Financial Traders Continue at Odds with Fed Re: Rate Hikes and Pivot Timeline

Egg prices get White House attention

Farm Journal
Farm Journal
(Farm Journal)

Egg prices get White House attention


In Today’s Digital Newspaper

A revised format today as I am in Washington state to speak to the Northwest Cherry Growers and the Washington State Fruit Commission in Yakima, Washington. I am staying in Pasco, a beautiful place.


Holiday schedule for Martin Luther King Jr. Day. Grain and livestock markets trade normal hours today. All markets and government offices are closed Monday, Jan. 16, in observance of Martin Luther King Jr. Day. Grain markets will reopen at 7:00 p.m. CT on Monday, Jan. 16, for the overnight session. Livestock markets will resume trade at 8:30 a.m. CT on Tuesday, Jan. 17.

The Dow is currently around 40 points lower after a harder downturn earlier. JPMorgan Chase posted revenue that beat expectations, but the bank warned it was setting aside more money to cover credit losses because a “mild recession” is its “central case.” The bank posted a $2.3 billion provision for credit losses in the quarter, a 49% increase from the third quarter. The stock fell more than 3%. Wells Fargo shares fell nearly 4% after the bank reported its quarterly figures. Bank of America moved slightly lower despite reporting better-than-expected earnings for the fourth quarter. Delta Air Lines also reported earnings and revenue that beat estimates for the final quarter of 2022. However, the stock slid about 6%.

Grain buyer interest fading early this morning. Corn, soybean and wheat futures extended Thursday’s USDA report-driven gains overnight, but buyer interest is fading this morning. As of 7:30 a.m. ET, corn futures were trading fractionally to a penny higher, soybeans and SRW wheat were narrowly mixed, HRW wheat was 4 to 7 cents higher and spring wheat was mostly a penny higher. Front-month crude oil futures were about 40 cents higher and the U.S. dollar index was around 250 points higher.

Outside markets. The U.S. dollar index was firmer as several foreign currencies were weaker against the greenback. The yield on the 10-year US Treasury note was higher, trading around 3.48%. Crude oil futures were firmer, with U.S. crude around $78.50 per barrel and Brent around $84.05 per barrel. Gold and silver were narrowly mixed ahead of US trading, with gold firmer around $1,899 per troy ounce and silver weaker, around $23.71 per troy ounce.

Tesla stock is down 4% in premarket trading after the company cut prices on some vehicles it sells in the U.S. by nearly one-fifth. Ford and General Motors fell 2% premarket, as concerns spread that Tesla’s price cut could force industry-wide price cuts to attract car buyers.


How unusually warm has it been? The U.S. Energy Information Administration reported that natural gas inventories rose by 11 billion cubic feet last week. Perspective: That is a number gas traders are used to seeing in spring, not in the heart of heating season.


U.S. export prices fall more than expected. U.S. export prices fell by 2.6% from a month earlier in December of 2022, above expectations of a 0.5% drop and following an upwardly revised 0.4% retreat in the prior month. It was the sixth consecutive monthly decrease in export prices as nonagricultural export prices fell 2.7%, the most since in July 2022 and agricultural export prices decreased 2.4%. On a yearly basis, prices for U.S. exports rose by 5%, the least since January of 2021 and slowing from the downwardly revised 6.1% in the previous month.

U.S. import prices unexpectedly rise. Prices for U.S. imports rose 0.4% from a month earlier in December 2022, following a revised 0.7% decrease in the previous month and compared with market consensus of a 0.9% fall. It was the first monthly increase since June on the back of higher nonfuel and fuel prices. Prices for nonfuel imports increased 0.4%, the first one-month advance since April, due to rising costs for nonfuel industrial supplies and materials; consumer goods; foods, feeds, and beverages; capital goods; and automotive vehicles. Import fuel prices moved up 0.6%t, the first monthly increase since June, as higher natural gas prices more than offset lower prices for petroleum. On a yearly basis, U.S. import prices advanced 3.5% in December, accelerating from November’s 2.7% increase.


Market expectations of Fed rate hikes and pause ahead at odds with Fed thinking. The inflation data via the Consumer Price Index (CPI) released Thursday showing a slowdown in the rate of price increases has boosted probabilities for a 25-basis-point rise at the Feb. 1 meeting conclusion at 91.3%, with the probability at 72.1% for another 25-basis-point increase at the Mar. 21-22 meeting which would take the target range to 4.75% to 5%. Probabilities for another increase at the May 2-3 meeting drop to 29%, with 54.1% odds the Fed will hit the pause button. For the remainder of the year, the probabilities favor a steady rate path until the Oct. 31-Nov. 1 meeting when a 25-basis-point reduction has the edge, then another reduction at the Dec. 12-13 session, which would take the Fed funds back to the current mark of 4.25% to 4.5%. Current Fed projections are the Fed funds rate target range will be at least 5% to 5.25% by the end of 2023 with decreases not starting until sometime in 2024.

