Inflation Stayed Steady in April at Still Historically High Level

Wheat rally | U.S. cotton to China | Proposed rule on poultry payment systems | Bird flu

Jim Wiesemeyer

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May 31, 2024 08:51 AM

Wheat rally | U.S. cotton to China | Proposed rule on poultry payment systems | Bird flu

Today’s Digital Newspaper

MARKET FOCUS

Fed’s preferred inflation gauge shows modest cooling in April
Fed’s John Williams expects inflation to continue falling in second half of 2024
U.S. and UK airstrikes target Houthi rebels in Yemen
Saudi Arabia announces big sale of shares Saudi Aramco, aiming to raise $13.1 bil.
Bank of America CEO: consumers and businesses cautious about spending
Morgan Stanley 2024 midyear outlook: Steady growth boosts stocks and bonds
In May 2024, Eurozone’s annual inflation rate increased to 2.6%
France’s inflation rate increased to 2.7% year-on-year, up from 2.4% in April
Farmland growth moderates as credit conditions tighten
Oil market anticipates Sunday’s OPEC+ meeting
Japan spent record ¥9.8 trillion ($62 billion) from late April to May to boost yen
Des Moines Register reviews steps to keep Pioneer/now Corteva in Iowa
Diesel prices have fall to national avg. of $3.76 per gallon, lowest since January 2022
Ag markets today
Sugar traders may be underestimating impact of weight-loss drugs on future demand
Egypt to increase price of subsidized bread by 300% in June
Wheat market: largest price increase since onset of Russia/Ukraine war
Ag trade update
NWS weather outlook
Pro Farmer First Thing Today items

RUSSIA & UKRAINE

Russia keeps grain crop forecast unchanged despite frost damage
Russia to extend rice export ban

POLICY

Can billions in new subsidies keep family farms in business?
History and the 2024 House farm bill

CHINA

Hefty U.S. cotton sales to China in most recent week
China’s factory activity unexpectedly contracts in May

TRADE POLICY

Poloz urges Canada to be proactive ahead of USMCA trade talks

ENERGY & CLIMATE CHANGE

CARB to hold final hearing on LCFS amendments Nov. 8
North Dakota Supreme Court rules in favor of Summit Carbon Solutions
South Korean-owned Qcells to deploy technology at new solar energy plant in Georgia
White House releases a Climate Guidebook

LIVESTOCK, NUTRITION & FOOD INDUSTRY

Third human bird flu case identified as public risk remains low
USDA proposed rule on poultry payment systems clears OMB
FDA announces plan to reorganize its Human Foods division
EPA, USDA, FDA, USAID announce food loss, waste agreement.

POLITICS & ELECTIONS

Iowa GOP primary: Virgil opposes ethanol mandates, Feenstra defends program
2024 election: split between high-engagement & low-engagement voters

OTHER ITEMS OF NOTE

Donald Trump found guilty
Supreme Court unanimously backs National Rifle Association (NRA)
Appeals court upholds Monsanto Roundup settlement, rejects collusion claims
Roberts declines meeting with Senate Democrats about Alito controversy
Cotton AWP rises

MARKET FOCUS

— Equities today: Asian and European stocks. In Asia, Japan +1.1%. Hong Kong -0.8%. China -0.2%. India +0.1%. In Europe, at midday, London +0.4%. Paris flat. Frankfurt -0.1%. U.S. Dow opened slightly higher. 10-year U.S. Treasury yields dropped three basis points to 4.53% following the U.S. inflation report (see related item).

U.S. equities yesterday: All three major indices finished with another session of losses. The Dow lost 330.06 points, 0.86%, at 38,111.48. The Nasdaq declined 183.50 points, 1.08%, at 16,773.08. The S&P 500 fell 31.47 points, 0.60%, at 5,235.48.

The month of May has been good for stocks, despite recent downturns. The S&P 500 is up 4%, the Nasdaq Composite has jumped 6.9% and the Dow is hanging on to monthly gains despite its major downturn the past two weeks.

— Saudi Arabia announced a significant sale of shares in its state-owned oil company, Saudi Aramco, aiming to raise up to $13.1 billion. This sale involves offering 1.545 billion shares, which represent 0.64% of the company’s issued shares. The price range for these shares is expected to be between 26.7 and 29 Saudi riyals per share ($7.12 to $7.73). The offering is set to begin on June 2 and close on June 11, 2024, targeting both institutional and eligible retail investors within Saudi Arabia and other GCC countries.

The proceeds from this sale will be used to support Crown Prince Mohammed bin Salman’s Vision 2030 program, which aims to diversify the kingdom’s economy away from its heavy reliance on oil revenues. The funds will be directed towards investments in various sectors, including artificial intelligence, tourism, sports, and other futuristic developments like Neom.

