House Farm Bill Reference Prices; Two Key Pay Limit Provisions; Base Acres

Text and other provisions released for proposed House farm bill

Jim Wiesemeyer

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May 17, 2024 09:03 AM

Text and other provisions released for proposed House farm bill

Today’s Digital Newspaper

MARKET FOCUS

Dow up 28% since President Biden was inaugurated in January 2021
Several Fed officials say central bank should keep borrowing costs high for longer
Walmart shares hit all-time high on Thursday, rising about 7%
Ford asks EV suppliers to cut prices
ECB Executive Board member Schnabel warns against back-to-back interest-rate cuts
Deere CFO comments
Ag markets today
Ukrainian farmers at 5.1 mil. hectares (12.5 mil. acres) spring grain crops as of May 10
HRW wheat tour calculates highest Kansas yield since 2021
Ag trade update
NWS weather outlook
Pro Farmer First Thing Today items

CONGRESS

FAA reauthorization bill cleared by Congress
House Republicans writing appropriations bills for FY 2025 disregarding prior accord
CRA resolution filed to overturn Biden’s EV tax credit rules

ISRAEL/HAMAS CONFLICT

U.S. says first aid shipments arrived at pier on Gaza’s Mediterranean coast

POLICY

Increased Reference Prices in House farm bill
Two key pay limit provisions in House farm bill
New opportunity to add base acres in House farm bill proposals
Senate: Taking farm out of the farm bill.

CHINA

China’s economic recovery diverges as factory output jumps and retail sales lag
Taiwan inauguration
China unveiles most forceful attempt yet to boost property market

ENERGY & CLIMATE CHANGE

Chinese firms investing heavily in SAF
Wood Mackenzie: Trump win risks $1 trillion in U.S. low-carbon energy investments

POLITICS & ELECTIONS

Cook Political Report: Senate map puts Dems in peril, but Arizona shifts in their favor
Six months out, fight for control of House ‘remains a game of inches’
Trump vs. Biden: How the Dow’s performance compares
Presidential election update

OTHER ITEMS OF NOTE

Supreme Court upholds funding mechanism of CFPB in 7-2 ruling
New DHS and DOJ measures target unlawful border crossings
Cotton AWP edges lower

MARKET FOCUS

— Equities today: Asian and European stock indexes were mostly higher overnight. In Asia, Japan -0.3%. Hong Kong +0.9%. China +1%. India +0.3%. In Europe, at midday, London -0.4%. Paris -0.4%. Frankfurt -0.4%.

U.S. equities yesterday: All three major indices finished with losses just one day after they had scored record finishes. The Dow ended down 38.62 points, 0.10%, at 39,869.38. The Nasdaq lost 44.07 points, 0.26%, at 16,698.32. The S&P 500 was down 11.05 points, 0.21%, at 5,297.10. The Dow’s brief move above 40,000 was welcome news to President Biden. By this point in Trump’s presidency, the index had made similar gains — details below. Bottom line: The Dow is up 28% since President Biden was inaugurated in January 2021, slightly more than where the Dow was at the same point of Donald Trump’s presidency. Under Trump, the market was in the midst of a pandemic dive, before a sharp rebound.

— Walmart shares hit an all-time high on Thursday, rising about 7% after surpassing Wall Street’s quarterly sales and revenue expectations. The CFO noted that customers are increasingly buying groceries from Walmart for cheaper meals compared to quick-service restaurants, stating that eating out is roughly 4.3 times more expensive than eating at home. Walmart U.S. CEO Bill Simon mentioned on CNBC’s Fast Money that affluent customers significantly contributed to the sales beat but cautioned that retaining them might be challenging.

— Ford asks EV suppliers to cut prices. Ford Motor is calling on suppliers to trim costs relative to electric vehicle (EV) components, telling them “Everything is on the table,” according to a Reuters report citing a memo the news outlet has seen and was first reported by Crain’s Detroit Business. “To ensure affordability, it is of paramount importance that our portfolio achieves further levels of material cost efficiency,” the memo said. Ford wants further cost-reduction proposals on such vehicles as the Ford F-150 Lightning electric pickup truck and others.

