Iran’s President Dies in Helicopter Crash

CBO analyst takes on GT Thompson and staff on CBO scoring, but facts dispute CBO reasoning

Jim Wiesemeyer

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May 20, 2024 08:18 AM

CBO analyst takes on GT Thompson and staff on CBO scoring, but facts dispute CBO reasoning

Today’s Digital Newspaper

MARKET FOCUS

No major market impacts yet from death of Iran president
Wall Street gearing up for major change as U.S. transitions to faster stock settlement
Navigating unprecedented levels of U.S. debt and deficits
Equities market bear turns bullish
Malanga: Data suggesting restrictive monetary policy may be starting to bite
Copper and gold prices surge
Logistics update
Ag markets today
OJ prices at record highs due to heat & disease damaging crops in Brazil
Cocoa farmers using GPS mapping trace origin of beans in response to EU law
NWS weather outlook
Pro Farmer First Thing Today items

BALTIMORE BRIDGE COLLAPSE

Container ship expected to be refloated

CONGRESS

Lawmakers in rush to leave for Memorial Day recess

ISRAEL/HAMAS CONFLICT

Biden says his administration still seeking mmediate cease-fire

RUSSIA & UKRAINE

Ukraine asks Biden administration to help identify targets in Russia for Kyiv to strike
Recent cold temps hurt Ukraine’s grain crops

POLICY

CBO analyst puts herself in heated farm bill scoring debate
U.S. sugarbeet & sugarcane farm families & factory workers praise House farm bill

CHINA

Biden’s $18 bil. tariff hike on China imports sparks supply chain conflict, inflation concerns
China launches anti-dumping probe into chemical imports
Lai Ching-te sworn in as Taiwan’s new president
Nearly 70% of China’s April soybean imports came from Brazil
China’s pork imports remain slow
Bird flu discovered in western China

TRADE POLICY

USMCA meets Tuesday and Wednesday

ENERGY & CLIMATE CHANGE

DOE purchases 3.3 mil. barrels of sour crude oil for SPR; avg price $79.38 per barrel
EV, wind turbine & solar panel manufacturers face shortfall in critical metals & minerals

LIVESTOCK, NUTRITION & FOOD INDUSTRY

More than 50 dairy herds confirmed with highly pathogenic avian influenza (HPAI)
USMEF Spring Conference kicks off Wednesday, May 22, in Kansas City
Iowa ‘fake meat’ law.

OTHER ITEMS OF NOTE

Saudi Crown Prince Mohammed bin Salman postpones planned trip to Japan

MARKET FOCUS

— Equities today: Asian and European stock indexes were mostly higher overnight. In Asia, Japan +0.7%. Hong Kong +0.4%. China +0.5%. India closed. In Europe, at midday, London +0.3%. Paris +0.5%. Frankfurt +0.4%. U.S. stock indexes are pointed toward slightly higher openings. Today there are no economic reports but there are multiple Fed speakers including: Bostic (7:30 & 8:45 a.m. ET), Barr & Waller (9:00 a.m. ET), Jefferson (10:30 a.m. ET), Mester (2:00 p.m. ET) and Bostic again (7:00 p.m. ET). However, for all the commentary, unless multiple Fed officials start openly discussing rate hikes (which analysts say is extremely unlikely) their commentary shouldn’t meaningfully move markets.

U.S. equities Friday: The Dow on Friday closed above 40000 for the first time. The biggest drivers of the last 10000-point rise? Goldman Sachs, Microsoft, UnitedHealth and Caterpillar. All three indices registered gains for the week with advances of 1.2% for the Dow, 2.1% for the Nasdaq, and 1.5% for the S&P 500. On Friday, the Dow was up 134.21 points, 0.34%, at 40,003.59. The Nasdaq fell 12.35 points, 0.07%, at 16,695.97. The S&P 500 rose 6.17 points, 0.12%, at 5,303.27. All three indexes are in positive territory for the second quarter.

