July 22, 2024
— The Dems now have what is being called a ‘chaos campaign’ for president after Joe Biden exited the race. VP Kamala Harris is garnering some quick support, including Biden’s endorsement. But the biggest Democratic players, who had a big role in getting Biden to resign, are to date mostly silent: Former President Barack Obama, former House Speaker Nancy Pelosi (D-Calif.), current House Democratic leader Hakeem Jeffries (D-N.Y.) and Senate Majority Leader Chuck Schumer (D-N.Y.). Obama simply said: “We will be navigating uncharted waters in the days ahead.” While most think Harris will be Biden’s replacement, others want some type of open convention, with a possibility of a different candidate. The Democratic candidate for president will be decided either through reviving the pre-1968 open convention process when the Democratic National Convention begins Aug. 19, or in a virtual roll call vote planned for early August. Party leaders are likely to work to finalize the Democratic ticket before Ohio’s ballot deadline in August. Meanwhile, Sen. Joe Manchin (I-W.Va.) on Monday said he is not running for office in the wake of speculation that he would pursue the Democratic presidential nomination after President Biden dropped his reelection bid on Sunday. “I’m not running for office,” Manchin told CBS Mornings on Monday. — The latest parlor game is who Harris may pick for her vice president if she gets the top spot.
— Presidential campaign funds for the eventual Democratic candidate surged during weekend developments. The Harris campaign has raised $49.6 million since Biden endorsed her. Additionally, the Biden/Harris campaign amended filings with the FEC to rename its principal committee and declare Harris a candidate for president — meaning Harris could take control of the Biden-Harris campaign account, which had nearly $96 million cash in hand at the end of June. She would become the first Black woman and first Asian American to lead the ticket of a major political party. — CNN has so far been able to identify more than 500 endorsements for Harris from Democratic delegates — and analysts say that number will grow as the party tries to coalesce around her 2024 campaign. The announcement frees almost 3,900 delegates — often party leaders and activists pledged to Biden through states’ primary process — to back another candidate. If Harris wins the majority of the Democratic Party’s almost 4,700 total delegate votes, she can immediately inherit the more than $240 million total funding raised by the Biden/Harris campaign. — Democrats have four weeks to pick a new ticket. The Democratic convention opens Aug. 19 in Chicago. Election Day is 106 days away. Democrats will try to capitalize on the fresh start, banking that a new candidate at the top of their ticket will energize the base. — Voters have already seen a preview of a potential Harris administration through her roles in the Biden administration, the Senate, and as California’s attorney general. Harris has been a prominent advocate for abortion and voting rights, and has led efforts to address the root causes of migration. As a 2020 presidential candidate, she ran to Biden’s left on environmental issues, proposing a $10 trillion climate deal and supporting the Green New Deal. Initially backing Medicare for All, she later proposed a more moderate health plan. Harris has also strongly supported student debt relief. On trade, she opposed the Trans-Pacific Partnership and voted against the U.S.-Mexico-Canada Agreement during Trump’s presidency. In response to George Floyd’s murder in 2020, she introduced legislation to ban police chokeholds and no-knock warrants, reform qualified immunity, and establish a national standard for use of force. However, she has faced criticism from progressives for her prosecutorial record in California, including her defense of the state’s death penalty. Bottom line: A potential Harris administration is expected to defend Biden’s economic policies, including electric car subsidies, green-energy projects, increased IRS enforcement funding, taxes on corporate stock buybacks, and a 15% minimum tax on large corporations. — Harris — age 59, making her 19 years younger than Trump — will try to turn the age and fitness issue on the GOP. As a former San Francisco district attorney and California attorney general, she will push a “prosecutor vs. convicted