— Ag markets today: Corn, soybeans and wheat recouped some of the losses from earlier this week during the overnight session. Soybeans and wheat are poised for strong gains this month, while corn firmed moderately. As of 7:30 a.m. ET, corn futures were trading 2 to 3 cents higher, soybeans were 9 to 11 cents higher, SRW wheat was mostly 7 to 8 cents higher, HRW wheat was 10 to 11 cents higher and HRS wheat was 6 to 7 cents higher. The U.S. dollar index and front-month crude oil futures are both modestly lower.

Slow developing cash cattle trade. There has been only a smattering of cash cattle sales this week – not enough for a true price test. Feedlots continue to seek steady/firmer prices, while packers are hoping to get cattle bought at lower prices after five straight weeks of higher trade, including last week’s all-time high. Price action in cattle futures suggests traders sense the cash market has posted a seasonal top and will fade through summer.

Cash hog index halts recent slide. The CME lean hog index is up 21 cents to $91.00, ending a seven-day slide that took $1.50 off the market. The pork cutout value firmed 21 cents on Thursday to $101.95. The cutout has swung about $3.00 on either side of the $100.00 level for the past two months.

— Agriculture markets yesterday:

Corn: July corn fell 6 1/2 cents to $4.48 3/4, a one-month low close.
Soy complex: July soybeans closed 4 1/4 cents lower to $12.09 3/4 and closed nearer session lows. July meal futures sank $5.50 to $363.60 and settled near session lows. July bean oil futures slipped 16 points lower to 45.72 cents.
Wheat: July SRW wheat fell 11 3/4 cents to $6.81. July HRW wheat lost 10 1/4 cents at $7.09 1/2. Prices closed near mid-ranges. July spring wheat futures fell 10 cents to $7.42.
Cotton: July cotton futures plunged 334 cents to 77.76 cents, settling near session lows.
Cattle: August live cattle fell 42 1/2 cents to $179.775 and nearer the session high. August feeder cattle closed down $1.175 at $259.075. Prices closed near mid-range and hit a two-week low.
Hogs: Firming cash and wholesale prices seemed to spark renewed buying in hog futures Thursday. Nearby June futures rose 20 cents to $93.975, while most-active July advanced 62.5 cents to $96.95.

— Quotes of note:

Fedspeak. The Fed’s John Williams said he expects inflation to continue falling in the second half of 2024, and policy is well-positioned. Austan Goolsbee emphasized the importance of housing disinflation to bring overall inflation back to the central bank’s 2% target.
Bank of America CEO Brian Moynihan reported that consumers and businesses have become cautious about spending on various goods and services. At a financial conference in New York, Moynihan noted that while consumer spending via card payments, checks, and ATM withdrawals has grown by about 3.5% this year to roughly $4 trillion, this is a significant drop from the nearly 10% growth rate in May 2023. Moynihan emphasized the importance of maintaining consumer activity for the U.S. economy, acknowledging that consumers are becoming more cautious due to current economic conditions.
“My wife is fond of flying flags. I am not.” — Samuel Alito. The Supreme Court justice said he would not recuse himself from two cases arising from the Jan. 6, 2021, attack on the Capitol after reports that flags appearing to support the “Stop the Steal” movement were displayed outside his houses.

— Fed’s preferred inflation gauge shows modest cooling in April. The core Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred measure of inflation, rose 0.2% in April from the previous month, according to the latest data released by the Bureau of Economic Analysis. This increase matched economists’ expectations and marked the smallest monthly gain so far in 2024. Meanwhile, the headline gauge was up by 0.3%, the same as in March and February.

On an annual basis, the core PCE price index, which excludes volatile food and energy prices, increased 2.8% in April compared to a year earlier and equal to the 2.8% annual rate recorded in March.

The overall PCE price index, including food and energy, rose 2.7% year-over-year in April, unchanged from the previous month’s reading.

The modest 0.2% monthly increase in the core PCE index suggests that underlying inflationary pressures may be gradually easing, albeit at a slower pace than policymakers would prefer. The data provides some relief to the Federal Reserve as it weighs the appropriate timing for potential interest rate cuts later this year.

The PCE report follows the release of the Consumer Price Index (CPI) earlier this month, which showed a 3.4% annual increase in the overall index and a 3.6% rise in the core measure, both above the Fed’s 2% target. There will be another CPI update on June 12.

While the PCE data suggests a modest cooling in inflationary pressures, the Federal Reserve is likely to remain cautious in its approach to potential rate cuts. The central bank has emphasized the importance of achieving sustained progress towards its 2% inflation goal before considering easing monetary policy.

The PCE report’s impact on market expectations for interest rate cuts will be closely watched. Currently, futures markets are pricing in around a 48% chance of a rate cut by the Federal Reserve in September, according to the CME Group’s FedWatch Tool. As the Federal Reserve continues to monitor incoming economic data, the PCE inflation report will play a crucial role in shaping the central bank’s policy decisions in the coming months.

