Mexico Set to Publish New Decree Re: Imports of GMO Corn

Economists offer alternative plan for ag disaster program | Biden SOTU and ag sector

Authorities in the U.S. are again warning about a rise in domestic extremists plotting to attack the nation’s power grids — which government reports have warned could cause a domino effect and leave huge parts of the country in the dark.

The cushion of savings many built up during the pandemic is thinning out. Details in the Market section.

U.S. trade gap rises in December, hits record in 2022. The trade deficit in the U.S. widened to $67.4 billion in December 2022 from a downwardly revised $61 billion in November which was the lowest since September 2020. Figures compare with forecasts of a $68.5 billion gap, with exports falling 0.9% to $250.2 billion, led by nonmonetary gold, crude oil and foods, feeds and beverages while imports rose 1.3% to $317.6 billion, prompted by purchases of cell phones and passenger cars. For all of 2022, the U.S. trade deficit went up to a record high of $948.1 billion, equivalent to 3.7% of the GDP from $845 billion in 2021, as rising inflation, high energy prices and robust demand pushed imports to the highest level ever. Exports of goods increased 17.7% to $2,085.6 billion and imports jumped 16.3% to $3,277.3 billion, both led by crude oil. The deficit with China widened to $382.9 billion and the one with Canada to $81.6 billion.

President Joe Biden will deliver his State of the Union address to tonight at 9 p.m. ET. This will be Biden’s second State of the Union address, but his first in front of a divided Congress. He’s expected to touch on several the most pressing issues in the U.S., including inflation, Covid-19, mass shootings, police reform, infrastructure and the U.S. economy. We also include what the president will say about some ag-sector topics. Following the address, Arkansas Gov. Sarah Huckabee Sanders will deliver the Republican response, GOP congressional leaders announced.

U.S. farmland becomes flashpoint in U.S./China relations. Chinese holdings of U.S. agricultural land have increased significantly in recent years. Lawmakers and others say they want to make sure the U.S. food-supply chain is protected and that China and other foreign adversaries aren’t able to use U.S. land as a perch for spying. A Wall Street Journal article (link) looks at the growing debate over whether the U.S. should be restricting the ability of foreigners, particularly from China, to buy American farmland or agricultural businesses. More details in China section.

Russian deficit soars. Western sanctions and soaring battlefield costs took a heavy toll on Russia’s finances last month. Russian Ministry of Finance data showed that falling oil and gas revenues alongside rising military spending pushed the government budget deficit to around $25 billion in January, its largest shortfall to start the year in more than a decade.

Russia is gathering reinforcements and equipment ahead of a new offensive in eastern Ukraine, according to the governor of the Luhansk region.

Rescue teams continued to hunt for survivors from large earthquakes that struck southern Turkey and Syria on Monday. The quakes have already left at least 5,000 people dead. That number looks certain to rise as temperatures dropped below freezing overnight. The World Health Organization suggested that fatalities could reach 20,000.

The Pentagon said it had failed to detect previous Chinese surveillance balloons in American airspace, discovering them only later through “additional means of [intelligence] collection.” General Glen VanHerck called it an “awareness gap that we have to figure out.” At least four other intrusions had occurred in recent years before the recent incident. Meanwhile, the U.S. said it would not return the debris from the destroyed balloon to China. Of note: A scathing WSJ editorial (link) says: “An $850 billion defense budget, and we can’t detect a Chinese airship?”

On the ag policy front, we have another USDA update on ag disaster payouts, and an idea by some economists to swap crop insurance for area-based coverage.

Ever wonder how California’s Prop 12 on eggs worked out? The WSJ has an update which we feature in today’s dispatch.

American Crystal Sugar will close its plant in Sidney, Montana, in the wake of Montana-Dakota Beet Growers Association farmers indicating there was no longer adequate interest in growing enough of the crop to sustain operations.

