News/Markets/Policy Updates: Aug. 16, 2024
— Today in Raleigh, North Carolina, Vice President Kamala Harris is expected to propose several economic measures aimed at addressing key voter concerns such as housing and grocery costs. Her proposals include: • Federal ban on price gouging: Harris plans to introduce a federal ban on price gouging in the food and grocery sectors, particularly targeting the meat processing industry, which she claims is highly consolidated and contributes to rising grocery prices. Harris has declined to detail what her administration would consider “excessive” price gouging and how they would go about targeting companies, appearing to leave much of those decisions to FTC discretion. Calling out companies for running up the price of some food products polls well with swing-state voters and is supported by progressive groups. Several factors have made grocery prices volatile since the pandemic, including supply chain disruptions and a big shift in consumer buying patterns. These proposals are part of her broader economic agenda aimed at reducing costs for consumers and addressing inflationary pressures, which remain a significant concern for voters despite a generally strong economic performance. Of note: Harris’ price-gouging initiatives are unlikely to pass in Congress due to insufficient support. Her plan mirrors stalled legislation from Democratic Sens. Elizabeth Warren (D-Mass.), Bob Casey (D-Pa.), and Tammy Baldwin (D-Wis.), which has faced strong opposition from Republicans. — The meat industry has strongly rejected Harris’ pointing to meat prices at the center of food inflation. “It’s time for this administration to stop using the meat and poultry industry as a scapegoat and a distraction for the root causes of inflation and the significant challenges facing our economy,” National Chicken Council Interim President Gary Kushner said in a statement. The Meat Institute issued the following statement from Meat Institute President and CEO, Julie Anna Potts, in response to news reporting of a Harris Campaign proposal to place a federal ban on price gouging: “Consumers have been impacted by high prices due to inflation on everything from services to rent to automobiles, not just at the grocery store. A federal ban on price gouging does not address the real causes of inflation. “The Harris campaign rhetoric unfairly targets the meat and poultry industry and does not match the facts. Food prices continue to come down from the highs of the pandemic. Prices for meat are based on supply and demand. Avian Influenza, a shortage of beef cattle and high input prices like energy and labor are all factors that determine prices at the meat case. “Prices that livestock producers receive for their animals are also heavily influenced by supply and demand. Prices for cattle producers especially are at record highs, surpassing the 2014-2015 previous record highs. Today, well into 2024, cattle prices remain at record levels because the US has the lowest cattle inventory since Harry Truman was President. “Major meat companies have reported losses during the Biden-Harris Administration, with some closing facilities and laying off workers.” — Donald Trump held a press conference yesterday where he labeled Harris’ plan as “communist” and warned efforts to control grocery prices would lead to “food shortages, rationing, hunger, dramatically more inflation.” — Do food price controls work? While food price controls can offer short-term benefits in specific situations, such as during acute supply disruptions, they are generally seen as economically unsound in the long term. They tend to create more problems than they solve by distorting market mechanisms and leading to shortages. Most economists recommend targeted income support and structural economic policies as more effective alternatives for addressing food price inflation. — The Biden administration has previously raised concerns about potential price gouging in the food industry, particularly in the context of rising grocery prices. However, these charges have not been proven. Vice President Kamala Harris has been vocal about the issue, emphasizing the role of corporate price gouging in driving up grocery costs, particularly in the meat industry, which she claims has seen significant price increases. The administration has proposed measures to address these concerns, including advocating for a federal ban on corporate price gouging. This proposal aims to hold large corporations accountable for maintaining high prices on essential goods. Despite these claims, the economic community remains divided on the issue. Many economists argue that the primary drivers of recent price increases are supply chain disruptions, changes in consumer behavior, and increased demand due to government stimulus measures, rather than corporate practices. Some economists have criticized the administration’s focus on price gouging as a political maneuver rather than a substantive economic policy. — Fed study: Corporate price gouging not a significant factor in U.S. inflation surge. Earlier this year, a study published by economists at the Federal Reserve Bank of San Francisco concluded that corporate price gouging has not been a significant factor in the recent surge of U.S. inflation. The study, led by researchers Sylvain Leduc, Huiyu Li, and Zheng Liu, found that while there were spikes in markups for specific sectors like motor vehicles and petroleum products, the overall markups for U.S. goods and services have remained relatively stable. This suggests that rising corporate profits and price increases were not the primary drivers of inflation during the post-pandemic recovery. The study contradicts the narrative that corporate greed, often referred to as “greedflation,” is a major