Oil Prices Surge on Escalating Tensions in Middle East

Abbreviated format today as I am en route to the Ozarks for an annual family event.

— Oil prices surged due to escalating tensions in the Middle East. Brent crude oil prices have risen above $81 per barrel, following a 3.6% increase in the previous session. This spike comes after reports that Iran has ordered a retaliatory strike on Israel, as reported by the New York Times. The strike is said to be in response to Israel’s alleged assassination of a Hamas leader in Tehran and a senior Hezbollah member in Beirut. These developments are ahead of a meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies. Despite the heightened geopolitical tensions, delegates expect the meeting to proceed routinely without changes to the plans for increasing oil production in the fourth quarter.

John Kirby, spokesman for the U.S. National Security Council, told reporters that “we’re obviously concerned about escalation,” although “we don’t believe that an escalation is inevitable, and there’s no sign that an escalation is imminent.”

“It’s too soon to know what any of these reported events could mean for the cease-fire deal,” he said, adding it “doesn’t mean we’re going to stop working on it.”

— The Federal Reserve kept interest rates steady at 5.25% to 5.5% after their two-day policy meeting. Key points:

• Labor market and inflation: The Fed acknowledged easing in the labor market and progress on inflation, though inflation remains somewhat elevated.

• Future rate cuts: Fed Chair Jerome Powell emphasized that any future rate cuts will depend on a combination of data, not just one data point. The Fed is making decisions on a meeting-by-meeting basis with no commitment to a September rate cut yet. “The broad sense of the committee is that the economy is moving closer to the point at which it will be appropriate to reduce our policy rate,” Powell said. “The question will be where the totality of the data, the evolving outlook, and balance of risks are consistent with rising confidence and maintaining a solid labor market. If that test is met, the reduction of the policy rate could be on the table as soon as September.”

Powell suggested that at least one official had argued in favor of lowering rates at this week’s two-day meeting.

• Economic expansion: The economy is described as expanding at a solid pace, with job gains moderating and the unemployment rate moving up but remaining low.

• Political neutrality: Powell reiterated that the Fed’s decisions are based on economic data and not influenced by politics, insisting the Fed operates in a non-political manner (see next item).

• Continued monitoring: The Fed will continue reducing its Treasury holdings and will adjust monetary policy as needed to meet its goals of full employment and price stability.

Bottom line: The Fed remains cautious, balancing the risks of acting too soon or too late, and will rely on comprehensive economic data to guide future policy actions.

— Powell, asked about the elections and Trump’s warning that it would not be right to lower rates ahead of the election, responded: “We don’t change anything in the approach to address the other factors. Like the political calendar. Congress has ordered us to conduct our business in a non-political way at all times. Not just some of the time. I’ll say that too. We never use our tools to support or oppose the political party, a politician, or any political outcome. The bottom line is if we do our very best to do our part and we stick to our part, that will benefit all Americans. If we get it right, the economy will be stronger, we’ll have price stability, people will find jobs, wages will rise in real terms, everyone will benefit. That’s what we believe. That’s how we will always act. This is my fourth presidential election at the Fed. I can tell you this is how we think about it. This is what we do. It… anything that we do before, during, or after the election will be based on the data, the outlook, and the balance of risks and not on anything else.”

— Powell was asked if Fed economic forecasts and models consider the two very different economic plans of presidential candidates Harris and Trump and if so, how?

Powell: “No. We do not do that. We don’t know who is going to win. We don’t know what they are going to do. We don’t act as though we know. We can’t do that. We have our forecast. We can run simulations of different potential policies. We would never try to make policy decisions based on the outcome of an election that hasn’t happened yet. That would just be a line we would never cross. We are a non-political agency. We don’t want to be involved in politics in any way. We wouldn’t do that.”

— NASS to review acreage data. In preparation for the August Crop Production report, USDA’s National Agricultural Statistics Service (NASS) will review all available data, including survey data and information from USDA’s Farm Service Agency and Risk Management Agency, to assess planted and harvested acreage for various crops such as barley, corn, cotton, and more. If the review warrants changes, updated acreage estimates will be published on Aug. 12, 2024.

• Data review: NASS will evaluate data for crops including barley, corn, cotton, dry edible beans, oats, peanuts, rice, sorghum, soybeans, sugarbeets, and various types of wheat.
• Publication: Any necessary updates will be included in the Aug. 12, 2024, report.
• Annual process: NASS conducts these reviews based on administrative and survey data as it becomes available throughout the crop cycle.
• Future reviews: NASS will continue reviews for specific crops in August, September, and October, ensuring accurate acreage estimates based on the latest information.

— Kamala Harris pulled ahead of Donald Trump in the presidential race, PredictIt showed. She was favored with a 53% chance while the former president’s odds dipped briefly below 50%.