felon” strategy. Trump would be the oldest U.S. president entering a new term. Democrats are now reminding others what Nikki Haley said during her unsuccessful challenge of Trump: “The first party to retire its 80-year-old candidate is going to be the one who wins this election.” David Wasserman of the Cook Political Report with Amy Walter tweeted: “Now, R’s are locked into a nominee who’s 78, while Harris is 59. Recent 10-year age gaps between major nominees have favored (two) younger Dems: Of note: Wasserman did not mention this: In the 1984 presidential election, Ronald Reagan and Walter Mondale were the main candidates. Ronald Reagan was born on February 6, 1911, making him 73 years old at the time of the election on Nov. 6, 1984. Walter Mondale was born on Jan. 5, 1928, making him 56 years old during the same election. — What does all this mean for markets? “At the moment, not much,” TS Lombard wrote in a research note. “Polling before candidates start to run is notoriously wrong (DeSantis). Markets are priced for a Trump win and possible Republican sweep. Once the Dem Pres & VP are chosen, running, and impacting polls, will there be a market reaction (polls now undercount Dems). On economic policy, each side reflects a Jacksonian rather than Hamiltonian tilt. Yield curves do not have to wait for the Fed to turn steeply positive.” |
| Today’s Digital Newspaper |
MARKET FOCUS
• Subdued market response to another chaotic political weekend
• Nippon Steel hires former Sec. of State Mike Pompeo to assist in lobbying/U.S. Steel
• Oil prices dropped significantly on Friday
• What financial traders are focusing on this week
• Suez Canal Authority’s revenue fell by $2.2 billion, vessel transits plummet 22%
• Ag markets today
• Cattle on Feed Report: Placements less than expected
• Ag trade update
• NWS outlook
• Pro Farmer First Thing Today items
CONGRESS
• Lawmakers to question Secret Service Director Kimberly Cheatle at hearing today
ISRAEL/HAMAS CONFLICT
• Israeli Prime Minister Benjamin Netanyahu’s visit to Washington, D.C., significant
• Israel’s military reports intercepting surface-to-surface missile from Yemen
RUSSIA & UKRAINE
• Ukraine reaches preliminary $20 billion debt-restructuring deal
CHINA
• China announces surprise 10 bps interest rate cut, helping boost economic outlook
• Xi Jinping announces plans to improve finances of China’s indebted local gov’t
ENERGY & CLIMATE CHANGE
• FTC investigates major oil companies for possible collusion with OPEC
LIVESTOCK, NUTRITION & FOOD INDUSTRY
• Savor’s dairy-free butter made from CO2
• Two new human cases of H5N1 in Colorado
OTHER ITEMS OF NOTE
• Biden’s asylum crackdown leads to sharp decline in illegal immigration, notably in Tex.
| MARKET FOCUS |
— Equities today: Asian and European stock indexes were mostly lower overnight. U.S. stock indexes are pointed toward higher openings. The overall market response to Biden’s presidential contest exit has been relatively calm. The U.S. dollar has experienced a slight decline. Assets considered safe havens, such as U.S. Treasuries and the Swiss franc, have seen a modest increase. European stock markets have rebounded after experiencing their worst week of the year. In the U.S., futures markets are indicating a potential positive opening. The reaction reflects a mix of cautious optimism and strategic repositioning by investors. In Asia, Japan -1.2%. Hong Kong +1.3%. China -0.6%. India -0.1%. In Europe, at midday, London +0.7%. Paris +1.4%. Frankfurt +1.4%.
U.S. equities Friday and for the week: All three indices registered losses on Friday, but the Dow managed to gain for the week while the Nasdaq and S&P 500 both had losing results. The Dow was up 0.7% in its third straight weekly rise, while the Nasdaq lost 3.6%, ending a string of six weekly advances, and the S&P 500 declined 2% for its worst week since April. On Friday, the Dow fell 377.49 points, 0.93%, at 40,287.53. The Nasdaq declined 144.28 points, 0.81%, at 17,726.94. The S&P 500 lost 39.59 points, 0.71%, at 5,505.00.
— Nippon Steel announced it has hired former Secretary of State Mike Pompeo to assist in lobbying for its acquisition of U.S. Steel. Both President Biden and former President Trump oppose the deal. Nippon Steel stated that Pompeo, who also previously led the CIA, would help convey the company’s perspective that the acquisition would enhance America’s economic and national security.
