GOP 1 Seat Away from House Majority; Hobbs Defeats Lake in Arizona

Biden/Xi ease contentious U.S./China relationship on several topics

USDA daily export sales: 230,185 metric tons of corn for delivery to Mexico during the 2022-2023 marketing year; 261,272 metric tons of soybeans for delivery to Mexico during the 2022/2023 marketing year.

The Producer Price Index rose 0.2% in October, below the 0.4% estimate. A significant contributor to the slowdown in wholesale inflation was a 0.1% decline in services, the first outright decline in that measure since November 2020. On a year-over-year basis, PPI rose 8% compared to an 8.4% increase in September. Details in Market section.

Republicans held on to two congressional seats in California and one in New York, putting them one win away from wresting control of the House of Representatives from the Democrats. The GOP scored a pair of big wins on Monday night with wins in AZ1 and AZ6. The GOP also won a pair of seats in California, along with one in upstate New York. Nate Cohn writes in the New York Times (link) that Republicans “would be on track to win 221 seats if the latest trends continued, though several of these races remain so close that they could easily go the other way.”

President Joe Biden rejected the idea of a “new cold war” with China and said he believed Taiwan faced no “imminent” threat of invasion. “We’re going to compete vigorously, but I’m not looking for conflict,” Biden said at a news conference after the meeting. “I’m looking to manage this competition responsibly.” The remarks came after a three-hour meeting with his Chinese counterpart, Xi Jinping ahead of the G20 summit. U.S. Secretary of State Antony Blinken will visit Beijing early next year to follow up on the talks. Chinese Foreign Minister Wang Yi called it a “new starting point.” The conciliatory tone buoyed most equity markets and curbed demand for the safety of the U.S. dollar.

Federal Reserve Vice Chair Lael Brainard was among the latest officials to signal that the central bank could soon slow the pace of its interest rate hikes. In a separate speech, Fed Governor Christopher Waller echoed a similar view but emphasized that the central bank is not close to a pause. Speculation about a possible policy pivot pushed the dollar and Treasury yields lower while encouraging investors to take risks and pile into high-growth and tech stocks.

New data released Tuesday showed economic activity cooling in China in October. Retail sales contracted unexpectedly for the first time in five months as factory output growth slowed and a pullback in real-estate investment accelerated.

The Japanese economy shrank 0.3% on quarter in the three months to September 2022, missing market consensus of a 0.3% growth and following an upwardly revised 1.1% growth in the previous period, preliminary data showed. This was the first GDP contraction since Q3 2021, amid global inflation pressures and a slump in the yen.

Discussions continue, but Russia expected to extend Black Sea grain export deal. Russia is expected to agree to an extension of a United Nations-brokered deal allowing exports of grain and other agricultural products from the Black Sea, Bloomberg News reported, citing four people familiar with the discussions. Kremlin spokesman Dmitry Peskov said on Tuesday Moscow would announce whether it was extending its participation in the Black Sea grain deal “at the appropriate time,” state-run TASS news agency reported.

Another union votes to reject rail agreement. Members of the International Brotherhood of Boilermakers (IBB) have rejected the tentative agreement reached between unions and freight railroads. A cooling off period will last until Dec. 9 and the union said they intend to continue negotiating. More details in Market section.

The population of the planet is set to hit 8 billion today, according to projections from the United Nations. The number is expected to grow to 8.5 billion by 2030 as life expectancy rises. But the U.N. noted that the global population is growing at its slowest rate since 1950.

Equities today: Global stock markets were steady to mixed overnight. U.S. Dow opened up slightly over 200 points higher and went over 400 points before easing towards 300 higher. European stocks traded mixed on Tuesday, with Germany’s DAX 40 adding 0.3% to 14,360, its highest level since June 8. In Asia, Japan +0.1%. Hong Kong +4.1%. China +1.6%. India +0.4%. In Europe, at midday, London flat. Paris +0.3%. Frankfurt -0.1%. The Hang Seng Index has risen 25% since the start of November, comfortably beating the 20% hurdle many analysts see as defining a bull market. One important caveat: the index is still down 22% since the start of the year.

