Grocery Stores in Court as Battle Continues Between FTC and Grocery Giants Kroger and Albertsons

News/Markets/Policy Updates: Aug. 27, 2024

— Equities today: Asian and European stock indexes were mixed overnight. In Asia, Japan +0.5%. Hong Kong +0.4%. China -0.2%. India flat. In Europe, at midday, London +0.3%. Paris flat. Frankfurt +0.2%. U.S. Dow opened slightly lower. There are no Fed officials scheduled to speak today but there is a 2-Yr Treasury Note auction at 1:00 p.m. ET that The Sevens Report says could shed light on investor expectations for Fed policy in the months ahead in the wake of Powell’s Jackson Hole commentary. An auction with demand that is “too strong” could rekindle recession fears while an auction that is “too weak” could trigger hawkish money flows.

U.S. equities yesterday: The Dow finished at a record Monday (it is more than 3% above its 50-day line) while the Nasdaq and S&P 500 finished with losses. The Dow was up 65.44 points, 0.16%, at 41,240.52. The Nasdaq fell 152.03 points, 0.85%, at 17,725.76. The S&P 500 declined 17.77 points, 0.32%, at 5,616.84.

— The ongoing legal battle continues between the Federal Trade Commission (FTC) and grocery giants Kroger and Albertsons over their proposed $25 billion merger, which would be the largest supermarket merger in U.S. history. The FTC, along with several states, argues that the merger could lead to higher grocery prices for consumers and negatively impact worker wages.

In remarks at a hearing Monday, Kroger defended the merger by stating that its prices are currently 10% to 12% lower than Albertsons’, and it has pledged to invest $1 billion to reduce prices at Albertsons stores. However, the FTC and the United Food and Commercial Workers International Union (UFCW) are not convinced, arguing that the merger would still harm competition and raise prices. An analysis suggests that the merger could lower wages for approximately 746,000 grocery store workers across more than 50 metropolitan areas in the U.S., with an estimated total annual wage loss of $334 million.

In response to concerns, Kroger and Albertsons have proposed selling 579 stores to C&S Wholesale Grocers in overlapping markets, but the FTC and UFCW say this measure is insufficient.

The case is being closely watched, especially as food prices remain a political issue, with inflation having eased but grocery prices still 20% higher than pre-pandemic levels. Democratic presidential nominee Kamala Harris has proposed a federal ban on price gouging in the food industry and is pushing for stricter regulations on mergers like this one, though she has yet to detail how she would implement such policies.

The antitrust hearing is expected to continue through Sept. 13, after which the judge will decide whether to grant the FTC’s request for a preliminary injunction to delay the merger while further investigations are conducted. If the court sides with the FTC, the merger could face significant delays or even be blocked entirely. Conversely, if the court rules in favor of Kroger and Albertsons, the merger could proceed, although appeals and further legal challenges are likely.

— Lowe’s has decided to reduce its diversity, equity, and inclusion (DEI) initiatives, ceasing participation in the Human Rights Campaign’s Corporate Equality Index and focusing sponsorships on affordable housing, disaster relief, and skilled trades education. This move comes after conservative activist Robby Starbuck criticized the company’s policies. Lowe’s follows other companies like Tractor Supply, Deere, and Harley-Davidson in scaling back DEI efforts in response to similar pressures.

— On Monday, WTI traded up $0.86, 1.1% to close at $79.12. Brent traded up $0.57, 0.7% ,to close at $83.36.

— Ag markets today: Corn, soybeans and wheat traded narrowly on either side of unchanged during the overnight session. As of 7:30 a.m. ET, corn futures were trading near a penny lower, soybeans were fractionally on either side of unchanged and wheat futures were 2 to 3 cents lower. The U.S. dollar index and front-month crude oil futures were both modestly weaker.

Cash cattle extend price slide. Cash cattle averaged $185.54 last week, down $3.60 from the previous week. That was the fourth straight weekly decline and the lowest average price since the last week of April. Packers are thought to be well supplied for immediate needs, suggesting cash prices will weaken further this week.

Cash hog fundamentals weaken. The CME lean hog index is down another 36 cents to $87.86 as of Aug. 23, extending the pullback from the seasonal peak on Aug. 1. The pork cutout dropped $4.07 on Monday to $94.98 amid sharp declines in hams, bellies, loins and butts.