Equities today: In global trading today, major Asian markets ended mixed, Europe was up at midday. The U.S. Dow opened down 165 points, but then tempered some of the loss. Investors await comments from Fed Chairman Jerome Powell. He is set to speak at 12:40 p.m. ET. Yesterday, Treasury Secretary Janet Yellen told ABC’s Good Morning America that “you don’t have a recession when you have 500,000 jobs and the lowest unemployment rate in more than 50 years.” In Asia, Japan flat. Hong Kong +0.4%. China +0.3%. India -0.4%. In Europe, at midday, London +0.5%. Paris flat. Frankfurt -0.2%.

U.S. equities yesterday: The Dow finished down 34.99 points, 0.10%, at 33,891.02. The Nasdaq fell 119.50 points, 1.00%, at 11,887.45. The S&P 500 declined 25.40 points, 0.61%, at 4,111.08.

Agriculture markets yesterday:

• Corn: March corn rose 1 1/2 cents to $6.79 after trading below the 20- and 100-day moving averages that have converged around $6.74 1/4.
• Soy complex: March soybeans fell 10 3/4 cents to $15.21 1/4. March soymeal dropped $7.50 to $489.00. March soyoil firmed 25 points to 59.31 cents.
• Wheat: March SRW fell 6 1/2 cents to $7.50 1/4, ending the session below the 10- and 40-day moving averages, while March HRW rose 3 cents to $8.76 and March spring wheat dropped 4 cents to $9.17 1/2.
• Cotton: March cotton futures ended low-range at 83.25 cents, down 216 points on the day.
• Cattle: April live cattle rose 35 cents to $164.475, nearer the session high and hit another contract high. March feeder cattle gained $1.60 to $187.70, nearer the session high and hit a four-week high.
• Hogs: April lean hogs fell $3.75 to $82.725, nearer the session low and hit a 13-month low.
  

Ag markets today: Soybean futures recouped a portion of Monday’s losses overnight, while the corn market gave back yesterday’s gains and wheat futures showed a varied tone. As of 7:30 a.m. ET, corn futures were trading 1 to 2 cents lower, soybeans were 4 to 8 cents higher, winter wheat futures were mostly 1 to 3 cents lower and spring wheat was fractionally to 2 cents higher. Front-month crude oil futures were more than $1.00 higher, and the U.S. dollar index was trading just above unchanged.

Technical viewpoints from Jim Wyckoff:

On tap today:

• U.S. trade deficit is expected to widen to $68.5 billion in December from $61.51 billion one month earlier. (8:30 a.m. ET) UPDATE: U.S. imports rose in December as demand for consumer goods and autos picked up, partially offsetting a weakening in global trade late last year and widening the U.S. trade deficit by 10.5%. The trade deficit in goods and services was a seasonally adjusted $67.4 billion in December, the Commerce Department said Tuesday, up from a revised $61 billion November. The U.S. trade deficit for all of 2022 rose 12.2% to $948.1 billion, the widest gap on record, as the U.S. continued to depend heavily on imports from other countries to meet domestic demand. Exports also rose last year as global demand for U.S.-made products picked up. A U.S. dollar rally last year drove up the cost of U.S. goods and helped widen the annual deficit. U.S. imports rose 1.3% in December from November and exports decreased 0.9% during the same period. Overall imports of goods and services fell in the final two quarters of the year, the department said.

• Federal Reserve Chair Jerome Powell speaks on the economic outlook at 12:40 p.m. ET, and Vice Chair for Supervision Michael Barr speaks on financial inclusion at 2 p.m. ET.
• The Fed publishes consumer credit data for December at 3 p.m. ET.
• President Joe Biden delivers his State of the Union address at 9 p.m.

President Biden is expected to urge quadrupling the tax on corporate stock buybacks, according to the White House. In his State of the Union address this evening, the president also plans to call for a billionaire minimum income tax (which would levy a 20% minimum rate on U.S. households with net wealth of more than $100 million), and push to expand the $35-a-month price cap on insulin to all users, not just those on Medicare, the White House said.