U.S. equities yesterday: The Dow ended down 211.16 points, 0.63%, at 33,536.70. The Nasdaq lost 127.11 points, 1.12%, at 11,196.22. The S&P 500 was down 35.68 points, 0.89%, at 3,957.25. All three major indices had managed to work into positive territory during the day but a late plunge sent all three lower for the session.

Agriculture markets yesterday:

• Corn: December corn fell 3/4 of a cent to $6.57 1/4, after earlier dropping to the lowest intraday price since Aug. 26.
• Soy complex: January soybeans fell 9 1/2 cents to $14.40 1/2, at the lower end of today’s range. December soymeal fell $1.40 to $406.00. December soyoil fell 69 points to 76.28 cents.
• Wheat: December SRW wheat rose 3 cents to $8.38 1/4. December HRW wheat gained 12 3/4 cents to $9.56 1/4. December spring wheat rose 17 1/4 cents to $9.63, a two-week high.
• Cotton: December cotton fell 292 points to 85.28 cents, the contract’s lowest closing price since Nov. 3.
• Cattle: December live cattle rose 5 cents to $151.575, after earlier falling to $151.25, the lowest intraday price since Nov. 3. January feeder cattle rose 87.5 cents to $179.45.
• Hogs: December lean hog futures rose 52.5 cents to $84.875. The CME lean hog index fell 33 cents to a nine-month low of $88.63 (as of Nov. 10).
  

Ag markets today: Wheat futures led overnight price declines in the grain markets on hopes of an extension to the Black Sea grain export deal. As of 7:30 a.m. ET, corn futures were trading 2 to 3 cents lower, soybeans were 5 to 7 cents lower, SRW wheat futures were 10 to 12 cents lower, HRW wheat futures were 4 to 5 cents lower and HRS wheat was steady to 3 cents lower. Front-month crude oil futures were around 75 cents lower, and the U.S. dollar index was about 550 points lower this morning.

Technical viewpoints from Jim Wyckoff:

On tap today:

• U.S. Producer Price Index for October, due at 8:30 a.m. ET, is expected to rise 0.4% from the prior month. UPDATE: See item below.
• New York Fed’s Empire State manufacturing survey, due at 8:30 a.m. ET, is expected to rise to minus 6 in November from minus 9.1 one month earlier. UPDATE: Report for November registered a reading of 4.5%, much better than the estimate for a -6% reading.
• Federal Reserve speakers: Philadelphia’s Patrick Harker on the economic outlook at 9 a.m. ET, gov. Lisa Cook on post-Covid challenges for women and underrepresented groups at 9 a.m. ET, and Vice Chair for Supervision Michael Barr at a congressional hearing on financial regulations at 10 a.m. ET.
• President Biden is in Indonesia attending a summit for the leaders of the Group of 20 advanced and developing economies. He met with Turkish President Recep Tayyip Erdogan on the sidelines of the conference and expressed his condolences over the weekend bombing in Istanbul. He also discussed their alliance against Russia’s invasion of Ukraine.

Producer Price Index for final demand in the U.S. rose 0.2% month-over-month in October, the same as a downwardly revised 0.2% increase in September and below market forecasts of 0.4%. Goods cost went up 0.6%, the largest advance since a 2.2% rise in June, mainly pushed by a 5.7% jump in gasoline cost.

Prices rose for diesel fuel, fresh and dry vegetables, residential electric power, chicken eggs, and oil field and gas field machinery. In contrast, the index for passenger cars declined 1.5%.

Meanwhile, services cost fell 0.1%, the first decline since November of 2020. Prices for fuels and lubricants retailing were down 7.7% and prices also moved lower for portfolio management, long-distance motor carrying, automobile retailing, and professional and commercial equipment wholesaling.

In contrast, cost for hospital inpatient care increased 0.8%. Compared to the same month in 2021, producer prices were up 8%, the smallest increase since July last year.