— Agriculture markets yesterday:

• Corn: December corn futures fell 4 1/2 cents to $3.86 1/2 and settled near session lows.
• Soy complex: November soybean futures climbed 7 3/4 cents to $9.80 3/4 and on session highs. September meal futures closed $5.8 higher to $312.1. September bean oil futures rose 23 points to 41.70 cents.
• Wheat: December SRW wheat fell 3 cents to $5.25, nearer the daily low and hit a contract low. December HRW wheat gained 2 1/4 cent to $5.37 1/4 and nearer the session high after hitting a contract low early on.
• Cotton: December cotton closed down 65 points at 70.26 cents and near the daily low. Prices hit a five-week high early on.
• Cattle: October live cattle futures rose $1.275 to $176.975 and near mid-range. October feeder cattle closed up $3.10 at $237.475 and nearer the session high.
• Hogs: October lean hog futures slipped 15 cents to $80.40 and settled near mid-range.

— Quotes of note:

• UBS challenges Fed Chair Powell’s view on inflation decline. UBS economists have expressed skepticism about Fed Chair Jerome Powell’s claim that the retreat of U.S. inflation was primarily due to “vigorous” interest-rate hikes and the central bank’s long-term efforts to anchor public expectations. While acknowledging that tightening monetary policy was appropriate, UBS suggests that inflation might have decreased even without significant rate hikes, drawing a parallel to the post-World War II inflation period, which saw similar economic disruptions and shifts in demand. They also questioned the emphasis on inflation expectations, noting that some forecasters, including Fed staff, are less convinced of its critical role.

• “China is aiming its industrial policy right at the heart of the Western economy.” — Jacob Gunter, an analyst at the Mercator Institute for China Studies in Berlin.

— USDA daily export sale:
• 127,760 MT corn to Mexico during 2024-2025 marketing year

— U.S. farmers struggle financially despite bumper corn and soybean harvest as grain prices plummet and costs soar. Paradox in the U.S. ag sector: despite a bountiful corn and soybean harvest in 2024, farmers are facing significant financial difficulties due to plummeting grain prices and high production costs. The Covid-19 pandemic initially boosted commodity prices, but this trend has reversed, with prices for key crops like corn and soybeans returning to pre-pandemic levels, the Wall Street Journal reports (link). It notes that some farmers in Illinois are struggling to cover their costs, with corn prices well below the break-even point. Rising input costs — such as fertilizers, seeds, and land rent — further strain farmers’ budgets. Many are being forced to make tough decisions, such as cutting back on inputs, delaying investments in new machinery, and shifting crop choices to reduce expenses.

The broader economic outlook is bleak, with increased competition from Brazil and Russia driving global grain prices down, the article notes. While favorable weather conditions have led to a near-perfect crop year in the U.S., the financial returns for farmers are not aligning with these strong yields.

Market perspectives:

— Outside markets: The U.S. dollar index was weaker despite the euro and Japanese yen being weaker against the greenback. The yield on the 10-year U.S. Treasury note was higher, trading around 3.85%, with a mostly higher tone in global government bond yields. Crude oil futures were under pressure, with U.S. crude around $77 per barrel and Brent around $79.95 per barrel. Gold and silver were mixed, with gold weaker around $2,549 per troy ounce and silver firmer around $30.50 per troy ounce.

— Wall Street lowers crude price forecasts for 2025 amid rising global supply. Goldman Sachs and Morgan Stanley have revised their 2025 crude oil price forecasts downward, predicting that Brent crude will average less than $80 a barrel, with Goldman lowering its estimate to $77 and Morgan Stanley expecting prices to range between $75 and $78. Both banks foresee a surplus in the crude market as global supplies increase, potentially due to OPEC+ reversing voluntary supply cuts. Factors such as slowing demand growth in China and rising supplies outside OPEC+ contribute to the bearish outlook. Goldman warns that prices could fall even further under certain scenarios, including flat Chinese demand or strategic moves by OPEC to curb U.S. shale growth.

— Argentine farmers to plant more soybeans, less corn. Argentine farmers are likely to plant more soybeans for the 2024-25 growing season, trimming the area dedicated to corn after the leaf hopper plague caused a corn stunt disease outbreak last year. The disease devastated an estimated 2 million hectares of corn in 2023-24. Of the 2 million hectares expected to be switched out of corn, a large part will go to soybeans, said Cristian Russo, head of agricultural estimates at the Rosario Grains Exchange. The decision to plant more soybeans is also influenced by the economic impact of the corn losses. The leafhopper infestation has caused an estimated $1.13 billion in losses for Argentine corn producers. Additionally, the threat of continued infestations, due to warmer winters that allow leafhoppers to survive and breed, is prompting farmers to reconsider their crop choices. Also, the weather outlook for early September remained dry, with more rain forecast for October, another incentive for soybeans whose planting starts that month.

