Employment Report: Nonfarm Payrolls Rise, Unemployment Edges Up

News/Markets/Policy Updates: Dec. 6, 2024

— Trans Mountain Pipeline expansion key to shield Canada from U.S. tariffs. The expansion of Canada’s Trans Mountain pipeline could play a pivotal role in mitigating the potential impacts of tariffs threatened by President-elect Donald Trump on imports from Canada and Mexico. The $24 billion project adds nearly 600,000 barrels per day (bpd) of shipping capacity for Canadian crude, crucial as energy products account for about one-third of Canada’s exports to the U.S. The tariffs would not apply to crude transshipped through the U.S. to other destinations, hinting they may serve more as leverage in negotiations than as enforceable trade measures. With an export terminal in Vancouver capable of handling 630,000 bpd — around 16% of total Canadian oil exports — the pipeline facilitates bypassing the U.S. market to avoid tariffs. However, cost overruns have limited spot shipments, leaving the pipeline underutilized. Government projections suggest full capacity will not be reached until 2028. U.S. refiners, especially in the Midwest and on the West Coast, rely heavily on Canadian crude, making them vulnerable to tariff impacts. Meanwhile, some 220,000 bpd of Canadian crude has already reached China via the pipeline, according to Vortexa data. Of note: Canadian wheat to Mexico transshipped through the U.S. would also not be impacted by any tariffs. — Mexico prepares for possible mass deportations under Trump 2.0. Mexican President Claudia Sheinbaum announced efforts to negotiate with President-elect Donald Trump to limit the number of third-country deportees Mexico may have to accept. With over 500,000 yearly encounters involving Central American migrants recorded since 2022, Sheinbaum is coordinating with border state governors to prepare for a potential surge. While expressing hope that mass deportations won’t materialize, she affirmed Mexico’s readiness to support its returning citizens. — Former USDA official gives Brooke Rollins a good review. Ray Starling, a former USDA chief of staff and now General Counsel, North Carolina Chamber, said he is “very hopeful” about Rollins, President-elect Donald Trump’s pick to lead USDA. “Navigating any administration is largely about navigating personalities and proclivities. That will certainly be true in Trump ’47.Brooke will do it with aplomb, as she’s been a part of the team for over six years, has the President’s ear, and can get to him whenever she needs to. That will be critical given all of the grand ideas of disruption that are swirling. Some are far better than others, and I suspect Brooke will know the difference,” Starling told us. — Trump makes key appointments in foreign policy and technology. Donald Trump, the president-elect, has selected David Perdue, a former senator with experience in Hong Kong, as America’s ambassador to China. Perdue is tasked with helping to “maintain peace in the region.” While Perdue’s rhetoric on China in the Senate tilted hawkish, his record as a businessman suggests he “could serve as a pragmatic voice on China policy,” the Wall Street Journal writes. That may put him at odds with members of Trump’s team who want to take a more aggressive approach to Beijing, like secretary of state pick Marco Rubio and trade adviser Peter Navarro. Additionally, Trump appointed David Sacks, a venture capitalist and prominent campaign donor, as the “White House AI and crypto czar.” Trump said Sacks would “steer us away from Big Tech bias and censorship.” — GOP divided over spending as Musk and Ramaswamy step in. Hardline conservatives are urging Elon Musk and Vivek Ramaswamy, leaders of the Department of Government Efficiency (DOGE), to highlight wasteful appropriations, while moderate Republicans push back, emphasizing mandatory spending as the main driver of federal debt. During a tense meeting with lawmakers, Musk and Ramaswamy listened to competing GOP strategies, including a controversial “naughty and nice” list of lawmakers based on fiscal performance. While figures like Rep. Chip Roy (R-Texas) advocate for exposing appropriators, others, such as Rep. David Joyce (R-Ohio), argue discretionary funds have already been restrained. The duo’s influence may shape public awareness of fiscal reforms, including Social Security sustainability and the contentious use of the Impoundment Control Act for spending cuts. Lawmakers remain divided on whether these efforts will unify or further fragment the GOP’s fiscal priorities. — GOP pushes for federal workforce reforms amid low office occupancy. Only about 6% of federal workers are in the office full-time, according to a report (link) from Sen. Joni Ernst (R-Iowa) presented during the inaugural meeting of the Senate Department of Government Efficiency Caucus. Ernst, who founded the caucus, is advocating for relocating federal offices outside of D.C., selling unused office spaces, and basing telework eligibility on performance. Her report also highlighted a mere 12% average occupancy rate in government buildings, signaling a focus on cutting costs through reduced federal office footprints and workforce reforms. (Sen. Joni Ernst ) Next week, Sen. Marsha Blackburn (R-Tenn.) is set to introduce the DOGE Acts, a legislative package proposing hiring and salary freezes, mandatory in-office work, agency relocations, and merit-based pay adjustments for federal employees. Of note: Elon Musk, who is co-head of the Department of Government Efficiency (DOGE), shared his thoughts on the issue via his social media platform X (formerly Twitter). He stated, “If you exclude security guards & maintenance personnel, the number of government workers who show up in person and do 40 hours of work a week is closer to 1%! Almost no one.” — IRS faces further cuts to $80 billion funding boost. The IRS may lose an additional $20.2 billion from its decade-long $80 billion funding boost approved by Congress. Originally allocated for enforcement, collection, and taxpayer service improvements, the funding has already seen a 25% reduction due to Republican efforts. The proposed rescission for 2025 is part of a government spending bill, with lawmakers facing a Dec. 20 deadline to avert a government shutdown. — Will Social Security benefits become fully tax-free? Capitol Hill contacts say it is unlikely. While Donald Trump has pledged to eliminate federal income tax on Social Security benefits, doing so would reduce funding for the Social Security Trust Fund, potentially jeopardizing the program’s finances. Many recipients currently pay tax on up to 85% of their benefits based on their income. Republican lawmakers may attempt to use budget reconciliation to advance tax reforms, but this process cannot directly affect Social Security, requiring any substantial changes to gain 60 votes in the Senate. — Senate releases calendar for 2025: (Senate)