— Oil prices dropped significantly on Friday, reaching their lowest levels since mid-June, as investors considered a potential ceasefire in Gaza and a stronger U.S. dollar. Brent crude fell by $2.48, or 2.9%, to $82.63 per barrel, while U.S. West Texas Intermediate crude decreased by $2.69, or 3.3%, to $80.13 per barrel. Oil prices found some support from a slight decrease in U.S. oil rigs and a global tech outage affecting multiple industries. Additionally, two large oil tankers collided and caught fire near Singapore, a critical hub in global oil trade, disrupting operations.
— Ag markets today: Corn, soybeans and wheat traded solidly higher during the overnight session to open the week. As of 7:30 a.m. ET, corn futures were trading 5 to 6 cents higher, soybeans were 13 to 20 cents higher, SRW wheat was 3 to 4 cents higher, HRW wheat was around a penny higher and HRS wheat was 7 to 8 cents higher. The U.S. dollar index was around 125 points lower and front-month crude oil futures were about 40 cents lower this morning.
Wholesale beef prices continue to fall, but movement remains strong. Wholesale beef prices fell another $2.32 for Choice to $313.83 and 66 cents for Select to $298.80 on Friday, while movement totaled 131 loads. Recent weakness in wholesale beef prices has triggered stronger retailer demand as movement averaged 141.4 loads last week.
Cash hog index rises again. The CME lean hog index is up 44 cents to $89.71 as of July 18, the fifth consecutive daily gain and the highest level since June 26. August lean hog futures finished Friday at a $1.865 premium to today’s cash quote.
— Agriculture markets Friday and for the week:
• Corn: December corn futures slid a quarter of a penny to $4.04 3/4, marking a 10-cent loss on the week.
• Soy complex: November soybeans fell 7 cents to $10.36 and lost 29 1/4 cents on the week. December meal futures fell $4.00 to $307.50 a posted a $6.60 week-over-week loss and closed lower for the eighth straight week. August soyoil rose 11 points to 46.56 cents but closed 9 cents lower on the week.
• Wheat: December SRW wheat futures rose 8 cents to $5.68, near mid-range and for the week down 7 3/4 cents. December HRW wheat futures gained 7 3/4 cents to $5.86 3/4, near mid-range and for the week up 1/4 cent. December spring wheat futures rose 9 1/4 cents to $6.29 1/2 and rose 12 1/4 cents on the week.
• Cotton: December cotton slid 123 points to 70.70 cents and posted a 57-point weekly loss.
• Cattle: August live cattle futures rose 85 cents to $183.10, nearer the session high and on the week up 72 1/2 cents. August feeder cattle futures fell 62 1/2 cents to $255.60, nearer the session high and for the week down $3.05.
• Hogs: Nearby August ended the day 20 cents higher at $91.575, while the deferred contracts posted sizeable gains. August futures ended the week having risen $2.125 since last Friday.
— Quotes of note:
• No fly zone. 1,700: The approximate number of flights canceled on Sunday alone, adding to the roughly 5,500 that were called off Friday and Saturday as a result of the technology-fueled meltdown that began Friday.
• “How can we depend so much on one company?” — Hemant Rathod, an executive at Indian construction-materials company, on the global Microsoft CrowdStrike outage.
• Don’t bank on it. “State laws interfering with financial institutions’ ability to comply with national security requirements heighten the risk that international drug traffickers, transnational organized criminals, terrorists and corrupt foreign officials will use the U.S. financial system to launder money, evade sanctions and threaten our national security.” — Treasury Undersecretary Brian Nelson, in a letter to lawmakers.
— Investors are eagerly anticipating the release of estimates on second-quarter economic output and the Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) index for June, both of which are due later this week. These reports come just days before the Federal Reserve’s policymakers meet to decide on the next move for interest rates.
Fed officials have indicated that the time to lower rates is approaching, although a rate cut next week is unlikely. Inflation has been normalizing, and the job market is showing signs of cooling, both factors that support the Fed’s goal of moving inflation towards its 2% target.
