House GOP Hits a ‘Cull & Sack’ as Plan to Give Interim Speaker More Power Collapses

Powell signals November interest-rate hike unlikely while leaving door open for future increases

Jim Wiesemeyer

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October 20, 2023 09:02 AM

Powell signals November interest-rate hike unlikely while leaving door open for future increases

Today’s Digital Newspaper

MARKET FOCUS

Jerome Powell signals Fed will extend interest-rate pause, unless…
Economists raise U.S. growth projections through early 2024, lower recession odds
Farmers tap savings instead of borrowing as high interest rates impact ag loans
Shanghai Composite hits lowest point for the year
Japanese PM plans income tax cut using surplus revenue to aid middle class
Volatility in oil markets, amid sanctions, SPR refilling, missile intercept
Heating-oil expenditure threatens to boost inflation in the Northeast
Freight carriers signal concerns over U.S. industrial markets amid weak earnings
Ag markets today
IGC cuts global corn and soybean forecasts, ups wheat
NOAA winter outlook: El Niño-related impacts, with mixed precipitation forecasts
NWS weather outlook
Pro Farmer First Thing Today items

CONGRESS

House GOP’s leadership crisis deepens as Jim Jordan’s speaker bid stalls
Senate has no scheduled votes until Tuesday, allowing for a brief hiatus
Sen. Laphonza Butler (D-Calif.) will not seek re-election next year

ISRAEL/HAMAS CONFLICT

Xi calls for Palestine/Israel ceasefire
Senators adopt resolution stating chamber stands firmly with Israel, against Hamas
U.S. forces in Middle East face increased attacks amid regional tensions
U.S. State Department on Thursday issued a worldwide caution alert

RUSSIA & UKRAINE

Russia says it supports holding regular security talks with North Korea and China

POLICY

House Ag Democrats express outrage over potential farm bill cuts
Lingering major farm bill issues in the Senate
Why Title I still matters

PERSONNEL

Senate will vote next week to install Michael Whitaker as head of FAA
Senate Dems push for swift confirmation of Jack Lew as U.S. diplomat to Israel

CHINA

China injects most short-term cash in banking system on record
Brazil soybeans dominate China’s September imports
China and Russia strengthen food and energy partnership amid Western tensions

ENERGY & CLIMATE CHANGE

U.S. seeks to buy 6 million barrels of sour crude for oil reserve

HEALTH UPDATE

CVS removes ineffective over-the-counter allergy and cold medicines

POLITICS & ELECTIONS

Argentina faces complex challenge as Javier Milei emerges as favorite

OTHER ITEMS OF NOTE

Cotton AWP falls under 70 cents

MARKET FOCUS

— Equities today: Asian and European stocks were mostly lower overnight. U.S. Dow is vacillating between slightly higher and slightly lower acton. In Asia, Japan -0.5%. Hong Kong -0.7%. China -0.7%. India -0.4%. In Europe, at midday, London -0.9%. Paris -1.2%. Frankfurt -1.3%.

The Shanghai Composite has hit its lowest point for the year, just above the 3,000 mark. Historically, China’s stock markets have not necessarily mirrored the country’s economic performance. However, the current downward trend, despite recent government interventions such as increasing the cost of short selling, instructing Huijin to purchase bank shares, and having state-owned enterprises buy their own shares, appears to reflect a broader lack of confidence in the Chinese economy. This sentiment isn’t limited to foreign investors but extends to domestic ones as well. This decline is likely causing concern among policymakers, China watchers inform, and it is anticipated that further efforts will be made to bolster the stock market. Nevertheless, individual investors in China have experienced setbacks in the stock market repeatedly over the years, eroding their trust in it. As a result, it remains uncertain whether they will re-enter the market without clearer signals of substantial policy support and increased liquidity.

U.S. equities yesterday: U.S. equities ended lower in the wake of comments from Fed Chairman Jerome Powell that warned of Fed action if economic data comes in too strong. The Dow fell 250.91 points, 0.75%, at 33,414.17. The Nasdaq declined 128.13 points, 0.96%, at 13,186.18. The S&P 500 lost 36.60 points, 0.85%, at 4,278.00.