— Equities today: Asian and European stock markets were mixed overnight. In Asia, Japan -0.8%. Hong Kong +1.6%. China +1.1%. India -0.1%. In Europe, at midday, London flat. Paris +1.3%. Frankfurt +0.3%. U.S. Dow just over 100 points higher. There are numerous speakers today including Bowman (9:15 a.m. ET), Goolsbee (10:30 a.m. ET), Hammack (12:00 p.m. ET) and Daly (1:00 p.m. ET).

U.S. equities yesterday: U.S. stock indices were unable to capture another round of records, finishing Thursday with losses ahead of the key jobs report due Friday morning. The Dow fell 248.33 points, 0.55%, at 44,765.71. The Nasdaq was down 34.86 points, 0.18%, at 19,700.26. The S&P 500 lost 11.38 points, 0.19%, at 6,075.11.

— WH Group shareholders approve Smithfield Foods spinoff. Shareholders of WH Group overwhelmingly approved the spinoff of Smithfield Foods into a publicly listed U.S. company, with 99.4% voting in favor. Initially proposed in July and formally detailed in November, the spinoff values Smithfield at least at its net asset value, estimated at $5.38 billion as of September. The listing is planned for either the New York Stock Exchange or Nasdaq, though WH Group has not disclosed further specifics.

— DC court ruling on TikTok looms amid national security debate. A decision from a DC court on the federal law targeting TikTok is expected today. The appeals court is evaluating the constitutionality of a bipartisan law passed by Congress requiring ByteDance, TikTok’s China-based owner, to sell the app on national security grounds. TikTok faces an uphill battle after judges challenged its defense during a September hearing. The losing side — TikTok or the Justice Department — can appeal to the Supreme Court, potentially delaying enforcement past the law’s Jan. 19 deadline. A ruling against TikTok could benefit U.S. tech rivals like Meta, but TikTok hopes for support from an unexpected ally: Donald Trump, who now opposes the ban.

