McCarthy Mulls Last-Ditch Attempt to Become House Speaker

China lashes out over Covid restrictions from U.S., others | Xi wants closer ties with Brazil

USDA daily export sale: 124,000 MT soybeans to unknown destinations during MY 2022-2023.

New economic data from Europe, including a decline in France’s consumer price index, could help lift investors’ spirits, as market watchers seek signs that inflation is easing.

Rising interest rates weighed on mortgage demand. Overall, mortgage demand fell 13% last week from two weeks earlier. Applications to buy a home slipped 12%, while refinancing applications, which are more sensitive to rate changes, declined 16%. During the last two weeks of the year, rates for the popular 30-year mortgage rose to 6.58% from 6.34%. It had been 3.33% at the end of 2021.

A sharp rise in temperatures has erased the effects of last month’s winter storm. Now forecasts for more unusually warm weather are aiding a plunge in natural-gas prices.

The minutes from the Fed’s December meeting are due this afternoon. They will shed light on why the Fed raised its 2023 inflation forecast, despite expectations for it to be little changed. Chair Jerome Powell cited a buoyant labor market, and resilience in services inflation, as reasons for the inflation upgrade.

Former Fed Chair Alan Greenspan believes the central bank’s rate hikes are likely to precipitate a recession. Greenspan also does not expect the recent moderation in inflation to be sufficient to spur a significant enough reversal in tightening to avert at least a mild recession.

Zelenskyy warns of long Russian drone strike campaign. Ukrainian President Volodymyr Zelenskyy said that Ukrainian intelligence had reason to believe that Moscow would continue attacking with Iranian-made drones, and that it was Russia’s plan to try to “exhaust” Ukraine. Zelensky said that, so far this year, Ukrainian air defenses had shot down 80 such drones.

EPA released two Federal Register documents that RFS watchers will need to read. We have details in the Energy section.

China is pausing massive investments aimed at building a chip industry to compete with the U.S., as a nationwide Covid resurgence strains. Authorities are planning to usher in further support measures to ease liquidity stress at some of the nation’s too-big-to-fail developers as the property downturn persists, according to reports.

The FDA yesterday made a regulatory change that may allow retail pharmacies to offer abortion pills, effectively expanding access as more red states move to ban or restrict the procedure.

Equities today: Global stock markets were mostly firmer overnight. U.S. Dow opened 100 points higher. The Federal Reserve is set to release minutes from its Dec. 13-14 meeting at 2 p.m. ET, while the day ahead will also bring data on U.S. job openings and manufacturing. In Asia, Japan -1.5%. Hong Kong +3.1%. China -0.2%. India -1%. In Europe, at midday, London +0.6%. Paris +1.7%. Frankfurt +1.6%.

U.S. equities yesterday: The Dow ended down 10.88 points, 0.03%, at 33,136.37. The Nasdaq was down 79.50 points, 0.76%, at 10,386.98. The S&P 500 declined 15.36 points, 0.40%, at 3,824.14.

Agriculture markets yesterday:

• Corn: March corn fell 8 cents to $6.70 1/2, ending the session below the 100-day moving average of $6.71 3/4.
• Soy complex: March soybeans fell 31 3/4 cents to $14.92 1/4. March soybean meal fell $5.90 at $465.10. March bean oil dropped 87 points at 63.20 cents.
• Wheat: Wheat futures tumbled in step with corn and soybeans, with March SRW futures falling 16 1/2 cents to $7.75 1/2 and March HRW tumbling 18 3/4 cents to $8.69 1/4. March HRS futures sank 19 1/2 cents to $9.19 1/4.
• Cotton: March cotton fell 23 points to 83.14 cents and near the session low.
• Cattle: February live cattle fell $1.05 to $156.85, the lowest close since Dec. 20. March feeders fell $1.45 to $184.775, the lowest close since Dec. 21.
• Hogs: Nearby February lean hog futures led the complex lower Tuesday, falling $2.625 to $85.075.
  

Ag markets today: Soybeans were supported by corrective buying overnight, while corn and wheat faced followthrough selling. As of 7:30 a.m. ET, corn futures were trading around 3 cents lower, soybeans were mostly 9 to 12 cents higher, winter wheat futures were around a dime lower and spring wheat was mostly 6 cents lower. Front-month crude oil futures were around $2.50 lower and the U.S. dollar index was nearly 400 points lower.