— Bonds continued their recent run on Thursday, with the yield on the benchmark 10-year Treasury crossing 5% for the first time in 16 years — or since July 20, 2007. The yield eased back some this morning, last trading around 4.935%.

— Union Pacific’s profit fell 19% in the third quarter to $1.5 billion, beating expectations, while the company reported declining freight rail volumes and revenue across key industrial commodities.

— Agriculture markets yesterday:

Corn: December corn futures jumped 13 cents to $5.05, marking the highest close since Aug. 1.
Soy complex: November soybeans rose 4 1/2 cents to $13.15 1/2, the highest close since Sept. 20. December meal rose $9.20 to a near four-month high close $423.00, bringing total gains this week to $33.40. December soyoil fell 175 points to 53.11 cents, notching a low-range close.
Wheat: December SRW wheat rose 13 3/4 cents to $5.94 and hit a three-week high. December HRW wheat gained 5 3/4 cents to $6.76 1/4. December spring wheat rose 5 1/2 cents to $7.39. Prices closed near their session highs.
Cotton: December cotton rose 3 points to 84.27 cents, marking a high-range close above the 100-day moving average.
Cattle: December live cattle fell $1.90 to $185.30 and near the session low. November feeder cattle dropped $5.225 to $244.50. Prices closed near the session low and hit a nearly four-month low.
Hogs: Nearby December lean hog futures ended Thursday having slipped 2.5 cents to $68.00. Deferred contracts closed steady-to-mixed.

— Ag markets today: Corn and wheat futures firmed amid mild followthrough buying overnight, while soybeans pulled back a little. As of 7:30 a.m. ET, corn futures were trading fractionally to a penny higher, soybeans were 3 to 5 cents lower, winter wheat futures were mostly 3 to 5 cents higher and spring wheat was mostly a penny higher. Front-month crude oil futures were more than $1.00 higher, and the U.S. dollar index was modestly weaker.

Feeders crumple amid corn rally. Feeder cattle futures faced heavy selling on Thursday as the corn market surged. With corn signaling a seasonal low is firmly in place, feeders could face more pressure, though they are short-term oversold. That could result in a pause or some corrective buying ahead of the weekend.

Weakening cash fundamentals limit upside in hogs. The CME lean hog index is down another 25 cents to $80.45 (as of Oct. 18). The pork cutout value dropped 82 cents on Thursday to $87.13. As long as cash fundamentals continue to weaken, the upside will remain limited in hog futures, despite the discounts built into winter-month contracts.

— Quotes of note:

Fedspeak. “We have to let this play out and watch it, but for now, it is clearly a tightening in financial conditions.” — Fed Chair Jerome Powell, signaling that the central bank will hold short-term interest rates steady at its Oct. 31-Nov. 1 meeting. He suggested that he is pleased with inflation’s decline this summer and that the Fed is unlikely to raise rates unless it sees evidence that stronger economic activity jeopardizes such progress. The central bank increased rates to a 22-year high in July.
Meanwhile, Lorie Logan said there’s been progress but she’s “not yet convinced” that inflation is trending down to the central bank’s 2% target. She said higher long-term yields are allowing more time to assess the economy.
Virtual currency mixing. “The Treasury Department is aggressively combating illicit use of all aspects of the [convertible virtual currency mixing] ecosystem by terrorist groups, including Hamas and Palestinian Islamic Jihad.” — Deputy Secretary of the Treasury Wally Adeyemo, on FinCEN’s proposed new regulation on cryptocurrency mixers, announced Thursday.
“American leadership is what holds the world together. American alliances are what keep us, America, safe.” — President Biden, in an address to the nation.

— Federal Reserve Chair Jerome Powell signals caution on interest rates, cites economic strength. In a speech Thursday at the Economic Club of New York, Federal Reserve Chair Jerome Powell suggested that the U.S. central bank is likely to keep interest rates steady at its next meeting, but he also left the door open for future rate hikes if there are signs of robust economic growth. Powell’s comments align with market expectations that the Fed will skip a rate increase for a second consecutive meeting at the end of October and early November.

Powell mentioned that a recent increase in long-term Treasury yields, if sustained, might reduce the need for further rate hikes to some extent. He emphasized the importance of monitoring financial conditions in shaping future rate decisions.

