Employers Added 254,000 Jobs in September, Strong Gains as Election Nears; Unemployment Rate 4.1%

News/Markets/Policy Updates: Oct. 4, 2024

— Equities today: Asian and European stock indexes were mixed overnight. In Asia, Japan +0.2%. Hong Kong +2.8%. China closed. India -1%. In Europe, at midday, London -0.4%. Paris +0.5%. Frankfurt +0.3%. U.S. Dow opened up around 140 points.

U.S. equities yesterday: U.S. equity markets ended lower as concerns over geopolitical tensions pressured values. The Dow ended down 184.93 points, 0.44%, at 42,011.59. The Nasdaq was 6.65 points (0.04%) lower at 17,918.48. The S&P 500 declined 9.60 points, 0.17%, at 5,699.94.

— Ag markets today: Soybeans recouped some of Thursday’s losses during the overnight session, while corn and wheat faced followthrough selling. As of 7:30 a.m. ET, corn futures were trading 3 cents lower, soybeans were 4 to 5 cents higher, winter wheat futures were 7 to 9 cents lower and spring wheat was 1 to 2 cents lower. The U.S. dollar index was nearly 150 points lower, and front-month crude oil futures were around $1.00 higher.

Cash cattle standoff continues. Cash cattle trade so far this week was too light for a true market test and cash negotiations remained stalled. Feedlots were still hopeful of getting higher prices for a fourth consecutive week while packers remained reluctant to raise bids amid negative margins.

Cash hog index building strength. The CME lean hog index is up 45 cents to $84.90 as of Oct. 2, the third straight daily gain and the largest singular increase since late July. October lean hog futures finished Thursday 72.5 cents below today’s cash quote, while December hogs held an $8.50 discount.

— Agriculture markets yesterday:
• Corn: December corn futures fell 4 1/4 cents to $4.28 1/4 and nearer the session low.
• Soy complex: November soybeans fell a dime to $10.46, while December soymeal closed down $8.60 at $332.80, each closing near the session low. December soyoil rallied 89 points to 44.53 cents, marking the highest close since July 23.
• Wheat: December SRW wheat fell 11 3/4 cents to $6.03 1/2, while HRW futures slid 7 3/4 cents to $6.11 1/2, each closing nearer the session low. December spring wheat fell 3 1/2 cents to $6.45 1/2.
• Cotton: December cotton fell 67 points to 72.73 cents and nearer the daily low.
• Cattle: December live cattle fell $1.30 to $186.40 and nearer the session low. November feeder cattle lost 42 1/2 cents to $248.125 and near mid-range. Both markets hit two-month highs early on.
• Hogs: The expiring October contract fell 50 cents to $84.175, while most-active December dropped 35 cents to $76.40.

— Quotes of note:

• Go to work. “Effective immediately, all current job actions will cease and all work covered by the Master Contract will resume.” — A statement issued by the International Longshoremen’s Association and the United States Maritime Alliance.

• “I just don’t trust OpenAI for obvious reasons. … It is closed, for-maximum-profit AI.” — Elon Musk, at a recruiting event for his xAI start-up. The party was held at the original offices of OpenAI, the start-up that Musk co-founded with Sam Altman and others before a falling out.

— Nonfarm payrolls grew by 254,000 in September, significantly exceeding the consensus estimate of 150,000. The unemployment rate declined to 4.1%, from 4.2%.The report points to a solid economy. It suggests the Federal Reserve is more likely to move forward with smaller rate reductions ahead. The CME Group’s FedWatch tool shows traders are now pricing in a 66% chance of a quarter percentage point rate cut in November.

Job growth in the latest report is the strongest in six months, exceeding the average monthly gain of 203,000 over the previous year. Significant employment increases were seen in food services and drinking places (+69K), health care (+45K), government (+31K), social assistance (+27K), and construction (+25K). However, manufacturing saw a decline of 7K jobs, while sectors like mining, wholesale trade, retail, transportation, information, financial activities, and professional services remained largely unchanged.

Payroll figures for July and August were revised upwards by a combined 72K, indicating stronger-than-initially-reported growth.