— Ag markets today: Soybeans firmed to near their weekly highs overnight, while corn and wheat recouped some of their declines from the three previous days. As of 7:30 a.m. ET, corn futures were trading fractionally higher, soybeans were 7 to 8 cents higher, and wheat was 5 to 8 cents higher. The U.S. dollar index was more than 300 points higher, and front-month crude oil futures were trading just below unchanged this morning.

Wholesale beef market continues to strengthen. Wholesale beef prices firmed another $3.38 for Choice and $2.20 for Select on Thursday, while movement stayed solid at 115 loads. Some plants are now cutting in the black after an extended period of red ink. The rapidly rising wholesale beef prices have feedlots expecting higher cash cattle prices for a fourth consecutive week.

Cash hog index rising. After three weeks of treading water, the CME lean hog index marked a for-the-move high for a second straight day. Today’s cash quote is up 37 cents to $92.13 as of May 15. June lean hog futures built their premium to the cash index to $6.245 after yesterday’s gains.

— Agriculture markets yesterday:

Corn: July corn fell 5 1/2 cents to $4.57, near the session low.
Soy complex: July soybean futures closed 2 3/4 cents higher while deferred contracts posted losses. July meal futures sank $4.00 to $367.70 and settled near session lows. July bean oil futures surged 97 points to 44.52 cents and settled near session highs.
Wheat: July SRW wheat fell 2 1/2 cents to $6.63 1/4 and nearer the session low. July HRW wheat closed down 1 3/4 cents at $6.73 1/4 and near the session low. July spring wheat futures closed a nickel lower at $7.30 1/4.
Cotton: July cotton futures climbed 83 points to 76.24 cents and settled near mid-range.
Cattle: June live cattle rose 77 1/2 cents to $179.025, nearer the session low and hit a six-week high early on.
Hogs: After dipping to fresh three-month lows, hog futures posted an impressive rebound Thursday. June hog futures ended the day at $98.375, up 87.5 cents on the day.

— Quotes of note:

Several Federal Reserve officials said the central bank should keep borrowing costs high for longer as policymakers await more evidence inflation is easing, suggesting they’re not in a rush to cut interest rates. Cleveland Fed President Loretta Mester, New York Fed President John Williams and Richmond Fed President Thomas Barkin, speaking separately Thursday, argued it may take longer for inflation to reach their 2% target.
Rick Rieder from BlackRock suggested in a Bloomberg interview that the Federal Reserve should consider lowering interest rates to control inflation rather than maintaining higher rates. He argued that the current high rates benefit middle- to higher-income Americans through their fixed income investments, which in turn drives up service inflation due to their increased spending. This perspective will be discussed in more detail in an upcoming episode of Wall Street Week airing on Friday.
European Central Bank Executive Board member Isabel Schnabel warned against back-to-back interest-rate cuts in June and July. “Based on current data, a rate cut in July does not seem warranted,” she told Nikkei newspaper in comments published Friday. “We should look very carefully at the data because there is a risk of easing prematurely.” As Euro Zone inflation nears the 2% target, ECB officials are in agreement over an initial reduction in the deposit rate next month but have been wary of discussing what will happen beyond.
Deere CFO comments. “We’re ensuring that we’re getting inventories in the right place, not stretching out the potential to have higher demand a little bit longer, which is a lesson learned clearly from the past.” — Deere CFO Josh Jepsen, as agriculture equipment manufacturer cut its outlook.

Market perspectives:

— Outside markets: The U.S. dollar index was firmer, with the euro and British pound both weaker against the greenback. The yield on the 10-year U.S. Treasury note was higher, trading around 4.40%, with a higher tone in global government bond yields. Crude oil futures were largely steady, with U.S. crude around $79.25 per barrel and Brent around $83.30 per barrel. Gold and silver futures were higher ahead of US market action, with gold around $2,394 per troy ounce and silver around $30.03 per troy ounce.

— Ukrainian farmers planted some 5.1 million hectares (12.5 million acres) of spring grain crops as of May 10, including 3.57 million hectares of corn, 781,600 hectares of barley, and 249,000 hectares of spring wheat, according to the Ukrainian Agriculture Ministry. The agency said that 6.3 million hectares have been planted to oilseeds, bringing plantings to over 11 million hectares, or more than 90% of expected plantings.