Economists don’t expect Fed officials to change the federal-funds rate, which is now a 5.25% to 5.5% range, at the June 11-12 meeting. Many consider the Sept. 17-18 meeting the first chance of a rate cut, while others think policymakers won’t make a move until December.

— Morgan Stanley 2024 midyear investment outlook: Steady growth boosts stocks and bonds. Investors can look forward to opportunities in European and Japanese equities, which may offer up to 18% returns, and in corporate credit and mortgage-backed securities, according to Morgan Stanley’s 2024 midyear investment outlook. Key takeaways include:

Market support: Steady growth, declining inflation, and anticipated interest rate cuts should support equities and fixed income assets in the second half of 2024.
Attractive valuations: European and Japanese stocks offer favorable valuations and could benefit from positive earnings revisions.
Fixed income appeal: Mortgage-backed securities, leveraged loans, and investment-grade corporate bonds appear promising.
Interest rate cuts: Expected rate cuts from the European Central Bank in June, the Bank of England in August, and the U.S. Federal Reserve in September could shift investments from money-market funds to high-quality fixed income and equities.
Cautious optimism: While global equities are expected to deliver positive returns, investors should be cautious due to potentially high valuations.
Hedging strategies: The analysts say consider assets with “convexity” to balance potential returns and controlled risks, such as European stocks and carry strategies in currency differences.

Looking ahead: Morgan Stanley analysts say the outlook for 2025 remains uncertain due to factors like the U.S. presidential election and shifts in consumer preferences. However, they say the current macroeconomic environment presents a constructive outlook for most equity and fixed-income markets in the latter half of 2024.

— In May 2024, the Eurozone’s annual inflation rate increased to 2.6%, up from 2.4% in the previous two months, exceeding forecasts of 2.5%. Energy prices rebounded to 0.3% from -0.6%, and service prices rose faster at 4.1% compared to 3.7%. However, inflation slowed for food, alcohol, and tobacco (2.6% vs 2.8%) and non-energy industrial goods (0.8% vs 0.9%). The core inflation rate, excluding energy, food, alcohol, and tobacco, rose to 2.9% from 2.7%, higher than the expected 2.8%. Among major economies, inflation increased more than anticipated in Germany (2.8%), France (2.7%), Spain (3.8%), and Italy (0.8%).

A higher-than-expected print did not sway market bets of an interest rate cut from the European Central Bank next week.

— In May, France’s inflation rate increased to 2.7% year-on-year, up from 2.4% in April, exceeding analysts’ expectations. The rise was primarily driven by higher energy prices. Inflation also increased in Germany and Spain during the same period. Despite these increases, most economists believe the European Central Bank is likely to proceed with cutting interest rates in its upcoming June meeting.

— Farmland growth moderates as credit conditions tighten. Despite tighter financial conditions, farm household spending remains robust, according to Federal Reserve Surveys of Agricultural Credit Conditions (link).

The growth in farm real estate values slowed significantly, with nonirrigated farmland values increasing by an average of 8% in Q1 2024, nearly half the growth rate of the previous year. This slowdown reflects declining agricultural commodity prices and softer sector conditions.

Farmers’ demand for agricultural loans rose, while repayment rates declined, driven by deteriorating farm income. Renewal and extension activity on farm loans also saw a modest increase.

Farm loan interest rates remained flat over the past quarter, maintaining multi-decade highs. The average interest charges on all types of agricultural loans stayed steady from the previous quarter, marking the highest levels since 2007.

Despite financial tightening, farm household spending stayed strong, and balance sheets appear capable of handling thinner profit margins in 2024. The robust spending, coupled with declining farm income, may further increase the sector’s credit needs if current trends persist.

— Des Moines Register reviews steps it took to keep Pioneer/now Corteva in Iowa. A Des Moines Register article (link) recalls that in 2016, Johnston Mayor Paula Dierenfeld and Iowa Economic Development Authority Director Debi Durham flew to Wilmington, Delaware, to persuade DowDuPont executives to keep their Pioneer seed business in Iowa. Facing a potential loss of the nearly 100-year-old company, which employed about 2,600 Iowans, they offered $17 million in city and state incentives. Their efforts led to Johnston becoming one of two global business centers for Corteva Agriscience, the agricultural conglomerate formed after Dow and DuPont’s merger.

Corteva now employs about 3,000 people in Johnston and has invested $750 million in research in Iowa since the merger. The firm plays a significant role globally, developing crops resistant to climate change impacts and pests. They use advanced genetic editing to improve crop resilience and yields.

The item notes that Corteva invests in biologicals to reduce chemical use, promoting sustainable farming. They acquired Symborg and the Stoller Group, expecting the biological market to grow significantly.

Corteva’s innovations aim to meet the growing global food demand. They project $24 billion in revenue from new seed and crop protection technologies by 2035.