Of note: The report is based on a survey taken before several major disruptions, including Hurricane Helene. Also, the average work week ticked down to 34.2 hours., lower than its long-term average, which may suggest that employers are keeping workers on payrolls even as they ask them to work for fewer hours.

The wage number was also surprisingly strong, at 0.4% over the month. That means hourly earnings have risen 4% since this time last year, well above the rate of inflation.

Market impact: U.S. Treasury yields jumped. The 10-year Treasury yield was higher more than 11 basis points at 3.967%, while the yield on the 2-year Treasury was 15 basis points higher at 3.87%. Yields and prices have an inverted relationship. Economists were nervous about the labor market — but this report suggests those fears might have been overblown. Low unemployment, strong hiring and strong wage growth suggest the economy does not need big rate cuts. Fed Chair Jerome Powell reiterated this week that officials expect make two more quarter-point rate cuts this year if the economy shapes up as expected. The Fed’s next policy meeting is Nov. 6-7. Officials will see one more employment report before then, for October.

Market perspectives:

— Outside markets: The U.S. dollar index was firmer ahead of a bullish US jobs report, with the euro and yen both weaker against the U.S. currency. Crude oil futures remained higher, with U.S. crude around $74.70 per barrel and Brent around $78.55 per barrel. Futures moved higher in Asian action, with U.S. crude around $74.35 per barrel and Brent around $78.30 per barrel. Gold and silver futures were weaker ahead of the U.S. Employment report, with gold around $2,676 per troy ounce and silver around $32.34 per troy ounce.

— Brazil is projected to import its highest amount of diesel in two years, driven by a strong economy and increased fuel demand during the corn harvest season. Diesel imports are expected to reach 452,000 barrels per day in October, following a similar surge in September, Bloomberg reports (link). The robust demand is due to the country’s reliance on trucks to transport goods, particularly during the harvest. Brazil’s economic growth, recently upgraded by the central bank, has fueled this increased diesel usage. However, the country’s refineries cannot meet domestic diesel needs, leading to heavy reliance on imports. While most of Brazil’s diesel came from Russia after European and U.S. buyers shunned Russian supplies, U.S. refiners are now regaining market share as Russian refineries undergo maintenance and U.S. diesel prices fall. Market competition for diesel shipments to Brazil may intensify as refineries in Nigeria and Mexico become fully operational, potentially increasing global diesel supply.

— Turkey will continue restricting wheat imports even after its temporary ban is lifted, reflecting the delicate balance between supporting local producers and maintaining competitiveness in global markets, Bloomberg reports (link). Turkey, one of the largest wheat buyers globally, will only partially open its wheat market after Oct. 15. A quota system will be introduced, allowing millers to import 15 tons of wheat for every 85 tons they purchase from the Turkish Grain Board. This measure continues to prioritize domestic wheat over imports, protecting local farmers from price drops caused by cheaper foreign wheat. The original ban, implemented in June, aimed to shield Turkish farmers from a decline in wheat prices during harvest. The new system maintains this protective stance, although it allows for some imports, addressing demands from millers who rely heavily on wheat for their flour and pasta industries. This balance shows Turkey’s focus on reducing pressure on local producers while cautiously reintroducing imports to meet industry needs.

Turkey’s ban had adverse effects on its flour and pasta exports, with a significant drop in export figures (41% in August year-on-year). Millers, reliant on cheaper foreign wheat, were forced to source from local farmers, which reduced their competitiveness against international markets. By partially lifting the ban, Turkey aims to address these export concerns while still safeguarding domestic agriculture.

Turkey’s wheat stockpiles have remained elevated, nearly doubling after Russia’s invasion of Ukraine. As two of the world’s top wheat suppliers, disruptions in Ukrainian and Russian wheat exports pushed Turkey to stockpile during the conflict. The new quota system will help reduce these stockpiles while preventing an influx of cheaper wheat that could hurt domestic producers.

— ADM is temporarily idling its soybean crushing plant in Des Moines, Iowa, for maintenance from mid-October to mid-November, coinciding with a record soybean harvest. This is ADM’s only crushing facility in the state. The company had previously committed to upgrading the plant after receiving EPA citations for air quality violations in 2023. Despite the shutdown, ADM assured customers that they have planned for this project and will continue to meet demand during the downtime. The plant processes approximately 5 million bushels of soybeans per month.

