Key Fed Inflation Rate Hits 2.1% in September, As Expected and Lowest Since Feb. 2021

Where Harris and Trump stand on key issues | USDA finalizes 2022 ELRP payments with 7.25% adjustment

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October 31, 2024 08:23 AM

News/Markets/Policy Updates: Oct. 31, 2024

— PCE inflation rises slightly, matches expectations. In September 2024, the U.S. personal consumption expenditure (PCE) price index rose 0.2% month-over-month, matching expectations, following a 0.1% increase in August. Service prices grew 0.3%, while goods prices fell 0.1%. The core PCE index, excluding food and energy, rose by 0.3%, the highest in five months. Food prices were up 0.4%, and energy prices dropped 2%. Annually, PCE inflation fell to 2.1%, its lowest since February 2021, down from 2.3% in August, while the core rate held steady at 2.7%, above the expected 2.6%. Fed officials target inflation at a 2% annual rate, a level it has not achieved since February 2021.

— Trump and Harris neck-and-neck with five days until Election Day. Former President Donald Trump and Vice President Kamala Harris remain in a tight race, which could be determined by a small number of voters in a key battleground state. Both candidates are concentrating efforts in seven crucial states: Pennsylvania, Michigan, Wisconsin, Arizona, Nevada, North Carolina, and Georgia. Trump’s recent campaign in Wisconsin included using props and highlighting President Biden’s controversial remark that appeared to label Trump supporters as “garbage,” which Biden later denied, claiming a misinterpretation.

— Where Harris and Trump stand on key issues. Reuters has a brief but insightful look at their policies: link.

— The Supreme Court on Wednesday allowed Virginia to reinstate a purge of suspected noncitizens from voter rolls. Over the objections of the three liberal justices, the court accepted an emergency request from state officials to intervene after lower courts stopped a state program that had removed more than 1,600 names since Aug. 7. While Virginia’s governor lauded the more, voting rights advocates call it “a last-minute purge that includes many known eligible citizens.”

MARKET FOCUS

— Equities today: Asian and European stocks. In Asia, Japan -0.5%. Hong Kong -0.3%. China +0.4%. India -0.7%. In Europe, at midday, London -0.8%. Paris -0.9%. Frankfurt -0.5%.

U.S. equities yesterday: The Dow fell 91.51 points, 0.22%, at 42,141.54. The Nasdaq declined 104.82 points, 0.56%, at 18,607.93. The S&P 500 declined 19.25 points, 0.33%, at 5,813.67.

— Shell reported third-quarter profits of $6 billion that exceeded forecasts by 12% as higher liquefied natural gas (LNG) sales offset a sharp drop in oil refining and trading results.

— Starbucks unveils strategy shift after earnings miss expectations. Starbucks CEO Brian Niccol announced a new plan to overhaul the company’s strategy after earnings fell short of Wall Street forecasts. Net sales dropped 3% to $9.07 billion, driven by weakened demand in the U.S. and China, including a 10% decline in U.S. store traffic. Key changes include aiming to deliver drinks in under four minutes, removing extra charges for milk alternatives, and streamlining menus.

— Bunge earnings decline. Grain trader and processor Bunge reported net third-quarter income of $221 million, down from $373 million for the same period a year ago, “reflecting the current global margin environment.” Link for details.

— Ag markets today: Soybeans extended Wednesday’s gains overnight, while corn and wheat futures weakened. As of 7:30 a.m. ET, corn futures were trading fractionally to a penny lower, soybeans were 4 to 5 cents higher and wheat futures were 3 to 6 cents lower. The U.S. dollar index and front-month crude oil futures were both modestly firmer.

Cash cattle trade starts at steady/weaker prices. Cash cattle traded at mostly steady prices in the Southern Plains, though many feedlots still sought firmer bids, despite heavy pressure on cattle futures. The northern market, where supplies are more plentiful, saw trade begin at steady to lower prices.

Cash hog index picking up steam. The CME lean hog index is up another $1.05 to $86.78 as of Oct. 29, extending the string of gains to nine straight days, during which the index has jumped $2.92. This was the largest daily gain since April. After strong gains again Wednesday, the discount December hogs hold to today’s cash quote tightened to $2.405.