— HRW wheat tour calculates highest Kansas yield since 2021. The Wheat Quality Council HRW wheat tour estimated the Kansas wheat yield at 46.5 bu. per acre, the highest since 2021 and above the five-year average (2018-23; no tour in 2020) of 42.4 bu. per acre. Crop quality varied drastically across the state, with wheat in the drier south-central and southwestern portions of Kansas in the poorest condition. Other areas had green, lush fields. Scouts noted stripe rust in some areas of the state. Tour scouts guesstimated the Kansas wheat crop at 290.4 million bushels.

— Ag trade update: South Korea made no purchase in a tender to buy up to 69,0000 MT of corn from South America or South Africa.

— NWS weather outlook: Potentially significant heavy rainfall threat spreads into portions of southern Mississippi and western Alabama Friday... ...Wet start to the weekend for much of the eastern U.S. as well as the Northern Rockies/Plains... ...Sweltering heat continues across South Florida and southern Texas into this weekend.

Items in Pro Farmer’s First Thing Today include:

• Grains firmer overnight
• French wheat crop ratings stable at four-year low
• German winter wheat seedings decline
• Argentina to plant more wheat for 2025 harvest

CONGRESS

— Federal Aviation Administration (FAA) reauthorization bill cleared by Congress and signed into law by President Biden introduces several consumer protections and aviation safety measures. Key aspects include:

Consumer protections:

Right to a hassle-free refund if flights are canceled or delayed (three hours for domestic, six for international).
Airlines must have policies for reimbursing lodging, transportation between lodging and the airport, and meal costs due to airline-attributable cancellations or delays.
Prohibition on charging fees for families wanting to sit together.
Requirement for airlines to provide free 24-hour customer service access.
Tripling of the federal civil penalty for consumer rights violations.
Creation of an online dashboard showing minimum airline seat sizes.

Aviation safety upgrades:

Boosting the number of air traffic controllers and safety inspectors.
New cockpit voice recorders must save 25 hours of audio.

Financial:

The bill allocates $105 billion.
Reauthorizes the FAA for another five years.

— House Republicans are moving forward with writing appropriations bills for fiscal year 2025, disregarding the funding levels agreed upon in a bipartisan debt-limit law’s “side deal.” Instead, they are proposing a 6% cut in nondefense spending. Appropriations Chair Tom Cole (R-Okla.) emphasized that these side deals are not legally binding, and that the committee will adhere strictly to the law. The markup process for these spending bills will commence next week, beginning with the bill funding the IRS and Treasury on June 5. The House Ag Appropriations Subcommittee is slated to vote on its spending bill June 11. The full Appropriations Committee will consider the measure July 10.

— CRA resolution filed to overturn Biden’s EV tax credit rules. A Congressional Review Act (CRA) resolution has been filed in both the House and Senate to overturn the Biden administration’s rules on electric vehicle (EV) tax credits. The resolution was introduced by Reps. Carol Miller (R-W.Va.) and Jared Golden (D-Maine) in the House, and by Sens. Joe Manchin (D-W.Va.) and Deb Fischer (R-Neb.) in the Senate. The Biden administration’s rules, released earlier this month, provide automakers with two additional years to source certain battery minerals domestically. Lawmakers argue that the administration should be more aggressive in reducing dependency on battery minerals from China. While the CRA resolutions are expected to pass in both chambers, President Biden is likely to veto them. Overriding this veto would require a two-thirds majority in both chambers, which is unlikely to be achieved.

ISRAEL/HAMAS CONFLICT

— American armed forces said that the first aid shipments had arrived at a pier on Gaza’s Mediterranean coast. The temporary pier has been built by the U.S., in collaboration with several European countries, to bring relief to the war-torn enclave. The aid was loaded onto ships in Cyprus, from where it made the day’s journey to Gaza.

POLICY UPDATE

— Increased Reference Prices in House farm bill:

— Two key pay limit provisions in House farm bill:

The first ends the disparate treatment of pass-through entities. This is removing red tape and allowing farmers to get the same treatment if they are in an LLC as those in general partnerships (link for background).
The second: operations that get 75% of their income from farming are eligible for a payment limit of $155,000 (up from $125,000) that is indexed to inflation going forward. This will put the payment limit back at a level (in real dollars) to what Congress approved in 2018.