— USDA daily export sales:
• 116,000 MT soybeans to China, 2024-2025 marketing year
• 198,000 MT corn to unknown destinations, 2024-2025 marketing year

— NWS outlook: Record-breaking heat remains across California and the Southwest through this weekend, while also building into the central United States on Saturday... ...Strong winds and dangerous fire weather concerns forecast throughout the northern Great Basin, northern Rockies, and into the northern/central Plains... ...Locally heavy rain possible across the immediate Gulf Coast as unsettled weather develops in the Gulf of Mexico.

(NWS)

Items in Pro Farmer’s First Thing Today include:

• Beans rebound overnight, corn and wheat weaker
• South Africa corn export forecast raised

— Israel targeted the Masnaa crossing, which is a crucial road linking Lebanon and Syria. By cutting it off, Israel likely aims to disrupt Hezbollah’s supply routes and limit the movement of people and goods, including military equipment. The Israeli Defense Forces (IDF) have accused Hezbollah of using this crossing for arms transfers, suggesting a strategic goal behind the strike.

Around 160,000 people have fled Lebanon to Syria since Israel began its ground operations. Large-scale displacements often create additional challenges for neighboring countries, in this case Syria, which is already dealing with the aftermath of its own civil war.

Israel’s airstrikes in southern Beirut seem to have a focused objective: to target key figures within Hezbollah, including Hashem Safieddine, a potential successor to Hassan Nasrallah, the current leader. If successful, such strikes could significantly weaken Hezbollah’s leadership structure and disrupt its operational capacity.

— EU votes to impose definitive countervailing duties on imports of battery electric vehicles (EVs) from China. This decision marks the conclusion of the EU’s anti-subsidy investigation into Chinese electric vehicles, which was launched in October 2023. The EU argues that Chinese EVs benefit “heavily from unfair subsidies” and pose a “threat of economic injury” to European EV producers. The tariffs are designed to protect the European automotive sector from what EU officials perceive as unfair subsidies provided by the Chinese government to its domestic car manufacturers.

Tariff details
• Tariffs of up to 45% will be imposed on Chinese automakers, including BYD, Geely, and SAIC — The duties range from 7.8% for Tesla to a top rate of 35.5% for state-owned SAIC Motor and other companies deemed to have not cooperated with the EU’s anti-subsidy probe. BYD’s electric vehicles will carry an extra duty of 17%, compared to 18.8% for Geely.
• These duties will be in addition to the EU’s standard 10% car levy.
• The tariffs must be imposed by Oct. 30.

Ten EU countries voted in favor of the duties, five voted against, and 12 member states abstained. A “qualified majority” of 15 member states, representing 65% of the EU’s population, was required to vote against the tariffs to prevent their imposition. France, Italy, and Poland voted in favor of the tariffs. Germany, the EU’s most populous country, voted against the tariffs after facing pressure from its automaker lobby groups and unions. Hungary had previously stated it would veto the proposal.

This marks a victory for European Commission chief Ursula von der Leyen who, backed by France, had pushed for a crackdown on what she has described as a “flood” of cut-price, subsidized EVs from China into the EU market.

China criticized the EU’s decision, stating the investigation has come to “pre-set conclusions” and that the EU is promoting unfair competition. Beijing has already launched retaliatory investigations into European products such as brandy, pork, and dairy.

Of note: The EU has stated that it remains open to exploring alternative solutions with China, even after the adoption of tariffs, as long as they are WTO-compatible and address the subsidization issue. Chinese companies offered to place a minimum price on their imports but those were rejected by the EU, which believes such an offer must mirror the impact of the duties. According to the Commission, the share of EV imports into the EU from China rose to 27.2% in the second quarter of 2024 from 3.5% in 2020, while EVs imported by Chinese brands alone, rather than through joint ventures, rose to 14.1% in the second quarter of this year from 1.9% in 2020.