— Agriculture markets yesterday:
• Corn: December corn fell 2 1/4 cents to $4.11 1/2, marking a low-range close.
• Soy complex: January soybeans climbed 12 1/4 cents to $9.91 1/4 and settled on session highs. December meal futures sunk 20 cents to $301.6. December bean oil futures followed crude higher, rising 101 points to 43.81 cents.
• Wheat: December SRW wheat rose 2 3/4 cents to $5.73 1/4, while December HRs rose 1 1/2 cents to $5.75 3/4, each forging mid-range closes. December HRS futures rose 1 1/4 cents to $6.07 3/4.
• Cotton: Futures turned lower again Wednesday, with nearby December futures falling 64 points to close at 69.92 cents.
• Cattle: Futures continued Tuesday’s breakdown. The expiring October contract fell 90 cents to $188.40, while most-active December dove $1.525 to $186.425. In contrast, the nearby October feeder contract rallied 92.5 cents to $250.95, but deferred feeders also declined. November feeder futures dropped $1.10 to $245.50.
• Hogs: December lean hog futures surged $1.55 to $84.375, marking a fresh contract high and ending the day near session highs.

— Markets brace for U.S. jobs report amid Fed rate decision and external disruptions. Tomorrow’s jobs report is crucial for markets as it may influence the Federal Reserve’s upcoming rate decision. A strong report could delay rate cuts, while a weak one could prompt a larger cut but raise economic concerns. The report’s reliability is impacted by recent hurricanes and the Boeing strike, complicating the interpretation. Analysts say markets should be prepared for potential distortions, though weak data may still signal a labor market slowdown.

— U.S. interest payments now surpass defense spending; expert warns of debt risks. Jack McIntyre, portfolio manager at Brandywine Global Investment Management, highlights that the U.S. government’s interest expenses now exceed national defense spending, underscoring unsustainable deficit spending. He cautions that bond market pressures could intensify soon, potentially within the next week.

— Bank of Japan holds rates steady but signals potential rate hike as inflation nears target. The Bank of Japan (BOJ) maintained current monetary policy at its latest meeting but hinted at a possible rate increase soon, as inflation approaches the 2% target. Governor Kazuo Ueda’s remarks were less dovish than before, emphasizing that future policy decisions will depend on data at the time. With steady U.S. economic data and potential risks from next week’s U.S. elections, expectations for a BOJ rate hike have shifted to December, earlier than the previously anticipated first quarter of 2025.

— The IMF lowered its economic-growth projections for the Middle East and North Africa, citing conflicts, geopolitical uncertainty and oil-production cuts. Growth this year is expected to be 2.1%, according to the Washington-based lender’s regional economic outlook published Thursday, down from a 2.7% estimate in April. The IMF slightly decreased its forecast for next year to 4%. If ongoing conflicts persist or spread, there could be “lasting economic losses,” the IMF said in the report. “Economies implementing crucial structural reforms could face rising social discontent and political resistance, hindering policy execution and constraining growth.”

Last week, the IMF lowered its global growth forecast for next year to 3.2% and warned of worsening risks from wars and trade protectionism.

Market perspectives:

— Outside markets: The U.S. dollar index was steady, with the euro and British pound firmer against the U.S. currency. The yield on the 10-year U.S. Treasury note was weaker ahead of inflation data, trading around 4.28%, with a mostly higher tone in global government bond yields. Crude oil futures were higher ahead of U.S. market action with U.S. crude around $69.05 per barrel and Brent around $72.65 per barrel. Gold and silver futures were under pressure ahead of inflation figures, with gold around $2,790 per troy ounce and silver around $33.76 per troy ounce.

— Appalachian hardwood industry faces decline amid trade and demand challenges. The Appalachian hardwood industry, vital to the region’s economy, is in decline after a series of shocks since 2018, including the U.S./China trade war, the Wall Street Journal reports (link). Eastern U.S. hardwood production has hit record lows, with current output projected to be 40% below 2017 levels. Once supporting vibrant manufacturing in nearby towns, the industry turned to exports as domestic demand fell, leaving it vulnerable when exports to China dropped 50% from 2017 to 2019. New trade uncertainties further threaten this struggling sector.

— USDA daily export sale: • 150,000 MT soybean cake and meal to unknown destinations, 2024-2025 MY

— Ag trade update: Tunisia tendered to buy 75,000 MT of optional origin durum wheat.

