No House Floor Action on New Farm Bill in Internal House GOP Agenda for September

News/Markets/Policy Updates: Sept. 9, 2024

— Equities today: Asian and European stock indexes were mixed overnight. U.S. Dow opened around 300 points higher after equities tumbled last week. Investors will be watching this week for inflation data, which could help to determine how large of a rate cut the Federal Reserve makes at its policy meeting later this month. In Asia, Japan -0.5%. Hong Kong -1.4%. China -1.1%. India +0.4%. In Europe, at midday, London +0.7%. Paris +0.7%. Frankfurt +0.7%.

U.S. equities Friday and the week: All three major indices finished lower Friday in the wake of the jobs update and posted losses for the week with the Dow down 2.39%, the Nasdaq fell 5.8% (its sharpest weekly fall since January 2022), and the S&P 500 4.2% lower (its worst weekly drop since March 2023). On Friday, the Dow lost 410.34 points, 1.01%, at 40,345.41. The Nasdaq declined 436.83 points, 2.55%, at 16,690.83. The S&P 500 fell 94.99 points, 1.73%, at 5,408.42.

— Boeing reached a tentative labor agreement with the International Association of Machinists and Aerospace Workers, representing around 33,000 employees. The deal, which includes a 25% pay raise over four years, still requires worker approval. The current contract was set to expire after Thursday. Both Boeing and the union praised the agreement, with the union stating its members will help the company recover from recent missteps. Boeing’s commercial airplane unit CEO, Stephanie Pope, highlighted the improved pay and benefits as key achievements.

— The Justice Department’s second antitrust trial against Google starts today in Virginia, focusing on claims that the tech giant illegally holds a monopoly in the advertising market. The DOJ is seeking at least the divestiture of Google’s Ad Manager platform. This trial follows a recent landmark ruling on Google’s search monopoly, adding to the company’s mounting legal challenges.

— Ag markets today: Soybeans posted corrective gains during overnight trade, while corn and wheat mildly favored the downside. As of 7:30 a.m. ET, corn futures were trading around a penny lower, soybeans were 6 to 7 cents higher and wheat futures were 1 to 2 cents lower. The U.S. dollar index was up around 500 and front-month crude oil futures were about 50 cents higher this morning.

Cash cattle market looking for short-term bottom. Cash cattle prices dropped for the sixth consecutive time last week, which fueled a late-week selloff in cattle futures. Despite futures holding big discounts to the cash market, traders will want to see cash prices stabilize before they return as active buyers.

Cash hog index drops, pork cutout rebounds. The CME lean hog index is down 19 cents to $86.24 as of Sept. 5, snapping a two-day uptick. The pork cutout firmed $1.23 to $96.10 on Friday, snapping three consecutive daily price declines.

— Agriculture markets Friday and for the week:

• Corn: December corn futures slid 4 1/2 cents to $4.06 1/4 and settled near session lows, though the contract still gained 5 1/4 cents on the week.
• Soy complex: November soybeans closed 18 1/2 cents lower to $10.05 but managed to rise a nickel on the week. December soymeal fell $2.10 to $324.40 but notched an $11.40 week-over-week gain, while December soyoil tumbled 154 points, bringing this week’s total losses to 238 points.
• Wheat: December SRW futures lost 7 3/4 cents and settled at $5.67, though they still gained 15 1/2 cents on the week. December HRW future tumbled 11 1/4 cents to $5.77 1/2, but the Friday close still represented a 12 1/4 cents weekly rise.
• Cotton: December cotton slipped 156 points to 67.88 cents and marked a 211-point drop on the week.
• Cattle: October live cattle futures tumbled $2.075 to $175.175, while most-active October feeders plummeted $3.625 to $230.95. Those closes represent weekly losses of $3.425 and $6.80, respectively.
• Hogs: Nearby October futures fell $1.20 to end the week at $79.50. That represented a weekly drop of $2.725.

— Of note:

• Growing support for U.S. sovereign wealth fund amid calls from Trump and Biden administration. Momentum is building for the U.S. to establish a sovereign wealth fund, with Donald Trump voicing support and the Biden administration reportedly working on a similar initiative. Such a fund would invest in national projects like infrastructure, supply chain security, and defense capabilities, drawing comparisons to state-level funds like Alaska’s Permanent Fund. However, key details, including funding sources, remain unclear. Trump suggested tariffs as a possible source, while White House officials are exploring various options. The fund’s creation would require congressional approval, posing significant legislative challenges. Experts remain divided on its feasibility.