The Federal Reserve’s last policy meeting resulted in no change to interest rates, but it indicated that 12 out of 19 officials favored one more hike this year. Powell did not rule out the possibility of additional tightening if evidence suggests persistently above-trend growth or labor market tightening.

Despite a recent drop in core inflation, Powell noted that a few months of positive economic data are just the beginning of what is required to build confidence that inflation is moving sustainably toward the Fed’s goal of 2%. He also cited the risk of further tightening in the pipeline and highlighted concerns about elevated geopolitical tensions.

Powell discussed the recent surge in yields, attributing it mainly to rising term premiums. He highlighted factors such as the central bank’s quantitative-tightening program, changes in views about the strength of the economy, and concerns about fiscal deficits as potential drivers behind increased yield demand.

Besides Powell’s remarks, other Federal Reserve officials, including Chicago Fed President Austan Goolsbee and Philadelphia Fed President Patrick Harker, reiterated the importance of managing inflation expectations and taking a patient approach to monetary policy while monitoring economic data for potential rate hikes.

— Economists raised U.S. growth projections through early 2024 and lowered recession odds, according to a Bloomberg survey (link). The economy probably expanded at an annualized 3.5% rate in the third quarter, the fastest in almost two years.

— Farmers tap savings instead of borrowing as high interest rates impact ag loans. Farmers are opting to tap into their savings from recent prosperous years instead of taking out loans at the highest interest rates since 2007, according to surveys conducted by regional Federal Reserve banks. Reports indicate that the average operating loan issued in the past summer was almost 20% smaller than the previous year’s average.

The Kansas City Fed noted (link) that lending activity has weakened, influenced by nearly two years of rising interest rates on farm loans, which have significantly increased financing costs for farmers. While the farm economy has recently shown moderation due to narrower profit margins driven by commodity prices and increased expenses, credit needs have risen for many farmers, mainly due to high input costs. However, many producers have been able to supplement their financial needs with savings amassed during previous profitable years.

USDA predicts that net farm income, a broad measure of farm profitability, will amount to $141.3 billion this year, marking a 22% decline from the record $183 billion in 2022. Despite this decrease, the income for this year would still be the second highest ever recorded and $40 billion above the 10-year average. The decline in income is attributed to lower receipts from crop and livestock sales, coupled with higher expenses. The debt-to-asset ratio, which indicates solvency, is expected to decrease slightly.

Highest average interest rate on loans since 2007. The Kansas City Fed also reported that the average interest rate on various types of farm loans, after rising for nearly two years, has reached the highest level since 2007, standing at 8.34%. This surge in financing costs may have prompted farmers with substantial liquidity to limit their debt usage. However, any softening in farm finances could deplete cash reserves and result in increased demand for loans.

Because of reduced farm lending, the volume of operating loans exceeding $1 million has decreased by half compared to the previous year, and the volume of smaller-sized loans has dropped by 15 percent. This shift has favored smaller banks, which typically handle smaller loans, as they witnessed a 25 percent increase in non-real estate lending, while larger banks experienced a decline. The average operating loan for the summer amounted to nearly $59,000. Additionally, the average duration of new farm real estate loans has gradually increased over the past year, significantly exceeding the average loan duration from 2010 to 2020, while maturity dates for operating, livestock, and equipment loans remained stable.

— Japanese PM Kishida plans income tax cut using surplus revenue to aid middle class amid high prices. Japanese Prime Minister Fumio Kishida is pushing for a reduction in income tax by utilizing surplus tax revenue to assist consumers grappling with soaring prices. Kishida expressed his commitment to swiftly finding ways to return surplus revenues to taxpayers. He is set to meet with tax policy leaders from the ruling Liberal Democratic Party and coalition partner Komeito to determine the specifics of the tax cut, with an official announcement expected during his policy speech to the legislative houses. This temporary tax relief complements an impending economic stimulus package designed to mitigate the impacts of inflation, featuring cash aid for low-income individuals and extended gasoline subsidies. The government’s record tax receipts for three consecutive fiscal years, notably exceeding projections in fiscal 2022, will be redirected to alleviate the burdens of the middle class amid price increases. Additionally, the economic stimulus package aims to include tax incentives targeting the semiconductor, battery, and supply chain industries, with PM Kishida emphasizing the need to address inflation-related challenges and advance the nation’s economic development.