On AGI, the House bill includes a waiver from the means test for operations that get 75% of their income from farming, but this waiver only applies to disaster programs (LIP, LFP, ELAP, TAP, and NAP), as well as all conservation programs.

— New opportunity to add base acres in House farm bill proposals. The Farm, Food, and National Security Act of 2024 provides an opportunity to add new base acres to farms that have no base, or that have been planting in excess of existing base acres. This provision does not modify or impact existing base acres and will be purely additive for those farms that qualify. Additionally, there are no qualifications relative to the demographics or beginning farmer status of the landowner to be eligible for an assignment of new base acres under this provision.

Eligibility for new base acres

A farm is eligible for an assignment of base acres under this provision if the average number of acres from 2019 through 2023 that were planted or prevented from being planted to covered commodities and eligible non-covered commodities (not to exceed 15% of the total acres on the farm) exceeds the existing base acres on the farm. If after conducting sign-up, the total number of eligible acres across the country exceeds 30 million acres, the Secretary is required to apply a pro-rata reduction to all farms to reduce the number of eligible acres to equal 30 million.

Eligible non-covered commodities

For the purposes of this provision, and to not penalize producers who may be in a crop rotation that contains certain non-covered commodities, the number of eligible acres may include the number of acres planted or prevented from being planted to non-covered commodities other than trees, bushes, vines, and pasture. The acres of non-covered commodities that can count toward the eligible acres on the farm is limited to not exceed 15% of the total acres on the farm.

Assignment of covered commodities

The eligible acres will be assigned to covered commodities using a formula like that utilized for the base reallocation opportunity in the 2014 Farm Bill. The assignment will reflect the ratio of covered commodities planted on the farm from 2019 through 2023.

Link/pdf to examples.

— Senate: Taking farm out of the farm bill. We filed a special report citing farm bill veteran analysts’ forecast of their spending forecasts for the Senate farm bill proposals (link). Two key items to expand on since the special report:

A major change included in the Senate farm bill: Permanent authority on conservation.
Very little funding increases and perhaps a decrease for some Title I farmer safety net crop spending. Some analysts calculate an increase of around $1.6 billion in ARC/PLC changes over 10 years, but others believe the Senate Democrat bill does not add money to the commodity title or crop insurance title. Why? They add benefits but then subtract benefits to pay for them, i.e., increase in reference price for a few crops but then a 20% payment band is applied, and this move pays for the slight improvement. Some observers note that wheat producers could lose more than $1 billion in their commodity program baseline under the Democrat plan. Even within the commodity title, Stabenow’s framework appears to benefit Midwestern crops, but details are needed on the changes to the escalator formula they allude to. Even with the 5% increase in Reference Prices, analysts think that the PLC payment band and the AGI changes will take money out of the baseline for peanuts, cotton, and rice, while the ARC changes and the escalator changes benefit corn and soybeans. But it is too soon to assert that definitively.
Republican farm-state lawmakers and farmers are also anxious about a Senate proposal that would make “greenhouse gas reduction conservation plans” a new requirement for livestock producers under the Environmental Quality Incentives Program, or EQIP, and would make the reduction of greenhouse gas emissions and building soil carbon for a goal of the Regional Conservation Partnership Program, or RCPP, which pays groups of farmers to address environmental challenges together, and use RCPP grants to support efforts to convert concentrated animal feeding operations to “climate-friendly agricultural production systems” operations, such as managed grazing.

CHINA UPDATE

— China’s industrial production saw significant growth in April 2024, expanding by 6.7% year-on-year, surpassing market expectations of 5.5% and improving from a 4.5% increase in March. The boost in industrial output was driven by accelerated activities across manufacturing (7.5% vs. 5.1% in March), utilities (5.8% vs. 4.9%), and mining (2.0% vs. 0.2%), supported by ongoing government measures.

Key industry performance highlights include:

Computer and communications: Production surged by 15.6%, up from 10.6% in March.
Textiles: Production rose by 6.6%, a substantial increase from 2.5%.
Electrical machinery and equipment: Growth reached 5.8%, compared to 4.8%.
Chemicals: Production accelerated to 12.3% from 9.1%.
Non-ferrous metals: A slight increase to 11.4% from 11.2%.
Electricity and heat production and supply: Increased by 5.7% from 4.9%.
Automobile production: Showed a remarkable rise of 16.3%, up from 0.9%.