Technical viewpoints from Jim Wyckoff:

On tap today:

• U.S. job openings are expected to decrease to 10.1 million in November from 10.3 million one month earlier. (10 a.m. ET)
• Institute for Supply Management’s manufacturing index is expected to fall to 48.5 in December from 49 one month earlier. (10 a.m. ET)
• House of Representatives reconvenes at noon ET after Rep. Kevin McCarthy on Tuesday failed in three rounds of voting to become Republican speaker of the House.
• Federal Reserve releases minutes from its Dec. 13-14 meeting at 2 p.m. ET.
• U.S. auto industry is expected to report a decline in overall sales for 2022.

Inflation in France unexpectedly slowed in December, according to provisional figures, as energy prices eased. INSEE, the national statistics office, said annualized inflation fell from 7.1% in November to 6.7% in December; economists had expected a small rise. The figures provide more welcome economic news in the Eurozone after a similar fall in German inflation for December was announced on Tuesday. The Bank of France expects the country’s inflation rate to peak in the first half of 2023.

Market perspectives:

• Outside markets: The U.S. dollar index was weaker, with the euro and British pound firmer against the greenback. The yield on the 10-year US Treasury note was weaker, trading around 3.68%. Crude oil futures were lower, with U.S. crude around $74.55 per barrel and Brent around $79.55 per barrel. Gold and silver were registering gains, with gold around $1,859 per troy ounce and silver around $24.35 per troy ounce.

• Natural-gas prices plunge. A sharp rise in temperatures has erased the effects of last month’s winter storm. Now forecasts for more unusually warm weather are melting down natural-gas prices. Natural-gas futures for February delivery dropped 11% on Tuesday to end at $3.988 per million British thermal units. That is down more than 50% from summer highs and is about what gas cost a year ago, when temperatures were also warmer than normal and before Russia’s invasion of Ukraine jolted energy markets beginning Feb. 24.

• Ag trade: South Korea purchased 6,000 MT of optional origin food-grade non-GMO soybeans. Tunisia tendered to buy 100,000 MT of optional origin soft milling wheat. Thailand tendered to buy 75,200 MT of feed wheat from unspecified origins. The Philippines tendered to buy 110,000 MT of feed wheat from unspecified origins.

• NWS weather: Heavy snow and rain/freezing rain over parts of the Upper Mississippi Valley/Upper Great Lakes begins to wind down... ...There is a Slight Risk of severe thunderstorms over parts of the Southeast/Eastern Gulf Coast on Wednesday... ...There is a Moderate Risk of excessive rainfall over parts of the California Coast on Wednesday and a Slight Risk of excessive rainfall over parts of California on Thursday... ... Snow for the Sierra Nevada Mountains, Great Basin, Southwest, and Central Rockies; Temperatures will be 15 to 25 degrees above average from Lower Great Lakes/Ohio Valley eastward to parts of the Northeast/Mid-Atlantic.

Items in Pro Farmer’s First Thing Today include:

• Soybeans rebound overnight, corn and wheat extend price drops
• HRW conditions decline further in December
• Signs inflation has peaked in Europe
• Still expecting firmer cash cattle prices
• Traders cautious toward hog futures

— Summary: Russia blamed a Ukrainian missile attack that killed at least 89 Russian troops on Sunday on its own soldiers’ use of mobile phones. The defense ministry said the “mass use” of personal mobiles, which is banned, helped Ukrainian forces locate the troops in Makiivka, a Russian-occupied town in the Donbas region. Ukraine, and some Russian military bloggers, have claimed the casualty count was far higher.

• Russian grain exports slowed in December. SovEcon estimates Russia exported 4.5 MMT of grain including 4.1 MMT of wheat during December. That would be down from 4.85 MMT of grain including 4.3 MMT of wheat during November. But exports were up from last year when Russia exported 3.912 MMT of grain including 3.063 MMT of wheat during December.

• Boosting Ukraine exports under the Black Sea grain deal is focused on faster inspections versus adding new ports to the list of those eligible under the effort, according to a senior Ukrainian official quoted by Reuters. “Ukraine focuses on normalizing inspections rather than opening new ports,” the official said. “Why open the port of Mykolaiv if at the current rate of exports, we can close half of the ports of Odesa, which are already open?”