Renewed optimism that the Federal Reserve will begin slowing the pace of interest-rate increases. Fed Vice Chairwoman Lael Brainard on Monday said the central bank’s blistering pace of rate rises was on track to slow down. Brainard signaled she favors slowing to a half-point hike as early as next month. “It will probably be appropriate soon to move to a slower pace of increases,” Brainard said Monday in a fireside-chat event at Bloomberg’s Washington bureau, even as she acknowledged that the central bank has “additional work to do.” Investors expect Fed officials to opt for a half-point hike at their Dec. 13-14 meeting. Brainard said a slower pace of rate rises would allow the Fed more time to study how its moves this year are slowing the economy.

Eurozone third-quarter GDP came in at up 2.1%, year on year, which was slightly above market expectations. It marks a sixth straight quarter of expansion but the weakest in the current sequence. Among the biggest economies, German GDP grew faster (0.3% vs 0.1% in Q2), while France (0.2% vs 0.5%), Italy (0.5% vs 1.1%) and Spain (0.2% vs 1.5%) slowed.

Meanwhile, the Eurozone is set to fall into recession in the last quarter of the year and first three months of 2023, while returning to growth in spring next year, according to the European Commission. High inflation and the ongoing energy crisis is eroding households’ purchasing power and cutting production while high interest rates and tighter financing conditions are also weighing.

Japan’s economy contracted for the first time in a year in the third quarter. The world’s third-largest economy after the U.S. and China shrank 0.3% in the three months to September from the previous quarter and contracted 1.2% on an annualized basis, which reflects what would happen if the third-quarter pace continued for a full year.

Amazon will lay off around 10,000 employees in its technology, human-resources and retail divisions. The redundancies, slated to begin this week, represent 3% of the e-commerce giant’s workforce and the largest such cut in its history. The tech company’s layoffs, which could begin as soon as this week, are targeted for corporate employees and could primarily affect Amazon’s devices business, which includes its hit Alexa products, as well as human resources and retail, It follows similar moves by Meta, Twitter and Lyft, as America’s big-tech industry grapples with the possibility of a looming recession.

Upshot: Consumer spending could pull back due to macro pressures, and soaring costs and slowing growth could even hit the online business. Amazon shares have slumped roughly 42% YTD, resulting in a market cap of around $1 trillion. “I don’t know whether we’re technically in a recession, economists argue over that and they have technical definitions, what I can tell you is that the economy does not look great right now,” declared Jeff Bezos, executive chairman and founder of Amazon. “The probabilities say that if we are not in a recession now, we are likely to be in one soon. My advice to people is to take some risk off the table right now.” Last month, Bezos said to “batten down the hatches,” in response to a comment from Goldman Sachs CEO David Solomon, who warned businesses to think more cautiously and to factor volatility into their economic outlooks.

Today, the global population, according to U.N. projections, will reach 8 billion. Twelve years have passed since the world passed the 7 billion milestone, and 6 billion was passed 12 years before that. The rate of growth has fallen. This year the population is forecast to have risen by just 0.8%, the slowest rate since the 1950s and a third of the peak in 1963. Women are choosing to have fewer children and between now and 2050, the U.N. thinks, 61 countries will see their populations fall by at least 1%. According to the U.N., it will take 15 years to add the next billion people, and 21 years to reach the billion after that.

The U.N. guesses that India’s population will surpass that of China on April 14, 2023. India’s population on the following day is projected to be 1,425,775,850.

Market perspectives:

• Outside markets: Bloomberg’s gauge of the dollar fell to a three-month low, boosting all Group-of-10 currencies. Treasuries led a rally in global bond markets — the benchmark U.S. Treasury 10-year note yield is presently fetching 3.799%. Oil fell while gold rose along with Bitcoin. Meanwhile, OPEC left its forecast for global oil supply and demand largely unchanged, as it warned of major uncertainty in energy markets.

• Reuters: Flotilla of ships carrying distillate imports headed for U.S. East Coast. Shipping and other data reviewed by Reuters indicate at least 11 vessels carrying around 3.6 million barrels of distillate, including low-sulfur diesel and home heating oil, are to arrive in New York harbor in late-November/early December. The news service said the shipments are coming mostly from Europe and would be equivalent to about 4% of all East Coast distillate fuel imports in 2021. Distillate stocks on the U.S. East Coast are put at 21.8 million barrels, the second lowest level in some 10 years.