Additionally, there were rebounds in:

Coal, mining, and washing: Improved to 1.5% from a decline of 1.6%.
General equipment: Increased by 3.7% after stagnating in March.

Production in the oil and natural gas mining industry continued to rise, though at a slightly slower pace (0.7% vs. 1.5% in March). On a monthly basis, industrial output grew by 0.97%. For the first four months of 2024, the industrial output grew by 6.3% year-on-year.

— China retail sales rose just 2.3% on year in April, according to the National Bureau of Statistics. This slowed from a disappointing 3.1% growth rate in March and dipped from the 4.6% growth in the consensus estimate of economists polled by financial information provider Wind. The NBS cited a high base of comparison and holidays for the slowdown.

— Taiwan inauguration. William Lai will on Monday take up his new office after he won the island’s presidential election in January. Lai is expected to adopt a conciliatory tone towards mainland China in his inaugural address, according to Taiwanese media reports. More than 40 foreign delegations are expected to attend, including a U.S. delegation of former U.S. officials dispatched by President Biden.

— China unveiled its most forceful attempt yet to boost the property market after prices dropped the most in a decade. It scrapped a minimum mortgage rate, cut down payments and told local governments to buy homes. The likely move was talked about earlier this week.

ENERGY & CLIMATE CHANGE

— Chinese firms investing heavily in SAF. Biofuels firms are pouring more than $1 billion into building China’s first plants to turn waste cooking oil into sustainable aviation fuel (SAF) for export and to meet domestic demand once Beijing mandates the fuel’s use on airplanes to cut emissions. China is expected to unveil this year its policy on SAF use for 2030 that could spur billions of dollars of investment, industry executives told Reuters. Companies such as Junheng Industry Group Biotech, Zhejiang Jiaao Enprotech and Tianzhou New Energy plan to start up plants over the next 18 months to produce more than one million metric tons per year of SAF combined, six SAF investors told Reuters. Once online, the projects would use supplies of used cooking oil (UCO) that China currently exports. Last year, China exported a record 2.05 million tons of UCO, mostly to the U.S. and Singapore.

Some U.S. ag groups are calling for government action, including higher tariffs, to curb the wave of shipments. But fuel makers warn of government overreach that would likely crimp already tight supplies of low-carbon feedstocks at a crucial time for the industry. Measures such as tariffs would be “short-sighted” and amount to playing “protective politics,” said Michael McAdams, president of the Advanced Biofuels Association. It’s better to “allow the feedstocks to move around the world where they can best be used.”

Regulatory murkiness and global competition are among reasons why U.S. bio-based diesel is poised to face its biggest test since the industry first took shape three decades ago, according to Tore Alden of cross-commodity price reporting agency Fastmarkets, Bloomberg reports. “Secure your feedstock supply and secure it now,” Alden said at a conference held by his firm in Chicago this week. “The next three to five years are going to be different. Challenging.”

— Wood Mackenzie: Trump win risks $1 trillion in U.S. low-carbon energy investments. A Wood Mackenzie report highlights that a victory for Donald Trump in the Nov. 5 presidential election could jeopardize $1 trillion in energy investments, particularly those supporting low-carbon energy sources. David Brown, director of Wood Mackenzie’s energy transition research, emphasized that the outcome of this election will significantly influence energy investment over the next five years and beyond.

Key points include:

Impact on energy investments:

A Trump administration is expected to reduce support for electric vehicles, renewable energy, and carbon capture technologies.
Policies would likely favor fossil fuel production, including an executive order targeting offshore wind development.

Current energy policies:

President Joe Biden’s administration has promoted legislation aimed at transitioning the U.S. away from fossil fuels, with the Inflation Reduction Act of 2022 providing incentives for clean-energy technologies valued at approximately $1.2 trillion.

Potential consequences:

Reduced investments in low-carbon energy could delay the U.S.’ efforts to achieve net zero greenhouse gas emissions.
Fossil fuel demand could peak 10 years later than currently projected, making the 2050 net zero carbon target unattainable.