  Ukrainian data showed exports of agricultural products totaling around 7 million tonnes in September and October and 6 million tonnes in November. However, those shipments fell below 4 million tonnes in December, something which Ukraine said was due to slowing inspections. The Ukrainian infrastructure ministry said that 94 vessels were waiting for inspection in Bosphorus, including 69 empty ships and 25 loaded with agricultural goods. The wait time for inspections is more than a month, the ministry said.

— Slight rise in ERP payments. Total payments under the Emergency Relief Program (ERP) moved up to $7.28 billion as of Jan. 2, up from $7.27 billion the prior week. The total includes $6.21 billion in payments for non-specialty crops ($6.20 billion prior) and $1.08 billion for specialty crops ($1.07 billion prior). There were no major changes in payouts under either Coronavirus Food Assistance Program (CFAP) efforts.

— USDA farm loan interest rates rise again. Interest rates under USDA direct operating and ownership loans increased for January, rising to 5.125% for direct operating loans and 5.250% for ownership loans. Those rates in January 2022 stood at 2.125% for operating loans and 3% for ownership loans.

— White House antitrust chief Tim Wu stepping down. Tim Wu is stepping down from his role as special assistant for competition and technology policy to President Joe Biden. Wu plans to return to teaching at Columbia University following his final day in the White House on Wednesday, and Bharat Ramamurti, the deputy director of the National Economic Council, will oversee the White House’s efforts on competition and tech.

— Biden renominates 85 of 175 candidates who did not clear Senate approval during last Congress. The nominations include around 60 people for jobs in key administrative posts or national security positions, as well as 25 judicial nominees who failed to win confirmation in 2022. Bloomberg reports that Biden’s nominees include “controversial picks like former Los Angeles Mayor Eric Garcetti who failed to win confirmation as ambassador to India last year,” as well as “Phil Washington’s nomination to serve as Federal Aviation Administration administrator, Gigi Sohn’s appointment to the Federal Communications Commission, and Danny Werfel’s nomination as IRS commissioner.”

— Biden taps acting FERC Chair. Willie Phillips will become the first Black person to take the gavel of the Federal Energy Regulatory Commission (FERC), where he will shape rules crucial to the electric grid and natural gas infrastructure. A White House official said Tuesday that Phillips, who joined the commission a year ago, will serve as acting chair of the commission following the departure of outgoing chair Richard Glick.

— Former Sen. Heidi Heitkamp (D-N.D.), the first woman elected to the Senate from North Dakota, succeeded political mastermind Dave Axelrod as director of the Institute of Politics at the University of Chicago on Tuesday. Link.

— Concerns build over rapid spread of Covid in China. European Union government health officials will hold talks today on a coordinated response to the surge in Covid-19 infections in China. World Health Organization (WHO) officials met Chinese scientists on Tuesday amid concern over the accuracy of China’s data on the spread and evolution of its outbreak. WHO officials are expected to release information from that meeting at a press conference today.

— China is lashing out at the U.S., Canada, France, Australia, South Korea and other nations for “discriminatory” Covid restrictions on travelers departing from China, saying the requirements amount to “political manipulation” as travel demand surges in the country after green lighting outbound travel for citizens.

— XI wants China to get closer to Brazil. On Monday, Chinese leader Xi Jinping congratulated Luiz Inácio Lula da Silva on being sworn in as President of Brazil. Xi dispatched Vice President Wang Qishan to attend the inauguration ceremony and hand-deliver his congratulatory letter to Lula. In October, Lula, who served as Brazil’s president from 2003 to 2010, defeated Sino-skeptic incumbent Jair Bolsonaro in the runoff election for the presidency. In his letter, Xi noted that “China and Brazil are major developing countries with global influence and important emerging markets. The two countries are comprehensive strategic partners sharing extensive common interests and shouldering common development responsibilities… The China/Brazil relationship has become a model of relations between major developing countries.”

Xi said that he wants to take the China/Brazil comprehensive strategic partnership “to a higher level from a strategic and long-term perspective, so as to better benefit the two countries and two peoples.”

Lula signaled he’s on board, saying: “China is our biggest trading partner, and we can further expand relations between our countries.”