• Fertilizer scarce into 2023. Fertilizer shortages will persist into 2023 in many countries, threatening agricultural production and food security in Africa in particular, said a WTO/FAO study that urged G20 nations to allow open trade in the product. Link for details.

• Another union votes to reject rail agreement. Members of the International Brotherhood of Boilermakers (IBB) have rejected the tentative agreement reached between unions and freight railroads. The IBB represents 300 of the more than 100,000 workers involved in the agreement. A cooling off period will last until Dec. 9 and the union said they intend to continue negotiating. The IBB is the smallest union involved in the situation, but all unions have said they will not cross picket lines if one union goes on strike. Two other unions have rejected the pact while a third rejected it but then approved a renegotiated deal.

The two largest unions are set to announce their voting results Nov. 21. Seven unions have approved the deal.

The Biden administration is not as directly involved in the subsequent negotiations as they were when the initial deal was struck, with Labor Secretary Marty Walsh indicating before the election that Congress would have to step in if a strike was on tap at this point.

• 4.399: The Cass Freight Index for expenditures in October, up 11.1% year-over-year in the smallest annual gain since November 2020 and a 4.9% decline from September.

• Ag trade: China purchased around 120,000 MT of French wheat over the past week. Japan is seeking 94,687 MT of milling wheat in its weekly tender. Jordan passed on a tender to buy 120,000 MT of milling wheat.

• Europe predicts milder winter. One of Europe’s most prominent forecasters is expecting a mild next few months, a potential boost for the energy-strapped continent. The European Union’s Copernicus Climate Change Service said it had grown more confident of milder weather than usual over the next three months, offering some hope that current gas stores will be enough to get the continent through a winter without its typical supply from Russia.

• Wells are running dry in California at a record pace. The climate is getting hotter and drier. This was the third consecutive year of severe drought, and the state has already tallied 1,351 dry wells in 2022. Entire communities are relying on bottled water deliveries to survive.

• NWS weather: Light snow accumulations across the mid-Missouri Valley and Midwest through Tuesday morning... ...Coastal rain; inland mixed precipitation on Tuesday evening into Wednesday across Northeast and Mid-Atlantic as coastal low develops and moves up coast... ...Anomalously cold air will continue to grip the lower 48 through the work week... ...Strong Santa Ana winds return across Southern California on Tuesday; High Wind Warnings in effect.

Items in Pro Farmer’s First Thing Today include:

• Price pressure overnight
• Big jump expected in NOPA crush
• HRW, SRW CCI ratings post solid advances
• China keeps interest rates unchanged (details in China section)
• Cash cattle performed better than expected, stronger hopes this week
• Cash hog/pork fundamentals weaken

— Summary: Ukraine’s president, Volodymyr Zelenskyy, thumbed his nose at Russia by addressing the “leaders of the G19” at the G20 summit in Indonesia. In a video address, Zelenskyy called for Russia’s “aggressive” war against his country to “end justly.” A stronger than expected draft resolution is circulating at the conference, which opened on Tuesday, stating that “most members strongly condemn” the war in Ukraine. Russian troops established new lines of defense following their withdrawal from the southern city of Kherson. Russia launched a fresh volley of strikes on Kyiv.

• More than 1 million barrels a day of Russian oil exports are set to be obstructed by Western sanctions that are expected to come into force within weeks, the International Energy Agency said Tuesday.

• Discussions on the future of the Black Sea grain deal continue, with a U.N. spokesperson in Istanbul signaling there is nothing yet to announce. “Discussions on the continuation of the Black Sea Grain Initiative with all parties are ongoing at various levels,” Ismini Palla said. The deal is set to expire Nov. 19 but expectations signal it will be extended even if it is altered in some way to address constant Russian criticism that provisions to help Russian fertilizer and grain exports have not materialized and that much of the Ukrainian agricultural products shipped via the effort are not ending up in needy countries.

  Kremlin spokesman Dmitry Peskov told the TASS news agency that Russia would announce whether it was extending the deal “at the appropriate time.”