Meanwhile, stock market volatility has returned, with the Cboe Volatility Index rising by 32.6% last week, marking the largest weekly increase since March 2023, when bank collapses disrupted the market.
Economists predict that the first estimate for second-quarter gross domestic product (GDP) will show a 1.9% increase from the first quarter, surpassing the 1.4% growth reported for the first quarter. Some estimates, such as the Atlanta Fed’s GDP Now, forecast an even higher gain of 2.7%.
The PCE index is expected to rise by 0.08% from May and by 2.4% from June last year, a slower rate compared to the 2.6% annual increase in May. Core PCE, which excludes food and fuel, is projected to rise by 0.1% for the month and by 2.5% for the year.
Looking ahead, Wall Street sees a 95% probability that the Fed will maintain the current interest rates at the end of its meeting next week. However, investors will closely watch Chairman Jerome Powell’s comments during his press conference. Traders also anticipate a 93% probability of a quarter-point rate cut in September.
Market perspectives:
— Outside markets: The U.S. dollar index is a bit weaker. Nymex crude oil prices are slightly down and trading around $79.75 a barrel. The benchmark 10-year U.S. Treasury note yield is presently 4.21%.
— Cattle on Feed Report: Placements less than expected. USDA estimated the large feedlot (1,000-plus head) inventory at 11.304 million head as of July 1, up 61,000 head (0.5%) from year-ago, though 23,000 head less than the average pre-report estimate implied. June placements declined 6.8%, while marketings dropped 8.7% – both falling more than anticipated – especially placements. The data is relatively neutral, though the placements number may attract some buying in deferred live cattle futures.
— Suez Canal Authority’s revenue fell by about $2.2 billion and vessel transits plummeted 22% on the impact of Houthi attacks on commercial shipping. Link for details.
— Ag trade update: The Philippines tendered to buy up to 240,000 MT of optional origin corn. Indonesia tendered to buy 320,000 MT of 5% broken grade white rice from Vietnam, Thailand, Myanmar, Cambodia and Pakistan.
— NWS outlook: Major to locally extreme Heat Risk expected to expand from the Great Basin into the northern High Plains by Wednesday as well as over portions of the Central Valley of California... ....Scattered thunderstorms across the southern Plains to the Southeast today near a stalled front will gradually shift toward the East Coast as another front will spread additional thunderstorms across the Great Lakes to New England Tuesday and Wednesday... ...Monsoonal thunderstorms continue across the Great Basin and into the Four Corners region with threat of localized flash flooding.
Items in Pro Farmer’s First Thing Today include:
• Grains higher to open the week
• Rain to favor western and northern Corn Belt
| CONGRESS |
— Lawmakers are set to question Secret Service Director Kimberly Cheatle at a congressional hearing today following the assassination attempt on former President Trump just over a week ago. In response to the incident, Cheatle released a statement supporting independent reviews of the agency’s actions that day. The Secret Service recently admitted that there have been instances where it did not provide full federal resources to Trump’s campaign, though no requests were denied at the Pennsylvania rally where the shooting occurred. Critics are scrutinizing the agency’s preparations and responses, with some, including House Homeland Security Chairman Mark Green (R-Tenn.), calling for Cheatle to resign.
Of note: Homeland Security Secretary Alejandro Mayorkas has named a bipartisan independent panel to review the attempt on Donald Trump’s life earlier this month.
| ISRAEL/HAMAS |
— Israeli Prime Minister Benjamin Netanyahu’s visit to Washington, D.C., is significant for several reasons, given the current political climate in the United States. This is Netanyahu’s first visit to Washington in nearly four years and his first international trip since Oct. 7. Netanyahu aims to use this visit to improve his reputation as “the protector of Israel” and to reaffirm his influence in U.S. politics. The focus will likely be on the situation in Gaza and Biden’s efforts to establish a legacy, including possibly ending the conflict. Netanyahu will meet with Biden tomorrow and will also meet with VP Harris during this visit. Netanyahu also hopes to meet former President Trump, despite their strained relationship in recent years.