— Ag markets today: Corn, soybeans and wheat held in tight trading ranges during a quiet overnight session. As of 7:30 a.m. ET, corn futures were trading fractionally to a penny higher, soybeans were steady to fractionally higher and wheat futures were trading a penny lower to 1 cent higher. The U.S. dollar index was modestly firmer, and front-month crude oil futures were around 50 cents lower.

Cash cattle activity remained light on Thursday, with limited trade taking place at steady to $2.00 higher prices, as most feedlots held out for even stronger bids. But given the poor close in cattle futures on Thursday and negative margins, packers may be reluctant to get too aggressive with cash bids.

The pork cutout fell 96 cents to $88.64 on Thursday, as sharp losses in ribs, bellies and hams offset strength in other cuts. That’s the lowest price since Feb. 14. The CME lean hog index is down 15 cents to $83.93 as of Dec. 4, though that’s still 9 cents above the October low.

— Agriculture markets yesterday:
• Corn: March corn rose a nickel to $4.35, a near two-week high close. Corn futures were able to extend above 40- and 10-day moving averages.
• Soy complex: January soybean futures surged a dime to $9.93 3/4 and closed on session highs. January meal futures sank 60 cents to $287.4. January bean oil futures rallied 89 points to 42.12 cents.
• Wheat: March SRW wheat rose 10 cents to $5.58 1/4 and near the session high. March HRW wheat rose 10 cents to $5.52 1/2, near the session high. March spring wheat futures rose 9 cents to $5.98 1/2.
• Cotton: March cotton futures rose 15 points to 71.10 cents, near the session low.
• Cattle: February live cattle fell $2.0 to $186.325. January feeder cattle fell $2.025 to $254.9250. Both markets closed nearer their session lows and hit two-week lows.
• Hogs: Futures traded mixed. The expiring December contract slipping 7.5 cents to $82.425, while most-active February ended the day unchanged to $86.35 while the deferred contracts posted modest gains.

— Quotes of note:

• “Recession fears are long gone, and incoming dataflow looks like goldilocks again. As long as the data remains not too hot/cold, the goldilocks narrative can continue to support equities higher.” — Emmanuel Cau, European equity strategist, Barclays.

— Employment report: Nonfarm payrolls rise, unemployment edges up. The November Employment Report showed nonfarm payrolls increased by 227,000, slightly above expectations of 210,000, while the unemployment rate rose to 4.1%. The uptick was partly due to striking workers returning to their jobs. Health care and leisure/hospitality sectors added 54,000 and 53,000 jobs, respectively. Revisions to September and October added a combined 56,000 jobs to prior estimates, with payroll growth averaging 186,000 in preceding months. Average hourly earnings climbed 4.0% year-over-year, and the workweek lengthened. Despite this, the Fed may maintain caution on rate cuts, with markets anticipating a potential 25-basis-point reduction. Fed commentary ahead of the pre-meeting blackout period will be closely watched.

Bottom line: Overall, this report suggests the job market is still in solid shape. But there are some signs of weakness. It’s taking people longer to find jobs, and the number of people considered long-term unemployed (those out of work more than six months) has been rising.

— U.S. agriculture faces trade deficit challenges in FY 2025 kickoff. U.S. agricultural trade in October 2024, the start of fiscal year (FY) 2025, posted a $2.49 billion deficit, with exports at $16.02 billion and imports hitting a record $18.52 billion. While exports rose 22% from September, imports also increased by 6.5%. Compared to October 2023, exports fell by $350 million, while imports surged $1.65 billion.

Despite the smaller deficit compared to September’s $4.26 billion, the October shortfall was $2 billion higher than a year ago. USDA forecasts a record FY 2025 trade gap of $45.5 billion, with exports projected at $170 billion and imports at $215.5 billion.

Early trade data highlights the challenge for the incoming Trump administration to address trade barriers and negotiate new free trade agreements to support U.S. agricultural exports amidst increasing import competition.