A White House summary (link) of the president’s record notes his work to lower ocean shipping costs and meat prices. It says the new Ocean Shipping Reform Act will decrease costs for shippers, while the $1 billion USDA is spending to expand meat processing capacity will ensure the “market isn’t dominated by just a few big players.” It also cites consumer right-to-repair action. Meanwhile, USDA Secretary Tom Vilsack will join panel discussions in North Carolina on Wednesday and Thursday to highlight the administration’s economic efforts. Vilsack was scheduled to discuss the USDA’s $3.1 billion array of projects to develop climate-smart commodities and economic development projects such as high-speed internet and water infrastructure.

Other topics Biden will likely address in tonight’s SOTU address, according to the New York Times:

• Competition: Antitrust will be a focus of the speech. Cracking down on Big Tech is an area of bipartisan unity, but that doesn’t mean the parties will work together on it. Before tonight’s speech, the trade association TechNet, which includes Google, Apple and Meta, said it would like to see the president avoid “advocating for arbitrary legislation that would target America’s most successful companies.”
• Debt: With a June default by the U.S. looming, Biden is expected to double down on raising the debt limit. He has been talking to Speaker Kevin McCarthy, but apparently won’t discuss suggested spending cuts — a position that Americans seem to favor, polls show. The president should be “willing to sit down and negotiate,” Suzanne Clark, CEO of the U.S. Chamber of Commerce, wrote in a blog post, adding that “default is not an option.”
• Geopolitics: With the spy balloon controversy lingering, the president will want to send a tough-on-China message — without alienating Beijing. Businesses and investors increasingly see China exposure as a potential risk; the balloon saga even added a bit of market volatility earlier in the week.
  

The cushion of savings many built up during the pandemic is thinning out. In some households, it is already gone. Americans have spent down about 35% of the extra savings they accumulated during the pandemic as of mid-January, according to an estimate from Goldman Sachs. By the end of the year, the company forecasts that they will have exhausted roughly 65% of that money.

American Crystal Sugar Co. shutting down Sidney, Montana, plant. American Crystal Sugar Co., based in Moorhead, Minnesota, announced on Monday, Feb. 6, that it was going to close the Montana plant because Montana-Dakota Beet Growers Association farmers who grow sugarbeets for the company showed there no longer was adequate interest in growing enough of the crop to sustain operations. Plant closure proceedings will begin April 14, 2023. Sidney Sugars Inc. completed processing the 2022 crop in December of that year, but will continue cleanup work in the factory until April and warehouse operations will continue into the summer. About 300 employees work at Sidney Sugars Inc.

European court: Gene editing not covered by rules on GMOs. The Court of Justice of the European Union (CJEU) issued a determination Tuesday that in vitro plan gene editing techniques are excluded from European Union (EU) laws that restrict GMO crops. “Organisms obtained by the in vitro application of a technique/method of mutagenesis which has conventionally been used in a number of in vivo applications and has a long safety record with regard to those applications are excluded from the scope of that directive,” the CJEU said. A group of French agricultural associations in 2015 took a case to French courts, arguing that gene-edited crops should not be exempt from GMO rules under French law. The French court sought advice from the CJEU. There has been a growing determination that gene-edited crops are different from GMO crops and backers of the technology argue there should be no limitations on its use.

No word yet from CFTC on when Commitments of Traders report will be released. The Commodity Futures Trading Commission (CFTC) on Feb. 2 announced the weekly Commitments of Traders report scheduled for Feb. 3 would not be released due to a cyber attack on ION Cleared Derivatives. The agency said the report would be released once all trades can be reported and the regulator has received the information and validated the data from firms. CFTC has not yet announced when the report scheduled for release Feb. 3 will be released.

Market perspectives:

• Outside markets: The U.S. dollar index was firmer with most foreign currencies weaker against the greenback. The yield on the 10-year U.S. Treasury note was higher, trading around 3.65%, with a mostly higher tone in global government bond yields. Crude oil remained firm, with U.S. crude around $75 per barrel and Brent around $81.75 per barrel. Gold and silver futures were slightly weaker, with gold around $1,879 per troy ounce and silver around $22.18 per troy ounce.