POLITICS & ELECTIONS

— Cook Political Report with Amy Walter: Senate map still puts Democrats in peril, but Arizona shifts in their favor. Jessica Taylor writes: “With just under six months until Election Day, the Senate remains beyond precarious for Democrats. There is no room for error — and if President Joe Biden loses reelection, they will have already lost the majority whether they run the table in all the competitive seats or not. Our current outlook is a Republican gain somewhere between one and four seats. If Republicans gain just one seat (West Virginia presumably) they will still need to win the White House to ensure power in a 50-50 tie.”

— Six months out, fight for control of House ‘remains a game of inches’. Erin Convey and David Wasserman of the Cook Political Report with Amy Walter note: “Over the past year and a half, the House has been dominated by GOP infighting, leadership upheaval and unsurprisingly, little to show in terms of legislation — partially a function of Republicans’ miniscule majority. And six months out, it makes sense that many Democrats are more bullish about their chances of taking back the House majority than retaining the Senate or White House. We believe the most likely outcome is a single-digit gain for either party, and that while Republicans might retain the slightest of advantages, the House is being fought on more favorable terrain for Democrats than the Senate or Electoral College.”

— Trump vs. Biden: How the Dow’s performance compares. Wall Street Journal writers Greg Ip and and Rosie Ettenheim note that the “Dow’s brief move above 40000 is welcome news to a president who is facing voter malaise over the economy.” Link to article.

— Presidential election update:

Donald Trump’s allies are drawing up plans for an unprecedented immigration crackdown, including an effort that would deport asylum seekers.
President Biden is courting Black voters this weekend in a flurry of high-profile events, aiming to reclaim support among a once-reliable voting bloc.

OTHER ITEMS OF NOTE

— Supreme Court upholds funding mechanism of the Consumer Financial Protection Bureau (CFPB) in a 7-2 ruling, reversing a lower court’s decision. This ruling is seen as a significant victory for the Biden administration and consumer advocates. Justice Clarence Thomas wrote the majority opinion, breaking from his usual allies, Justices Samuel Alito and Neil Gorsuch, who dissented.

The ruling protects the CFPB from potential defunding by a divided Congress, ensuring its continued operation and independence from annual appropriations. This decision is critical for President Biden, who has relied on the CFPB to implement key aspects of his economic agenda. The CFPB’s funding structure, drawing from Federal Reserve profits, was designed to shield it from political influence.

Consumer advocates and President Biden praised the decision, highlighting the agency’s efforts to provide significant consumer relief and save Americans billions in fees. The ruling also prevents reopening finalized rules and enforcement actions, maintaining stability in the regulatory environment.

The case centered on whether the CFPB’s funding method violated the Constitution’s appropriations clause. Justice Thomas argued that Congress has the authority to structure agencies and that the CFPB’s funding is consistent with established practices, similar to the Customs Service and Postal Service.

The ruling is seen as a rebuke to the 5th Circuit’s decision and a signal that the Supreme Court is not aligned with far-right judicial opinions. The CFPB and its supporters view the decision as a triumph against attempts to weaken consumer protection enforcement. Critics, however, warn that this ruling may lead to future challenges in insulating agencies from congressional oversight.

— New DHS and DOJ measures target unlawful border crossings. The Department of Homeland Security (DHS) and the Justice Department introduced new measures to address unlawful crossings at the U.S. southern border. Key points include:

Expedited court docket: Some migrants will be placed on a new court docket designed to resolve their cases within 180 days, significantly speeding up the process that typically takes months or years.
Eligibility: This docket applies to single adults released from government custody.
Destination cities: The program targets migrants heading to Atlanta, Boston, Chicago, Los Angeles, and New York City.
Context: This initiative comes in response to an immigration court backlog exceeding 3 million pending cases.

— Cotton AWP edges lower. The Adjusted World Price (AWP) for cotton is at 59.46 cents per pound, effective today (May 17), down from 59.64 cents per pound the prior week and second consecutive week it has been under 60 cents per pound. This is the lowest AWP since Dec. 11, 2020, when it was 58.17 cents per pound. Meanwhile, USDA announced that Special Import Quota #5 will be established for 35,277 bales of upland cotton, applying to supplies purchased not later than Aug. 20 and entered into the U.S. not later than Nov. 18.

KEY LINKS

Policy Updates