— Uncertainty over La Niña arrival complicates winter weather forecasts. Weather forecasts face uncertainty as the Pacific remains between El Niño and La Niña, complicating predictions. La Niña, typically associated with cooler, wetter weather in the Pacific Northwest and drier conditions in the southern U.S., is now expected to arrive late and be weak, possibly allowing other weather patterns like the North Atlantic Oscillation to dominate. This uncertainty affects energy demand forecasts, transportation planning, and agricultural projections, with climate change adding further complexity.

— NWS outlook: Moderate to heavy snow over parts of the Southern Cascades and Northern Intermountain Region, with a second area over parts of the Upper Midwest
on Thursday... ...Temperatures will be 20 to 25 degrees above average over parts of the Lower Great Lakes/eastern Ohio Valley and the Northeast/Mid-Atlantic... ...There is a Marginal Risk of severe thunderstorms over parts of the Ohio/Tennessee Valley and Lower Mississippi Valley and a Marginal Risk of excessive rainfall over parts of the Lower Mississippi Valley on Thursday.

Items in Pro Farmer’s First Thing Today include:

• Beans firmer, corn and wheat weaker overnight
• China tells carmakers to pause investment in EU countries backing EV tariffs
• Eurozone consumer inflation rises in October

POLICY UPDATE

— USDA finalizes 2022 ELRP payments with 7.25% adjustment. USDA will issue a second payment under the Emergency Livestock Relief Program (ELRP) 2022. USDA initially used the 2022 Livestock Forage Program (LFP) to calculate ELRP 2022 payments, basing those on the 2022 LFP payment multiplied by a factor of 90% for underserved producers and 75% for all other producers, and then those levels were multiplied by a 25% factor to stay within budget. The final payment will be 7.25%. This is in part due to a court case challenging the increased payments for socially disadvantaged farmers and USDA said the second payment will not include any increased payments for socially disadvantaged producers. No action is required by producers to receive the second payment. USDA has also set a deadline for ELRP 2022 of Dec. 31.

— USDA issues $235 million in disaster relief to farmers. USDA announced $235 million in payments to producers affected by natural disasters, including $143 million in crop insurance indemnities for Florida farmers impacted by Hurricane Milton and $92 million for livestock producers who were forced to buy feed because of drought and wildfire losses from 2022.

— Farmers face fines, jail time as BOI filing deadline approaches. Thousands of U.S. farmers risk steep fines and potential jail time if they fail to file Beneficial Ownership Information (BOI) with FinCEN by Jan. 1, 2025, the American Farm Bureau Federation warns (link). The Corporate Transparency Act of 2021 mandates registration to combat money laundering, impacting over 230,000 farms structured as c-corporations, s-corporations, or LLCs. Currently, less than 11% of eligible businesses have filed. AFBF President Zippy Duvall highlighted the challenge for small farms to comply due to limited staff and unclear guidance. Penalties include fines up to $10,000, daily civil charges, and potential felony charges with prison time.

CHINA UPDATE

— Soybeans, cotton, pork major U.S. export sales to China in latest week. USDA weekly Export Sales activity for the week ended October 24 for 2024-25 included net sales of 5,685 metric tons of sorghum, 714,971 metric tons of soybeans, and 32,649 running bales of upland cotton. Activity for 2024 included net sales of 3,193 metric tons of beef and 10,393 metric tons of pork.

— China economy gains momentum amid stimulus push. China’s economy showed signs of recovery as bold stimulus measures from Beijing spurred factory and service sector growth in October. The official manufacturing PMI rose to 50.1, breaking a five-month contraction streak, while non-manufacturing PMI also expanded. Despite these positive signs, new export orders remained weak, and uncertainty looms due to the upcoming U.S. presidential election, which could affect trade policies. Economists forecast 4.8% growth in Q4, and President Xi Jinping has emphasized achieving this year’s growth target amid ongoing economic challenges.

— China’s central bank injects $70 billion with new liquidity tool. The People’s Bank of China (PBOC) injected $70 billion worth of cash into money markets this month via a newly established policy tool to ease liquidity stresses in the fragile economy. PBOC conducted 500 billion yuan of “outright reverse repurchase agreements” in October in order to safeguard reasonably amble liquidity in the banking system, it said in a statement. The agreements are for six months, the bank said. This is the first time it has disclosed its use of this new tool which was only unveiled earlier this week. The program allows the PBOC to buy a range of securities from primary dealers for a maximum of one year. PBOC also bought a net 200 billion yuan of sovereign bonds from the open market in October, it said separately.