cause of inflation. Instead, it attributes the inflationary pressures to supply chain disruptions, a decrease in labor supply, and a surge in consumer demand during the recovery period. The easing of inflation is credited to improvements in supply chains, increased immigration, and reduced demand due to higher borrowing costs as the Federal Reserve raised interest rates. — Several recent U.S. presidents have attempted to implement price controls, with varying degrees of success and consequences. • Richard Nixon: Wage and Price Controls (1971-1973): President Richard Nixon is perhaps the most famous for implementing wage and price controls in the early 1970s. In August 1971, Nixon imposed a 90-day freeze on wages and prices to combat inflation, which was part of a broader economic strategy that included taking the U.S. off the gold standard. These controls were initially popular and appeared to be effective in curbing inflation temporarily. However, once the controls were lifted, inflation surged again, leading to economic distortions and shortages. The controls were largely seen as a failure in the long term, as they did not address the underlying causes of inflation and led to economic inefficiencies. • Gerald Ford: President Gerald Ford did not implement new price controls during his administration. Instead, he focused on ending existing controls. In response to the economic issues of the mid-1970s, Ford proposed ending price controls on domestic oil as part of his broader energy policy. This was part of a compromise with Congress, which allowed for a gradual phasing out of these controls over a forty-month period. Ford believed that removing price controls would stimulate domestic oil production and align with his free-market philosophy. However, this decision was contentious, with Democrats worried about potential long-term price increases and conservative Republicans dissatisfied with the compromise. Ultimately, Ford’s administration focused more on tax and spending policies, such as the “Whip Inflation Now” (WIN) campaign, which aimed to combat inflation through voluntary measures rather than mandatory controls. • Jimmy Carter: President Jimmy Carter, facing high inflation, introduced a program of voluntary wage and price controls in 1978. This approach was part of a broader anti-inflation strategy that included government restraint and efforts to reduce the federal deficit. The voluntary nature of the controls, however, led to skepticism about their effectiveness. Critics argued that voluntary controls were insufficient to curb inflation, which continued to rise during Carter’s presidency. In addition to voluntary controls, Carter also dealt with energy price controls. In response to the energy crisis and rising oil prices, he gradually deregulated oil prices starting in 1979, while also proposing a windfall profits tax to address public concerns about oil company profits. Despite these efforts, inflation remained a significant issue throughout Carter’s term, contributing to economic instability and public dissatisfaction. — The Secret Service will be surrounding former President Donald Trump with bulletproof glass at his future campaign rallies to enhance security. This move comes after an assassination attempt at a rally in Butler, Pennsylvania, last month. In addition to the ballistic glass, the Secret Service is also increasing the number of agents and making certain technological adjustments to ensure Trump’s safety. The ballistic glass, typically used to protect sitting presidents, will be strategically deployed across the country at locations Trump is expected to visit as he campaigns leading up to the Nov. 5 election. — The Cook Political Report with Amy Walter says that in collaboration with BSG and GS Strategy Group, it released the second installment of its 2024 Swing State Project Survey. Vice President Kamala Harris holds a narrow lead of 48% to 47% in the seven battleground states. Meanwhile, the election watcher adds that as Senate Democrats continue to outperform the top of the ticket, Nevada moves from Toss Up to Lean Democrat. New data from the Cook Political Report/GS Strategy Group/BSG Swing State Project polling shows Democratic Senate candidates continuing to run strong in every single swing presidential state, far outpacing Vice President Kamala Harris and leading outside the margin of error in races in Arizona, Michigan, Nevada, Pennsylvania and Wisconsin. |
| MARKET FOCUS |
— Equities today: Asian stocks also headed for their best weekly performance in over a year, led by Japan as a weak yen boosts exporters’ earnings prospects. The currency is set for its sharpest weekly drop since May, easing fears that yen-based carry trades are unwinding. In Asia, Japan +3.6%. Hong Kong +1.9%. China +0.1%. India +1.7%. In Europe, at midday, London -0.4%. Paris +0.3%. Frankfurt +0.7%. The U.S. Dow opened around 50 points lower.
U.S. equities yesterday: All three major indices scored solid gains after economic data eased concerns about recession possibilities. The Dow ended up 554.67 points, 1.39%, at 40,563.06. The Nasdaq gained 401.89 points, 2.34%, at 17,594.50. The S&P 500 rose 88.01 points, 1.61%, at 5,543.22. The major averages are all up between 2.5% and 5% on the week with one trading day to go.
— Bayer AG recently experienced a significant legal victory in its ongoing litigation over claims that its Roundup weed killer causes cancer. A Philadelphia appeals court ruled that federal regulations governing pesticide warning labels take precedence over state laws. This decision was made in the case of a Pennsylvania landscaper, David Schaffner, who claimed that Roundup caused his non-Hodgkin’s lymphoma and that Bayer’s Monsanto unit should have included a cancer warning on the product’s label.
