OMB Completes Review of Controversial USDA Cattle EID Tag Rule

USDA rule on nutritional standards in school meals; first-ever limits on added sugars in school meals

Jim Wiesemeyer

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April 24, 2024 08:27 AM

USDA rule on nutritional standards in school meals; first-ever limits on added sugars in school meals

Today’s Digital Newspaper

MARKET FOCUS

Elon Musk’s turnaround plan rallies investors
Ban for-profit employers from making workers sign contracts w/non-compete clauses
Spotify soars 11.4% after reporting an earnings beat
Boeing reports narrower loss and less cash burn than analysts anticipated
Bunge earnings top expectations
Surge in new home sales, with March largest increase since December 2022
Japan nearing point where it might intervene in currency market to support yen
Indonesia’s central bank raises benchmark interest rate
Ag markets today
Disparity between USDA and Brazil’s Conab re: Brazil’s soybean crop size estimates
India’s wheat procurement for current season significantly lagging
Ag trade update
NWS weather outlook
Pro Farmer First Thing Today items

CONGRESS

Senate passes, 79-18, $95.3 billion aid package for Ukraine, Israel and Taiwan

RUSSIA & UKRAINE

Ukraine’s grain exports for 2023-24 marketing year reach nearly 40 MMT

CHINA

China’s MARA acknowledges harmful impact of low food prices on farmers
China strongly criticized U.S. decision re: investigation into its shipbuilding industry

TRADE POLICY

Mexico expects USMCA GMO corn import dispute resolution by September

LIVESTOCK, NUTRITION & FOOD INDUSTRY

U.S. agencies address bird flu outbreak in dairy cows, assure safe milk supply
OMB completes review of controversial USDA cattle EID tag rule
USDA releases new rule aimed at improving nutritional standards in school meals

OTHER ITEMS OF NOTE

Two new regulations aimed at enhancing airline transparency and customer service

MARKET FOCUS

— Equities today: Asian and European stock indexes were mostly higher overnight. U.S. stock indexes are pointed to toward narrowly mixed openings. In Asia, Japan +2.4%. Hong Kong +2.2%. China +0.8%. India +0.2%. In Europe, at midday, London +0.5%. Paris +0.3%. Frankfurt +0.3%.

U.S. equities yesterday: All three major indices scored gains with tech shares leading the way higher. The Dow rose 263.71 points, 0.69%, at 38,503.69. The Nasdaq was up 245.33 points, 1.59%, at 15,696.64. The S&P 500 gained 59.95 points, 1.20%, at 5,070.55.

— Tesla’s stock has seen a significant rise of nearly 11% in early trading in New York, bouncing back from a steep 42% decline it experienced since the beginning of 2024. This positive movement in Tesla’s share price appears to be driven by the company’s announcement that it plans to expedite the production of more affordable car models. Initially scheduled for late 2025, Tesla now aims to start manufacturing these new models by early 2025, or possibly even by the end of 2024. This shift in production plans has provided a boost to investor sentiment, helping to mitigate concerns arising from Tesla’s recent reports of disappointing profits and revenue for the third quarter. Tesla reported first-quarter profit that was its lowest since 2021, as net income fell 55% from one year ago and revenue fell 9%. Of note: Tesla acknowledged that EV sales around the globe are struggling and that car makers are shifting toward hybrids. It is trying to raise awareness and expand vehicle-financing programs.

— Spotify soared 11.4% after reporting an earnings beat and issuing rosy second-quarter guidance.

— Boeing reports narrower loss and less cash burn than analysts anticipated, signaling some financial resilience despite recent challenges. The company is actively working to stabilize its supply chain following an incident in January where a 737 Max 9 aircraft lost a door plug midair. The Federal Aviation Administration (FAA) has since restricted Boeing from increasing production of its Max series planes and identified multiple noncompliance issues within the company’s supply chain. Despite these setbacks, Boeing’s shares rose approximately 4% shortly after the earnings announcement.