Market perspectives:

— Outside markets: The U.S. dollar index was weaker, with several currencies stronger against the greenback. The yield on the 10-year U.S. Treasury note was slightly weaker but remained near 5% at 4.97%, with a mixed tone in global government bond yields. Crude oil futures have continued to rise, with U.S. crude around $90.50 per barrel and Brent around $93.40 per barrel. Futures gained as worries over the Israel/Hamas situation continued to rise, with U.S. crude around $89.35 per barrel and Brent around $93.20 per barrel. The flight to safety continues as gold and silver were both registering gains. Gold futures were around $1,990 per troy ounce and silver around $23.30 per troy ounce.

— U.S. actions drive volatility in oil markets, amid sanctions, SPR refilling, and missile intercept. This week, oil markets experienced significant fluctuations primarily due to a series of U.S.-related developments. Initially, the markets reacted to the U.S. decision to lift sanctions on Venezuela, which had a notable impact. Subsequently, attention shifted to reports of the U.S. refilling its Strategic Petroleum Reserve (SPR/see related item), further influencing market dynamics. Most recently, on Friday morning, news emerged that a U.S. warship intercepted missiles launched from Yemen, adding to the market’s uncertainty. As a result, oil markets have remained highly volatile, with both West Texas Intermediate (WTI) and Brent crude prices poised for another weekly increase. These developments underscore the ongoing influence of U.S. actions on global oil market dynamics.

— Heating-oil expenditure threatens to boost inflation in the Northeast, home to four million of the five million U.S. homes that burn the fuel, and expose the region to volatile global diesel markets.

— Freight carriers signal concerns over U.S. industrial markets amid weak earnings reports. Freight carriers in the United States are sounding alarm bells for the country’s industrial markets. Union Pacific’s third-quarter earnings report, while beating expectations, revealed a concerning 19% profit decline compared to the previous year, with earnings totaling $1.5 billion. Beneath the surface, the report unveiled signs of weakening demand in major business segments, including decreased volumes and revenue across critical industrial commodities, the Wall Street Journal reports (link). This comes in the wake of J.B. Hunt Transport Services’ earnings report earlier in the week, which showed a steep drop in earnings of over 30% for the last quarter and an 18% decline in revenue compared to the previous year. These carriers are now reflecting the effects of the subdued peak season that industry executives had been anticipating.

Union Pacific’s report highlighted sharp declines in intermodal volume and pricing, raising questions about the direction of industrial production. Additionally, revenue reductions were evident across coal, metals, and chemicals carload lines, further highlighting concerns about the state of the industrial sector. The 13% decrease in forest product loads indicates that the weakness in the U.S. housing market is reverberating through supply chains, compounding the challenges faced by freight carriers.

— IGC cuts global corn and soybean forecasts, ups wheat. The International Grains Council (IGC) cut its forecast for 2023-24 global corn production by 3 MMT to 1.219 billion MT. That would still be up 57 MMT (4.9%) from last year.

IGC cut its 2023-24 global soybean production forecast by 3 MMT to 393 MMT, though that would still be up 26 MMT (7.1%) from last year.

IGC raised its 2023-24 world wheat crop outlook by 2 MMT to 785 MMT, though that would still be down 18 MMT (2.2%) from last year.

— NOAA winter outlook indicates El Niño-related impacts, with mixed precipitation forecasts. The National Oceanic and Atmospheric Administration (NOAA) released its winter outlook (link), highlighting the anticipated effects typically associated with the El Niño weather phenomenon. The outlook, covering the December-February period, suggests improved drought conditions for the Southeast, Gulf Coast, and Texas due to El Niño. However, it also forecasts drier-than-average conditions in the northern regions of the United States, particularly the northern Rockies, High Plains, and areas near the Great Lakes.

This marks the first winter outlook in four years with an active El Niño, according to forecasters. Jon Gottschalck, Chief of the Operational Prediction Branch of the Climate Prediction Center, explained that a strong El Niño typically brings an enhanced southern jet stream and increased moisture, leading to a higher likelihood of above-average precipitation in the Gulf Coast, lower Mississippi Valley, and Southeastern states during the winter season.