Despite initial job duplications post-merger, Corteva continues to reinvest and expand in Iowa, retaining the Pioneer seed brand and its economic contributions to the community.

The article concludes that Dierenfeld has no regrets about the incentives offered, highlighting Corteva’s deep-rooted impact on Johnston’s economy and community.

Market perspectives:

— Outside markets: The U.S. dollar index was weaker ahead of the U.S. inflation update, with the euro and yen both higher against the greenback. The yield on the 10-year U.S. Treasury note was little changed ahead of U.S. economic data, trading around 4.55% with a mostly higher tone in global government bond yields. Crude oil futures were little changed, with U.S. crude around $77.90 per barrel while Brent was around $82 per barrel. Gold and silver were weaker ahead of U.S. inflation figures with gold around $2,365 per troy ounce and silver around $31.48 per troy ounce.

— Oil prices will be closely watched this weekend as the market anticipates Sunday’s OPEC+ meeting, where the cartel will decide on extending output cuts beyond Q2. OPEC+ is considering a deal to extend deep production cuts into 2025 and some voluntary cuts into Q3 or Q4 of 2024. On Thursday, crude futures fell despite a bullish draw in U.S. crude stocks, due to unexpected increases in gasoline and diesel inventories, raising concerns about fuel demand as the summer driving season begins.

— Japan spent a record ¥9.8 trillion ($62 billion) from late April to May to boost the yen, but the currency has resumed its decline towards 34-year lows. Despite interventions, analysts highlight the “huge dilemma” for the Bank of Japan (BoJ), which faces pressure to raise rates faster amid weak economic conditions. The finance ministry reported the spending mainly occurred from April 29 during the first yen-buying intervention since late 2022. Initially, the yen strengthened to ¥151.85 per U.S. dollar but fell to ¥157.31 by Friday, as investors focused on the gap between Japan’s near-zero rates and higher U.S. rates.

The yen remains popular for the “carry trade,” where it is borrowed cheaply to fund investments in higher-yielding assets. Meanwhile, 10-year Japanese government bond yields hit 1.1%, the highest since July 2011. Expectations rise that the BoJ will reduce government debt purchases at its June policy meeting.

— Diesel prices have fallen to a national average of $3.76 per gallon, the lowest since January 2022, according to the Energy Information Administration. This marks the sixth consecutive week of declines, bringing prices down from their highs following Russia’s invasion of Ukraine, according to Overdrive (link).

Regional price changes

California: Prices fell by 6.4 cents, now averaging $4.99 per gallon.
Midwest: Prices decreased by 5.2 cents to $3.63 per gallon.
Gulf Coast: The cheapest region, with prices at $3.48 per gallon.
Central Atlantic: The only region with an increase, up by nine-tenths of a cent.

Spot rates increase: Despite falling diesel prices, spot rates for trucking saw a slight increase, continuing the trend from the previous week during International Roadcheck week.

— Sugar traders may be underestimating the impact of weight-loss drugs on future demand, according to a Bloomberg article (link). It notes that at a recent industry event in New York, concerns about consumption were largely overlooked, despite a warning from Circana about the potential impact of these drugs. Walmart has noted that drugs like Ozempic are already affecting food sales, with Morgan Stanley predicting a 1.5% to 2.5% decline in U.S. calorie consumption by 2035 and up to a 5% drop in sweets consumption. Although the sugar industry hasn’t focused much on estimating consumption changes, demand in emerging markets continues to grow. The significant impact might occur later as weight-loss medications become more accessible and affordable.

Of note: A sugar industry contact emailed: “The conclusion amongst traders was this was not something that was likely to be an issue in the short run (which is primarily what traders are concerned about). In the longer run, the cost of Ozempic and other like drugs are likely to determine how widespread they become in terms of penetration into the consumer market. In looking at the estimates below, I am not sure if those are accounting for increased consumption simply due to population growth and are estimates of average per capita consumption levels.”

— Egypt to increase price of subsidized bread by 300% in June. Starting in June, Egypt will raise the price of subsidized bread from 5 piasters ($0.0011) to 20 piasters ($0.0042) per loaf, as announced by Prime Minister Mostafa Madbouly. This is the first price increase in decades, and it is unlikely to affect Egypt’s wheat import quantity. The price hike will help reduce the cost of Egypt’s bread subsidy program and align with the IMF’s fiscal consolidation plan. However, this change may provoke anti-government sentiment and sporadic unrest, as bread subsidies are crucial for two-thirds of Egypt’s 111 million citizens. This unrest could be exacerbated by other grievances, such as Egypt’s stance on the Hamas-Israel conflict or general living conditions. The bread subsidy program is politically sensitive, impacting a large portion of the population. Egypt allocated 125 billion Egyptian pounds ($2.66 billion) for bread subsidies in its fiscal year (FY) 2024-25 budget. This price increase is part of a March 2024 IMF deal, which raised Egypt’s loan from $3 billion to $8 billion and requires significant fiscal consolidation.