— BMI’s outlook on commodity prices in relation to Chinese stimulus measures:

• Short-term support only: BMI expects recent Chinese stimulus measures to provide only short-term support for industrial metals and agricultural prices, unless additional measures are announced.
• Limited long-term impact on industrial metals: A sustained long-term upward trend in industrial metal prices is unlikely without a turnaround in China’s property sector, which is a major source of demand for industrial metals.
• Property sector crucial: The Chinese property sector’s performance remains a critical factor for industrial metals demand and prices.
• Dollar weakness may help base metals: Base metals prices are likely to find some support from a weaker U.S. dollar in the coming months, due to their typical inverse relationship.
• Limited agricultural price impact: BMI does not expect the stimulus to provide sustainable support to agricultural prices within China or long-lasting momentum to international grain prices.
• Other factors still important: For agricultural commodities, other factors beyond Chinese stimulus will continue to shape market sentiment and prices.
• Cautious outlook: Overall, BMI seems to have a cautious view on the lasting impact of Chinese stimulus measures on commodity prices, emphasizing the need for more fundamental improvements, especially in the property sector, to drive a sustained price rally.

Upshot: This analysis suggests that while Chinese stimulus may provide some short-term price support for commodities, particularly industrial metals, longer-term price trends will depend more on fundamental factors like the health of China’s property sector and overall economic performance.

— As trade tensions between the U.S. and China escalate, several countries are poised to benefit by filling gaps in exports and imports. Some perspective:

Major beneficiaries. Vietnam emerges as the largest beneficiary, potentially gaining 7.9% of GDP from trade diversion, primarily through additional U.S. imports. Other significant beneficiaries include:
• Thailand
• South Korea
• Mexico
• Malaysia
• Chile
• Argentina

These countries have been able to boost their exports significantly, in part by providing substitutes for goods subject to U.S.-China tariffs.

Regional patterns
• Asia (excluding China) has gained more from U.S. import substitution, particularly in electrical appliances and semiconductors.
• Americas (excluding the U.S.) has benefited more from China import substitution, especially in agricultural and commodity products.
• Europe has seen relatively small benefits, with France being the biggest beneficiary in the region.

Product categories. Countries are benefiting in different product categories:
• Vietnam and Korea: Electrical appliances
• Malaysia: Semiconductors
• Mexico: Motor vehicles
• Various countries: Agricultural products and commodities (e.g., copper, soybeans, gold, aircraft, grains, cotton) for China’s substitution of U.S. imports.

Of note: While many countries have increased exports to the U.S., they have also boosted exports to the rest of the world. Their exports to China have remained largely unaffected by the tariffs. This suggests that these countries are not just shifting existing trade but are expanding production and entering new markets.

Long-term implications. The U.S./China trade skirmishes have generally enhanced trade opportunities for most countries rather than just causing shifts in existing trade patterns. However, the ability to substitute away from Chinese imports in the short run is limited, with meaningful changes likely taking a few years to unfold.

— ADM suspended carbon dioxide injections at its Decatur, Illinois, facility after discovering a second leak, prompting the company to inform the EPA and pause operations for further testing over the next two weeks. EPA agreed with ADM’s decision and requested more information regarding the leak and the company’s plans to resume operations. This second leak follows an earlier incident, which led to a proposed enforcement order from the EPA accusing ADM of violating federal regulations.

The situation raises concerns about carbon sequestration projects, which involve injecting carbon dioxide deep underground. ADM’s setbacks could lead to increased scrutiny of similar projects, such as the Summit Carbon Solutions pipeline, which spans several states. These incidents may prompt further evaluation of the safety and feasibility of carbon injection as a method for reducing carbon emissions.

— Duke Energy announced a delay in the closure of its largest coal-fired power plant, Gibson Station in Indiana, pushing the shutdown from 2035 to 2038. While the company remains committed to its goal of being coal-free by 2035, Duke emphasized that the transition won’t follow a linear path. The utility has also pledged to achieve net-zero carbon emissions by 2050. Duke plans to invest in solar power and battery storage, but rising power demand and grid requirements have limited its ability to fully rely on solar energy for now.

— FAO: global food prices see largest 18-month rise due to sugar surge. The latest update from the UN Food and Agriculture Organization (FAO) reveals that global food commodity prices experienced their largest increase in 18 months, driven primarily by rising sugar prices.

