.2% against a basket of other major currencies. China’s gold reserves increased to 72.19 million fine troy ounces at the end of January, up from 71.87 million ounces in December.

— Biden’s trade chief views tariffs as vital for balancing U.S./China trade relations. President Joe Biden’s trade chief, U.S. Trade Representative Katherine Tai, acknowledged the significance of tariffs as a defensive tool for addressing imbalanced commercial relationships, particularly regarding exports from China.

In a discussion at the University of Chicago Institute of Politics, Tai emphasized that while tariffs represent just one aspect of the complex trade dynamic with China, they have historically served to level the playing field.

These remarks come as the Biden administration weighs the future of tariffs imposed by former President Donald Trump over five years ago, initially targeting more than $300 billion worth of Chinese goods. The tariffs were implemented to pressure Beijing into addressing issues such as intellectual property theft and technology transfer. The current tariffs cover a wide range of imports, from industrial inputs like microchips to consumer goods like apparel.

Trump, a leading contender for the 2024 Republican presidential nomination, has advocated for a more aggressive stance against China, including the possibility of imposing tariffs exceeding 60%. This stance aligns with growing bipartisan support in Congress, with lawmakers recommending tariff increases and restrictions on Chinese investment to address concerns about economic ties between the two largest global economies.

— The National Corn Growers Association is urging the Biden administration to prioritize biofuels over electric vehicles (EVs) to reduce vehicle emissions.

In a letter to President Biden (link), the association emphasized the immediate climate benefits of biofuels, such as corn ethanol, and cautioned that focusing solely on EVs could limit the administration’s ability to lower greenhouse gas emissions.

UDSA Secretary Tom Vilsack and other ethanol proponents advocate for biofuels as a crucial tool in reducing carbon emissions, especially considering the lengthy transition to electric vehicles.

Surprisingly, the American Petroleum Institute (API) has joined forces with the National Corn Growers Association to support bipartisan legislation allowing year-round sales of E15 ethanol blends. This collaboration represents a significant shift in energy lobbying, as both groups aim to combat the rise of electric cars.

The legislation, sponsored by Sen. Deb Fischer (R-Neb.), aims to provide long-term certainty to the marketplace while avoiding potential supply disruptions. However, alternative proposals from Midwestern governors, which require equal air-pollution standards for E10 and E15, raise concerns about creating a patchwork of rules and necessitating costly infrastructure changes.

— E15 fuel update. EPA’s final rule to remove the one PSI waiver for nine states, allowing for year-round sale of E15 fuel, remains pending at the Office of Management and Budget (OMB). Despite five meetings, including one scheduled with the American Petroleum Institute (API) on Feb. 12, the timing of the rule’s issuance remains uncertain. Opposition to the waiver centers around concerns about creating a patchwork of E15 availability and increasing costs for refiners. Meanwhile, API and NCGA support bipartisan legislation for nationwide E15 sales, seeing it as a more reliable approach than the regulatory route, which has faced legal challenges in the past.

— Last year marked the most severe financial downturn in 25 years for Iowa and U.S. pork producers, driven by escalating costs surpassing prices received for livestock, the Des Moines Register reports (link).

Analysts predict another year of bleak returns, projecting losses to average $18 per hog in 2024, following an average loss of $32 per head in 2023. This anticipated two-year slump is set to rival the record losses witnessed in 1998 and 1999.

Iowa, as the nation’s top pork producer, faces significant economic ramifications due to the pork industry’s prominence within its agricultural landscape. The financial strain extends beyond farms, impacting various sectors reliant on agricultural activity. The downturn has led to legal disputes and financial struggles among pork producers, with some operations at risk of collapse.

Efforts to bolster demand and restore profitability, such as reducing the pig supply, are underway but face challenges. While production costs and declining domestic demand contribute to the industry’s struggles, factors like geopolitical tensions and policy changes also play a role. Despite anticipated improvements in certain areas, the road to recovery remains challenging, with producers hoping for stability in the coming year amid ongoing uncertainties.

— Flu activity is on the rise in parts of the U.S. after several weeks of decline. According to the CDC, more than 82,000 people visiting emergency departments were diagnosed with influenza during one week last month, marking an 8% increase compared to the previous week. Flu infections are growing in four states and likely increasing in five others. Currently, 18 states and Washington, DC, are experiencing high or very high levels of respiratory illness. Additionally, Covid-19 and RSV (respiratory syncytial virus) continue to circulate at elevated levels across the country.

— Nikki Haley faced a significant setback in the Nevada Republican presidential primary, finishing behind the “none of these candidates” option on the ballot. Despite not actively campaigning in Nevada, Haley’s second-place result underscores the challenges she faces in challenging former President Donald Trump for the nomination. Trump, not participating in the primary, is expected to secure all of the state’s delegates in the upcoming caucus. The Nevada GOP’s decision to hold its own caucus instead of a state-run primary has drawn criticism for potentially favoring Trump. Haley’s campaign downplayed the loss, focusing on future contests, particularly in South Carolina, where polls show Trump leading.

Meanwhile, President Joe Biden secured an easy victory in the Democratic primary, following his commanding win in South Carolina. Biden emphasized the need for organization, mobilization, and voting in his statement, targeting Trump ahead of an anticipated rematch. Biden’s outreach efforts included rallying in Las Vegas and meeting with members of the Culinary Workers Union. Despite previous electoral success in Nevada, recent polls indicate a close race between Biden and Trump in the state.

— Donald Trump was dealt a major blow when a federal appeals court on Tuesday said that he is not immune from prosecution for alleged crimes he committed during his presidency. Trump has a Monday deadline to ask the Supreme Court to block the immunity ruling.

— NALC lawyers discuss uncertainty over Prop 12 and WOTUS with state ag officials. The National Agricultural Law Center (NALC) addressed state agriculture officials regarding Proposition 12 and Waters of the U.S. (WOTUS) rules. NALC lawyers informed the National Association of State Departments of Agriculture (NASDA) that the path to reversing Proposition 12 remains uncertain, with legislative changes and inclusion in the farm bill facing opposition. Regarding WOTUS, NALC attorney Brigit Rollins highlighted ongoing lawsuits challenging the current definition, with injunctions in some states. There is discussion about defining waters as continuously flowing standing waters, extending only to wetlands with a continuous unbroken connection. The unresolved nature of these issues suggests continued challenges for agriculture in the coming months.

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 | Russia/Ukraine war timeline | Election predictions: Split-ticket | Congress to-do list | SCOTUS on WOTUS | SCOTUS on Prop 12 pork | New farm bill primer | China outlook | Omnibus spending package | Gov’t payments to farmers by program | Farmer working capital | USDA ag outlook forum | Debt-limit/budget package |