— Wall Street is gearing up for a significant change as the U.S. transitions to a faster stock settlement cycle, moving to T+1 (trade date plus one day) on May 28. This shift aims to enhance efficiency, but it also brings potential risks. Concerns include a possible increase in failed trades, operational glitches, and higher costs. Additionally, this change might complicate matters for investment vehicles that operate across borders, as other jurisdictions will still follow different settlement timelines. Natsumi Matsuba from Russell Investments highlights that liquidity will be a critical issue during this transition, indicating that the industry will undergo a period of adjustment and learning.

— Ag markets today: Wheat futures rebounded from the poor finish last Friday by posting strong gains during the overnight session. Corn and soybeans followed to the upside. As of 7:30 a.m. ET, corn futures were trading 2 to 3 cents higher, soybeans were 2 to 5 cents higher and wheat futures were 13 to 18 cents higher. Front-month crude oil futures were around 30 cents lower, and the U.S. dollar index was nearly 100 points higher.

Wholesale beef prices continue to surge. Wholesale beef prices firmed $3.30 for Choice and 89 cents for Select on Friday, though movement slowed to 99 loads. With Choice beef at $313.45 and Select at $297.40, traders will watch movement closely to see if there are signs the surge in prices is slowing retailer demand.

Hog premiums weaken. The CME lean hog index is up 16 cents to $92.29 as of May 16. After Friday’s losses, the premium June lean hog futures hold to today’s cash quote tightened to $4.21. Meanwhile, the pork cutout value firmed 58 cents on Friday, led by a $5.77 gain in primal bellies.

— Agriculture markets Friday and for the week:

Corn: July corn futures fell 4 1/2 cents to $4.52 1/2, nearer the session low and hit a two-week low. For the week, July corn lost 17 1/4 cents.
Soy complex: July soybeans rose 11 3/4 cents to $12.28 and notched a 9-cent gain on the week. July soymeal rose $1.10 to $268.80 but gave up $3.10 week-over-week. July soyoil rose 75 points to 45.27 cents and picked up 83 cents on the week.
Wheat: July SRW wheat futures fell 12 cents to $6.51 1/4 and near the session low. For the week, July SRW dropped 12 1/4 cents. July HRW wheat futures closed down 11 1/2 cents to $6.61 3/4, near the daily low and for the week down 11 1/2 cents. July spring wheat futures fell 9 1/4 cents to $7.11 1/2 and slid 8 1/2 cents on the week.
Cotton: July cotton fell 35 points to 75.89 cents, and lost 142 points on the week.
Cattle: Anticipation of further short-term cash and wholesale strength seemed to power fresh gains in cattle and feeder futures Friday. June live cattle futures climbed $2.025 to $181.05, ending the week having gained $4.90 since last Friday. Expiring May feeder futures rose $1.875 to $246.725, while most-active August jumped $2.50 to $259.85. The latter represented a weekly gain of $8.95.
Hogs: Pessimism about the strength of the spring hog/pork rally weighed on hog futures again Friday. Nearby June futures fell $1.875 to $96.50, which matched the weekly drop of $1.875 as well. The cash hog and wholesale pork markets continued demonstrating considerable firmness to end this week, with the hog index looking set to rise another 16 cents to $92.29 when Thursday’s official quote is published today.

— Quotes of note:

We are navigating unprecedented levels of U.S. debt and deficits. The federal debt has reached $34.5 trillion, raising significant concerns on Wall Street and in Washington. This debt has grown by nearly 50% since the early days of the Covid-19 pandemic and now exceeds 120% of the total federal economy. The Congressional Budget Office (CBO) projects that the debt held by the public relative to GDP will soon surpass historical records. Prominent figures like Federal Reserve Chair Jerome Powell, JPMorgan Chase CEO Jamie Dimon, and Bridgewater Associates founder Ray Dalio have recently expressed their worries. Powell emphasized the urgency of addressing the U.S. budget deficit, stating, “Everyone should be reading the things that they’re publishing about the U.S. budget deficit and should be very concerned that this is something that elected people need to get their arms around sooner rather than later,” during remarks to an audience of bankers in Amsterdam.
Equities market bear turns bullish. Amid a market rally, Michael Wilson, one of Wall Street’s prominent bears from Morgan Stanley, has shifted to a positive outlook for U.S. stocks. He now predicts the S&P 500 will rise by 2% by June 2025, a significant change from his earlier forecast of a 15% decline by December. Despite the index hitting record highs in recent months, Wilson had consistently maintained his bearish stance. As recently as last month, he avoided making bold predictions about the index’s direction due to heightened economic uncertainty.