This ruling is crucial for Bayer because it suggests that one of the central claims against the company may not succeed in state courts, where the majority of the current cases are being heard. The court’s decision was based on the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), which mandates uniform pesticide labeling across the United States, thus preventing individual states from imposing additional labeling requirements.
As a result of this legal win, Bayer’s shares surged by as much as 10% in early German trading, marking the largest intraday gain for the company in five years. This boost in share price comes after a significant decline since Bayer’s acquisition of Monsanto in 2018, which had opened the company to a wave of lawsuits related to Roundup.
Despite this victory, Bayer still faces approximately 58,000 unresolved claims related to Roundup. The company has previously settled a large portion of the litigation for $11 billion in 2020 but continues to confront new lawsuits. The recent court decision may lead to a review by the U.S. Supreme Court due to conflicting rulings from different federal appellate courts on similar issues, potentially impacting Bayer’s liability in future cases.
— Kroger announced plans to reduce grocery prices by $1 billion following its proposed merger with Albertsons. This move is part of a broader strategy to address regulatory concerns and demonstrate consumer benefits from the merger. Initially, Kroger had committed to a $500 million price reduction at Albertsons locations, but the company has since doubled this figure in its latest announcement.
Despite these promises, the merger faces significant regulatory challenges. The Federal Trade Commission (FTC) and several states have filed lawsuits to block the merger, arguing that it could reduce competition in the grocery sector, potentially leading to higher prices and lower wages for employees. In response, Kroger and Albertsons have agreed to divest 413 stores and eight distribution centers to C&S Wholesale Grocers, aiming to alleviate antitrust concerns.
The merger has sparked a debate about its potential impact on the grocery market. Proponents, including some state attorneys general, argue that the merger could create a stronger competitor against larger retail giants like Walmart and Amazon, potentially benefiting consumers through lower prices and improved services. However, critics fear that reduced competition could harm consumers and workers in the long run.
— Ag markets today: Corn and soybeans faced price pressure overnight, while wheat traded narrowly on both sides of unchanged. As of 7:30 a.m. ET, corn futures were trading 2 to 3 cents lower, soybeans were mostly 8 lower and wheat futures were trading within a penny of either side of unchanged. The U.S. dollar index was down more than 200 points, and front-month crude oil futures were about $2.25 lower.
Delayed cash cattle trade. A limited number of cash cattle traded so far this week at weaker prices, though most feedlots continued to hold out in hopes of steady to possibly firmer bids. It’s possible the bulk of this week’s cash activity could take place after the cattle futures market closes.
Slide stalls in cash hog index. The CME lean hog index is up 2 cents to $90.20 as of Aug. 14, ending an eight-day slide that saw the value decline $3.48. The pork cutout firmed 56 cents on Thursday as all cuts except picnics firmed.
— Agriculture markets yesterday:
• Corn: December corn fell 3 3/4 cents to $3.97, near the session low.
• Soy complex: November soybean futures closed steady on the session at $9.68 1/2, though settled nearer session lows. September meal futures firmed $2.80 to $307.90 and closed nearer session lows. September bean oil futures sunk 54 points to 39.47 cents and made a fresh contract low.
• Wheat: December SRW wheat fell 6 cents to $5.50 1/4 and near the daily low. December HRW wheat fell 8 1/2 cents to $5.52 3/4, near the session low and closed at a contract low close. September spring wheat futures fell 5 3/4 cents to $5.86 1/4.
• Cotton: December cotton futures firmed 10 points to 67.15 cents though settled nearer session lows.
• Cattle: October live cattle fell $1.375 to $180.75 and near the session low after hitting a two-week high early on. October feeder cattle closed down $1.20 at $240.90 and near the session low.
• Hogs: Nearby October futures rose 57.5 cents to $76.50.
Market perspectives:
— Outside markets: The U.S. dollar index was lower, with the euro and British pound stronger against the greenback. The yield on the 10-year U.S. Treasury note was lower, trading around 3.87%, with a negative tone in global government bond yields. Crude oil futures were lower, with U.S. crude trading at around $75.80 per barrel and Brent trading at around $78.80 per barrel. Gold futures were up and silver futures were down, with gold higher around $2,508 per troy ounce and silver lower around $28.22 per troy ounce.
— In March and April 2024, wind turbines in the United States generated more electricity than coal-fired power plants, according to the Energy Information Administration, marking a significant milestone in the country’s energy transition. This achievement is attributed to several factors, including technological innovations that have reduced the costs of building renewable energy infrastructure, tax incentives provided by the Inflation Reduction Act, and state mandates requiring utilities to support clean energy growth.