• The U.S. CIA director was in Turkey to warn his Russian counterpart against using nuclear weapons. William Burns arrived in Ankara on Monday as part of an expanding effort to engage with the Russians over the conflict in Ukraine
  

— ERP payouts continue to edge higher. Payments under the USDA Emergency Relief Program (ERP) moved up to $7.15 billion as of Nov. 13, up from $7.13 billion the prior week. The total includes $6.12 billion in non-specialty crop payments ($6.11 billion prior) and $1.03 billion in specialty crop payments ($1.02 billion prior). Still awaited from USDA is the second phase of the ERP effort which has been signaled to be coming soon.

— Cindy Sanborn, the first woman to serve as chief operating officer of a major U.S. railroad, is stepping down from her post at Norfolk Southern.

— National Corn Growers Association announced Krista Swanson joined the organization as Lead Economist. Swanson will serve as the economic analyst resource for NCGA and its state affiliates. She will be responsible for developing analysis and research needs on a wide variety of economic and political issues which impact corn farmers.

— Biden, Xi move to stabilize U.S./China relations. President Biden and Chinese leader Xi Jinping sought to halt a rapid downward spiral in relations between Washington and Beijing. In their first in-person meeting since Biden was elected, the two leaders instructed officials to resume stalled talks on major global priorities, but also acknowledged areas of deep disagreement.

U.S. Trade Representative Katherine Tai said at the Bloomberg New Economy Forum in Singapore on Tuesday that the meeting was a “powerful signal” to the world, but American tariffs remain in place on Chinese imports because “the underlying issues are still there.” Tai said China has not yet resolved the core problems that propelled her predecessor to impose tariffs on hundreds of billions of dollars worth of Chinese exports in 2018 — namely Chinese intellectual property theft and forced technology transfers. Link to more on Tai comments.

Bottom line: While Taiwan remains an issue, the two sides agreed to resume climate talks, and touched upon supply chain stability, as well as health and food security. The language was also warmer, noting that there should be more incentives to work together as opposed to decoupling from “each other’s economic development.” Biden: “We were candid and clear with one another across the board. I absolutely believe there need not be a new Cold War.”

— Chinese retail sales, a key gauge of domestic consumption, fell 0.5% in October from a year earlier, according to China’s National Bureau of Statistics — the first such year-over-year decline since May, when Shanghai was stuck in a grueling monthslong Covid lockdown.

— China keeps interest rates unchanged. China’s central bank partially rolled over maturing medium-term policy loans while keeping the interest rates unchanged for a third straight month. The People’s Bank of China (PBOC) said it was keeping the rate on 850 billion yuan ($120.21 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions at 2.75%. With 1 trillion yuan worth of MLF loans set to expire on the same day, the operation resulted in a net 150 billion yuan medium-term cash withdrawal through the instrument.

— G20 countries announced a $20 billion fund to help Indonesia use less coal. In return, Indonesia promised that its power-sector CO2 emissions will peak at 290 million tonnes by 2030, seven years earlier than previously forecast. The package of grants and concessional loans, from public and private sources, is modelled on an $8.5 billion deal struck with South Africa last year.

But the Wall Street Journal reports (link) that a similar agreement reached last year with South Africa is being criticized for burdening the country with more debt and containing too few outright grants. The outcry from political leaders including the country’s president suggest it will be more complicated and expensive to reset electrical grids to accommodate renewable-energy sources and to support coal communities. The tough financial calculation, along with broader upheaval in energy markets, is maintaining coal’s role in global supply chains. Coal transports on U.S. railroads were up 5.8% year-over-year in October, according to the Association of American Railroads.

— Trade group seeks 7-billion-gallon advanced biofuel mandate. EPA should increase the advanced biofuels share of the fuel market by 1 billion gallons a year to reflect the land rush into renewable diesel production, said the trade group Clean Fuels America Alliance on Monday. The recommendation would raise the federal mandate for second-generation biofuels to 7.63 billion gallons in 2024, a 36 percent increase from this year.

