New (or Similar) Farm Bill Setbacks as GOP and Dems Put Different Spin on What’s Ahead

U.S. to introduce stricter standards aimed at enhancing integrity of carbon markets

Jim Wiesemeyer

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April 22, 2024 08:39 AM

U.S. to introduce stricter standards aimed at enhancing integrity of carbon markets

Today’s Digital Newspaper

MARKET FOCUS

Malanga: ‘Fed has blown it’
Fed rate cut odds
FOMC predictions from Wells Fargo
ECB member supports June rate cut despite oil price uncertainties
Tesla reduces prices for its vehicles in China, the U.S., and Europe
IMF: Saudi Arabia needs higher oil price this year compared to previous estimates
Ag markets today
Grain analyst and trader Richard Crow on wheat market
Ag trade update
NWS weather outlook
Pro Farmer First Thing Today items

CONGRESS

House passes $95.3 bil. foreign aid package for Ukraine, Israel & Indo-Pacific region

ISRAEL/HAMAS CONFLICT

Israel enraged U.S. poised to impose sanctions on unit of Israel Defense Forces
Israel’s chief of military intelligence resigns

RUSSIA & UKRAINE

Putin orders Russian gov’t to outline grain trading with BRICS countries

POLICY

Farm bill setbacks…again

CHINA

People’s Bank of China kept its benchmark lending rates unchanged
U.S. soybean exports to China continue to lose market share to Brazil
Southern China hit by major flooding
Three suspected spies for China detained in Germany
Crisis pushes Chinese shippers to Red Sea alternatives, hired guns
Shining example: how China is propelling gold’s record-breaking rally
China braces for worst as it becomes punching bag in U.S. election

ENERGY & CLIMATE CHANGE

U.S. to introduce stricter standards aimed at enhancing integrity of carbon markets
EPA should reject California’s request to implement a locomotive rule from the CARB

OTHER ITEMS OF NOTE

Parenting is costly
2022 ERP payments

MARKET FOCUS

— Equities today: Asian and European stock indexes were mixed to firmer overnight. U.S. Dow opened around 200 points higher but is currently up just over 100 points. In Asia, Japan +1%. Hong Kong +1.8%. China -0.7%. India +0.8%. In Europe, at midday, London +1.5%. Paris +0.2%. Frankfurt +0.5%.

U.S. equities Friday and the week: On Friday, the Dow gained 211.02 points, 0.56%, at 37,986.40. The Nasdaq fell 319.49 points, 2.05%, at 15,282.01. The S&P 500 lost 43.89 points, 0.88%, at 4,967.23.

The benchmark S&P 500 closed out a tough five trading days on Friday with its worst weekly performance in over a year. The decline saw the index slip below the key 5,000-point level for the first time since late February. For the week, the S&P 500 slid -3.1%, the tech-heavy Nasdaq) lost -5.5%, and the Dow eked out a slight gain of +0.01%.

— Tesla reduced prices for its vehicles in China, the U.S., and Europe in response to declining sales and increasing inventory levels. Additionally, the company has lowered the price of its Full Self-Driving software by one-third in the U.S. Elon Musk’s focus on developing robotaxis instead of more affordable electric vehicles has intensified challenges for Tesla. Musk has also advocated for a 20% reduction in the company’s workforce. The CEO postponed his trip to India. Tesla shares are down almost 40% in 2024 but individual investors, for the most part, have been undeterred. They also account for a higher share of Tesla’s total trading volume than any of the other big tech stocks, according to Nasdaq Data Link.

— Ag markets today: Winter wheat markets built on Friday’s corrective gains during overnight trade, while corn, soybeans and spring wheat struggled to find followthrough buying. As of 7:30 a.m. ET, corn futures were trading narrowly mixed, soybeans were 2 to 3 cents lower, winter wheat markets were 6 to 8 cents higher and spring wheat was a nickel lower to 2 cents higher. Front-month crude oil futures were trading near unchanged while the U.S. dollar index was modestly firmer.

Retailer beef demand strong. Wholesale beef prices were mixed Friday, with Choice down 13 cents to $295.67 while Select firmed $1.56 to $290.83. Movement was strong at 126 loads and averaged 118.4 loads last week, signaling there’s solid underlying demand. Until packers can strengthen wholesale prices, however, their interest in actively bidding for cash cattle will remain limited.