— Japan warns against panic buying of rice. The threat of a “megaquake,” a series of typhoons and a week-long national holiday have some Japanese consumers scrambling to purchase rice amid shortages, prompting the government to warn against panic buying. “The rice crop is growing steadily and farmers in some regions could harvest about one week earlier than usual. The shortages will be resolved gradually,” said Agriculture Minister Tetsushi Sakamoto.

Of note: There has been a surge in demand for rice, partly due to a record number of foreign tourists visiting Japan. This increased demand has further strained the already limited supply. The supply of rice has been affected by several factors, including lower harvest yields due to hot weather and water shortages. Additionally, the summer months typically see a lower supply as the main rice-producing regions in Japan begin harvesting new crops in September.

— Brazil’s wildfires threaten global sugar supply and prices. Recent wildfires in Brazil’s sugar-cane fields, especially in São Paulo, are poised to significantly impact global sugar supply and prices. The fires, affecting around 60,000 hectares and potentially destroying up to 5 million metric tons of sugar cane, are being compared to the severe frost of 2021, but with even greater consequences. This damage represents 1.4% of São Paulo’s sugar-cane production and has already caused raw sugar futures in New York to surge by 4.2%, reflecting market fears over reduced supply. The fires, fueled by extreme drought and heatwave conditions, have damaged newly sprouting cane, potentially reducing yields for the upcoming season and possibly prolonging the impact into the following year. This situation could disrupt global supply chains, increasing reliance on other producers like India, Thailand, and China, though India’s ability to respond is limited by export restrictions. The uncertainty and potential for further fires may lead to increased volatility in sugar prices worldwide.

— Ag trade update: South Korea purchased 66,000 MT of corn expected to be sourced from South America. Algeria passed on a tender to buy up to 120,000 MT of corn from Brazil or Argentina and 35,000 MT of optional origin feed barley but issued a new tender for the same amounts.

— NWS outlook: A brief spell of record heat expected to spread from the Midwest to the East Coast... ...Active showers and severe thunderstorms this morning across the northern Plains and upper Midwest/Great Lakes will shift eastward into the northern Mid-Atlantic/southern New England by late Wednesday into early Thursday... ...First snowflakes of the season could reach the higher elevations of northwestern Montana on Wednesday followed by a chance of severe thunderstorms across North Dakota Wednesday night/early Thursday.

(NWS)

Items in Pro Farmer’s First Thing Today include:

• Corn and wheat mildly weaker, soybeans mixed
• Cordonnier leaves U.S. crop, yield estimates unchanged
• Lowest CCI ratings of the growing season for corn, soybeans and spring wheat

— The Israeli military announced the successful rescue of Qaid Farhan Alkadi, a 52-year-old Arab citizen of Israel, who was abducted by Hamas during their attack on Oct. 7, 2023. This rescue was part of a complex operation conducted in the southern Gaza Strip. Alkadi is the eighth hostage to be rescued alive from the approximately 250 individuals initially taken captive during the attack. Despite the rescue, around 110 hostages are still believed to be held by Hamas, and approximately a third of them feared dead.

— Russian retaliation strikes Ukraine: civilian casualties and infrastructure damage reported. Russia has continued its drone and missile attacks on Ukraine for a second consecutive day, targeting multiple regions and causing significant damage to infrastructure. These strikes, reportedly in retaliation for a Ukrainian incursion into Russia’s Kursk region, have resulted in at least four civilian deaths, including the destruction of a hotel in Kryvyi Rih and drone strikes in Zaporizhzhia. The attacks have focused on Ukraine’s energy infrastructure, leading to widespread power outages. Ukrainian air defenses have intercepted numerous projectiles, and international allies continue to provide support. The Kremlin claims these strikes are a response to Ukrainian military actions, with a broader strategy to weaken Ukraine’s resilience as winter approaches.

— Canada imposes 100% tariff on Chinese EVs, 25% on steel and aluminum. Canada will impose a 100% tariff on Chinese-made electric vehicles and a 25% tariff on Chinese steel and aluminum, following similar actions by the EU and U.S. This move aims to protect domestic automakers from Chinese competition and is expected to prompt retaliation from China. The tariffs, which have been in development for weeks, highlight Canada’s strong stance in limiting Chinese EV exporters’ access to its market.

Prime Minister Justin Trudeau characterized the move as Canada joining a united front to protect domestic workers from the threat of Chinese overproduction and industrial subsidies. Yet so far, Japan, South Korea, Australia and New Zealand haven’t followed suit.