Core CPI, which excludes volatile energy and food prices, climbed 5.7% in December from a year earlier, easing from a 6% gain in November, although it remains a long way from the Fed’s 2% target. Many economists see increases in core CPI as a better signal of future inflation than the overall CPI. The Sevens Report says: “Core services costs, which we and others have said is the key inflation metric the Fed is following right now, rose 0.5% in December. And while this number was welcomed by the markets, it’s not likely to change the Fed’s calculus and does not get us any closer to a Fed pivot than we otherwise expected.”


USDA Secretary Tom Vilsack may have to focus on egg prices, as NEC’s Deese says administration needs to work on the topic. Consumer Price Index (CPI) data for December indicated that the overall rate of price increased faced by Americans continued to ease, but things like egg price still rose 11.1% from November and are up 59.9% above year-ago levels. The outbreak of highly pathogenic avian influenza (HPAI) has been a key factor, reducing the U.S. egg laying flock as infections have hit that portion of the industry hard.

National Economic Council (NEC) Director Brian Deese today told CNBC that there has been “real progress” on inflation but said that there is more work to be done, including on “short-term issues like egg prices.” Some 13.4% of the average monthly layer flock in 2022 was destroyed due to HPAI infections.

“Lower-than-usual shell egg inventories near the end of the year, combined with increased demand stemming from the holiday baking season, resulted in several successive weeks of record-high egg prices,’ USDA says. Wholesale egg prices were expected to decline as the industry rebuilds its hen inventory, adds the Economic Research Service. in 2021, fell in the final week of 2022.


Chinese exports declined but fell less than expected (-9.9% vs. (E) -11.1%), offering more “not as bad as feared” news. Exports fell 9.9% y/y in dollar terms in December, compared with an 8.7% y/y fall in November. Imports dropped by 7.5% y/y last month, versus a 10.6% y/y fall in November. The trade surplus was $78.01 billion in December, compared with a surplus of $69.84 billion in November. December’s shipments would have been hit by Covid outbreaks that disrupted supply chains and worker availability. The more enduring trend behind weaker exports, however, is falling overseas demand as foreign households battle a cost-of-living crisis. For 2022 as a whole, exports rose 7.0% y/y. But in 2023, outbound shipments will switch from a boost to a drag on growth.

China’s December soybean imports jump. China imported 10.56 MMT of soybeans in December, up 19.1% from last year and the highest monthly tally since June 2021, as importers tried to ease tight supplies. For 2022, China imported 91.08 MMT of soybeans, a 5.6% decline from the previous year.

China’s meat imports continue to climb. China imported 700,000 MT of meat in December, up 30,000 MT (4.5%) from November and 7.7% greater than last year. China’s preliminary data doesn’t break down meat imports by category, but the steady increase since late summer has been due to higher pork imports. For 2022, China imported 7.4 MMT of meat, down 21.0% from the previous year.

China approves more GMO crops. China has given safety approvals to both imported and domestically developed genetically modified (GMO) crop varieties, the agriculture ministry said. The approved imported crops include two Bayer glyphosate-resistant alfalfa varieties, a Brazil-developed GMO sugar cane and BASF herbicide-resistant cotton. Beijing also approved some domestic GMO varieties, including corn and soybeans.

China pledges more steps to boost economic recovery. China will take further measures to boost market confidence and increase support for manufacturers and small companies, without giving specific details. The People’s Bank of China (PBOC) also said it will take steps to improve the cash flows of high-quality property developers, in the latest official moves to get the sector back on more stable footing. PBOC officials also indicated a lengthy crackdown on the technology sector could wind down further, with the bank pledging it will support the development of online platform companies once they have resolved some small problems. But Xuan Changneng, a deputy governor of PBOC, reiterated a long-standing approach that monetary policy will be appropriate and not be “flood-like” stimulus.

China expects to keep inflation moderate in 2023. China’s inflation is expected to remain moderate this year and the inflationary pressure will be under control in the near term, Zou Lan, head of the monetary policy department at PBOC said. Rising demand may increase prices, said Zou, adding China should also guard against imported inflation.


Europe will likely weather economic war with Russia. Russia’s economic war with the West looks set to claim a much smaller toll on Europe than the brutal recession many economists warned about ago, due to falling energy prices and government intervention to buttress the continent’s economy. A mild winter so far, efforts by businesses and households to cut energy consumption, successful moves by governments to find new natural-gas suppliers and hundreds of billions of euros in fiscal support mean Europe’s recession is likely to be shallow and brief… if at all.


1.161: The Cass Freight Index for December, down 3.9% from the year before in the steepest annual rate of decline since August 2020 and the lowest level for the measure of U.S. shipping demand since January 2022.