• Federal Reserve’s communications blackout period around the Sept. 17-18 FOMC meeting is in effect (midnight, Saturday, Sept. 7 through midnight, Thursday, Sept. 19). If any Fed officials speak, it will not be about monetary policy.

• Treasury Secretary Janet Yellen has said recent economic data signaled that the U.S. economy is pulling off a soft landing, but noted there are “downside risks” to employment. “So, what I see when I look at the economy is very strong growth deep into a recovery, with the economy operating basically at full employment,” Yellen said at the Texas Tribune Festival, adding that there were “no red lights flashing.”

— Focus now on slowing growth, not inflation. The Federal Reserve’s latest Beige Book, which compiles information from business contacts in each of its 12 districts, revealed business contacts are more concerned about slowing growth than inflation. Still, there were no mentions of a “recession” and just 10 “inflation” references — a low for 2024, according to DataTrek Research.

— The economy is showing spreading signs of weakness, potentially indicating that past monetary policy actions are beginning to take effect, says Dr. Vince Malanga, president of LaSalle Economics. He notes that recent data reveals:
• Stronger productivity growth in the spring quarter
• Lower unit labor costs

As for the Federal Reserve’s next steps, Malanga says the Federal Open Market Committee (FOMC) is currently considering rate reductions:
• A 25-basis point cut is expected at the upcoming meeting
• A 50-basis point cut is anticipated shortly after the election
• Further reductions totaling 75 basis points could be implemented by next spring, he adds.

Malanga says these actions aim to ensure a positively sloped yield curve as long-term rates lag behind short-term rate reductions.

While a significant recession is not anticipated, Malanga believes the U.S. economy is expected to experience a period of slow growth:
• Annual growth rate below 2%
• Unemployment rate potentially reaching 4.5%
• Inflation expected to meet the 2% target

The slower economic growth, he concludes, is likely to result in:
• Reduced growth in tax receipts
• Increased government spending
• A worsening overall fiscal condition

— Iowa farmers hesitate on new equipment purchases amid falling crop prices. At the 2024 Farm Progress Show, central Iowa farmers like Troy Swigert expressed caution about buying new equipment as corn and soybean prices decline, reports the Des Moines Register (link). Corn prices are down 45% from two years ago, while soybeans have dropped 30%, and are expected to remain low until 2030. Manufacturers like Deere and AGCO are cutting production and pivoting to offer technology upgrades that help farmers save costs. With U.S. farm income projected to decline further this year, farmers are opting to repair rather than replace equipment, weighing costs against uncertain future prices.

Market perspectives:

— Outside markets: The U.S. dollar index was firmer, with the euro and British pound weaker against the U..S. currency. The yield on the 10-year U.S. Treasury note was higher, trading around 3.75%, with a positive tone in global government bond yields. Crude oil futures were maintaining earlier gains, with U.S. crude around $68.55 per barrel and Brent around $71.90. Gold and silver were modestly higher ahead of US trading, with gold around $2,526 per troy ounce and silver around $28.45 per troy ounce.

— U.S. gas prices hit a six-month low last week, at $3.31 a gallon, which is 50 cents lower than the same time last year and are expected to fall further: Up to 40 states could see prices under $3 by Thanksgiving, per GasBuddy. Ten states, including Texas, Kentucky, and Kansas, already have average prices below $3 per gallon. Approximately one in three gas stations nationwide (nearly 41,000 out of 130,000 monitored) are currently offering regular gasoline for less than $3 a gallon. An additional nine states are expected to join the sub-$3 list within the next two weeks, according to oil industry analyst Andy Lipow.

GasBuddy’s 2024 fuel outlook predicts that the yearly national average will drop from $3.51 per gallon in 2023 to $3.38 in 2024. Americans are expected to spend a combined $446.9 billion on gasoline in 2024, with average yearly spending per household falling to an estimated $2,407, down 2% from 2023.