In response, China said Canada’s plan, in which the EV tariffs would be implemented starting Oct. 1, violates rules at the World Trade Organization. The 25% levies on aluminum and steel will come into force Oct. 15. Earlier this month, Beijing has lodged a WTO complaint over the EU’s decision to impose anti-subsidy duties. China also launched an anti-subsidy investigation into EU dairy imports.

— China’s industrial profits rise in July amid weak domestic demand concerns. In July, China’s industrial profits experienced a notable increase, rising by 4.1% year-on-year, marking the fastest growth rate in five months. This growth follows a 3.6% rise in June, as reported by the National Bureau of Statistics (NBS). The cumulative profit growth for the first seven months of the year was 3.6%, slightly up from the 3.5% increase recorded in the first half of the year.

Despite this positive trend, concerns persist regarding the sustainability of this growth due to weak domestic demand. The Chinese economy is currently facing challenges such as sluggish domestic consumption, a prolonged housing market downturn, and employment uncertainties. These factors are crucial as they impact future investment decisions by industrial sectors, including factories, mines, and utilities.

The increase in industrial profits is partly attributed to the resilience of the manufacturing sector, especially high-tech manufacturing, which has shown significant growth. However, the overall economic outlook remains mixed, with external demand playing a significant role in driving growth, while domestic demand remains weak. This reliance on external demand makes the economy vulnerable to global trade tensions, which could further impact growth prospects.

Of note: In response to these challenges, the Chinese government is considering shifting its economic stimulus focus towards boosting domestic consumption to counteract the weak demand.

— USTR seeks public comments on China’s WTO challenge over IRA subsidies. The U.S. Trade Representative (USTR) is requesting public comments (link) on China’s WTO case against subsidies provided under the Inflation Reduction Act (IRA). China argues that these subsidies, which include tax credits for clean vehicles, energy property, and renewable electricity, violate U.S. WTO commitments. China specifically challenges provisions related to domestic content, North American assembly, and critical minerals sourcing. Public comments are being accepted until Sept. 26 as the dispute settlement proceeds.

— Brazil is making a significant investment in the development of sustainable aviation fuel (SAF) with a commitment of approximately $1.1 billion. This investment is part of a broader initiative to promote the production and use of sustainable fuels for aviation and maritime transport. The funding is provided by Brazil’s development bank, BNDES, and the government funding agency, Finep, with each contributing BRL 3 billion (approximately $1.1 billion in total) to support local production of these fuels.

The initiative aims to establish biorefineries in Brazil, which will help in the country’s energy transition and align with global efforts to reduce carbon emissions in the aviation sector. The investment is expected to support various activities, including research, technological development, engineering projects, and the acquisition of machinery and equipment necessary for the production of SAF.

Sustainable aviation fuel is a critical component in reducing the environmental impact of air travel. It is produced from non-petroleum feedstocks and can significantly reduce greenhouse gas emissions compared to conventional jet fuels. SAF can be blended with traditional jet fuel and used in existing aircraft without requiring modifications to engines or fuel systems.

— NPPC launches Young Pork Advocates program to empower future industry leaders. The National Pork Producers Council (NPPC) has introduced the “Young Pork Advocates” Strategic Investment Program for individuals aged 18-22. Unveiled at the 2024 World Pork Expo, the program aims to empower young advocates in the pork industry by providing networking opportunities, policy updates, advocacy training, and more. The initiative highlights NPPC’s commitment to equipping future industry leaders with the skills and connections needed to drive positive change. Membership benefits include access to industry events, scholarships, and professional development opportunities.

Additionally, the “Young Pork Advocates Issues Meet,” a speaking competition for young people aged 17-22, was also introduced at the World Pork Expo. This competition encouraged participants to engage in discussions about pressing issues in the pork industry and devise solutions. The competition concluded with Emma Kuhns winning a $2,500 scholarship and a trip to Washington, D.C., for the NPPC’s fall legislative fly-in.

— HPAI confirmed in Michigan dairy herd. Highly pathogenic avian influenza (HPAI) has been confirmed in a Michigan dairy herd, marking the nation’s first detection in almost two weeks. This brings Michigan’s total affected dairy herds to 28.

— U.S. beef imports have surged in 2024 due to record-high cattle prices and the smallest domestic herd since the 1950s. From January to June 2024, live cattle imports increased by 19%, with 1.12 million animals imported, mainly from Mexico. Imports of fresh/chilled and frozen beef also saw significant growth, rising by 11% and 29%, respectively. Tight domestic supplies and high prices are driving the increase in foreign acquisitions, with Mexico, Canada, and Brazil being key suppliers. As the U.S. cattle herd continues to decline, beef imports are expected to remain elevated. Link to more via Southern Ag Today.