Biden administration’s manufacturing push could transform global trade. In just over a year, the U.S. has passed three huge budget measures aimed at transforming its domestic economy — by rebuilding infrastructure, accelerating a clean-energy transition, and boosting manufacturing in semiconductors and the automotive industry. The Wall Street Journal reports (link) there could be one big unintended consequence: “If U.S. policy makers use these initiatives to promote domestic industries at the expense of foreign competitors, other governments are likely to respond with their own protectionist policies, leading to a costly breakup of global trade.”

A trade panel backed Mexico and Canada in a dispute with the U.S. over rules to calculate regional content required for tariff-free automotive imports. Mexico and Canada had challenged the U.S. method for calculating the regional content required under the USMCA trade pact for cars to have tariff-free access to the U.S., and requested the panel early last year after failing to reach agreement during consultations.

Canadian Trade Minister Mary Ng said the ruling reaffirms “our understanding of the negotiated outcome on the rules of origin for automotive products.” Canada joined Mexico’s initial complaint, warning the U.S. interpretation could inhibit the ability of domestic manufacturers from qualifying for duty-free trade in North America. Canada “is glad to see that the dispute settlement mechanisms in place are supporting our rights and obligations negotiated” in the trade treaty, Ng added.

Next step: The U.S. must use Mexico’s and Canada’s methods to calculate regional content, or face retaliatory tariffs. In a statement, the U.S. Trade Representative’s office called the ruling “disappointing,” warning it could result in “less North American content in automobiles, less investment across the region and fewer American jobs.” The USTR said it is considering its next move, adding it would discuss a possible resolution with Mexico and Canada. Mexico’s Economy Ministry said it would begin a dialogue with its trade partners on the ruling in the coming days.


Giant mine takes center stage in the fight for Ukraine. A salt mine has become a focal point on the most fiercely contested front line in Ukraine, as Russia’s Wagner paramilitary group sets its sights on capturing what it sees as a military and economic asset. Russia has claimed to have captured the city of Soledar, where the mine is located, though Ukraine says the settlement remains contested. Seizing the mine, and the town, would be the first significant Russian advance since July and boost Wagner’s reputation as a fighting force. Meanwhile, the Kremlin appointed a new commander to direct war efforts in Ukraine, perhaps signaling a fresh Russian offensive.


ConocoPhillips is in talks to sell Venezuela’s oil in the U.S. on behalf of national oil company Petróleos de Venezuela, giving ConocoPhillips a chance to recover money it lost in the country and help the U.S. meet its energy needs. The potential deal would help ConocoPhillips recover the close to $10 billion it lost from the nationalization of its Venezuelan assets in 2007. Link to more via the WSJ.

The Interior Department proposed a five-year schedule for offshore wind lease sales, similar to offshore oil and gas auctions, as the department looks to revise this and other decade-old standards for renewable energy that could save the industry $1 billion over the next 20 years, according to the agency.


AWP edges higher. The Adjusted World Price (AWP) for cotton moved up to 74.68 cents per pound, effective today (Jan. 13), an increase from 72.98 cents per pound the prior week. The AWP has remained at or above 70 cents per pound since the week of Nov. 11, 2022, and remains more than 20 cents above the level that would trigger any benefits under the farm program.


USDA’s in-person Ag Outlook Forum is Feb. 23-24. USDA’s 99th annual Agricultural Outlook Forum will be held in person at the Crystal City Gateway Marriott on Feb. 23-24 and all sessions will be livestreamed on a virtual platform.


Tax filing season will begin on January 23, the IRS announced on Thursday, but there are still several months to get your documents in order. The official due date for returns this year is April 18, the agency said. After you file, the IRS said it is likely to deliver your refund within 21 days of receiving your return —- its typical turnaround time — but only if you fill out your return accurately and completely, file it electronically and opt to have your refund delivered through direct deposit. The agency advises against filing paper returns, if possible. The majority of tax filers every year are typically owed a refund. Last year, the average refund issued was $3,176.


As expected, former Governor Ricketts named as new senator from Nebraska. Nebraska Gov. Jim Pillen (R) tapped his predecessor, Pete Ricketts (R), to his state’s vacant Senate seat, after Sen. Ben Sasse (R) resigned on Sunday to serve as President of the University of Florida. Ricketts, who served two terms and endorsed Pillen in the race to replace him last year, will run in a special election next fall to fill out the remaining two years of Sasse’s Senate term. Ricketts said on Thursday that he is committed to running for the seat in both 2024 and 2026.


Would you gladly take this 40% cut in your pay? Apple’s CEO took a pay cut of more than 40%. The iPhone maker reduced Tim Cook’s compensation to $49 million this year, down from $99.4 million in 2022, after shareholder criticism and a request from Cook himself.


UFOs. The U.S. gov’t received more than 350 new reports of “unidentified aerial phenomenon,” commonly known as UFOs, since March of 2021. According to the Pentagon, about half of the reports have been preliminarily identified as “balloons or balloon-entities,” while a handful of others have been attributed to drones, birds, weather events, or debris like plastic bags. The remaining 171 reported UFO sightings, on the other hand, continue to be unexplained by the U.S. government.

KEY LINKS


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 |