Despite this progress, fossil fuels still accounted for the majority of electricity generation in the U.S. during the first four months of 2024. About 60% of electricity generation came from fossil fuels, including coal, natural gas, and petroleum. However, the trend indicates a shift towards renewable energy sources, with wind and solar power expected to surpass coal for the entire year of 2024.
The Inflation Reduction Act has played a crucial role in this transition by offering tax credits and incentives for renewable energy projects. These include a 30% Investment Tax Credit for wind, solar, and energy storage projects, and additional bonuses for projects located in low-income or energy communities. These incentives are designed to lower the costs of renewable energy projects and promote economic growth in communities historically reliant on fossil fuels.
— The gold market has been experiencing notable trends influenced by various global economic factors.
• U.S. economic indicators: Despite strong U.S. retail sales and jobless claims data, which typically would cap gold’s upside, the gold market has shown resilience. This is partly due to ongoing geopolitical uncertainties, particularly in the Middle East, which continue to support gold prices by providing a safety net for investors seeking stability.
• Chinese market trends: In China, there is a strong preference for gold over diamonds as an investment. This shift is largely due to economic uncertainties and the perception of gold as a safer and more liquid asset compared to diamonds. Despite a decrease in gold jewelry demand, investment demand for gold remains robust. The People’s Bank of China (PBOC) has been a significant player in the global gold market, being the largest single buyer of gold in 2023. This trend is expected to continue due to geopolitical risks and the need to diversify away from U.S. dollar-denominated assets.
• Indian market dynamics: In India, the demand for gold is traditionally linked to cultural events such as weddings and festivals. However, recent surges in global gold prices have dampened demand during the wedding season, as high prices have made consumers hesitant to purchase gold. Despite this, the Indian market still sees significant buying interest during the harvest and festival seasons, which are culturally significant times for gold purchases.
Price movements and technical outlook
• Price levels: Gold prices have been trading above the critical $2,450 level, with significant resistance at $2,470. A break above this level could lead to a move towards the all-time high of $2,484 and potentially higher to $2,500. Conversely, failing to hold above $2,450 could result in a pullback.
• Technical Indicators: The short-term technical outlook shows that gold is trading within a symmetrical triangle formation, indicating potential for both upward and downward movements. The Stochastics Oscillator and RSI suggest near overbought conditions, reflecting the current market’s cautious optimism
— The Canadian government has rejected Canadian National Railway’s (CN Rail) request for binding arbitration in its ongoing labor dispute with the Teamsters union. Canadian Labor Minister Steven MacKinnon emphasized that it is the responsibility of both CN Rail and the union to negotiate in good faith to reach an agreement. This decision comes amid a deadlock in negotiations between CN Rail, Canadian Pacific Kansas City (CPKC), and the Teamsters union. Both rail companies have threatened to lock out workers on Aug. 22 if a labor deal is not reached, while the union has indicated its readiness to strike on the same date.
The Canada Industrial Relations Board (CIRB) has ruled that a work stoppage would not pose an immediate threat to public health and safety, allowing the possibility of a strike. The CIRB has also imposed a 13-day cooling-off period, meaning a strike cannot occur before Aug. 22. The potential strike could have significant economic implications, as railways are crucial for the transportation of goods across Canada and to the U.S., affecting industries such as agriculture, automotive, and petroleum.
Business groups and industry associations have expressed concern over the potential economic disruption a strike could cause, urging the Canadian government to intervene to prevent a labor stoppage. They highlight the importance of railways to Canada’s economy and the potential impact on trade relations, especially with the United States
— Southern African nations to import 3 million tons of corn due to record El Niño-induced drought, driving up food costs. Southern African nations battling the fallout of a record El Niño-induced drought this year will need to import at least an additional 3 million tons of corn in the coming months, driving up food costs, the Famine Early Warning Systems Network said. Link for details.
— Egypt’s state grain buyer, GASC, purchased only 280,000 tons of wheat from Ukraine and Bulgaria in a recent tender, far short of its initial target of 3.8 million tons. The wheat is scheduled for delivery in October and November. This significant shortfall underscores the difficulties in securing large wheat supplies months in advance. GASC had aimed to cover wheat needs through April but managed to secure less than a tenth of the desired amount. Link to more via Bloomberg.
— NWS outlook: There is a Slight Risk of excessive rainfall over parts of the Tennessee Valley and Southern Appalachians on Friday... ...There is a Slight Risk of severe thunderstorms over parts of the Central/Southern Plains on Friday... ...There are Excessive Heat Warnings and Heat Advisories over parts of the Central/Southern Plains and Lower Mississippi/Tennessee Valleys.