Market perspectives:

— Outside markets: The U.S. dollar index was higher, with the euro weaker against the greenback. The yield on the 10-year U.S. Treasury note was higher, trading around 4.18%, with a mixed-to-positive tone in global government bond yields. Crude oil futures were lower, with U.S. crude around $67.65 per barrel and Brent around $71.45 per barrel. Gold and silver futures were up ahead of the jobs report, with gold around $2,660 per troy ounce and silver around $31.67 per troy ounce.

— JBS considers cutting Brazilian production amid record cattle prices. JBS SA, the world’s largest meat producer, is weighing a reduction in production at up to 11 of its Brazilian plants due to surging cattle prices, which have hit record highs amid a severe drought, Bloomberg News reports (link). The company is exploring measures such as placing employees on leave and cutting cattle purchases, though no final decision has been made. Smaller competitors have already implemented production cuts in response to the challenging market conditions. JBS shares remained flat by the close of trading, reflecting investor uncertainty.

— Sharp slowdown in Brazilian soybean, corn exports in November. Brazil exported 2.553 MMT of soybeans in November, down from 4.710 MMT the previous month and 5.196 MMT last year. Brazil’s corn exports totaled 4.726 MMT, down from 6.406 MMT in October and 7.406 MMT last year.

Factors influencing export slowdown:
• Increased global competition: The recovery of supply in other major producing countries has intensified competition in the international market.
• Reduced Chinese demand: A decline in demand from China, a major importer of Brazilian agricultural products, has impacted export volumes.
• Weather conditions: Adverse weather in key growing regions has affected crop production and, consequently, export capabilities.
• Market pressures: Economic factors have led to reduced planted areas, particularly for the second season (safrinha) corn crop.

Despite the November slowdown, projections for Brazilian exports remain optimistic:
• Soybean exports for 2024 are forecast to reach 98 million tonnes, according to Conab.
• Corn exports for 2024 are projected to be around 37.6 million tonnes, as estimated by Anec.

However, these projections are lower than previous forecasts, reflecting the ongoing challenges in the global agricultural market.

— NWS outlook: More lake-effect/lake-enhanced snow downwind from Lakes Erie and Ontario... ...Arctic air currently engulfing much of the eastern U.S. will gradually moderate over the next couple of days... ...Dry and milder than average temperatures in the western U.S. will spread into the northern and central U.S. through the next couple of days.

(NWS)

Items in Pro Farmer’s First Thing Today include:
• Quiet overnight grain trade
• Light cash trade at steady/higher prices
• Pork cutout marks new seasonal low
• France’s wheat crop ratings edge lower
• Eurozone Q3 GDP rises 0.4%

— GOP strategy shifts: Arrington pushes for comprehensive reconciliation bill. House Budget Committee Chair Rep. Jodey Arrington (R-Texas) is advocating for an expansive first reconciliation package in the upcoming Congress, emphasizing the importance of securing broader support amid a narrow House majority. Arrington argues that including multiple GOP priorities, such as tax changes, could strengthen consensus across the House and Senate. This approach contrasts with Senate Republicans’ preference for a more focused bill targeting the southern border, energy, and defense spending, reflecting differing strategic visions within the party.

— Russia keeps hiking wheat export duty. Russia’s tax on wheat exports will jump to 4,871.5 rubles ($49.28) per metric ton for the week of Dec. 11-17 up from 3,696.3 rubles ($37.39) the previous week. The export tax has surged 437% since mid-September, as Russia’s ag ministry tries to slow shipments.

— Argus sees bigger Ukrainian wheat crop, stable Russian production. Argus Media forecasts Ukraine’s wheat production at 23.7 MMT in 2025, up from 22.4 MMT this year. Argus projects Russia’s wheat production at 81.5 MMT, up marginally from 81.3 MMT this year.