• Oil prices were rising Tuesday on supply concerns over the effects of the earthquake in Turkey, which has killed more than 5,000 people in the country and in northern Syria. Turkey’s oil-export terminal at Ceyhan, with a capacity of one million barrels a day, is temporarily closed.

• BP said it would slow its transition to lower-carbon energy, as oil-and-gas production helped push it to a record annual profit on an underlying replacement-cost basis. BP is now targeting a reduction in fossil-fuel production in 2030 of 25% from 2019 levels. That compares with a previous target of a 40% reduction. BP’s London-listed shares jumped 4%. Bottom line: It’s the latest sign that soaring energy prices are tempting oil giants to keep pumping out fossil fuels despite pressure to focus on renewable energy.

• Ag trade: South Korea purchased 138,000 MT of corn – 70,000 MT to be sourced from South America and 68,000 MT optional origin. Jordan passed on a tender to buy 120,000 MT of optional origin milling wheat.

• NWS weather: Heavy snow over parts of the Cascades and Northern Intermountain Region on Tuesday... ...There is a Slight Risk of excessive rainfall over the Southern Plains into the Middle/Lower Mississippi Valley on Tuesday and Wednesday; There is a Slight Risk of severe thunderstorms over parts of the Lower Mississippi Valley on Wednesday... ...Snow over parts of the Northern/Central Rockies and the Middle/Upper Mississippi Valley; Pockets of rain/freezing rain over parts of the Northeast.

Items in Pro Farmer’s First Thing Today include:

• Beans firmer, corn weaker and wheat mixed overnight
• Consultant cuts Argentine soybean crop forecast
• Russia not planning grain purchases for state reserves
• Indonesia to review palm oil export quota ratio
• Cash cattle prices surge on low-volume trade
• Building case for seasonal cash hog bottom

— Russia pushes on several fronts in Ukraine. Russian forces launched multiple attacks in eastern Ukraine, pushing for a breakthrough on the battlefield ahead of the delivery of new Western weapons.

— Russia’s oil and gas revenues nearly halved in January from a year earlier, while government spending, driven by military purchases, jumped by 59%, pushing the government budget into its deepest deficit to start the year in more than a decade. Another EU ban, on imports of Russian diesel fuel and other oil products, took effect on Sunday, further clouding the country’s budgetary picture.

— USDA disaster aid payments edge higher. Payments under the Emergency Relief Program (ERP) as of Feb. 5 totaled $7.38 billion, up from $7.37 billion the prior week. The payments include $6.27 billion for non-specialty crops ($6.26 billion prior) and $1.11 billion for specialty crops (virtually unchanged).

No word yet on ERP Phase 2 payouts as enrollment only started Jan. 23.

Also, no word yet from USDA as to whether any of the remaining 25% of ERP Phase 1 payments will be made. USDA has previously said ERP Phase 1 payments for crops will be prorated by 75% to ensure that total ERP payments, including payments under ERP Phase 2, do not exceed the available funding.

The recently passed $1.7 trillion omnibus spending bill had $3.7 billion in farm disaster aid, to cover eligible 2022 crop and livestock losses. USDA continues to work on that program’s details.

Amounts paid under the Coronavirus Food Assistance Program 1 (CFAP 1) remained essentially the same while payments under CFAP 2 now total $19.37 billion, up from $19.35 billion the prior week. Original CFAP 2 payments are at $14.48 billion ($14.46 billion prior) and $4.89 billion for top-up payments (unchanged).