Items in Pro Farmer’s First Thing Today include:
• Corn and soybeans weaker, wheat narrowly mixed this morning
• Vilsack: USDA seeks easier rules for crops to be used for SAF
• Heavy late-season rains cut German wheat production
| CONGRESS |
— House Speaker Mike Johnson (R-La.) is currently considering a six-month continuing resolution (CR) to maintain government funding beyond the end of Fiscal Year 2024, which concludes on Sept. 30. This proposal aims to extend funding into the next Congress, potentially aligning with the preferences of ultraconservatives in the House who are advocating for addressing spending issues in 2025, anticipating a potential Republican victory in the presidential election.
However, this approach faces opposition from appropriators and other lawmakers who favor a shorter CR, extending only until late November or early to mid-December. This shorter timeframe would allow Congress to work on annual spending measures during the lame-duck session after the elections, potentially pushing some spending bills into 2025.
The House Freedom Caucus, a group of conservative Republicans, is also pushing for a CR that includes controversial provisions such as proof-of-citizenship requirements for voting, which Democrats strongly oppose. This demand could lead to a government shutdown if not resolved, as it is unlikely to pass in the Democrat-led Senate.
Speaker Johnson is navigating significant pressure from different factions within his party. While some conservatives are urging him to adopt a hardline stance on spending and border security, others are advocating for bipartisan cooperation to avoid a shutdown. Johnson’s leadership is being tested as he attempts to balance these competing demands and maintain party unity.
— Senate field hearing highlights need for government efficiency, collaboration in ag research and funding. At a U.S. Senate committee hearing held on Aug. 15 at Grand Farm near Casselton, North Dakota, discussions focused on the need for greater government efficiency and collaboration in agricultural research and funding. Greg Tehven, one of Grand Farm’s founders, urged the federal government to honor its financial commitments more promptly, highlighting the challenges faced when payments are delayed.
The hearing, organized by Sen. John Hoeven (R-N.D.), included testimony from several key figures, including Sens. John Boozman (R-Ark.), Amy Klobuchar (D-Minn.), and Tina Smith (D-Minn.). A recurring theme was the importance of public-private partnerships, as exemplified by Grand Farm, and the need to simplify USDA loan and grant processes to make them more accessible, especially for small communities.
USDA Deputy Secretary Xochitl Torres Small announced improvements in loan application processes, including the introduction of online applications and payments. Additionally, USDA Undersecretary Chavonda Jacobs-Young emphasized the need for advanced technology and broadband to support agricultural research. North Dakota State University Vice President Greg Lardy and American Soybean Association President Josh Gackle also stressed the importance of robust ag research funding, noting that U.S. federal funding has declined compared to other countries.
The Senate Appropriations Committee has proposed increased funding for agricultural research in the fiscal year (FY) 2025 budget:
• $1.87 billion is allocated for the Agricultural Research Service, which is a $29 million increase over FY 2024.
• The bill provides $1.019 billion for conservation programs, a $68 million increase over FY 2024.
| RUSSIA/UKRAINE |
— Ukrainian authorities are urging residents near the eastern frontline, particularly in the city of Pokrovsk, to evacuate as Russian forces advance. Moscow’s troops have been making steady progress in Ukraine’s Donetsk region, with Russian forces now within 10 kilometers of Pokrovsk. The situation is becoming increasingly dangerous, as Russian attacks target critical infrastructure and residential areas.
The Institute for the Study of War, based in Washington, reported that Russian forces are maintaining a high pace of offensive operations in Donetsk, reflecting Moscow’s strategic focus on this region. Additionally, Russian forces have made gains towards the cities of Pokrovsk and Toretsk and have occupied parts of Niu York, as confirmed by Deepstate, a military analysis group connected to Ukraine’s defense ministry.
Ukrainian troops, meanwhile, are attempting to secure more territory in Russia’s Kursk region.
Ukrainian President Volodymyr Zelenskyy announced that Ukrainian troops have gained full control of the Russian town of Sudzha, located in the Kursk border region. Sudzha, with a pre-evacuation population of about 5,000, is the largest town to fall during Ukraine’s recent ten-day incursion.
Meanwhile, Belarusian President Alexander Lukashenko has urged Russia and Ukraine to end their conflict, a statement he made in an interview that is set to be broadcast on Russian state media.