— Israel’s military reported intercepting a surface-to-surface missile from Yemen targeting the southern city of Eilat, marking the latest in a series of attacks from Houthi rebels in an escalating conflict. This follows an Israeli airstrike on Yemen’s western port of Hodeidah, which killed at least three people and wounded 80 others. Israel justified the strike as a measure to disrupt the flow of Iranian weapons to the Houthis, responding to a Houthi drone attack in Tel Aviv that killed one person and injured at least 10 others, the group’s first direct strike against Israel. Since Israel’s campaign in Gaza began, the Houthis have executed over 80 attacks on commercial ships in the Red Sea.
| RUSSIA/UKRAINE |
— Ukraine reached a preliminary $20 billion debt-restructuring deal, a move meant to preserve its limited cash for funding the war with Russia. Bondholders agreed to reduce the face value of the debt by more than 30%. Meanwhile, Ukrainian President Volodymyr Zelenskyy said his country needs long-range weapons to defend its cities and forces on the frontline from Russian bomb and drone attacks. Zelenskyy and Donald Trump spoke Friday, with both sides saying they were satisfied with the conversation.
| CHINA UPDATE |
— People’s Bank of China (PBOC) cut the seven-day reverse repo rate, the first reduction in nearly a year. The seven-day reverse purchase agreement was cut from 1.8% to 1.7%. The bank also slashed loan prime rates. Chinese banks lowered their main benchmark lending rates, reducing borrowing costs for mortgages and other loans. These moves, though modest, signal the urgency to support an economy growing at its slowest pace in over a year. China’s recent rate cuts reflect an urgent attempt to stabilize the economy, but significant challenges remain. Analysts suggest that while monetary policy adjustments are helpful, more robust fiscal measures will be essential for sustained recovery.
— President Xi Jinping announced extensive plans to improve the finances of China’s indebted local governments, as the Communist Party unveils its long-term economic blueprint. The new measures include shifting more revenue from the central government to local governments, such as by increasing their share of consumption tax. This marks the third significant taxation and fiscal reform in recent history, following the 1994 reforms that increased central revenue and the 2013 changes that allowed local governments to issue bonds.
Goal of adjustments. According to Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc, these adjustments are aimed at alleviating the imbalance between central and local government responsibilities and income. Xi’s vision, endorsed by some 400 senior officials at a recent conclave, includes promoting advanced manufacturing to propel China’s $17 trillion economy. The new resolution indicates that while Xi is fine-tuning policies to manage risks, there are no major shifts in his overarching plans.
Chinese policymakers are under pressure to resolve local governments’ 66 trillion yuan ($9.1 trillion) hidden debt crisis and rebalance the economy. By allowing local governments to receive a larger portion of consumption tax, officials hope to incentivize consumer spending and provide a new revenue stream for local authorities.
Key points of the report include establishing a housing system that promotes both renting and purchasing, allowing city governments more autonomy in regulating real estate, and pledging to let markets play a decisive role in resource allocation. There are also plans to gradually raise the retirement age and regulate executive wages at state-owned firms.
The private sector will see reduced market entry barriers, further opening of the infrastructure sector, and improved access to financing for private firms. However, additional taxes on goods could further stifle consumer sentiment amid a property slump that has slowed retail sales.
The resolution also emphasizes national security, suggesting it has been prioritized over economic concerns. It includes plans to potentially expand Beijing’s surveillance infrastructure by establishing a national unified population management mechanism. Alfred Wu, an associate professor at the National University of Singapore, noted that while investors had high hopes for the Third Plenum, the report mostly offered vague measures rather than concrete changes.
On fiscal reforms, China pledged to increase general transfer payments, gradually allow localities to receive more consumption tax, optimize the division of shared taxes, expand the use of local government special bonds, and allow localities to manage more non-tax incomes. Market reactions were initially poor due to the lack of specific policy signals, but more detailed policies may be revealed later this month at a meeting of the Politburo.