— For the first time in two years a uniform set of data reports is suggesting that restrictive monetary policy may be starting to bite, says Dr. Vince Malanga, president of LaSalle Economics. He notes April saw a decline in consumer sentiment, rising credit delinquency rates, and a falling household saving rate. Both manufacturing and services ISM measures fell into contraction, with service industry employment weakening alongside prolonged goods industry employment weakness.

While the economy is not officially in decline, Malanga says April’s weakness could signal the onset of stagflation. Price indexes in both manufacturing and services ISMs accelerated, reflecting lagged effects of commodity price pressures. Energy prices have recently eased, potentially leading to a near-term easing in the yearly inflation rate, though the CPI remains above the 2% target.

Further progress toward the 2% inflation rate will be challenging due to calendar effects, starting with May data released in June. Widespread price weakness is needed, which may require an economic downturn, Malanga believes. The FOMC faces challenges with potential additional money injection by the administration before the election, complicating its task, he adds.

Malanga’s bottom line: If economic softness persists, the Fed might cut rates, possibly starting in July. This could lay the groundwork for future inflation, adding complexity to the stagflation scenario.

— Friday is the traditional getaway day for Memorial Day weekend, although many hit the road a day earlier. AAA projects 38.4 million people will travel by car over Memorial Day weekend, the highest number for that holiday since AAA began tracking in 2000.

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 slightly higher, trading around 4.43%, with a higher tone in global government bond yields. Crude oil futures were lower ahead of U.S. trading, with U.S. crude around $79.55 per barrel and Brent around $83.55 per barrel. Gold and silver futures were firmer, with gold around $2,422 per troy ounce and silver around $31.45 per troy ounce.

— Two of the world’s most-traded metals reached record highs as commodity markets gained attention. Copper soared past $11,000 per ton, marking its highest level ever. This surge extends a months-long rally fueled by investors anticipating significant supply shortages. Meanwhile, gold also hit a record high following the death of Iranian President Ebrahim Raisi in a helicopter crash, which heightened concerns about potential new tensions in the Middle East, driving investors to the safe-haven metal.

— Orange juice prices have reached record highs due to heat and disease damaging crops in Brazil, the world’s leading exporter, which accounts for about 70% of global supply. Brazil is facing its worst harvest in 36 years. Meanwhile, Florida, the top U.S. producer, is also experiencing a decline in output, exacerbating the shortage.

— Cocoa farmers are now using GPS mapping to trace the origin of their beans in response to a new European Union law aimed at protecting rainforests. The law requires chocolate makers to prove that the cocoa they use has not been grown on land deforested since the end of 2020. This means that every piece of cocoa entering the EU must be linked to the GPS coordinates of the farm where it was harvested. Link to a WSJ article that examines the rush to gather data on cocoa farms and the law’s potential impact on cocoa supplies, which are already facing record-high prices.

— Logistics update:

Samsung Electronics is asking automotive suppliers to provide non-China production options as Asian companies prepare for the impact of new U.S. tariffs. (Nikkei Asia)
The Federal Reserve Bank of New York will start releasing “Supply Availability Indexes” on pressures in supply chains. (Reuters)
Major ports on Asia-Europe lanes are seeing growing containership delays, with backups at Singapore now reaching six days. (ShippingWatch)
The state of Oregon plans to spend $40 million to help maintain container shipping services at the Port of Portland. (Port Technology)
Greek shipping tycoon George Economou backed out of his proxy fight at dry-bulk carrier Genco Shipping & Trading. (Splash 247)
GXO Logistics workers at a warehouse outside London plan to strike starting June 7 in a dispute over pay. (Motor Transport)

— NWS weather outlook: Continued severe weather and excessive rainfall threats over the central U.S. into mid-week... ...Cool conditions with periods of shower and storm chances from the Rockies to the Pacific Northwest... ...Well above average, Summer-like temperatures to start the week across much of the central/eastern U.S.