ENERGY & CLIMATE CHANGE

— California, major airlines reach deal to boost SAF use. The state of California and a group representing major U.S. passenger and cargo airlines said they had reached an agreement to sharply boost the use of sustainable aviation fuel (SAF). The California Air Resources Board (CARB) and Airlines for America, an industry trade organization representing American Airlines, Delta Air Lines, United Airlines, FedEx and others, committed to a goal to increase the availability of SAF for flights within California to 200 million gallons by 2035. That would meet about 40% of intrastate travel demand and is more than 10 times current levels.

CARB Chair Liane Randolph said the board and airlines will work together on incentives, timely permitting and other issues to accelerate the availability of SAF. The agreement includes a SAF working group to report progress and address barriers to deploying the fuel. The board will also create a public website that will detail the availability and use of conventional jet fuel and SAF within California.

Initiatives include:
• Collaborative efforts: CARB Chair Liane Randolph announced that the board will work closely with airlines to develop incentives, streamline permitting processes, and address other issues to accelerate SAF availability.
• SAF working group: The agreement includes the formation of a dedicated working group to monitor progress and tackle barriers to SAF deployment.
• Public transparency: CARB will create a public website to provide detailed information on the availability and use of both conventional jet fuel and SAF within California.

The initiative complements proposed regulations by CARB to update California’s Low Carbon Fuel Standard program, which could further incentivize SAF production and use.

LIVESTOCK, NUTRITION & FOOD INDUSTRY

— First Case of H5N1 bird flu in swine confirmed at Oregon backyard farm. USDA’s APHIS and Oregon state officials are investigating a backyard farm where H5N1 avian influenza was detected in poultry and, for the first time, in one of five pigs. Despite no signs of illness, the swine tested positive, and all were euthanized. Shared resources may have facilitated cross-species transmission. The farm has been quarantined, but USDA reassures there is no risk to the U.S. pork supply, and genomic sequencing shows no increased human transmissibility. The National Pork Producers Council emphasized that there are no safety concerns about U.S. pork supply, noting the pork industry has worked with USDA’s APHIS since 2009 to monitor for swine flu. “The entire pork industry remains committed to safeguarding food safety and human and animal health,” NPPC CEO Bryan Humphreys said in a statement. The pigs on the Oregon farm were not intended for the commercial food supply, USDA said.

Of note: Pigs represent a particular concern for the spread of bird flu because they can become co-infected with bird and human viruses, which could swap genes to form a new, more dangerous virus that can more easily infect humans.

The case was one factor that drove the USDA to broaden its bird flu surveillance to include nationwide bulk milk testing, which the agency announced on Wednesday, USDA Secretary Tom Vilsack told Reuters in an interview (see next item). “While it’s a different variation of the virus and it is tied to wild birds, it is a factor to make sure that we understand and appreciate exactly where the virus is in dairy” and in cattle, he said.

The detection is a warning for pig farmers to be on the lookout for further infections, said Marie Culhane, a professor of veterinary population medicine at the University of Minnesota who has researched flu viruses in swine. “People need to start increasing their plans to deal with it if it should happen in another herd and another herd,” Culhane said. “Pigs are just really good at picking up influenza viruses.”

— USDA expands HPAI testing in dairy to enhance biosecurity. USDA’s APHIS is rolling out a tiered strategy to collect milk samples for detecting H5N1 avian influenza. The plan aims to strengthen biosecurity, guide containment efforts, and protect farm workers exposed to infected animals. Bulk milk will initially be tested regionally, with further farm-level sampling as necessary. USDA will collaborate with state and private veterinarians, maintaining testing requirements for cattle before interstate movement to curb virus spread. Two vaccine candidates for dairy cows are also in field trials.

OTHER ITEMS OF NOTE

— Milei taps unseasonal source in search of dollars in Argentina. Faced with a shortage of foreign reserves, Argentina’s central bank is turning to an unusual source of funding for this time of year — carry trade by grain exporters, Bloomberg reports (link). Selling soybeans, wheat and corn, grain exporters can borrow dollars from banks, unlike most Argentines hampered by capital controls. They then sell those dollars and invest the pesos they receive in return in high-yield local currency assets. Dollars are available to the central bank, boosting its reserves. That carry trade, however, comes with a risk for exporters, as they depend on the central bank to keep devaluing the peso at a steady pace. The dollar boon also could end if banks lend less to exporters, or grain ends up being stored instead of being sold.

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