— Ukrainian grain exports through Romania’s Constanta port dropped to 4.62 million metric tons (MMT) from January to July, marking a 43% decrease compared to the same period in 2023, according to the port authority. Despite this significant decline in Ukrainian shipments, overall grain exports through the Constanta port remained nearly unchanged year-over-year at 18.2 MMT. The report did not specify the origin of the grain exports that maintained the overall volume, even as Ukrainian exports saw a dramatic decrease.
| TRADE POLICY |
— The issue of missing U.S. cotton export sales and shipment reports potentially involving a large U.S. exporter highlights the importance of compliance with USDA’s Export Sales Reporting Program. In the case of cotton, this program mandates that U.S. exporters report export sales on a weekly basis. The regulations require exporters to maintain accurate records and report sales promptly to ensure market transparency and compliance with federal laws.
Background: Each week, U.S. exporters are required to report to USDA’s Foreign Agricultural Service (FAS) any sales transaction entered into with a buyer outside the United States for the following commodities, regardless of quantity
Barley Cottonseed Oil Soybeans
Beef Flaxseed Soybean Cake and Meal
Cattle Hides and Skins Grain Sorghum Soybean Oil
Cattle Wet Blues Linseed Oil Sunflower Seed Oil
Corn Oats Wheat (by class)
Cotton (by type) Pork Wheat Products
Cottonseed Rice (by class)
Cottonseed Cake and Meal Rye
Reports have surfaced that a major player in the agricultural sector has recently undergone restructuring efforts due to financial challenges and a downturn in global commodity prices. This restructuring might have led to personnel changes within their cotton division, potentially contributing to lapses in reporting. As new staff took over, there might have been an oversight in understanding and adhering to these reporting requirements, which could explain the missing reports over a period of up to two years.
Failure to report export sales can have serious consequences, including fines and imprisonment, as well as impacting market data reliability. Any person who knowingly fails to report export sales pursuant to the requirements of these regulations shall be fined not more than $25,000 or imprisoned not more than one year, or both. USDA’s Foreign Agricultural Service (FAS) is tasked with ensuring compliance and may conduct audits to verify the accuracy of reported data. If a company’s weekly cotton export sales were indeed not reported, it would be a significant compliance issue that could affect market perceptions and regulatory actions.
Recall that for the week ending July 25, USDA reported that net sales reductions of Upland totaled 1,085,800 RB for 2023-2024 resulting in increases primarily for Indonesia (3,000 RB, including decreases of 1,100 RB), Mexico (3,000 RB), Japan (1,400 RB), Thailand (700 RB), and Honduras (400 RB), were more than offset by reductions primarily for China (597,300 RB), Pakistan (369,100 RB), and Vietnam (126,100 RB). BUT… In that same weekly report: Net sales of 1,355,700 RB for 2024-2025 primarily for China (650,100 RB), Pakistan (419,800 RB), Vietnam (215,200 RB), India (22,800 RB), and Turkey (13,600 RB), were offset by reductions for El Salvador (3,000 RB) and South Korea (700 RB).
For the week ending Aug. 1, USDA reported that net sales reductions of upland cotton totaled 949,600 RB for 2024-2025 marketing year, which began Aug. 1, resulted in increases primarily for India (43,600 RB, including decreases of 8,800 RB), Mexico (40,400 RB, including decreases of 900 RB), Costa Rica (25,900 RB), Turkey (15,100 RB, including decreases of 800 RB), and Guatemala (5,000 RB), were more than offset by reductions primarily for China (603,200 RB), Pakistan (372,200 RB), and Vietnam (111,800 RB).
| ENERGY & CLIMATE CHANGE |
— ASA responds to CARB’s Proposed Changes to LCFS. The California Air Resources Board (CARB) earlier this week proposed significant changes to its Low Carbon Fuel Standard (LCFS), particularly affecting soy-based biofuels. These changes include:
• Cap on soybean oil use: CARB proposes a 20% cap on vegetable oils like soy and canola for biofuel production, with anything beyond this limit being classified as fossil fuels. This move is intended to prevent an overreliance on vegetable oil-based biodiesel to meet California’s demand, which currently sees virgin oils making up 30% of biodiesel shipments.
• Restriction on biodiesel pathways: Starting in 2031, CARB’s executive officer may stop accepting new biodiesel pathway applications if zero-emission vehicle sales reach a certain threshold, potentially curbing the future market for biodiesel.
• Sustainability criteria: CARB will implement phased sustainability requirements, with benchmarks aligned with the EU Renewable Energy Directive. By 2026, fuel producers must provide data on farm boundaries for soybean sourcing.
• Regional land use change: The proposal introduces more conservative land use change values depending on the feedstock production region, assigning different scores based on geographic areas.
• Carbon intensity thresholds: CARB intends to raise carbon intensity reduction targets from 5% in 2025 to 9%, stabilizing at a 30% reduction by 2030.