— Oil market outlook dims as experts lower price forecasts. The outlook for oil continues to worsen as key market players signal declining prices. Morgan Stanley has cut its oil price forecasts for the second time in weeks, while Trafigura warned that Brent crude could fall into the $60 range. Vitol Group also predicted that China’s gasoline consumption will peak this year or next, further contributing to the bearish sentiment in the market.

— Norfolk Southern’s board is investigating allegations that CEO Alan Shaw engaged in an inappropriate workplace relationship, according to reports. The rail company confirmed it is probing possible violations of its code of ethics and has hired outside legal counsel for the investigation. Norfolk Southern has already been under pressure from the activist investor Ancora to fire Shaw over the company’s handling of the 2023 toxic derailment in East Palestine, Ohio, poor stock performance and strategy.

— USDA daily export sale:
• 132,000 MT soybeans to China during the 2024-2025 marketing year.

— South America’s rivers hit record lows. The Paraguay River fell to a record low in Paraguay’s capital Asuncion, with water levels depleted by a severe drought upriver in Brazil. The Parana River in Argentina is also low around the grain export hub at Rosario. Both the Paraguay and Parana rivers start in Brazil and are important routes for soybeans, corn and other trade. Low water levels are affecting shipments, though the impact was capped as it is not peak export season.

The low water levels are affecting shipments in several ways:
• Reduced cargo capacity: Ships and barges are unable to be fully loaded due to the shallow water depths.
• Slower transit times: Vessels need to navigate more carefully in shallower waters, leading to delays.
• Increased costs: The need for partial loading and potential use of alternative transportation methods can drive up shipping costs.

While the situation is concerning, there are some factors that are currently limiting the full impact of the low water levels: • Not peak export season: The timing of this drought is fortunate as it’s not coinciding with the busiest export period for grains.
• Recent strong exports: Paraguay, for example, had strong soy exports in January and February before water levels dropped significantly in March.

— NWS outlook: Heavy rain and a risk of flash flooding expected throughout much of the Gulf Coast and Florida Peninsula into midweek... ...Potentially dangerous heat forecast across southern California and the Southwest today... ...Elevated to critical fire weather concerns as well as Air Quality Alerts remain across much of the Great Basin.

(NWS)

Items in Pro Farmer’s First Thing Today include:

• Beans firmer, corn and wheat weaker to start the week
• Another dry week ahead across Midwest
• IKAR cuts Russia’s wheat production, export forecasts
• APK-Inform raises Ukraine’s wheat export forecast, cuts corn

— Schumer pushes for bipartisan funding extension to avoid gov’t shutdown. Senate Majority Leader Chuck Schumer (D-N.Y.) urged bipartisan cooperation to pass a short-term funding measure and avoid a gov’t shutdown on Sept. 30. In a letter to Democratic colleagues, Schumer emphasized the need to prevent “Republican extremism” from risking funding for critical programs. He also highlighted potential bipartisan efforts on defense, rail safety, and drug cost reductions. Despite disagreements, including on voter eligibility measures proposed by House Republicans, the likelihood of a shutdown remains low, with leaders expected to agree on a continuing resolution into December.

Under a House bill, gov’t funding would be extended until March 28, nearly six months into fiscal 2025, under an as-yet-unnumbered bill. The measure also includes the “SAVE Act,” which would require proof of citizenship to vote. House Republican leaders released the measure on Sept. 6.

— House to debate bills on China Trade, WHO, and voter registration rules. The Rules Committee is set to organize floor debate on four significant bills today, focusing on restricting tax credits for electric vehicles using Chinese batteries, requiring voter citizenship proof, and mandating Senate approval for WHO pandemic agreements. Also, 30 suspension measures will be voted on, mostly related to China, including bans on federal contracts with Chinese biotech firms and export controls. The House floor votes are planned through Thursday.

— CFIUS review of farmland sales. The Committee on Foreign Investment in the U.S. (CFIUS) would have to review foreign agricultural land transactions under HR 9456, which would add USDA to the committee to lead those reviews. The measure was referred to the Financial Services, Foreign Affairs, and Energy and Commerce committees, which haven’t considered it.