Cash hog index slips. The CME lean hog index is down 11 cents to $91.35 as of April 18. May lean hog futures finished last Friday at a $4.875 premium to the cash index, while June hogs were $13.475 above today’s cash quote. The pork cutout value firmed 13 cents to $100.09.

— Agriculture markets Friday and for the week:

Corn: May corn futures rose 6 3/4 cents at $4.33 1/2 and near the session high. For the week, May corn lost 2 cents.
Soy complex: May soybeans rallied 16 1/4 cents to $11.50 1/2 at Friday’s close, but still lost 23 1/2 cents on the week. May soymeal firmed $5.70 to $343.70, but still lost 70 cents week-over-week. May soyoil rose 26 points to 44.38 cents but gave up 151 points from a week ago.
Wheat: May SRW wheat futures rose 13 1/2 cents to $5.50 1/4 and nearer the session high. For the week, May SRW lost 5 3/4 cents. May HRW wheat futures rose 4 1/4 cents to $5.81 1/2 and near mid-range. For the week, May HRW fell 8 1/4 cents. Spring wheat futures rose 8 1/4 cents to $6.47 and gained 4 1/4 cents on the week.
Cotton: May cotton rose 59 points to 78.69 cents/pound but tumbled 393 points on the week. Most active July futures firmed 41 points to 81.02 cents but lost 357 points week-over-week.
Cattle: Expiring April live cattle futures edged up 30 cents to a Friday close of $181.475. Most-active June posted a matching gain to $175.675, which marked a weekly rise of $4.20. April feeder futures skidded 27.5 cents to $241.325, whereas May feeders declined 55 cents to $242.00. The latter move represented a $7.80 weekly surge.
Hogs: Most-active June futures surged $2.125 to post a Friday close at $104.825. That represented a weekly rise of $2.75.

— Quotes of note:

FOMC predictions from Wells Fargo: “We share the market’s overwhelming expectation that the Federal Open Market Committee (FOMC) will leave the fed funds target rate unchanged at 5.25%-5.50% at the conclusion of its April 30-May 1 meeting. Although we do not anticipate any changes to the fed funds rate, we expect the Committee to announce a slowdown in the pace of balance sheet runoff. We expect the Committee to announce that, beginning in June, runoff of Treasury securities will be capped at $30 billion/month compared to the current runoff cap of $60 billion/month.”
ECB member supports June rate cut despite oil price uncertainties. Francois Villeroy de Galhau, a member of the European Central Bank’s Governing Council, stated that the bank will proceed with its plans to implement the first interest-rate cut in June, despite uncertainties surrounding oil prices. He emphasized that even if tensions in the Middle East escalate and lead to further increases in oil prices, the ECB should not delay action excessively. ECB officials are aligning on the June 6 decision as the appropriate time to initiate reductions in borrowing costs. Villeroy has consistently advocated for this move, while other members of the council with more hawkish stances have expressed varying degrees of support for the decision.=
Malanga: ‘The Fed has blown it.’ LaSalle Economics President Dr. Vince Malanga criticizes the Federal Reserve for not implementing an early rate cut, which he believes would have helped address declining inflation, absorb debt, and justify asset valuation increases. Instead, Chair Powell and the Fed hinted at future rate cuts, but recent economic data showing resilient growth and stubborn inflation has raised doubts about this approach. Inflation remains around 3%, driven partly by elevated commodity prices and potential changes in China’s economy and European stability. Malanga says the government’s spending and disregard for deficits, despite full employment, are raising concerns in financial markets. He concludes the Fed may resort to balance sheet adjustments if economic conditions worsen, potentially transitioning from quantitative tightening to easing to manage government borrowing, though this move could lead to stagflation.

— Fed rate cut odds:

May 1: Markets see a 3.9% chance of a quarter-point rate cut at the end of the April 30-May 1 meeting, according to CME FedWatch Tool. There was only a 5.9% chance back on April 12 and 10.4% on March 20.
June 12: Investors expect only a 17% chance of a quarter-point rate cut at the June 11-12 meeting, and 0.5% of 50 basis points by then. On April 12, there was a 28.3% chance of a quarter-point move. It was 74.6% back on March 20.
July 31: There’s a 42.7% chance of a quarter-point cut by the July 30-31 meeting, and 5.7% of 50 basis points. On April 12, markets forecast a 56.5% chance of 25 basis points by then, and 12% odds for 50 basis points. On March 20, there was an 87.4% chance of 25 basis points and 40.9% for 50 basis points.
Sept. 18: Markets do see a Fed rate cut by at the Sept. 17-18 meeting, but it’s no lock at 65.1%. There’s a 20.1% chance of 50 basis points by then. On April 12, the odds were 76.5% and 32.5%, respectively. On March 20, investors pegged 25 basis points at 97%, with a 76.2% chance of 50 basis points and 32% for 75 basis points.
Nov. 7: The odds of a quarter-point Fed rate cut are 79.6% by the Nov. 6-7 meeting, which ends two days after U.S. elections. There’s a 38.8% chance of 50 basis points by this Fed meeting. On April 12, the chances were 82.6% and 43.9%, respectively. On March 20, the odds were a 98.6% chance for 25 basis points, 87.4% for 50 basis points, 55.8% for 75 basis points and 18.5% for 100 basis points.
Dec. 18: By the final Fed meeting of the year on Dec. 17-18, investors still only see an 84.7% chance of a rate cut, with 15.3% odds of no move at all. There’s a 49% chance of 50 basis points and 17% of 75 basis points.

Market perspectives:

— Outside markets: The U.S. dollar index was firmer as the euro and British pound were both weaker against the greenback. The yield on the 10-year U.S. Treasury note was higher, trading around 4.66%, with a higher tone in global government bond yields. Crude oil futures remain weaker, with U.S. crude around $82.70 per barrel and Brent around $86.35 per barrel. Gold and silver were under significant pressure ahead of US market action, with gold around $2,360 per troy ounce and silver around $22.49 per troy ounce.

— Saudi Arabia is expected to require a higher oil price this year compared to previous estimates, according to the International Monetary Fund (IMF). The IMF indicates that Riyadh will need an average oil price of $96.20 per barrel to balance its budget if it maintains crude output near 9.3 million barrels per day. This figure marks a 21% increase from the IMF’s previous forecast in October. Link to Bloomberg item for details.

— Grain analyst and trader Richard Crow on wheat market: “The wheat market rallies as the weather in Russia remains dry. The market has been anticipating a crop of 92 million tons. The production is in question without rain in the two-week period. The world wheat numbers would need to drop over 10 million tons to support much of a wheat rally. The demand for wheat is anticipated to be flat year over year. The EU crop will be somewhat lower due to acreage. Australia planting season is coming up.”

— Ag trade update: Egypt purchased 250,000 MT of raw sugar from unspecified origins.

— NWS weather outlook: Shower and thunderstorm chances stretch from the Upper Midwest and Great Lakes to the Southern Plains over the next few days... ...Chilly and frosty start to Earth Day throughout the Ohio Valley and Mid-Atlantic, while well above average temperatures remain in place across much of the Southwest/Great Basin.

Items in Pro Farmer’s First Thing Today include:

• Varied tone in grains to open the week
• IKAR raises Russian grain export forecast
• Limited reaction expected to Cattle on Feed Report

CONGRESS

— The House on Saturday passed a $95.3 billion foreign aid package for Ukraine, Israel and the Indo-Pacific region. The measures now go to the Senate for a Tuesday vote. A fourth bill that cleared the House would seize frozen Russian sovereign assets and force a sale of the Chinese-controlled social media app TikTok, among other priorities. Link for details on this and other items of note in The Week Ahead.

ISRAEL/HAMAS CONFLICT

— Israel is enraged by reports that the U.S. is poised to impose sanctions on a unit of the Israel Defense Forces for alleged human-rights violations against Palestinians. Benjamin Netanyahu, Israel’s prime minister, vowed to “fight” sanctions that America reportedly plans to impose on an Israeli army unit for alleged human-rights violations in the West Bank. Under the measure, the U.S. would suspend assistance, including training, to the Netzah Yehuda Battalion, according to Axios, a news outlet. It would be the first time the U.S. has suspended aid to an Israel Defense Forces unit.

Separately, Israel’s chief of military intelligence resigned, the first senior official to step down over failures around Hamas’ Oct. 7 attack.

RUSSIA/UKRAINE

— Putin orders Russian gov’t to outline grain trading with BRICS countries. Russian President Vladimir Putin ordered his government to present proposals to facilitate grain trading with other countries including India, China, Brazil and South Africa among others, which together with Russia make up the group of countries known as the BRICS, by July 1. The proposal would allow buyers to purchase directly from producers. Putin also ordered the government to set out additional support measures for farmers, including funding as well as ensuring supplies of gasoline and diesel.