Brazil is a major source of commodities and politically useful as a fellow large developing country.

— U.S. and Taiwan to hold trade negotiations in Taiwan. The confab is under the U.S./Taiwan Initiative on 21st-Century Trade in Taipei, Taiwan, Jan. 14-17, the Office of the U.S. Trade Representative (USTR) announced Tuesday. Assistant USTR Terry McMartin will lead the U.S. team along with representatives from other U.S. gov’t agencies and will meet with talks taking place under the auspices of the American Institute In Taiwan (AIT) and the Taipei Economic and Cultural Representative Office in the U.S.

— EPA RFS proposals published in Federal Register. The proposed Renewable Fuel Standard (RFS) levels for 2023-2025 were published in the Federal Register Dec. 30 (link), with a 10-day comment period on the proposed marks. While EPA has announced it will hold a virtual public hearing on the proposed RFS levels, the agency noted they would announce “information regarding the public hearing for this proposal in a supplemental Federal Register document.”

— EPA wants comments on third report to Congress on RFS impacts. EPA Jan. 3 published a notice in the Federal Register (link) seeking comments on a report to Congress required under the Energy Independence and Security Act of 2007 (EISA). EPA is seeking comments on the “Biofuels and the Environment: Third Triennial Report to Congress (External Review Draft).” EPA prepared the report in consultation with USDA and the Department of Energy.

The report examines environmental and resource conservation impacts of the RFS and EPA is seeking review of the report by a contractor-led peer review panel. The first two reports that were prepared in 2011 and 2018 concluded that the environmental impacts of increased biofuel production and use “were likely negative but limited in impact” and that there was potential for “both positive and negative impacts in the future.” The initial report also concluded the EISA goals on biofuel production could be met “with minimal environmental impacts” if best practices were used and second-generation biofuel feed stocks were advanced. The second report indicated the things had not materially changed from the first report relative to impacts and that production cellulosic biofuel had “not materialized.” The second report concluded that increased corn and soybean production resulted from the RFS and that did cause land use changes. But that report concluded more research was needed.

EPA is currently seeking comments on an update on environmental impacts from the RFS, including “assessments of air, water and soil quality; ecosystem health and biodiversity.” The report also “includes new analyses not previously included in the first and second reports.” The comment period on the 994-page report concludes March 6.

— Energy Department is scaling up “agrivoltaics” projects to grow clean energy and food. Since 2015 the department has been researching the emerging field that seeks to implement innovations in both solar technology and farming techniques at the same time, on the same plot of land. The goal is to meet U.S. climate goals, while reducing conflicts with farmers and providing benefits to local communities, said Michele Boyd, a program manager in the department’s Solar Energy Technologies Office who leads the agrivoltaics portfolio, according to Bloomberg.

While spurring concerns from some communities, the solar land grab has created an opportunity for farmers facing volatile fertilizer prices and growing uncertainty around the world following Russia’s invasion of Ukraine.

The goal now is to gather data and best practices to deploy the sites to farms across the country, widening the scope of land for solar developers and providing farmers with another revenue stream, Boyd said.

The Energy Dept. in December announced $8 million for six research projects that intend to assess issues like soil health, grazing methods, and outreach to minority farmers.

Facts and predictions. Solar energy is a major part of the Biden administration’s plan to achieve net-zero emissions from the power sector by 2035. Solar could provide 40% of U.S. electric generation by 2035, up from about 3% of the country’s power supply in 2021, according to the Energy Department. But just one megawatt of ground-mounted installations — which can power, on average, roughly 173 U.S. homes — requires 3 to 10 acres. The Energy Department estimates utility-scale solar installations are expected to span between 4 million and 11 million acres of land by 2050, translating to potentially more land than Maryland, Delaware and Washington, D.C., combined.

— Summary:

• Global Covid-19 cases at 661,874,445 with 6,695,706 deaths.
• U.S. case count is at 100,847,299 with 1,094,010 deaths.
• Johns Hopkins University Coronavirus Resource Center says there have been 663,822,575 doses administered, 268,363,272 have received at least one vaccine, or 81.45% of the U.S. population.