— Vilsack predicts farmers, not politicians, will keep climate on congressional agenda. USDA Secretary Tom Vilsack believes that even if Republicans gain control of the House of Representatives as is now likely, climate change will remain on the agenda even as some Republicans suggest the matter will be downplayed under GOP control of the chamber. Vilsack said he was most impressed by how American farmers, ranchers and producers have been supportive. “I would anticipate and expect that climate will continue to be a focus not because I want it or not because any member of the House or Senate wants it, but most importantly because farmers, ranchers and producers recognize and appreciate the importance of it,” Vilsack told reporters via phone from the COP27 conference in Egypt.

Vilsack noted farmer interest in the climate-smart agricultural commodities effort and extra funding for environmental programs has been high, adding the total for the climate-smart commodities effort has been increased to $3.1 billion from $2.8 billion, with the extra funds to allow for 65 new projects. He also urged private investors to step up efforts in funding startup technology companies that focus on climate and agriculture.

House Ag Committee Ranking Member GT Thompson (R-Pa.) has signaled that Republican control of the panel would shift attention from the climate issues backed by the Biden administration and if he led the panel in the new Congress, it would focus more on making conservation and other programs more economically beneficial for farmers. With the Senate remaining under Democratic control, that sets the stage for a potential key issue during the coming farm bill debate.

— Summary:

• Global Covid-19 cases at 635,564,845 with 6,611,837 deaths.
• U.S. case count is at 98,045,358 with 1,084,688 deaths.
• Johns Hopkins University Coronavirus Resource Center says there have been 646,524,294 doses administered, 267,032,055 have received at least one vaccine, or 81.04% of the U.S. population.

— Covid, flu and RSV are keeping kids out of school and parents out of work. This new round of viral infections is colliding with staffing shortages at schools and day cares to create unprecedented challenges for parents and teachers, the Washington Post reports. The numbers: A record 100,000 Americans missed work last month because of child-care problems, and there are signs that it’s starting to impact the economy.

— House Republicans currently stand at 217 seats won, meaning they only need one more to ensure that they have a majority in the next Congress. Key races were called Monday night in New York, Arizona and California in favor of GOP candidates and incumbents.

Some details: Wins in Arizona by Republicans Juan Ciscomani, who flipped a Democratic seat, and Rep. David Schweikert gave the GOP 217 House seats to the Democrats’ 205, according to the Associated Press tally.

— Katie Hobbs, a Democrat and Arizona’s secretary of state, was projected to win the state’s governor race yesterday. She defeated Kari Lake, who backed Donald Trump’s claims of fraud in the 2020 election — which Hobbs oversaw.

— Donald Trump is poised to launch a third consecutive White House bid tonight. Trump aims to reaffirm his position as the Republican standard-bearer despite disappointing midterm election results that have led some party leaders to suggest the polarizing former president step aside, reports the Wall Street Journal (link). Despite signs of dissatisfaction with Trump, he enjoys broad grass-roots support, has tens of millions in campaign cash and a history of steamrolling competitors.

— House Republicans will choose their leaders for the new Congress today, in the first test of Kevin McCarthy’s (R-Calif.) bid for speaker. Even if the California Republican overcomes resistance from his party’s right flank today, he must still secure 218 votes on the House floor in January for the speaker’s gavel. Meanwhile, conservative Andy Biggs says he will challenge McCarthy for House Speaker. Finally, Democrat Henry Cuellar rejected request from allies of McCarthy to switch parties.

— The Senate is moving ahead with gay-marriage protections in the final legislative push of this congressional session.

— A federal appeals court blocked the Biden administration’s student-debt forgiveness program. The three-judge panel’s ruling wasn’t a decision on the legal merits of the plan, turning instead on the preliminary issue of whether any of the six states challenging it had legal standing to sue. The court said that at least Missouri likely had a proper basis for bringing the case, dealing the plan another blow after a federal judge in Texas last week ruled it unlawful.

Meanwhile, the White House reportedly is weighing extending the pause on student loan payments past Jan. 1.

— The Transportation Department fined six airlines $7.5 million over flight cancellations, and ordered them to reimburse customers $600 million.

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 |