Items in Pro Farmer’s First Thing Today include:

• Wheat leads overnight price gains
• Wet week ahead for Corn Belt
• Slow Argentine farmer sales of soybeans
• Tale of two Australia’s

BALTIMORE BRIDGE COLLAPSE

— Container ship that rammed into Baltimore’s Francis Scott Key Bridge is expected to be refloated and moved to a nearby dock during high tide today. The refloating operation will take about 21 hours, with the transit portion starting at high tide and lasting about three hours, the Coast Guard-led command said. Last week the Unified Command said the channel — where the cleanup of steel and concrete debris has lasted eight weeks — is expected to be ready to allow all commercial vessels to and from Baltimore’s port “to a minimum operational depth of 50 feet (15 meters) in the weeks ahead.”

CONGRESS

— Senate is in today; the House returns tomorrow. But both chambers are leaving Thursday for the Memorial Day recess.

ISRAEL/HAMAS CONFLICT

— “The moment of truth has arrived.” — Benny Gantz, a member of Israel’s war cabinet, threatening Sunday to quit Benjamin Netanyahu’s government in June if the prime minister doesn’t articulate a plan for ending the war and securing the enclave of more than 2 million Palestinians.

— President Biden told the graduating class of Morehouse College on Sunday that his administration was seeking an immediate cease-fire to address “a humanitarian crisis in Gaza,” in a high-profile commencement address in which he appealed to Black voters following a season of campus unrest over the war between Israel and Hamas.

Of note: Jake Sullivan, America’s national security adviser, travelled to Israel to push for a ceasefire agreement. He urged Binyamin Netanyahu, Israel’s prime minister, to connect the war in Gaza to a “political strategy” for the territory’s future.

RUSSIA/UKRAINE

— Ukraine has asked the Biden administration to help identify targets in Russia for Kyiv to strike using its own weapons. It has also asked the U.S. to lift restrictions on the use of American provided weapons against military objectives inside Russia, U.S. and defense officials said.

— Recent cold temps hurt Ukraine’s grain crops. Recent severe frosts across Ukraine’s northern and eastern regions could reduce this year’s grain and oilseed harvest, analyst APK-Inform said. The cold temps damaged crops of wheat, barley, rapeseed and peas, APK-Inform said, adding that 20% to 30% of the yield could be lost. Ukraine’s agriculture ministry told Reuters its crop forecast was unchanged for now, with combined grain and oilseed production at 74 MMT, down from 82 MMT last year.

POLICY UPDATE

— CBO analyst takes on House farm bill in an email to Agri-Pulse about Chairman Thompson’s mark. The train has come off the rails at the Congressional Budget Office (CBO). Sources say the email misses the whole point of what House Ag Chairman GT Thompson (R-Pa.) and his staff have been discussing with Budget: they think CBO is way off the mark on assessing savings from altering Section 5 of the CCC. Fact: in the last six years alone, CBO miss-projected USDA’s use of CCC Section 5 by more than $60 billion! CBO was caught completely flat footed. And this is why Thompson asked for and received assistance on this topic from House Budget Chairman Jodey Arrington (R-Texas).

Says one congressional contact: “The fact one analyst is obstructing a process and good policy, and is inserting herself inappropriately, is something that might have to come out in the wash.”

Some media say the House Ag bill has a significant funding gap, but sources say that is not the case. The issue: The CBO estimates that the suspension of Section 5 authority would save $8 billion over 10 years, but that is considerably less than the $53 billion needed to cover the cost of changes to commodity programs and even more for changes to crop insurance. Efforts to get CBO to alter their low-ball forecast led to Thompson asking and getting help from Budget Chairman Arrington who directly called CBO leadership about the matter. Says one farm bill contact: “Arrington has the power to do directive scorekeeping. Some farm bill analysts apparently do not understand this. I know that Arrington and staff are sure that everything is defensible. After Trump and Biden, does anyone believe that the Ag secretary will only use his discretion to spend less than $1 billion per year of CCC funds? If so, I’ve got a bridge to sell you.”