— Eli Lilly has introduced a more affordable version of its weight loss drug Zepbound, offering 2.5-milligram and 5-milligram single-dose vials at $399 and $549 per month, respectively. This is about half the usual monthly list price, which can reach around $1,000 before insurance and rebates. The company aims to make the drug more accessible to millions of patients without insurance coverage and to meet growing demand for the popular injection.

— Judge halts enforcement of H-2A rule in 17 states. A ruling by a federal judge has blocked the enforcement of a U.S. Dept. of Labor (DOL) rule designed to protect H-2A farmworkers from retaliation related to union organizing in 17 states. The decision was made by U.S. District Judge Lisa Godbey Wood, who found the rule unconstitutional because it conflicted with the National Labor Relations Act (NLRA) by granting collective bargaining rights to farmworkers, a right that Congress has not legislated for under the H-2A program. The blocked rule was part of a broader effort by the DOL to enhance protections for farmworkers under the H-2A visa program. This program allows U.S. employers to bring foreign nationals to the United States to fill temporary agricultural jobs. The rule aimed to prevent employers from retaliating against workers who engage in activities related to self-organization or other concerted activities concerning wages or working conditions.

Judge Wood’s ruling specifically restricts the enforcement of this rule in the states that were part of the lawsuit, which include Florida, Georgia, South Carolina, Louisiana, Arkansas, Kansas, Idaho, Indiana, Iowa, Missouri, Montana, Nebraska, North Dakota, Oklahoma, Tennessee, Texas, and Virginia. The judge argued that the DOL overstepped its authority by creating rights not granted by Congress, effectively acting beyond its constitutional powers.

Bottom line: The ruling affects agricultural employers’ compliance costs by potentially reducing the immediate financial and administrative burdens associated with the blocked provisions. While the ruling alleviates some immediate compliance burdens, agricultural employers must still navigate the complexities of the H-2A program.

— Zuckerberg tells Congress Biden admin. pressured Meta to censor Covid-19 content, regrets demoting Hunter Biden laptop story. Mark Zuckerberg, CEO of Meta, recently addressed the House Judiciary Committee, revealing that in 2021, senior officials from the Biden administration pressured Meta to censor certain Covid-19 content on its platforms, including Facebook and Instagram. This pressure included requests to remove content that was humorous or satirical in nature. Zuckerberg expressed regret for not being more vocal against this governmental pressure at the time, stating that with hindsight, some decisions made during that period would not be repeated today. He emphasized that Meta should not compromise its content standards due to pressure from any administration and is prepared to resist such pressures in the future.

Additionally, Zuckerberg admitted that Meta made a mistake in handling a New York Post story about Hunter Biden’s laptop. The story was temporarily demoted on Facebook after the FBI warned Meta about potential Russian disinformation. However, it was later determined that the story was not part of any disinformation campaign, and Zuckerberg expressed regret for demoting it. Meta has since changed its policies to prevent similar actions in the future.

In his letter, Zuckerberg also mentioned that he would not be making contributions to support electoral infrastructure in the upcoming election cycle. This decision follows criticism that his previous contributions in 2020, through the Chan Zuckerberg Initiative, were perceived to favor one political party over another. Zuckerberg stated his intention to remain politically neutral and avoid any appearance of bias.

— Texas judge temporarily halts Biden’s path to citizenship program for undocumented spouses after lawsuit by 16 states. A federal judge in Texas, U.S. District Judge J. Campbell Barker, has issued a temporary pause on a Biden administration program designed to provide a path to citizenship for undocumented immigrant spouses of U.S. citizens. This decision comes after a lawsuit was filed by 16 states, led by Republican attorneys general, who argued that the program would encourage illegal immigration and bypass congressional authority.

The program, announced by President Joe Biden in June 2024, aimed to allow undocumented spouses of U.S. citizens to apply for a green card without leaving the country, a process known as “Parole in Place.” This initiative was part of a broader effort to keep families together and streamline the path to permanent residency for immigrants who have been in the U.S. for at least 10 years, have no disqualifying criminal history, and are married to a U.S. citizen.

The pause, which is set for at least two weeks but could be extended, was granted to allow further examination of the claims made by the states challenging the program. The states argue that the policy could lead to increased unauthorized migration and impose financial burdens on them, particularly in areas like healthcare and law enforcement.

The Department of Homeland Security had begun accepting applications for the program just a week before the court order. While applications can still be submitted, the processing of these applications is on hold until the stay is lifted. The program was expected to benefit approximately 500,000 undocumented spouses and about 50,000 of their children.

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