— Wheat prices have experienced the largest increase since the onset of the Ukraine war, driven by drought and unseasonal frosts in Russia and Ukraine, Bloomberg reports (link). Analysts have cut Russia’s wheat estimates by over 10% in May. Ukrainian and Russian wheat crops have suffered significantly, with Ukrainian farmer Yurii Sekh noting severe damage due to dry weather and frost. Benchmark wheat futures are up 13% for the month.

Russia and Ukraine, which account for nearly a third of global wheat exports, are facing volatile weather impacts. Russia may declare a national emergency due to extensive crop damage, and Ukrainian wheat production is expected to be the lowest in over a decade. Other global producers like Australia and India are also struggling, contributing to rising prices and reduced global stockpiles. USDA forecasts a nine-year low for global wheat stockpiles in the upcoming season.

— Ag trade update: South Korea passed on a tender to buy up to 68,000 MT of corn from the U.S., South America or South Africa.

— NWS weather outlook: Severe Weather and Excessive Rainfall potential across mid-section of the country this weekend... ...Heat Risk continues over far southern Texas.

Items in Pro Farmer’s First Thing Today include:

• Grains rebound overnight
• France’s wheat crop rating decline

RUSSIA/UKRAINE

— Russia keeps grain crop forecast unchanged despite frost damage. Russian Deputy Prime Minister Dmitry Patrushev said frosts earlier this month destroyed crops on around 1 million hectares, including 850,000 hectares of grains. Despite the damage, he maintained Russia’s 2024 grain production forecast of 132 MMT, including 85 MMT of wheat, though he said 2024-25 grain exports will likely fall to 60 MMT from 70 MMT in the current marketing year.

— Russia to extend rice export ban. Patrushev said Russia will extend its export ban on rice, without providing specific details, but has no plans to lengthen the curb on durum shipments. He said Russia will increase baseline prices for export duties by 1,000 rubles ($11.07) for all types of grains.

POLICY UPDATE

— Can billions in new subsidies keep family farms in business? The New York Times has an in depth article (link) that notes the Biden administration aims to better support small farmers while still aiding big operations and rewarding climate-friendly practices, adding “it’s a tall order.”

The Biden administration aims to support small farmers while also aiding large operations and promoting climate-friendly practices through billions in subsidies. USDA Secretary Tom Vilsack highlights the decline of small farms, with 544,000 lost since 1981. New policies aim to diversify farm revenue streams, encouraging practices like selling carbon credits and renewable energy.

The American Rescue Plan, Inflation Reduction Act, and Bipartisan Infrastructure Law provide about $60 billion to USDA, targeting debt relief, carbon emission reduction, and conservation practices. Despite these efforts, challenges remain for small farmers, who struggle with financing, market access, and adverse conditions.

Programs also include support for marginalized farmers and investments in local food systems. However, concerns persist that these initiatives may disproportionately benefit larger farms and may not fully address the needs of small-scale operators. Advocacy groups are pushing for continued and increased funding in the upcoming farm bill to better support small farms and ensure diverse agricultural practices.

— History and the 2024 House farm bill is the title of an article on farmdoc (link) by Jonathan Coppess, Department of Agricultural and Consumer Economics, University of Illinois. The House Ag Committee advanced the 2024 Farm Bill reauthorization, the Farm, Food, and National Security Act of 2024, on May 24, 2024. The bill, passed with minimal bipartisan support, and Coppess says it faces slim chances of being considered on the House floor this election year.

Four pillars: The article observes that historically, the farm bill coalition, built on four pillars (farm payment programs, conservation, crop insurance, and SNAP), has faced challenges. The coalition’s stability has been tested by partisan conflicts, especially regarding SNAP. Previous farm bills in 2007, 2012, 2013, and 2018 saw significant political disputes, particularly over SNAP and conservation policies.

Coppess writes: “The fate of the 2024 reported bill on the House floor remains in serious doubt given initial indications that floor time will not be scheduled prior to September. The odds that the House will consider a $1.5 trillion, controversial piece of legislation in the middle of a contentious campaign season, and with the end of the fiscal year looming, are miniscule at best. The 2024 bill marks three consecutive partisan and contentious reauthorization efforts in the House. There exists no historical precedent for this situation. The previous most contentious era for farm bills predated food stamps/SNAP and culminated in the first defeat of a farm bill on the House floor in 1962.”

The current 2024 Farm Bill, Coppess concludes, reflects ongoing partisan tensions and the complex dynamics of the farm bill coalition, highlighting the historical and political struggles in reauthorizing such legislation. The coalition’s breakdown in the 1950s and 1960s due to regional conflicts over farm policy offers a historical parallel to today’s challenges.