CHINA UPDATE

— The People’s Bank of China kept its benchmark lending rates unchanged despite a decrease in the country’s consumer price index from October to January, which has only slightly increased since then. Despite this, the bank is grappling with the challenge of combating deflation. It is concerned that aggressively cutting interest rates could lead to a depreciation of China’s currency and reduce the profits of its banks.

— U.S. soybean exports to China continue to lose market share to Brazil. During the first quarter of 2024, China imported 7.14 MMT of soybeans from the U.S., down 50% from the previous year. Imports from Brazil surged 155% to 9.99 MMT. Market share for soybean shipments to China stood at 54% for Brazil versus 38% for the United States. During March, China’s corn imports from Brazil jumped 72% to 1.18 MMT, while arrivals from the U.S. fell 78% to 109,685 MT.

— Southern China hit by major flooding. Floods swamped southern China’s Pearl River Delta following record-breaking rains since last Thursday. The province of Guangdong has been hit hardest, with more rains in the forecast for this week. World Weather says, “Early indications suggest rice damage has been most significant and replanting will be necessary. Some sugarcane, corn and a few other crops produced in the region may have also been negatively impacted or will be impacted in the coming days.”

— Three suspected spies for China detained in Germany. The dismantling of an alleged military-technology spy cell underlines the limits of Berlin’s efforts to re-engage with Beijing to boost its stagnating economy. Link to WSJ article.

— Crisis pushes Chinese shippers to Red Sea alternatives, hired guns. EV and solar products are particularly susceptible to the disruption, as freight expenses make up ‘a large portion of these products’ cost structures,’ analyst says. Link to Caixin Global.

— Shining example: how China is propelling gold’s record-breaking rally. Wars in the Middle East and Ukraine, and continuing lower US interest rates have burnished gold’s billing as an investment, but it is the unrelenting Chinese demand that is juicing the rally. Link to South China Morning Post.

— China braces for worst as it becomes punching bag in U.S. election. With Beijing already becoming a top target in the US election campaign, President Xi Jinping’s government is resisting any move that could backfire on the world’s second-largest economy. Link for more via Bloomberg.

ENERGY & CLIMATE CHANGE

— U.S. is set to introduce stricter standards aimed at enhancing the integrity of carbon markets, with the goal of ensuring that trading schemes lead to genuine reductions in emissions rather than merely serving as a form of greenwashing. According to climate envoy John Podesta, the State Department will advocate for carbon credits to represent tangible, additional, and permanent reductions in emissions that would not have occurred otherwise. Furthermore, the U.S. will emphasize the importance of avoiding carbon leakage, where reductions in one area are offset by increased pollution elsewhere. The standards will also clarify that companies should not use carbon credits as a substitute for or delay in making investments to reduce their own emissions.

Critics express concerns about the difficulty in accurately assessing the real-world impact of carbon offsets and fear that companies may exploit these tools to evade responsibility for reducing their own pollution.

Of note: The guidance being developed by the U.S. State Department aligns with similar efforts by the UK and EU to address these issues. Podesta, veteran of the Bill Clinton and Barack Obama administrations, took over from John Kerry as Joe Biden’s chief climate diplomat in January. Last week he laid out the administration’s plans for decarbonizing trade (link). It included launching a “White House Climate and Trade Task Force.”

— EPA should reject California’s request to implement a locomotive rule from the California Air Resources Board (CARB), which would require rail operators to use locomotives that meet CARB’s emissions limits, according to a several trade associations. The groups expressed their “serious concerns” with the rules in an April 19 letter (link/pdf) to the EPA.

OTHER ITEMS OF NOTE

— Parenting is costly. In the U.S., a stay-at-home parent of two children does roughly 200 combined hours of cleaning, shopping, cooking, childcare and other tasks each month, a new study shows. In some cities, it would cost between $4,000 and $5,200 per month to outsource that labor. On average, that would come out to $1 million over the course of raising two children for 20 years in the U.S. cities studied — San Francisco, New York City, Washington, D.C., Los Angeles, Houston and Chicago.

Of note: It’s not just mothers who are doing all that work: Dads now represent 19% of stay-at-home parents, Pew Research Center found.

— 2022 ERP payments. USDA’s Farm Service Agency (FSA) has made $1.4 billion in payments under the 2022 Emergency Relief Program (ERP), an official with the agency said last week. However, the ERP dashboard maintained by the agency does not yet reflect any ERP 2022 payments, only those for Phase 1 and Phase 2 of the program that covered 2020 and 2021 losses.

KEY LINKS

Policy Updates