Xi’s emphasis on high-quality development, focusing on the quality of economic growth over its pace, and his ambitions to move China up the value chain through technological innovation were prominent in the report. The nation aims to achieve breakthroughs in artificial intelligence, new materials, and quantum technology, and to develop more controllable supply chains for integrated circuits and advanced materials.
Economists view technology self-sufficiency as a top economic issue for China. Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, noted that while the third plenum did not change the government’s policy objectives, it introduced new measures to achieve them.
| ENERGY & CLIMATE CHANGE |
— FTC investigates major oil companies for possible collusion with OPEC. The Federal Trade Commission (FTC) is investigating whether executives from major oil companies, including Hess Corp., Occidental Petroleum Corp., and Diamondback Energy Inc., improperly communicated with OPEC officials. The FTC is searching for evidence of collusion on oil pricing and output, which could violate U.S. antitrust laws.
Investigators are scrutinizing executives’ messages and communications for signs of improper discussions with OPEC, particularly during merger reviews among oil and natural gas companies in the Permian Basin. This examination was prompted by antitrust officials discovering such communications in recent deal reviews. The FTC is seeking definitive proof of illegal activities to refer the case to the Justice Department.
Of note: While the FTC, Occidental, Diamondback, and Hess have declined to comment, the agency gained access to the communications through negotiations with company lawyers. The FTC reiterated that companies must turn over communications from messaging apps like WhatsApp and Signal as part of standard review processes. The investigation is tied to ongoing deals each company is pursuing, with Occidental planning to close a major acquisition soon.
| LIVESTOCK, NUTRITION & FOOD INDUSTRY |
— Savor’s dairy-free butter made from CO2. A California-based startup named Savor, backed by Microsoft billionaire Bill Gates, claims to have developed a dairy-free butter alternative made from air, specifically through a thermochemical process that combines carbon dioxide, hydrogen, and oxygen to build fat molecules. This innovation aims to taste like traditional butter while significantly reducing the environmental impact associated with dairy farming. Savor’s butter is projected to have a carbon footprint of less than 0.8g CO2 equivalent per calorie, compared to the 2.4g CO2 equivalent per calorie for traditional butter.
Timeline. Savor is currently in the pre-commercial phase, working through regulatory approvals, and does not expect to start sales until at least 2025. The company has conducted informal taste tests with positive results and plans to conduct more formal testing as part of its commercialization efforts. The challenge lies in consumer acceptance of synthetic fats, as people may be hesitant to switch from their favorite dairy products to experimental foods.
Bill Gates advocates for lab-made fats and oils, emphasizing their potential to reduce the global carbon footprint. He highlights the efficiency of Savor’s production process, which does not release greenhouse gases, requires no farmland, and uses significantly less water than traditional agriculture. According to the UN Food and Agriculture Organization, livestock farming accounts for 14.5% of global greenhouse gas emissions, underscoring the environmental significance of reducing meat and dairy consumption. Link for more details via the Guardian.
— Two new human cases of H5N1 in Colorado. The U.S. Centers for Disease Control and Prevention on Friday confirmed two additional cases of H5N1 virus in Colorado poultry farm workers. The two new cases were in poultry workers with exposure to infected poultry during depopulation and disposal activities, the CDC said. Earlier last week, Colorado confirmed four
| OTHER ITEMS OF NOTE |
— Biden’s asylum crackdown leads to sharp decline in illegal immigration, especially in Texas. Since President Biden implemented a major asylum crackdown to restrict access across large parts of the U.S./Mexico border, illegal immigration has significantly and rapidly declined, particularly in Texas. The number of illegal crossings in June was about one-third of what it was last December. If the current trend continues, the number of illegal crossings this month could drop to levels seen at the end of the Trump administration. This decrease is attributed to enforcement policies from both the U.S. and Mexico, according to a report by Miriam Jordan and David Goodman of the New York Times.
| 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 | | 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 |