Bottom line: The consequences for current farm bill policies remain uncertain, with future developments still to unfold.

CHINA UPDATE

— Hefty U.S. cotton sales to China in most recent week. USDA’s Export Sales data for the week ended May 23 reported activity for 2023-24 that included net reductions of 23 metric tons of wheat, net sales of 67,210 metric tons of corn, 61,614 metric tons of sorghum, 71,074 metric tons of soybeans and 191,929 running bales of upland cotton. Activity for 2024-25 included net sales of 4,400 running bales of upland cotton. For 2024, net sales of 2,793 metric tons of beef and 2,414 metric tons of pork were reported.

— China’s factory activity unexpectedly contracts in May. China’s official manufacturing purchasing managers index (PMI) dropped to 49.5 in May from 50.4 in April, falling back into contraction after two months of expansion. New orders and new export orders fell after growing in the prior two months, though output rose for the third successive month.

Of note: China leader Xi Jinping has prioritized manufacturing growth amid property slowdown and weak domestic consumption.

TRADE POLICY

— Poloz urges Canada to be proactive ahead of USMCA trade talks. The North American free-trade agreement, renegotiated under former President Donald Trump as the U.S.-Mexico-Canada Agreement (USMCA), is up for review on July 1, 2026. Former Bank of Canada Governor Stephen Poloz notes that uncertainty over the trade talks is negatively affecting investment in Canada.

This review clause requires the U.S., Mexico, and Canada to confirm in writing whether they wish to continue the agreement. If any of the parties decide not to renew the agreement, it will initiate a process that could lead to the termination of the USMCA by July 1, 2036, unless the objecting party or parties change their stance.

Poloz says Canada to be “super proactive” and not wait defensively but actively engage in the upcoming trade negotiations with clear demands. The ongoing uncertainty, especially with Trump’s potential return, has caused Canadian companies to shift investment focus to the U.S., draining domestic investment.

Canadian Prime Minister Trudeau’s government is strategizing for the 2026 review, heavily influenced by the upcoming Nov. 5 U.S. election results. Poloz, now an adviser at Osler Hoskin & Harcourt, is also examining ways for Canadian pension funds to invest more domestically by identifying and removing barriers to investment.

In summary, the potential consequences of not renewing the USMCA include significant economic and trade disruptions, increased policy and regulatory uncertainty, weakened enforcement of labor and environmental standards, and a potential decline in regional competitiveness and foreign direct investment. These impacts underscore the importance of the upcoming review process and the need for careful consideration by all parties involved.

ENERGY & CLIMATE CHANGE

— California Air Resources Board to hold final hearing on LCFS amendments Nov. 8. The California Air Resources Board (CARB) recently announced it will hold its final public hearing on Nov. 8 to consider proposed amendments to the Low Carbon Fuel Standard (LCFS). This marks the conclusion of a multi-year update process. The American Soybean Association (ASA) has been actively involved and anticipates at least one more workshop and comment period before the final hearing. ASA said its top priority is improving the “sustainability guardrails” for agricultural feedstock producers. Earlier this month, ASA and several state associations submitted comments to CARB expressing concerns with the proposed amendments.

— North Dakota Supreme Court rules in favor of Summit Carbon Solutions, allowing the company to access land for survey purposes without landowner permission. This decision supports a lower court ruling, affirming that survey access does not equate to an easement. Summit seeks property easements for a five-state carbon capture pipeline, securing over 80% of the North Dakota route through voluntary agreements. However, some landowners have resisted. The court ruled that landowners could take legal action if Summit’s activities cause damage or unreasonable interference. The North Dakota Public Service Commission, which denied Summit’s permit last year, is reconsidering the application after allowing Summit to address its concerns.

— South Korean-owned Qcells plans to deploy innovative technology at its new solar energy plant in Georgia, developed by Israeli startup Lumet. This technology aims to simplify manufacturing and reduce costs by minimizing the amount of silver needed in solar panels. The initiative seeks to enhance U.S. efforts to build a solar-energy supply chain independent of China. With plummeting costs making solar power a fast-growing energy source, Qcells anticipates a multibillion-dollar opportunity. Lumet is also in discussions with other potential customers and plans to establish factories in the U.S. and China next year.

— White House released a Climate Guidebook that includes various initiatives aimed at addressing climate change. One of the key components of this guidebook (link) is the USDA-Energy initiative, which focuses on integrating agricultural practices with energy production to promote sustainability and reduce greenhouse gas emissions. The USDA-Energy initiative is a significant part of this effort, promoting practices that combine agricultural productivity with renewable energy production. This includes the use of biofuels, biogas, and other renewable energy sources derived from agricultural products and waste.