For much of the central U.S., the outlook falls into the “equal chances” category, meaning there’s an equal likelihood of below-, near-, or above-average seasonal total precipitation. This suggests that areas in the upper Midwest grappling with drought may not see significant improvements, increasing the focus on crop prospects for 2024.

— NWS weather outlook: Storm system to bring showers and thunderstorms to the East into the weekend... ...Much above average, record-tying/breaking warmth for much of the central-western U.S.

Items in Pro Farmer’s First Thing Today include:

• Corn and wheat firmer, soybeans weaker overnight
• Washington remains in limbo
• Amazon drought halts some grain movement
• Feedlot inventory expected to be fractionally lower than year-ago

CONGRESS

— House GOP’s leadership crisis deepens as Jim Jordan’s speaker bid stalls. Rep. Jim Jordan’s (R-Ohio) attempt to suspend his bid for Speaker and have a temporary House chief take over has hit a roadblock, shedding light on the turmoil within the House GOP. The party’s struggle to settle on a leader underscores the shift from an ideological focus to one driven by personalities and grievances.

Jordan, a rebel/conservative figure, initially and unexpectedly changed course by proposing Rep. Patrick McHenry (R-N.C.) as acting Speaker until year-end to avoid a government shutdown. However, this idea was met with resistance from both mainstream conservatives and rebel Republicans who view it as inadequate. The naysayers said it would effectively cede control of the House floor to Democrats and set a bad precedent. Rep. Matt Gaetz (R-Fla.) vowed to do “everything” he could to block the plan and Rep. Jim Banks (R-Ind.) called it the biggest affront to Republican voters he has ever seen.

Jordan said he would push for another vote to become speaker, scheduled for Friday at 10 a.m. ET, even though he was bleeding support and calls were increasing for him to step aside. “He needed to know there is no way forward for his speakership,” Representative John Rutherford of Florida, one of the holdouts, told reporters after meeting with Jordan.

The House currently faces its longest period without a speaker since before Watergate, leaving lawmakers concerned that they may appear incapable of basic governing functions. The root of the issue lies in the GOP’s internal power dynamics, with the far-right gaining prominence and causing disruptions.

The inability to reach a consensus highlights the party’s priorities, which are increasingly divided and marked by factionalism. Jordan’s inability to secure support, coupled with resistance to a stopgap leader, leaves Republicans in a state of deadlock.

Bottom line: There is no clear path forward. The absence of effective leadership and ongoing brinkmanship threaten to prolong the crisis, with the future direction of the GOP uncertain.

Of note: Here is a link/pdf to a Congressional Research Service report on what the Speaker Pro Tempore can do.

— Senate has no scheduled votes until Tuesday, allowing for a brief hiatus. The chamber will hold a pro forma session on Monday with no votes scheduled until Tuesday. During this time, a bipartisan delegation of senators will embark on a congressional delegation (codel) trip to Israel, Saudi Arabia, and Egypt. Notable participants in the trip include Senate Minority Whip John Thune (R-S.D.), Armed Services Committee Chair Jack Reed (D-R.I.), and Sens. Lindsey Graham (R-S.C.) and Cory Booker (D-N.J.), who are leading the group.

— Newly appointed Sen. Laphonza Butler (D-Calif.) announced she will not seek re-election next year: “Knowing you can win a campaign doesn’t always mean you should run a campaign,” she said in a statement. “It may not be the decision people expected but it’s the right one for me.” Link to more via the New York Times.

— As many as 71% of voters said Republicans put their party ahead of the country, according to a recent Quinnipiac University poll, while 64% said Democrats put their party ahead of the country. And 86% of voters said they wanted the next speaker to work with both sides of the aisle, the poll found.