Bottom line: CBO has been a problem all through the farm bill process. How many times did Thompson say on AgriTalk or elsewhere that they were waiting on budget scores? CBO lost some knowledgeable and veteran farm bill analysts due to retirement.

— America’s sugarbeet and sugarcane farm families and factory workers are praising the strong farm safety net included in the House farm bill. Represented by the American Sugar Alliance, Neil Rockstad, a Minnesota sugarbeet grower and President of the American Sugarbeet Growers Association, and Patrick Frischhertz, a Louisiana sugarcane grower, issued a joint statement regarding the House Agriculture Committee’s Farm, Food, and National Security Act of 2024.

They highlighted the challenges faced by farmers, including high production costs, rising foreign subsidies, predatory trade practices, and adverse weather conditions. The newly released Farm Bill, led by Chairman GT Thompson (R-Pa.), addresses these issues by providing a robust safety net for sugarbeet and sugarcane farming families, the statement said. The bill aims to support America’s 11,000 sugarbeet and sugarcane farmers and their workers, ensuring a resilient food supply chain and meeting the needs of American families.

The statement also emphasized the need for a bipartisan and effective farm bill, expressing readiness to collaborate with congressional leaders to achieve this goal. The farm safety net features for sugarbeet and sugarcane farmers in the bill are seen as essential.

Sugar policy in the House farm bill: Increases loan rates for sugar beets and cane, and makes other policy improvements. The House farm bill would increase the national average loan rate to 24.00 cents for raw cane sugar; sugar beets: 136.55% of the loan rate per pound of raw cane sugar. The 2018 Farm Bill increased the national average loan rate to 19.75 cents per pound for raw cane sugar and 25.38 cents per pound for refined beet sugar. These rates are adjusted regionally to reflect marketing cost differentials.

CHINA UPDATE

— Biden’s $18 billion tariff hike on China imports sparks supply chain conflict, inflation concerns. President Biden’s decision to raise tariffs on selected goods from China, impacting roughly $18 billion worth of imports, is expected to stir conflict within supply chains over who will bear the cost. This move has significant implications for the U.S. economy and inflation, the Wall Street Journal reports (link). The issue is also becoming a focal point in the presidential campaign, with Biden and rival Donald Trump both emphasizing their trade policies.

Evidence indicates that the tariffs initially imposed by Trump and maintained by Biden were largely absorbed by American buyers. Studies show that prices for consumers only increased slightly for goods subject to tariffs, suggesting that importers and wholesalers took on much of the cost. However, a broader, across-the-board tariff could be more expensive. Domestic suppliers might raise their prices due to reduced competition, and businesses and consumers might struggle to find alternatives.

— China launched an anti-dumping probe into chemical imports, signaling it will retaliate against new trade barriers from the U.S. and Europe. The Chinese commerce ministry on Sunday launched an antidumping probe into imports of polyoxymethylene copolymer — a widely used plastic in auto parts and electronics — from the U.S., the EU, Japan and Taiwan. The investigation is expected to complete in a year but could be extended for six months, the ministry said.

Of note: China said it would ban some American firms — including those that sell arms to Taiwan — from making new investments in China. Companies on the “unreliable entities” list would also be banned from importing from or exporting to the country. Executives from the affected firms, which include Boeing Defense, Space and Security, will be blocked from entering the country and will have their work permits revoked, according to Chinese state media.

— Lai Ching-te has been sworn in as Taiwan’s new president, asserting that the democratic island will not be influenced by “external forces” and will maintain the status quo with China. He also called for “peace” across the Taiwan Strait. However, Beijing views Lai as a “separatist” and may increase incursions across the strait in response.

— Nearly 70% of China’s April soybean imports came from Brazil. Of the 8.57 MMT of soybeans China imported last month, 5.92 MMT (69.1%) came from Brazil, up 11.7% from last year. Chinese soybean imports from the U.S. totaled 2.45 MMT (28.6%) in April, up 44% from last year. For the first four months of this year, China imported 15.9 MMT of soybeans from Brazil, up 72% compared to the same period last year, while imports from the U.S. stood at 9.58 MMT, down 48%.