LIVESTOCK, NUTRITION & FOOD INDUSTRY

— USDA proposed rule on poultry payment systems clears OMB. USDA’s proposed rule on Poultry Grower Payment Systems and Capital Improvement Systems was cleared by the Office of Management and Budget (OMB) after several months of review. The rule, submitted to OMB on Dec. 18, 2023, aims to address issues such as payment disparities, reductions unrelated to flock performance, and transparency in capital investments in poultry production. During the review, meetings were held with the National Chicken Council and the Campaign for Contract Agriculture Reform. It is uncertain whether the USDA will announce this rule immediately or wait for the completion of the OMB review of another proposed rule concerning unfair practices under the Packers and Stockyards Act.

— Third U.S. farm worker infected with bird flu is the first to experience respiratory symptoms. The third human case of H5 bird flu tied to the ongoing U.S. outbreak in cattle has been detected in a farm worker in Michigan. This individual worked on a dairy farm and was in close contact with infected cows. Unlike the previous cases, this individual experienced respiratory symptoms, including a cough, which are more typical of human influenza infections. The earlier cases reported only conjunctivitis (pink eye). The infected worker was not wearing protective equipment at the time of exposure, which likely contributed to the infection. This highlights the importance of personal protective equipment (PPE) for farm workers, observers note.

The worker was given flu antiviral drugs and is recovering. The Michigan Department of Health and Human Services (MDHHS) emphasized that the risk to the general public remains low.

This is the third human case of H5 bird flu in the U.S. since the outbreak in cattle began. The first case was reported in Texas, and the second case was also in Michigan. Both earlier cases involved farm workers who had contact with infected cows and experienced only eye symptoms.

The significance of respiratory symptoms in the third case relates to the potential for onward spread. Influenza viruses typically transmit via the respiratory route, but there is no evidence of sustained human-to-human transmission of H5 viruses at this time.

USDA has confirmed HPAI in 68 dairy herds and one alpaca herd in a total of nine states, including Michigan, Texas, Colorado, Idaho, Kansas, New Mexico, North Carolina, Ohio, and South Dakota. Most of these herds are dairy cattle.

FDA has conducted a survey of commercially purchased milk, finding that one in five pasteurized milk products tested positive for the H5N1 virus by polymerase chain reaction (PCR) testing. However, efforts to grow viable virus from these milk samples failed, supporting the FDA’s position that pasteurization kills the virus. There are concerns about the safety of unpasteurized (raw) milk from infected herds.

USDA’s Food Safety and Inspection Service (FSIS) released its final results of beef muscle sampling of cull dairy cows, with the testing completed May 28 with no viral particles found in 108 of 109 samples. FSIS announced May 24 that viral particles were found in the tissue samples from one cow. None of the meat from the dairy cattle entered the food supply.

Michigan has implemented active monitoring and testing for farm workers exposed to infected animals. The state has been proactive in tracking and responding to the outbreak. The Michigan Department of Agriculture and Rural Development (MDARD) has issued guidelines to help producers minimize the spread of the virus. These include designating a biosecurity manager, establishing a line of separation to limit access points, and implementing cleaning and disinfection practices.

USDA has deployment of $824 million in funding from the Commodity Credit Corporation (CCC) for the response to the HPAI situation in poultry and livestock.

Of note: See current stats on bird flu outbreak here. Also, USDA said as additional testing takes place, they expect there will be an increase in testing and positive results.

— The Food and Drug Administration (FDA) formally announced its plan to reorganize its Human Foods division, which will be published in the Federal Register on Monday (link). This reorganization is a significant move aimed at streamlining the FDA’s oversight of human food supply chains and agricultural products, following criticism over its handling of the 2022 infant formula shortage.

Key aspects of the reorganization include:

Creation of the Human Foods Program (HFP): This new program will consolidate responsibilities from the Center for Food Safety and Applied Nutrition, the Office of Food Policy and Response, and select functions from the Office of Regulatory Affairs (ORA). The ORA will be renamed the Office of Inspections and Investigations (OII).
New operational model: The FDA will implement a new operational model for its field activities to enhance efficiency and adaptability in its regulatory role.
Leadership and implementation: James Jones, a veteran of the Environmental Protection Agency, has been appointed as the deputy commissioner for human foods to oversee the establishment of the HFP.
Timeline and process: The reorganization process involves multiple steps, including reviews by the Department of Health and Human Services (HHS) and the Office of Management and Budget, a 30-day notification period to Congress, and engagement with unions representing impacted staff. The FDA aims to implement these changes starting in October 2024.

This reorganization is part of the FDA’s broader efforts to modernize and improve its regulatory framework, making it more responsive to the complexities of the food industry and better prepared for future challenges.