ISRAEL/HAMAS CONFLICT

— Xi calls for Palestine/Israel ceasefire. He made the comment in a meeting with Prime Minister of Egypt Mostafa Madbouly. Xi emphasized the importance of preventing the escalation of the conflict and averting a severe humanitarian crisis in the Palestinian-Israeli conflict. He stressed that the key to resolving this recurring issue lies in implementing the “two-state solution” and establishing an independent State of Palestine, promoting peaceful coexistence between Palestine and Israel. Xi expressed China’s appreciation for what he said was Egypt’s vital role in de-escalating the situation and endorsed Egypt’s efforts to establish humanitarian corridors. China is ready to enhance coordination with Egypt and other Arab nations to facilitate a comprehensive, just, and enduring resolution to the Palestinian problem as soon as possible. Egypt and Arab countries lauded China for its consistent and equitable stance on the Palestinian issue and look forward to China playing a more significant role in addressing the current crisis, according to Madbouly.

— Senators on Thursday unanimously adopted a resolution stating the chamber stands firmly with Israel and firmly against Hamas. Senate Majority Leader Chuck Schumer (D-N.Y.) said before the vote that the resolution shows the Senate speaks “in one voice that Israel is our friend, that Hamas’s attack is reprehensible, and that we will stand with our friends to defend themselves.”

— State Department issued a worldwide alert advising all U.S. citizens to exercise increased caution due to heightened tensions in various parts of the world, the potential for terrorist attacks, and the possibility of demonstrations or violent actions against U.S. citizens and interests. This alert comes in the context of ongoing protests in the Middle East related to the Israel-Hamas conflict. The previous worldwide alert was issued in August 2022 following the killing of al-Qaeda leader Ayman al-Zawahiri, warning of potential threats from supporters of al-Qa’ida or its affiliated terrorist organizations targeting U.S. facilities, personnel, or citizens.

— U.S. forces in Middle East face increased attacks amid regional tensions. U.S. forces stationed in Syria, Iraq, and the Red Sea region have encountered multiple militant attacks over the course of this week. These incidents raise concerns about rising aggression towards U.S. interests, possibly in response to Hamas’s recent terrorist attack in southern Israel.

The U.S.’ unwavering support for Israel during a period marked by a humanitarian crisis in Gaza and ongoing airstrikes has generated significant anger and protests in the region. Masses of demonstrators have expressed their discontent not only with Israel but also with the United States, reflecting the prevailing sentiment of unrest and dissatisfaction.

RUSSIA/UKRAINE

— Russia said it supports holding regular security talks with North Korea and China to address the threat posed by the U.S. on the Korean Peninsula, as Moscow draws closer to its partners and attempts to counter Western isolation.

POLICY UPDATE

— House Ag Democrats express outrage over potential farm bill cuts. House Agriculture Committee Democrats voiced strong displeasure over the possibility of cuts to various aspects of the forthcoming farm bill, which might be reallocated to other priorities. According to Politico (link), Democratic members of the committee met recently to discuss a list of funding shifts amounting to approximately $50 billion in the bill. These shifts encompass provisions related to food/nutrition and climate initiatives.

House Ag Committee Ranking Member David Scott (D-Ga.) presented the list to members, even as the House remains without a Speaker, creating a temporary legislative hiatus. Ben Goldey, a spokesperson for House Agriculture Committee Republicans, clarified that the list was not a comprehensive Republican proposal, emphasizing that every member of Congress has distinct priorities for the farm bill.

House Ag Committee Chairman Glenn “GT” Thompson (R-Pa.) refrained from confirming the specific cost implications of the potential cuts or offering detailed information about the plan. Thompson mentioned his efforts to identify areas within the bill that could yield funding for safety net programs, research, and expanded trade tools. However, he acknowledged that lawmakers were unlikely to reach a consensus on everything included in the list of potential cuts, illustrating the challenges faced in crafting the next farm bill.

The limited funding available for enhancements to farmer safety and other key areas presents a significant hurdle for lawmakers. Additionally, Senate Agriculture Committee Chair Debbie Stabenow (D-Mich.) expressed concerns about the financial outlook for 2024, further intensifying the urgency of passing the farm bill this year.

— Lingering major farm bill issues in the Senate. The key is a pledge by Sen. John Boozman (R-Ark.) to include a boost in reference prices. But how to fund the expensive move has perplexed lawmakers. Senate Ag Chair Debbie Stabenow (D-Mich.) favors an increase in reference prices but notes the inability to fund the change.