— China’s pork imports remain slow. China imported 90,000 MT of pork in April, the same as March but down 35.7% last year. Through the first four months of this year, China’s pork imports stood at 340,000 MT, down 48.4% from the same period last year.

— Bird flu discovered in western China. Cases of bird flu have been confirmed among wild fowl in western China, the ag ministry said on Saturday. Two counties in Qinghai province confirmed 275 cases of H5 influenza among dead Pallas’s gull and other wild birds.

TRADE POLICY

— USMCA meets Tuesday and Wednesday. Trade will be on the agenda this week as the U.S.-Mexico-Canada Agreement (USMCA) Free Trade Commission (FTC) meets Tuesday and Wednesday in Arizona. There are still several disputes that have not been resolved as the trade leaders from the three countries meet, including agriculture issues such as Mexico’s ban on imports of GMO corn for food use and U.S. issues with the Canadian dairy program operation.

ENERGY & CLIMATE CHANGE

— Department of Energy (DOE) purchased 3.3 million barrels of sour crude oil for the Strategic Petroleum Reserve (SPR) at an average price of $79.38 per barrel. The supplies were bought from Macquarie (1.5 million barrels), Energy Transfer (700,000 barrels), Shell Trading (600,000 barrels), and TotalEnergies’ ATMI (500,000 barrels). The DOE decided not to purchase an additional 3 million barrels, citing high prices. The DOE has set a price ceiling of $79.99 per barrel for its purchases.

— Electric vehicle, wind turbine and solar panel manufacturers face a shortfall in critical metals and minerals unless more investment is made in projects such as new mines and recycling, according to a report from the International Energy Agency. “Secure and sustainable access to critical minerals is essential for smooth and affordable clean energy transitions,” said IEA Executive Director Fatih Birol. “The world’s appetite for technologies such as solar panels, electric cars and batteries is growing fast—but we cannot satisfy it without reliable and expanding supplies of critical minerals.”

Of note: According to the analysis, the world’s current projected supply of lithium will meet only 50% of global demand by 2035, while copper resources will meet just over two-thirds of demand by that time.

LIVESTOCK, NUTRITION & FOOD INDUSTRY

— More than 50 dairy herds have been confirmed with highly pathogenic avian influenza (HPAI). Last week, five additional herds were confirmed, with two in Idaho and three in Michigan, bringing the total to 51 herds in nine states. USDA’s Food Safety and Inspection Service (FSIS) revealed that ground beef cooked to 145- and 160-degrees Fahrenheit eliminates the H5N1 virus, ensuring the recommended cooking temperatures are effective. There have been no new detections of HPAI in U.S. poultry since May 10, but in the past 30 days, four commercial and seven backyard flocks, totaling 170,000 birds, have been affected.

— When the U.S. Meat Export Federation (USMEF) Spring Conference kicks off Wednesday, May 22, in Kansas City, the lineup of guest speakers will include CattleFax CEO Randy Blach. He will discuss the status of the U.S. cattle industry’s herd rebuilding efforts, as well as other factors impacting protein supplies in both the domestic and international markets.

Kip Tom, former U.S. Ambassador to the United Nations for Food and Agriculture, will update USMEF members on policies being debated by international organizations and key trading partners, and the potential implications for red meat trade.

The USMEF Spring Conference runs through Friday, May 24. Speakers also include USDA Foreign Agricultural Service Administrator Daniel Whitley and Anne-Marie Roerink, a meat consumer insight expert and author of the Power of Meat report.

— Iowa ‘fake meat’ law. Under a new law signed by Iowa Governor Kim Reynolds, meat alternatives sold in the state, such as plant-based proteins, must be labeled clearly to indicate they are not meat. Additionally, state-supported schools are prohibited from purchasing lab-grown meat. Link for details.

OTHER ITEMS OF NOTE

— Saudi Crown Prince Mohammed bin Salman postponed a planned trip to Japan amid concerns over the king’s health. The Saudi Press Agency said the prince’s father is suffering from inflammation of the lung. The crown prince had been due to meet Japan’s prime minister, Kishida Fumio, on Monday and have an audience with the emperor. Japan and Saudi Arabia are fostering closer ties, particularly over energy.

KEY LINKS

Policy Updates