— Time is running out, but Boozman says passing the FARM Act is a priority. In an interview with Tyne Morgan on U.S. Farm Report (link), Sen. John Boozman (R-Ark.) emphasized the urgency of passing the Farm Assistance and Revenue Mitigation (FARM) Act to address the financial challenges facing U.S. farmers. Boozman, the ranking member of the Senate Agriculture Committee who will lead the panel in the next Congress, highlighted the devastating economic conditions in farm country and underscored the need for immediate support to stabilize the sector.

Dire situation for farmers. Boozman painted a grim picture of the challenges farmers face, citing consecutive years of negative cash flow for many producers. “For some producers, this is the second or third consecutive year of negative cash flow,” Boozman said. “This means many farm families are ending 2024 in the red...facing the reality of being the generation to have lost the family farm due to extreme market conditions beyond their control.”

Lower commodity prices, rising input costs, and the absence of a modernized farm bill have created tight margins, particularly for row crop farmers. Boozman stressed that without updated risk management tools, many farmers may struggle to secure the financing needed for 2025.

Potential payments under the FARM Act. If passed, the FARM Act could be included in the Continuing Resolution (CR). Payments, based on a specific calculation tied to costs and returns, may provide farmers with the following per-acre assistance:
Corn: $101 Soybeans: $53 Wheat: $73 Cotton: $195 Rice: $84

Payment estimates are subject to change based on updated WASDE reports.

Looking ahead. As efforts to pass the FARM Act continue, Boozman acknowledged the challenges of securing bipartisan support, noting cost as a major hurdle. He praised colleagues like Sens. John Hoeven (R-N.D.) and Cindy Hyde-Smith (R-Miss.) for their commitment to the cause.

Additionally, Boozman expressed optimism about working with Brooke Rollins, President-elect Donald Trump’s pick for Secretary of Agriculture. He emphasized the importance of her close relationship with the president and her potential to influence policy.

Boozman concluded with a call for action: “We simply have to come up with a package that helps [farmers] get through this year...It’s not only farmers telling us this but also economists, lenders, and everyone involved in agriculture.”

— Branstad predicts U.S. and China will work toward a Phase 2 accord. Clinton Griffiths of AgDay interviewed Terry Branstad (link), former U.S. Ambassador to China. Regarding China, Branstad said, “I think Trump knows how to deal with [Chinese leader] Xi Jinping and hopefully we can get an even better agreement next time around. Asked if he thinks the two countries will work toward a Phase 2 agreement, Branstad said: “I think so. And that was the intent when we agreed to the Phase 1. The problem was there wasn’t the support in China to go the extra mile and do the other things too. But I know that the Trump team wanted to do that. And had he been re-elected at that time, I think they would have pursued it. Biden did nothing for four years. And so I think that we’re going to see a much more aggressive approach taken. Some people are fearful of that. I actually think it’s a good thing. I think it will lead to a more fairness and reciprocity in terms of trade.”

— China’s Xinjiang Cotton Association calls for restored cotton use. China’s Xinjiang Cotton Association said that international brands should give “full respect and trust” to Xinjiang cotton, calling on brands like Uniqlo to resume the use of cotton from China’s far western territory of Xinjiang to help maintain the “healthy and stable development of the global cotton textile industry.” In a British Broadcasting Corporation interview last week, the CEO of Fast Retailing, Uniqlo’s parent company, said the fashion chain does not use Xinjiang cotton in its products. Other global companies have been caught up in controversy relating to Xinjiang. The U.S. has restricted trade on goods made in Xinjiang on concerns over forced labor, a claim disputed by Beijing.

— EPA proposes changes to 2024 cellulosic biofuel requirements. EPA released a proposed rule (link) to partially waive the 2024 cellulosic biofuel volume requirements under the Renewable Fuel Standard (RFS) due to insufficient production and a carryover deficit from 2023.

Under the proposed rule, required credits tracking 2024 cellulosic biofuel consumption would be pared from 1.09 billion to 0.88 billion gallons. The plan reduces the 2024 target by 0.21 billion Renewable Identification Numbers (RINs).