Of note: Stabenow is not seeking re-election. While some say that means she really wants a new farm bill, others say she already has her two main farm bill issues covered: Nutrition and conservation via either permanent legislation (food stamps) or the Inflation Reduction Act (climate bill) that increased conservation spending by $20 billion.

Compromise will be needed. “I’ve never seen a farm bill debate without a middle ground,” says consultant Randy Russell of the Russell Group.

— Why Title I still matters. During a crop insurance agents meeting this week (CIPA), Dr. Joe Outlaw of Texas A&M said there are “way too many headwinds” for him, especially relative to corn. Thus, the need for an effective Title I safety net. He cited the following:

• U.S. corn was surpassed by Brazil as top exporter last year. Corn export share as a percent of use is declining.
• Bean export share as a percent of use is also projected to decline but is more than double that of corn.
• Ethanol is on poor footing... “so far not green enough and the push for electric vehicles.”
• Soybeans have been betting on sustainable aviation fuel “as the savior... now so is corn.” He quipped: “This is almost as bad as having to depend on China to buy your crops.”

Outlaw also talked Midwest vs. southern crops. Outlaw said, “Our friends from the Midwest insist southern crops are too dependent on government subsidies.” He then questioned crop insurance agents: “How many corn policies you think you would be selling without mandated ethanol taking 45% of annual corn production? FYI: In economics, the impact of a mandate is more than a subsidy.”

Bottom line: Still a long way to go on a new farm bill.

PERSONNEL

— Senate will vote next week to install Michael Whitaker as head of the FAA. Senate Majority Leader Chuck Schumer (D-N.Y.) set a vote Tuesday to invoke cloture, or limit debate, on the nomination to fill President Joe Biden’s long-vacant slot at the top of the Federal Aviation Administration. Whitaker advanced unanimously out of the Senate Commerce Committee this week. The FAA has been without a permanent head for more than a year and a half. Senators are looking to quickly approve Whitaker on the floor before the current acting chief steps down next week.

— Senate Democrats push for swift confirmation of Jack Lew as U.S. diplomat to Israel, while Republicans raise concerns over past stances. Jack Lew, President Biden’s nominee for the role of the top U.S. diplomat to Israel, is facing heightened scrutiny and division along party lines as Democrats aim for a quick approval during a nomination hearing this week. Senate Foreign Relations Committee Chair Ben Cardin (D-Md.) requested that Lew respond to written questions over the weekend, emphasizing the urgency of his confirmation. However, Republicans have voiced concerns over Lew’s previous positions, including his support for former President Barack Obama’s 2015 deal to ease economic sanctions against Iran and his public disagreements with Israeli Prime Minister Benjamin Netanyahu. The upcoming markup for Lew’s nomination is scheduled for Wednesday.

CHINA UPDATE

— China injects most short-term cash in banking system on record. The PBOC injected the most short-term cash into the banking system on record through reverse repurchase contracts, keeping funding costs low to support the economy. Lenders also kept the one- and five-year loan prime rate at 3.45% and 4.2% respectively.

— Brazil soybeans dominate China’s September imports. Of the 7.15 MMT of soybeans China imported during September, 6.88 MMT (96.2%) came from Brazil, which was a 23% jump from last year. The U.S. exported only 133,692 MT of soybeans to China during September, down 88.4% from last year. Through the first nine months of this year, China imported 54.87 MMT of soybeans from Brazil, up 18% from the same period last year, and 20.08 MMT from the U.S., up 8%.

— China and Russia strengthen food and energy partnership amid Western tensions. China and Russia are bolstering their cooperation in the fields of food and energy, a move driven by the challenges both countries face amid escalating tensions with Western nations. At recent forums in Beijing, the two nations announced significant developments in their partnership, according to the South China Morning Post (link).

Notably, they have signed a substantial grain-supply contract worth nearly 2.5 trillion rubles (approximately $25.8 billion), marking the largest food-trade agreement in their history. This deal falls under the Belt and Road Initiative and will see Russia supply China with 70 million tonnes of grain, legumes, and oilseeds. The logistics hub called the New Land Grain Corridor, which is under construction in Russia’s Ural Mountains, Siberia, and the far east, will facilitate this trade.