The American Soybean Association (ASA) is concerned about these changes, especially the cap on soybean oil, which could hurt the soy biodiesel market by shifting focus towards used cooking oil and imported waste feedstocks. ASA is currently reviewing the proposal and preparing to submit comments before the Aug. 27 deadline, with the final decision from CARB expected in November.
— Vilsack advocates for flexible regulations on crop use in renewable fuel production. USDA Secretary Tom Vilsack is advocating for more flexible regulations regarding the use of crops as feedstocks in the production of renewable fuels, specifically sustainable aviation fuel (SAF). Vilsack highlighted the need for easing tax credit requirements for farmers during an ethanol conference in Nebraska. Currently, to qualify for subsidies under the 45Z clean fuel credit, farmers are required to implement practices such as planting cover crops, no-till farming, and using efficient fertilizers. These practices, while environmentally beneficial, can be challenging for some producers to adopt.
USDA’s proposal aims to provide farmers with a “menu of activities and actions” to choose from, offering greater flexibility in meeting the requirements for these subsidies. Additionally, USDA is working to ensure that the benefits of these subsidies are not limited to traditional crops like corn and soybeans, potentially expanding eligibility to a broader range of crops.
The 45Z clean fuel production credit, which will take effect in January 2025, is part of a broader effort to consolidate and replace existing incentives for renewable fuels. This credit is designed to support the production of clean transportation fuels, including SAF, by providing financial incentives based on the carbon emissions of the fuel produced. USDA’s push for regulatory flexibility is intended to make it easier for farmers to participate in this program, thereby supporting the growth of the biofuels industry. The Treasury issued regulations in April for 40B credits, for crops grown from 2022-24. Very little of U.S corn and soybeans met the 40B requirements of being grown on farms that employ no-till and cover crops, with the additional limitation of using high-efficiency fertilizer on corn.
“The real game here is 45Z, we recognize that,” said Vilsack. “We understand very, very well the significance and importance of the next several months in this process” of interagency discussions that will lead to the 45Z regulation. “Our goal is to…make the case that there are a number of crops — corn and soybeans obviously two of them, but not necessarily the only two — that can be beneficial and that there are specific actions that are being taken on farms and that can make a difference and ought to be included,” said Vilsack. “In other words, not simply requiring a bundling of actions, but giving farmers flexibility and choice to choose from a menu of activities and actions, all of this designed to create the greatest amount of flexibility, the greatest opportunity for choice on the farm, and then make the case to the Treasury Department and the interagency process of the importance of including that model…into the [IRS] guidance.”
Vilsack also warned against a push to prevent U.S. biofuels made with foreign ingredients from reaping the benefits of the 45Z tax credit, saying it could hurt American trade.
During the speech to the American Coalition for Ethanol, Vilsack said a new round of grants would be made today through USDA’s Higher Blends Infrastructure Incentive Program. The grants help fuel distributors and retailers install pumps, tanks, and infrastructure to sell higher blends of biofuels, such as E15, a 15% blend of ethanol into gasoline, and B20, a 20% blend of biodiesel into petroleum-based diesel.
— In recent years, the U.S. has seen significant growth in its biofuel production capacity, particularly in renewable diesel. In the past year alone, five new renewable diesel plants were opened, leading to a 44% increase in production capacity, reaching 282,000 barrels per day (bpd). These new facilities were distributed across the U.S., with two plants each on the Gulf Coast and West Coast, and one on the East Coast, bringing the total number of renewable diesel facilities to 22.
This expansion in renewable diesel capacity is part of a broader trend in the U.S. biofuel industry, which has been influenced by various factors, including government policies like the Renewable Fuel Standard (RFS) and state-level initiatives such as California’s Low Carbon Fuel Standard (LCFS). These policies have created financial incentives that have significantly boosted the production and consumption of renewable diesel, particularly in California, which has become the largest and fastest-growing market for this fuel type.
Despite the growth in renewable diesel, the biofuel industry has faced challenges, particularly in the biodiesel sector. Over the past year, three biofuel plants were closed, one each on the East Coast, West Coast, and in the Midwest. Additionally, Chevron announced the indefinite closure of two of its biodiesel plants due to market challenges and regulatory pressures. Challenges include regulatory uncertainties, market conditions, and competition for feedstocks between biodiesel and renewable diesel production.
| LIVESTOCK, NUTRITION & FOOD INDUSTRY |
— FDA has proposed new voluntary sodium reduction targets as part of its ongoing efforts to decrease sodium intake in the U.S. food supply. These targets, referred to as Phase II, are part of a draft guidance issued on Aug. 15, 2024. The guidance aims to reduce average sodium intake to about 2,750 milligrams per day, which is still above the recommended limit of 2,300 milligrams per day for individuals aged 14 and older, but represents a significant reduction from previous levels of around 3,400 milligrams per day.