— Former President Donald Trump faced criticism during his appearance at the National Association of Black Journalists (NABJ) convention in Chicago. His comments, including questioning Vice President Kamala Harris’s racial identity, sparked disbelief and audible gasps from the audience.

— USDA has distributed $2.2 billion to 43,000 individuals who experienced discrimination in receiving USDA farm program services before January 2021. The funds reached recipients in all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, and American Samoa. The Biden administration coordinated a press call to highlight the importance of this announcement, with USDA Secretary Tom Vilsack discussing it at a White House press briefing. Over 23,000 individuals currently or previously involved in farming or ranching received between $10,000 and $500,000, averaging nearly $82,000. Additionally, over 20,000 individuals who planned to farm but couldn’t due to loan denials received between $3,500 and $6,000, averaging $5,000.

Funding source: The Discrimination Financial Assistance Program (DFAP), established by the Inflation Reduction Act (IRA), provided the $2.2 billion in funding.
Application Review: Two independent panels reviewed 58,000 applications, including duplicates, to determine eligibility.
Discrimination types: Cases involved denial of credit due to race, sex, or gender identification, late loan servicing, and higher interest rates.
USDA reforms: USDA is using application information to improve processes and has increased minority representation in Farm Service Agency offices.
Historical context: A separate IRA program provided over $2.4 billion to more than 40,000 existing USDA loan customers who had experienced discrimination.

Vilsack acknowledged the financial assistance as an important step towards inclusivity and equity in USDA programs.

— Corteva names David Johnson as CFO. Corteva on Wednesday announced that it has appointed David Johnson as its new executive vice president and CFO, effective Sept. 16, 2024. The company also announced he would succeed former CFO Dave Anderson who will serve as a strategic advisor to the CEO until his retirement in the first quarter of 2025.

— Corteva, released its financial results for the second quarter and the first half of 2024, showing mixed performance across its business segments as the company adapts to the changing financial situations of their farmer customers around the globe.

First half 2024 highlights
• Net sales: Overall net sales declined by 3% compared to the previous year, driven by a significant 11% decrease in Crop Protection sales, which offset a 2% increase in Seed sales.
• Organic sales: Organic sales decreased by 2% during the same period.
• Price and volume: Global prices increased by 5%, led by North America. However, volume declines were primarily due to unfavorable weather conditions and reduced planted areas in Europe, the Middle East, and Africa (EMEA).
• GAAP income and EPS: The company reported a GAAP income of $1.43 billion and an EPS of $2.03 for the first half of 2024.

Strategic actions
• Seed business: The Seed segment performed robustly, achieving a record first-half operating EBITDA, driven by strong product portfolio performance and market share gains in North America for corn and soybeans.
• Crop protection: While the Crop Protection market showed signs of stabilization, it faced competitive pricing pressures and volume declines due to adverse weather and destocking in EMEA.
• Share buyback and dividend increase: Corteva announced a share buyback program and a dividend increase, reflecting its strong balance sheet and cash flow position.

Market position
• Corn and soybeans: Corteva has solidified its position as the market leader in North America for both corn and soybeans. The company’s advanced seed technologies, such as Enlist E3 soybeans, have gained significant market share, outperforming competitors like Bayer.

— Scientists are developing innovative technologies to make sugar healthier without reducing its amount, the Wall Street Journal reports (link). Harvard’s Wyss Institute has created an enzyme that converts sugar to fiber in the gut, potentially reducing sugar absorption by 30%. This enzyme is encased in nanoparticles that release it in the intestine. Additionally, San Francisco-based Biolumen has launched Monch Monch, a drink mix containing microscopic sponges that soak up sugar in the stomach, preventing it from entering the bloodstream. Both products aim to mitigate sugar’s harmful effects while preserving its benefits and taste. These advancements come as U.S. regulators crack down on added sugars, with food companies seeking healthier alternatives amid rising consumer awareness.

— In response to Xi Jinping’s recent call to enhance flood control, Chinese officials have swiftly acted:

• Acting agriculture minister Han Jun has prioritized flood control and disaster relief.

Coordination with meteorological, water management, and emergency personnel is being improved.
• Support is being provided to flood-hit areas to resume agricultural production.

Monitoring of food security impacts on key crops’ supply chains is underway.
• The Ministry of Finance has announced RMB 238 million in emergency funds for farmers in flood-affected Central and Southwestern China.
• This is the sixth emergency fund allocation this year, totaling RMB 11.5 billion in disaster relief funds.

Impacts:
• The remnants of Typhoon Gaemi are causing torrential rains in Northeast China, affecting key agricultural provinces (Liaoning, Jilin, Heilongjiang) until Thursday.
• Damage to rice, corn, and soybean crops, as well as greenhouses and livestock producers, has been reported.
• Anticipated increases in food prices due to crop and livestock damage.

Increased spending on infrastructure to mitigate global warming effects.

KEY LINKS