China, with a strategic focus on food security amid increasing demand and market uncertainties, is set to receive the agreed-upon food over a 12-year period. The corridor, through which the goods will be transported, is expected to launch soon once an intergovernmental agreement is signed, potentially in late November or early December.

Besides the food agreement, Russia has invited China to consider recognizing its low-carbon energy-certification system, aimed at helping clients reduce their carbon footprint. In return, Russia will support the promotion of a similar Chinese system in the Russian market, fostering the transition to low-carbon energy sources. This initiative was discussed at the fifth Russian-Chinese Energy Business Forum in Beijing.

The deepening economic cooperation between China and Russia comes amid strained relations with Western countries and the Ukraine conflict, which have disrupted trade and supply chains. Russia’s exports of energy commodities to China have increased by 17% compared to the same period last year, highlighting the growing energy partnership between the two nations.

Bottom line: Both countries aim to secure international recognition for their energy certificates, allowing counterparties from other nations to access Russian goods and resources with a reduced carbon footprint. This cooperative effort underscores the importance of mutual support in achieving this goal and strengthening bilateral ties in food and energy sectors.

ENERGY & CLIMATE CHANGE

— DOE announces monthly purchases to replenish Strategic Petroleum Reserve (SPR). The Department of Energy (DOE) unveiled its plan to conduct monthly solicitations for oil purchases intended to restock the SPR through at least May 24. The initiative will kick off with a solicitation for 3 million barrels of crude on Oct. 24, slated for delivery to the reserve in December, and another 3 million barrels on Nov. 1, earmarked for January arrival. These purchases aim to be fiscally responsible, with the administration targeting a price of $79 per barrel or below, significantly lower than the average $95 per barrel received for emergency SPR sales in 2022.

DOE has already acquired 4.8 million barrels for SPR replenishment at an average cost of less than $73 per barrel. Additionally, the administration expressed a desire for “legislative solutions” to prevent mandated sales from the SPR. However, replenishing the SPR with sour crude may pose challenges, as refiners are currently buying this type of crude to take advantage of high diesel fuel margins. Current prices for sour crude exceed $86 per barrel, potentially complicating the SPR replenishment efforts.

HEALTH UPDATE

— CVS removes ineffective over-the-counter allergy and cold medicines following FDA advisory. CVS, the pharmacy chain, is taking action to remove certain over-the-counter allergy and cold medicines from its shelves, prompted by a recent FDA advisory declaring the ineffectiveness of phenylephrine, a common ingredient in these medications, when taken orally. The company plans to continue offering other “oral cough and cold products” to meet consumer demand, as stated by a CVS spokesperson. While the FDA has deemed phenylephrine safe for use, medical professionals have expressed doubts about its efficacy for years. These products, which include phenylephrine, generated nearly $1.8 billion in sales in the previous year, as reported by FDA data.

POLITICS & ELECTIONS

— Argentina faces complex challenge as Javier Milei emerges as favorite with controversial dollarization plan. Argentina is heading to the polls this Sunday, with Javier Milei emerging as the favorite candidate. However, Milei’s radical proposal to dollarize the national currency is a highly intricate endeavor. The fact that Argentines are seriously considering such a drastic step reflects the severe economic turmoil caused by inflation rates soaring up to 130%.

The most significant challenge lies in enticing billions of dollars, held in cash and abroad, to return to the traditional banking system. Additionally, there is a substantial risk that the peso may continue to depreciate, remain at a low value, and ultimately prevent successful dollarization. Such an outcome could potentially trigger hyperinflation, adding to the complexity of the situation. Link for details via the Wall Street Journal.

OTHER ITEMS OF NOTE

— Cotton AWP falls under 70 cents. The Adjusted World Price (AWP) for cotton declined to 69.82 cents per pound, effective today (October 20), down from 71.06 the prior week. This marks only the second time in the past 12 weeks that the AWP has been under 70 cents per pound. But that is still well above the level of 52 cents that would trigger any marketing loan benefits. Meanwhile, USDA said that Special Import Quota #1 would be established Oct. 26 for the import of 39,634 bales of upland cotton, applying to supplies purchased not later than January 23 and entered into the U.S. not later than April 22.

KEY LINKS

Policy Updates