— A new Covid-19 variant known as XBB.1.5 has become the dominant variant in the U.S., causing most new coronavirus cases, data from the CDC shows. XBB.1.5 cases have shown the greatest spike, rising from about 4% to 41% of new infections over the month of December. Scientists say the variant has features that give it the potential to drive a new surge of Covid-19 cases in the U.S., although it’s still unclear how large that wave will be and whether it could send more people to the hospital. Many experts in the medical community are also saying that XBB.1.5 has shifted far away from earlier Covid-19 strains, and therefore has the potential to escape the protections of vaccinations and antibodies developed from past infections.

— Abortion. The FDA announced it will allow pharmacies to dispense the abortion medication mifepristone to patients. Mifepristone can be used along with another medication, misoprostol, to end a pregnancy. As of Tuesday, the FDA said it would no longer enforce a rule requiring people to get the first of the two drugs in person at a clinic or hospital. Certified pharmacies can instead dispense the drugs directly to someone who has a prescription. The FDA’s move comes days after a new Justice Department legal opinion declared that federal law allows the U.S. Postal Service to deliver the abortion drugs — a move the Biden administration believes could help protect access to abortion in states that have enacted bans following the Supreme Court’s decision to overturn Roe v. Wade.

— House votes to adjourn amid Republican stalemate over choosing a speaker. Rep. Kevin McCarthy (R-Calif.), his party’s nominee, failed to secure the necessary votes through three ballots as hard-right conservatives opposed his selection. After the third ballot results, the House voted by voice vote to adjourn until noon ET today. The House can’t start regular business until a speaker is elected. Members of the 118th Congress can’t be sworn in, the House can’t set rules to govern itself, and it can’t consider legislation or create committee assignments. The last time the House needed more than one ballot to confirm a speaker was 1923 (9 ballots). It took two months — and 133 ballots — for the House to elect its speaker in 1856.

Some 19 Republicans voted against McCarthy on the first two ballots, and the opposition grew to 20 in the third count. McCarthy’s allies say he’s not dropping out, despite opposition from a small but determined contingent of hardline conservatives who are intent on denying him the votes needed to secure the gavel. McCarthy’s failure to lock down the votes so far has heightened uncertainty over whether he can win, or if a viable candidate could emerge as an alternative.

McCarthy expressed optimism about winning the gavel Tuesday night as he emerged from meetings with allied members following three failed ballots, floating the possibility of winning the post with fewer than 218 votes. “You’re sitting at 202 votes, so you need technically just 11 more votes to win,” McCarthy said. “Democrats have 212 votes. You get 213 votes, and the others don’t say another name, that’s how you can win. You can win with 218. You could win with 222. But if you want to look at how you have to go about doing it,” McCarthy said.

Background. A House Speaker is elected by a majority of all those voting for a specific Speaker candidate, not necessarily all members. Those voting “present” and those who are absent do not count toward that total, lowering the threshold. Former House Speakers Nancy Pelosi (D-Calif.) and John Boehner (R-Ohio) each won the Speakership with just 216 votes in 2021 and 2015, respectively. McCarthy would have to flip 11 Republicans and get the other nine dissenters to vote present to win the speakership. This is a tall hurdle.

Possible alternatives: Reps. Steve Scalise of Louisiana, Patrick McHenry of North Carolina, Jim Jordan of Ohio or Elise Stefanik of New York.

— House agenda. Incoming House Majority Leader Steve Scalise (R-La.) on Friday outlined legislation that will be brought to the floor for a vote in the next two weeks, including two bills that would limit releases of oil from the nation’s strategic reserve. Link for details.

— House staffers get a maximum salary hike. In her final days with the gavel, outgoing House Speaker Nancy Pelosi (D-Calif.) raised the maximum pay rate for House staffers from $203,700 annually to $212,100 — almost $40,000 more than the salary for House members. Lawmakers have struggled in recent years to compete with the private sector in retaining key staffers.

WASDE | Crop Production | USDA weekly reports | Crop Progress | Food prices | Farm income | Export Sales weekly | ERP dashboard | California phase-out of gas-powered vehicles | RFS | IRA: Biofuels | IRA: Ag | Student loan forgiveness | Russia/Ukraine war, lessons learned | Election predictions: Split-ticket | Congress to-do list | SCOTUS on WOTUS | SCOTUS on Prop 12 | New farm bill primer | China outlook | Omnibus spending package |