CFIUS sets legal standards for the president to suspend or block a transaction if there is credible evidence it threatens U.S. national security. Nine departments and offices are members, including Commerce, Defense, Energy, Homeland Security, Justice, State, and Treasury departments. As noted, the measure would add the Agriculture Department as the 10th cabinet member to the committee. “By adding the Secretary of Agriculture to CFIUS, we can ensure much-needed oversight of agricultural land purchases by foreign adversaries, which will protect American farmers and the industry as a whole,” the bill’s sponsor, Rep. Dan Newhouse (R-Wash.),said in an Aug. 30 news release.

The Agricultural Foreign Investment Disclosure Act (AFIDA) mandates foreign investors report transactions involving U.S. agricultural land within 90 days. Foreign ownership of U.S. farmland has steadily grown, with 43.4 million acres (3.4%) held by foreign interests by the end of 2022. Canada leads foreign land holdings, while China holds less than 1%. The Government Accountability Office (GAO) has raised concerns over USDA data accuracy and recommended sharing data with CFIUS for national security reviews. A new bill, the “Protecting American Agriculture from Foreign Adversaries Act,” calls for heightened scrutiny of land transactions involving foreign adversaries like China, Iran, North Korea, and Russia. The House Rules Committee will debate the measure today.

— Ag groups urge action on farm bill. As Congress returns from recess, ag group lobbyists are pushing for a new farm bill this year. Over 300 state and national groups sent a letter (link) urging lawmakers to act, warning that delays could harm producers facing economic challenges. While the official deadline is Sept. 30, key commodity programs expire by year’s end, making timely passage crucial. The push follows a USDA report predicting a 6.8% drop in net farm income for 2024.

— Ukraine has exported 7.6 million metric tons (MMT) of grain in the 2024-25 marketing year so far, up from 5.1 MMT at the same point in 2023-24, according to the Agriculture Ministry. The total includes 4.1 MMT of wheat, 2.4 MMT of corn, and 1.1 MMT of barley. September exports have reached 627,000 metric tons, compared to 467,000 metric tons by the same time in September 2023.

— Ukraine’s wheat quality low, millers seek export curbs. Ukraine’s government and exporters agreed earlier this month to limit wheat exports to 16.2 MMT in 2024-25, though the deal did not specify what kind of wheat could be exported. Brokers, millers, traders and ministry officials expect the share of milling wheat to be between 30% and 45%, below the historical norm. As a result, the Ukrainian millers association said milling quality wheat exports should be limited to 30% of the total. Early season shipments have focused on milling wheat. Of the 3.3 MMT of wheat exported in the first two months of the marketing year, the share of milling wheat was 1.9 MMT, or about 58%. Ukrainian officials have indicated they are ready to discuss more serious measures to restrict milling wheat exports when the volume of such shipments exceeds 3.5 MMT

— Stabenow: Will do ‘everything in my power to pass a farm bill.’ With Congress resuming work after its summer recess, Senate Ag Committee Chairwoman Debbie Stabenow (D-Mich.) says she is determined to pass farm bill this year (link), despite ongoing challenges and deadlocks. Stabenow, however, has not yet released official text of her farm bill proposals.

Main points of disagreement among lawmakers include:

• SNAP funding: There are conflicting views on the Supplemental Nutrition Assistance Program (SNAP) budget. The House version proposes cuts to SNAP, while Stabenow’s Senate framework prioritizes investments in nutrition programs.
• Crop subsidy spending: The House bill aims to increase the Commodity Title by 70%, which has been a point of contention.
• Climate mitigation: Stabenow’s proposal includes bringing major investment in climate-smart conservation practices into the farm bill, which may face opposition from some lawmakers.

Upshot: If an agreement cannot be reached, another extension of the 2018 Farm Bill is likely by year’s end.

— China’s annual inflation rate increased to 0.6% in August 2024, slightly below market expectations of 0.7%. This marks the highest rate since February and the seventh consecutive month of inflation, driven by supply issues caused by extreme weather. Food prices surged 2.8%, the fastest rise in 19 months, while non-food prices grew more slowly at 0.2%. Transport costs fell further due to lower oil prices. Core inflation, excluding food and energy, rose by just 0.3%, the slowest rate since March 2021. Monthly inflation increased by 0.4%, below the forecast of 0.5%. “The deflationary pressure in China is getting more entrenched,” Michelle Lam, Greater China economist at Societe Generale, told Bloomberg. China’s CSI 300 Index lost more than 1% on Monday, and is on the verge of falling to a five-year low.