The EPA proposal also would extend compliance reporting deadlines under the federal Renewable Fuel Standard that compels the use of biofuels. Compliance deadlines for 2024 are also proposed to extend beyond March 31, 2025, with new provisions for future deadline adjustments.

However, the agency is not proposing to lower other targets under the RFS program.

Public comments on the proposal are due by Jan. 21, 2025, with a hearing scheduled for Dec. 20. Finalizing the rule will mark one of the first biofuel decisions for the Trump administration.

The cellulosic target “greatly exceeded” production “and was impossible to meet,” the American Fuel and Petrochemical Manufacturers association said in response to the measure announcement.

— Chevron slows Permian growth, signaling hurdles for Trump’s energy plans. Chevron Corp. plans to cut its capital spending in the Permian Basin by up to 10% in 2025, prioritizing profits over production. This slowdown in the world’s fastest-growing oil field comes as President-elect Donald Trump aims to revive U.S. energy output under his “Drill, Baby, Drill” policy. Chevron’s shift reflects a broader industry trend, with companies focusing on shareholder returns amid moderate oil prices, which have fallen 18% since April. Analysts predict a slowdown in U.S. oil growth, marking a challenge for Trump’s ambitious energy agenda.

— EU delays controversial deforestation law implementation. The European Union agreed to postpone its deforestation law by one year, delaying its start to the end of 2025. The decision, reached after months of negotiation, allows more time for businesses and supply chains to adapt to the complex system for tracing the origins of commodities like coffee and beef.

Key agricultural exporters such as Brazil and Indonesia, along with EU member states Austria and Finland, had opposed the law’s ambitious timeline. Christine Schneider, the European Parliament’s lead negotiator, emphasized that the delay provides necessary planning security while reducing bureaucratic hurdles.

Of note: While the agreement still requires final sign-off, it underscores the tension between Europe’s environmental goals and practical challenges in global trade.

— McDonald’s fights back after E. coli outbreak with $100 million recovery plan. McDonald’s is taking decisive steps to recover from an E. coli outbreak that affected over 100 people and prompted the temporary removal of its popular Quarter Pounder in October. The fast-food giant announced a $100 million campaign to win back customers, with one-third of the budget dedicated to advertising and marketing. “We’re working through testing... different messages, different offers, different deals,” said Joe Erlinger, McDonald’s U.S. president, emphasizing efforts to re-engage app-loyalty diners who have stayed away since the outbreak.

While U.S. health officials declared the outbreak over, McDonald’s faces lingering challenges. Rising inflation has pressured the chain to pivot from its $1 menu to a broader value strategy, including new offers like the $5 bundle and app-exclusive deals. “We want to be a destination for value,” Erlinger noted, acknowledging consumer frustrations with inflation: “You’re going to have this vision of what you paid back in 2019 that you’re never going to pay again.”

Bottom line: Despite setbacks, the chain continues its push for innovation and pricing strategies, aiming to regain momentum and customer trust.

— Dairy, vegoils push FAO food price index higher. The UN Food and Agriculture Organization global food price index rose 0.5% in November, driven by higher prices for dairy products and vegoils, which slightly outweighed declines in meats, cereal grains and sugar. The November index increased 5.7% from last year to the highest level since April 2023. Compared to year-ago, prices rose 5.8% for meat, 20.1% for dairy and 32.2% for vegoils, while values fell 7.9% for cereal grains and 21.7% for sugar.

— Cotton AWP edges higher. The Adjusted World Price (AWP) for cotton moved up to 57.74 cents per pound, effective today (Dec. 6), up from 57.53 cents per pound the prior week. Meanwhile, USDA announced Special Import Quota #6 will be established Dec. 12 for the import of 31,716 bales of upland cotton, applying to supplies purchased no later than March 11 and entered into the U.S. no later than June 9.

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 | | Russia/Ukraine war, lessons learned | | SCOTUS on WOTUS | SCOTUS on Prop 12 pork | New farm bill primer | | Gov’t payments to farmers by program | Farmer working capital | USDA Ag Outlook Forum |