Key points of FDA’s sodium reduction initiative
• Scope and goals: The Phase II targets cover 163 categories of commercially processed, packaged, and prepared foods. The initiative builds on the Phase I targets introduced in 2021, which aimed to reduce sodium intake to 3,000 milligrams per day. The new targets are expected to further reduce intake by about 20% from pre-2021 levels.
• Public health impact: Excessive sodium intake is linked to hypertension, cardiovascular disease, and strokes. By reducing sodium levels, the FDA aims to prevent a significant number of premature deaths and health issues related to high sodium consumption. More than 70% of sodium intake comes from processed and commercially prepared foods, making these targets crucial for public health.
• Voluntary nature and industry involvement: The FDA’s approach is voluntary, encouraging food manufacturers and restaurants to gradually reduce sodium levels. The agency is seeking public comments on the draft guidance before finalizing the targets. This collaborative approach aims to balance sodium reduction with technical and market constraints in food production.
• Complementary efforts: The FDA’s sodium reduction strategy is part of a broader government initiative to address diet-related chronic diseases. It aligns with the White House’s National Strategy on Hunger, Nutrition, and Health, and complements USDA’s sodium limits for school meals.
| POLITICS & ELECTIONS |
— Florida rebel Rep. Matt Gaetz is facing Republican voters in an upcoming primary for the first time since leading the effort to oust his party’s speaker last fall. Gaetz enters the primary with an endorsement from Donald Trump and the precedent that four out of five GOP members who also voted to remove Kevin McCarthy were renominated. His opponent, Navy veteran Aaron Dimmock, has received financial support from some of Gaetz’s House colleagues and billionaires Paul Singer and Stan Druckenmiller. Additionally, over $3 million has been spent by super PACs opposing Gaetz. Still, Gaetz is the favorite to win.
In other Florida races, Democrats will select candidates to run against Sen. Rick Scott and Reps. Anna Paulina Luna and Maria Elvira Salazar.
Meanwhile, Alaska and Wyoming also have upcoming primaries. In Alaska, all candidates appear on a single primary ballot, with the top four advancing to the general election. Rep. Mary Peltola (D) is running on a platform focused on “fish, family, and freedom,” while Lt. Gov. Nancy Dahlstrom (R), supported by Trump and House Republican leaders, is among her challengers.
| OTHER ITEMS OF NOTE |
— Cotton AWP edges down. The Adjusted World Price (AWP) for cotton moved down to 55.19 cents per pound, effective today (Aug. 16), down from 55.35 cents per pound the prior week. Meanwhile, USDA announced Special Import Quota #18 will be established Aug. 22 for 43,369 bales of upland cotton, applying to supplies purchased no later than Nov. 19 and entered into the U.S. no later than Feb. 17.
— Greg Henderson at Drovers passed away unexpectedly. Henderson made significant contributions to the beef industry through his work as an editorial director and writer for Drovers, a leading publication in the field. His contributions include:
• Industry analysis and reporting: Henderson has provided in-depth analysis and reporting on various aspects of the beef industry, including cattle feeding margins, market trends, and the impacts of economic factors on beef prices and production.
• Advocacy and education: He has been involved in discussions about major challenges facing the industry, such as drought conditions affecting cattle and pastures. Henderson participated in panels with experts to address these issues, highlighting the severe disruptions caused by droughts and their lasting impact on the cattle industry.
• State of the industry reports: Henderson has contributed to reports like the Drovers 2023 State of the Beef Industry Report, which covers critical topics such as environmental impact reduction, animal welfare, and the demand for higher quality carcasses. These reports provide valuable insights and data that help industry stakeholders understand current trends and challenges.
Chip Flory of AgriTalk said: “I loved working with Greg. Greg loved what he did. He was passionate about beef... and feedyards... and cow-calf ranches... and backgrounders. He loved them all. And he knew the ‘in-fighting’ in the industry was a sure way to ruin it... he was always looking for a solution to get the different segments of the industry to work together for the benefit of everyone. He understood how important consumers are to the industry and worked hard to help people understand how consumers changed since Covid and how that change was a positive for beef and cattle, but that it also put pressure on each segment to ‘deliver the goods’ – that’s why he talked so much about beef quality. He loved the industry and respected everyone in it. The industry is going to miss his reason and his curiosity. I’m going to miss Greg – a lot.”
| 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 |