— Analysts: Swap crop insurance for area-based coverage. The U.S. gov’t could save more than $2 billion a year if it replaced the public-private partnership of the crop insurance program with simpler and more tightly targeted disaster programs, said two agricultural economists. In an analysis (link) for the American Enterprise Institute, Eric Belasco and Vincent Smith said a template for the less expensive program was the Pasture, Rangeland and Forage (PRF) insurance product offered by USDA. “If farmers are offered well-targeted protection through standing disaster aid progams that involve no out-of-pocket costs, many of those farmers may well prefer such coverage,” said the economists. Area-based approaches such as PRF are not as precise as farm-by-farm policies but net benefits could be comparable, they said. “Given the technologies and data now available for weather-based modeling of crop losses, it is time to toward more efficiently designed disaster aid programs.”

— WSJ: farmland becomes flashpoint in U.S./China relations. For more than two years, the mayor of Grand Forks, N.D., backed a Chinese company’s plans to build a $700 million corn mill on the outskirts of town, citing the prospect of new jobs, added tax revenue and another place for farmers to sell their corn. Then last week Brandon Bochenski reversed course, hours after the release of a letter from an Air Force official declaring the corn-mill project a security risk because of its proximity to the Grand Forks Air Force Base 12 miles away. “When it comes to national security, I don’t think the economics matter,” said Bochenski, a former professional hockey player who previously played in Russia and was elected mayor in 2020. “You’ve got to draw a hard line there.” Bochenski said he and other officials who had supported the project would now block the development by the U.S. branch of Fufeng Group Ltd., which still owns the 370 acres of land. Fufeng didn’t respond to a request for comment on what steps it may take. A WSJ article (link) says the episode reflects intensifying concerns over whether the U.S. should be restricting the ability of foreigners, particularly from China, to buy American farmland or agricultural businesses.

— Biden: U.S./China relations not weakened by balloon incident. President Biden said on Monday relations between Washington and Beijing were not weakened by the United States’ downing of a suspected Chinese spy balloon over the weekend. Biden said, “We made it clear to China what we’re going to do. They understand our position. We’re not going to back off. We did the right thing and it’s not a question of weakening or strengthening — it’s reality.”

Asked on Tuesday whether China had asked the U.S. to return the debris from the downed balloon, Chinese foreign ministry spokesperson Mao Ning said the balloon belonged to China. “This balloon is not American. The Chinese government will continue to defend its legitimate rights and interests,” she said. Mao also said she did not have more information on what equipment the balloon was carrying.

— China/Brazil agree on yuan clearing in Brazil. China and Brazil’s central banks signed a memorandum of understanding on setting up yuan clearing arrangements in Brazil, the People’s Bank of China (PBOC) said. The establishment of such arrangements would be beneficial to cross-border transactions, and further promote bilateral trade and investment facilitation, PBOC said.

— Mexico addresses concerns about U.S. GMO corn. If U.S. GMO corn passes the sanitary filters of the Federal Commission for Protection against Sanitary Risks (Cofepris), it will have no problem entering Mexico, said Mexico’s Secretary of Economy Raquel Buenrostro. Without specifying a date, Buenrostro anticipated a new decree will be published in a few days, which she says will address U.S. concerns and should eliminate the possibility of the U.S. starting a dispute settlement process against Mexico under the U.S.-Mexico-Canada Agreement. “In the new drafting proposal, an article was included, ‘claritito,’ which said that transgenic corn would be evaluated by Cofepris on a scientific basis, which is our regulatory health authority, and that it could work together with the regulatory health authorities of other countries. Then there would be no problem because the science is already there. And if they prove that there is no harm to health, then it will be approved. If Cofepris says that it does not generate any harm, the product is approved,” Buenrostro told El Economista.

— Volvo is joining a growing roster of manufacturers considering moving investments to the U.S. if Europe doesn’t bolster aid in response to Biden’s landmark green subsidy push. The Inflation Reduction Act (IRA) will strongly increase demand for emissions-free trucks in the US, said Volvo Chief Executive Officer Martin Lundstedt. Meanwhile, Secretary of Treasury Janet Yellen discussed the IRA with European Commission Executive Vice President Margrethe Vestager over a call Monday, according to a Treasury Department statement. Yellen also discussed the EU’s Green Deal Industrial Plan.