Meanwhile, the producer price index, which measures the cost of goods at factory gates, fell by 1.8% year on year, the most in four months. The results will do little to alleviate concerns over deflation in the world’s second-largest economy.

— China launches antidumping probe on Canadian canola imports. China’s Commerce Ministry has officially launched an antidumping investigation into Canadian canola imports for the period of Jan. 1 to Dec. 31, 2023. China says preliminary findings suggest dumping occurred, with a link to damage in China’s domestic industry. The investigation could extend beyond its expected completion by September 2025. It also covers potential industrial damage from imports between 2021 and 2023. The move is seen as a response to Canada’s tariffs on Chinese electric vehicles and metals. In 2023, Canada supplied 94% of China’s 5.5 million metric tons (MMT) of canola imports.

— China opens more sectors to foreign investment. The government said it would reduce list of industries off-limits to foreign investors to 29 from 31 and fulfill its pledge of zero restrictions on the manufacturing sector. Link to details via the Wall Street Journal.

— Mexico is projected to become the world’s top corn importer by 2024-25, surpassing China, according to the Food and Agricultural Policy Research Institute (FAPRI) International Market Outlook (link). The U.S. will remain the leading corn exporter despite competition from Brazil. Mexico is expected to import 21.91 million metric tons of corn, following a resolution on GMO corn imports. President-elect Claudia Sheinbaum’s administration is anticipated to focus on self-sufficiency in white corn, while continuing to import genetically engineered yellow corn. FAPRI’s projections run through 2029-30.

— Another letter urges Treasury Dept. to expedite final guidance for SAF tax credit. Reps. Tracey Mann (R-Kan.) and Marcy Kaptur (D-Ohio) spearheaded a letter (link), with support from 39 other lawmakers, urging the Treasury Department to expedite final guidance for a sustainable aviation fuel (SAF) tax credit. The letter urging Treasury to expedite the issuance of final guidance for the Clean Fuel Production Credit in advance of its Jan. 1 deadline and to restrict the eligibility to renewable fuels made from domestic feedstocks by domestic fuel producers.

“As you know, the Clean Fuel Production Credit (45Z) is intended to stimulate the development of a domestic fuel supply chain,” the Members wrote. “If drafted and implemented per congressional intent, 45Z will support American energy independence by incentivizing the production of biofuels made with domestically produced feedstocks, while continuing to support global renewable fuel production made from a wide array of feedstocks.”

“Treasury must ensure that the 45Z tax credit is only applicable to fuels produced domestically with domestic feedstocks, so American farmers, processors, businesses, investors, and end-users can benefit from the 45Z tax credit and the long-anticipated promise of new biofuels markets,” the Members continued.

The letter is supported by the American Farm Bureau Federation, National Farmers Union, National Oilseed Processors Association, American Soybean Association, National Corn Growers Association, Growth Energy, Scoular, and Louis Dreyfus Company. “Without this fix, the 45Z credit will incentivize the continued use of foreign feedstocks over U.S. feedstocks produced by American farmers.

NOPA members have made commitments to expand U.S. crush capacity by 30% with $6 billion in investments to process domestic row crops into biofuels in line with state and federal renewable fuel and tax provisions, however current market conditions are beginning to call into question the viability of future investments,” said NOPA President and CEO Kailee Tkacz Buller. “We firmly support free trade and open markets but cannot stand by and let foreign feedstocks benefit to the detriment of U.S. crushers, U.S. farmers and U.S. taxpayers alike.”

“In its current form, the 45Z credit will use American tax dollars to displace the American farmer by favoring foreign products, and, therefore, it must be limited to domestic feedstocks,” said Scholar Senior Vice President Ed Prosser.

— Kroger CEO defends food pricing practices amid antitrust trial over Albertsons merger. Kroger CEO Rodney McMullen testified in court defending the grocery chain’s pricing strategies as rising costs drive up food prices. McMullen denied that Kroger would raise prices following its proposed $24.6 billion merger with Albertsons, stating that competition would prevent them from pricing above the market. The FTC argues the merger would hurt competition and presented evidence suggesting Kroger inflated egg and milk prices. Kroger countered that increased costs, such as avian flu outbreaks, contributed to price hikes, while maintaining that the merger would ultimately lower prices. The trial concludes Sept. 13.

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