— EPA, USDA, FDA, USAID announce food loss, waste agreement. The EPA, USDA and FDA renewed their formal agreement to collaborate on reducing food loss and waste. This year, the U.S. Agency for International Development (USAID) joined the partnership. The primary goal is to reduce food loss and waste by 50% by 2030, aligning with the United Nations Sustainable Development Goal Target. The collaboration aims to reduce the environmental impact of food waste, improve food security, and save money for families and businesses. The agencies will work together on research, community investments, education and outreach, voluntary programs, public-private partnerships, tool development, technical assistance, and policy discussions. The addition of USAID allows the U.S. gov’t to expand its efforts internationally, leveraging government resources to reach a broader range of stakeholders.

POLITICS & ELECTIONS

— Iowa GOP primary: Virgil opposes ethanol mandates, Feenstra defends program. In the Republican primary for Iowa’s 4th Congressional District, challenger Kevin Virgil advocates for phasing out federal ethanol mandates, opposing incumbent Randy Feenstra’s stance on expanding the Renewable Fuel Standard program. At a forum hosted by the Iowa Renewable Fuels Association, Virgil criticized government assistance that “picks winners and losers,” while Feenstra defended the ethanol program as vital for Iowa’s agriculture. Virgil, a military veteran and entrepreneur, also opposes carbon dioxide pipeline projects and criticized Feenstra for supporting tax credits that benefit such projects. Feenstra, who avoided direct comments on the pipeline, highlighted the potential benefits for Iowa ethanol and agriculture.

Feenstra, a two-term incumbent, seeks re-election against Virgil. The primary winner will likely face Democrat Ryan Melton in the November election. The 4th District includes northwest Iowa and extends south along the Missouri River, encompassing cities like Ames, Council Bluffs, and Sioux City.

— The 2024 election is increasingly characterized by a split between high-engagement and low-engagement voters. David Wasserman, election analyst for The Cook Political Report with Amy Walter, says Democrats, once benefiting from high voter turnout, now excel among highly engaged voters, while former President Trump leads among low/mid-engagement voters. He details that a swing state poll divides the 2024 electorate into three groups: high-engagement voters (52%), low/mid-engagement voters (34%), and new registrants since 2020 (13%). Biden leads among high-engagement voters (49%-45%), but Trump leads among low/mid-engagement voters (51%-41%) and new registrants (43%-33%).

Key findings include:

High-engagement voters, who are older and whiter, support Biden more consistently. Highly engaged Black voters overwhelmingly support Biden, but support drops among less engaged Black voters.
Low/mid-engagement voters are less supportive of Republicans down-ballot, indicating a complex voter dynamic.
Low/mid-engagement voters prioritize economic issues and hold pessimistic views about the economy.
These voters have greater concerns about Biden’s age and capabilities.
Despite leaning towards Trump, low/mid-engagement voters disapprove of the Supreme Court’s decision to overturn Roe v. Wade but are not strongly opposed to Trump’s stance on abortion.

Wasserman’s bottom line: Overall, low voter turnout could favor Biden, while higher engagement could benefit Trump in the swing states.

OTHER ITEMS OF NOTE

— Supreme Court unanimously backs National Rifle Association (NRA) in a First Amendment ruling that could make it harder for state regulators to pressure advocacy groups. The decision means the NRA may continue to pursue its lawsuit against a New York official who urged banks and insurance companies to cut ties with the gun rights group following the 2018 mass shooting at a Parkland, Florida, high school that left 17 people dead.

— Appeals court upholds Monsanto Roundup settlement, rejects collusion claims. The U.S. Court of Appeals for the Ninth Circuit upheld the denial of an objection to a class settlement over allegations that Monsanto Co. failed to warn consumers about the carcinogenic properties of its Roundup herbicide. Objectors Ryan Tomlinson and Carol Richardson argued that the settlement process involved collusion and compromised their separate state class action in Missouri. However, the appeals court found no signs of collusion, stating that the district court had properly applied circuit precedent and ensured fair distribution of the settlement. Monsanto agreed to set aside $23 million to $45 million for consumer refunds. The objectors’ appeal was rejected, affirming the district court’s decision and the certification of a nationwide class.

— Roberts declines meeting with Senate Democrats about Alito controversy. Chief Justice John Roberts on Thursday declined a request to meet with Senate Judiciary Committee Chairman Dick Durbin (D-Ill.) and Sen. Sheldon Whitehouse (D-R.I.) about their push for Justice Samuel Alito to recuse himself from upcoming Supreme Court cases dealing with Jan. 6, 2021, and the alleged effort to overturn the 2020 election.

— Cotton AWP rises. The Adjusted World Price (AWP) for cotton rose to 64.37 cents per pound, effective today (May 31), an increase from 60.08 cents the prior week and the highest since the week of April 12 when it was 65.43 cents per pound. This marked the second weekly rise after 11 weeks the AWP had fallen. Meanwhile, USDA announced Special Import Quota #7 would be established June 6 for the import of 35,277 bales of upland cotton, applying to supplies purchased no later than Sept. 3 and entered into the U.S. no later than Dec. 2.

KEY LINKS

Policy Updates