— Methanol emerging as the leader in the shipping sector’s bid to find a greener fuel for ocean vessels. Growing numbers of carriers and manufacturers are betting that the widely used industrial ingredient could help the business move on from dirty bunker fuel. The Wall Street Journal reports (link) the outcome will depend on billions of dollars of investments in ships, port infrastructure and fuel-production capacity in the coming years. About 100 ships that can burn methanol have been ordered by some of the industry’s biggest names. They are far outpaced by ships capable of running on liquefied natural gas, but the sector views LNG as a transitional solution on the way to cleaner-burning fuel. Availability of methanol remains a key question, and so is cost. Retrofitting barges to pump methanol is expensive and prices for green methanol can run up to twice as much as bunker oil.

— U.S. gov’t is shelling out billions of dollars to establish a supply chain for batteries in North America. The manufacturing effort is critical to the auto industry’s long-range plans to put more electric vehicles on the road, and the Wall Street Journal reports (link ) that it encompasses a complicated supply chain that stretches from mining to processing to final production. Right now, assembling the battery cells embedded in vehicles typically involves many companies and can be dispersed across continents. Plans call for more than a dozen battery factories to be built across the U.S. in the next five years, with most located in the Midwest and South near existing assembly plants. The supply chain would remain global, however. Although the projects represent a significant step forward in the U.S. effort to advance domestic battery production, these plants would rely on materials sourced abroad.

— Consumer group files suit to block Kroger-Albertsons merger. A group of 25 consumers in several states including California, Texas and Florida have filed suit in the Northern District of California U.S. District Court seeking to halt the merger of Kroger and Albertsons, arguing the merger “will be used to increase prices for groceries, decrease the quality of food, eliminate jobs, close stores and offer less choice for consumers.”

The suit also takes aim at the $4 billion dividend that Albertsons paid to shareholders after a Washington lawsuit failed to prevent the payout. The suit alleges the dividend “gravely weakens Albertson’s ability to complete.”

The suit calls on the court to stop the merger as it violates Section 7 of the Clayton Antitrust Act and Section 1 of the Sherman Antitrust Act. “Kroger’s plan to acquire rival Albertsons will combine the biggest and second biggest supermarket companies in the country by sales, thereby tending to create a monopoly,” the plaintiffs said. “If Kroger’s proposed acquisition of Albertsons is consummated, the companies’ combined power will be used to increase prices for groceries, decrease the quality of food, eliminate jobs, close stores and offer less choice for consumers due to the overlap in geographic areas.”

The companies are currently working with the Federal Trade Commission (FTC) which has undertaken a regulatory review of the proposed merger. Consumers are allowed under U.S. antitrust laws to sue over mergers with the actions separate from any government entity that regulates competition.

— California’s ban on eggs from caged hens is hitting consumers hard. A Wall Street Journal commentary item (link) provides an update on the impacts in 2018 when California voters approved a ballot measure (Prop. 12) backed by the Humane Society banning the sale in the state of eggs that come from caged hens. It says Prop. 12 has raised egg prices for families while forcing California farmers and those who want to sell eggs in the state to spend millions of dollars retrofitting their barns. Supply shortages have hit the state and become worse as avian flu has wiped out tens of millions of hens across the U.S. California’s egg supply is less resilient. “California’s average wholesale price for conventional white eggs has fallen to $5.62 a dozen from a high of $7.50 at the end of December, but that is still far more than the Midwest average of $3.05. Many retailers are selling eggs at a loss because they don’t want to cause sticker-shock for customers.” Nine other states have enacted laws similar to California’s, though most haven’t yet taken effect.

— Summary:

• Global Covid-19 cases at 671,929,667 with 6,845,852 deaths.
• U.S. case count is at 102,614,789 with 1,111,678 deaths.
• Johns Hopkins University Coronavirus Resource Center says there have been 669,600,840 doses administered, 269,064,626 have received at least one vaccine, or 81.66% of the U.S. population.

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 |