FAO Food Price Index (FPI) rise: In September, the FAO’s Food Price Index reached 124.4 points, marking a 3% increase from August and a 2.1% rise compared to the same time last year. This is the highest FPI level since 2023, although still below the record levels seen in 2022 when prices surged due to multiple global disruptions.

Sugar price surge: The main contributor to this increase was a significant 10.4% jump in sugar prices. The rise was driven by worsening crop conditions in Brazil, the world’s largest sugar producer, and concerns over India’s decision to allow more sugarcane to be diverted toward ethanol production, which may limit its sugar exports. These factors have tightened global sugar supplies, pushing prices higher.

Other commodities:
• Cereals saw a 3% increase, partly due to poor weather conditions in Canada and the European Union and low water levels in major rivers in the U.S. and Brazil, affecting transportation and supply.
• Vegetable oils increased by 4.6%, continuing a trend of volatility in this category.
• Dairy prices rose 3.8%, while meat saw a slight uptick of 0.4%.

The overall rise in the FPI is notable, but it remains lower than the peak in 2022, when the index hit a record 144.7 points amid disruptions caused by the Ukraine war and global supply chain issues. The current increase reflects ongoing challenges in specific commodity markets, such as sugar and cereals.

— California confirmed two human cases of H5N1 bird flu, marking the first such infections in the state and bringing the total number of human cases in the U.S. to 16 in 2024. These cases were identified in dairy workers who had occupational exposure to infected cattle in California’s Central Valley.

The two infected individuals were employed at different dairy farms, and there is no known connection between their cases. Both workers experienced mild symptoms, primarily conjunctivitis (eye redness), and neither required hospitalization or reported respiratory symptoms. The cases appear to be separate instances of animal-to-human transmission rather than human-to-human spread.

The confirmation of these cases in California brings the total number of human H5N1 infections in the United States to 16 for the year 2024, and 17 since 20221. The breakdown of cases by state is as follows:
• Colorado: 10 cases
• Michigan: 2 cases
• Texas: 1 case
• Missouri: 1 case
• California: 2 cases2

Of these cases, six have been linked to exposure to infected dairy cows, while nine were associated with infected poultry. The source of infection for the case in Missouri remains undetermined, as the individual had no known contact with animals.

The CDC maintains that the risk to the general public remains low. However, people who work with infected animals, particularly dairy and poultry farm workers, are at higher risk of contracting the virus. To mitigate this risk, the CDC and California Department of Public Health recommend:
• Wearing personal protective equipment (PPE) when in contact with potentially infected animals or surfaces.
• Avoiding contact with wild birds and sick or dead animals.
• Refraining from consuming unpasteurized (raw) milk or raw cheese.
• Monitoring for symptoms for 10 days after last exposure to infected animals.
• Receiving a seasonal flu vaccine, which, while not protective against bird flu, can reduce the risk of co-infection and severe illness from seasonal flu.

— The Biden administration’s student loan debt forgiveness plan has been temporarily halted after the case was moved to a new court. U.S. District Judge Matthew Schelp in St. Louis issued a pause on the plan, citing the need to assess its legality. Initially, the case was filed in Georgia, where a temporary injunction was granted, but after it expired on Oct. 3, the case was transferred to Judge Schelp’s court. The Georgia judge had ruled that the state would not face any legal harm from the plan, prompting the move. Six state attorneys general filed the suit in April, arguing that the U.S. Department of Education overstepped its authority, and that debt relief should be addressed by Congress rather than through regulatory action.

Ahead: The Biden administration will publish its final rule on the loan forgiveness program this month, but the court battles are likely to continue well into the next administration. If it isn’t overturned, the plan could cost $147 billion over a decade.

— Cotton AWP eases. The Adjusted World Price (AWP) for cotton moved down to 60.81 cents per pound, effective today (Oct. 4), down from 61.06 cents per pound the prior week and still atop 60 cents per pound and is more than 8 cents per pound above the level that would trigger farm program benefits. Meanwhile, USDA announced Special Import Quota #25 would be established Oct. 10 for the import of 34,508 bales of Upland Cotton, applying to supplies purchased no later than Jan. 7, 2025, and entered into the U.S. no later than April 7.

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