— Bunge earnings top expectations. Bunge released results for its first quarter that included profits that topped Wall Street expectations as the company cited a recovery in processing margins and strong export volumes for the results. Earnings were $411 million, up from $404 million in the year-ago quarter. Earnings in processing were largely due to Europe and Asia offsetting weaker results in North and South America. The company posted an adjusted profit of $3.04 per share for the three months ended March 31.

— Federal Trade Commission (FTC) issued a significant new rule that bans most employers from using noncompete contracts to restrict workers from joining rival firms. This decision, approved by the agency’s Democratic majority, represents the first major regulatory action by the FTC in over half a century aimed at implementing an economy-wide change in competitive practices. The rule specifically prohibits the enforcement of existing noncompete agreements except for senior executives and entirely bans the creation of new noncompete contracts for senior executives going forward.

The FTC’s move is based on its determination that noncompete clauses constitute an unfair method of competition under a law that has been in place for 110 years. According to the FTC, these clauses have increasingly hampered labor competition, contributing to lower wages and reduced benefits for nearly 20% of American workers. The new rule marks a significant shift from the FTC’s traditional role as a law enforcement body to a more proactive regulatory stance. However, the decision is expected to face legal challenges from business groups who oppose the change.

— Ag markets today: Grain futures mildly pulled back from recent corrective gains during the overnight session. As of 7:30 a.m. ET, corn futures were trading fractionally lower, soybeans were 1 to 2 cents lower, SRW wheat was 4 to 5 cents lower, HRW wheat was mostly 2 cents lower and HRS wheat is 1 to 2 cents lower. Front-month crude oil futures were modestly lower, and the U.S. dollar index was nearly 200 points higher this morning.

Key period ahead for beef market. Choice boxed beef prices firmed $1.47 while Select rose 89 cents on Tuesday. Movement improved to 147 loads amid the higher prices. Beef demand is entering its most critical timeframe of the year as packers and retailers gear up for the big “beef” holidays through the Fourth of July. Slaughter levels and wholesale beef prices will be a good gauge of beef demand.

Cash hog index rebounds, pork stumbles. The CME lean hog index is up 14 cents to $91.45 as of April 22, ending a modest 13-cent slide the two previous days. The pork cutout value dropped $4.84 on Tuesday to $96.86. While the pork decline was led by a $23.70 plunge in primal bellies, all cuts except butts dropped on the day. If the wholesale pork market shows further declines it would suggest a short-term top may be in place.

— Agriculture markets yesterday:

Corn: July corn futures rose 2 3/4 cents to $4.52 1/2 and near the session high. Prices hit a three-week high.
Soy complex: May soybeans rose 6 1/2 cents to $11.67 1/2, ending near the session high, while May soymeal rose 90 cents to $345.20. May soyoil closed 27 points higher at 45.31 cents, forging a high-range close.
Wheat: May SRW futures surged 14 3/4 cents higher to $5.85 and marked the highest close since Feb. 13. May HRW futures jumped 11 1/4 cents to $6.08 3/4, ending the session above the 100-day moving average for the first time in over 8 1/2 months. May spring wheat rose 10 3/4 cents to $6.66 1/2.
Cotton: July cotton fell 70 points to 81.72 cents, marking a near mid-range close.
Cattle: June live cattle futures fell 90 cents to $177.15, though settled nearer session highs. May feeder cattle futures rallied 87.5 cents to $246.05. Live cattle futures closed the gap from Monday’s higher open, though closed well off session lows.
Hogs: June lean hogs rose $2.45 at $107.95 and nearer the session high.

— Quotes of note:

China disbelief. “You go ask any economist if the Chinese are going to deliver 5.3% growth, and they will tell you, ‘No way,’” — Adm. John Aquilino, head of the U.S. Indo-Pacific Command, speaking at a briefing with reporters in Tokyo on Tuesday.
Eurozone economy. “The upturn is mostly driven by services for now. Meanwhile, the recovery in manufacturing is yet to really take place.” — Leo Barincou of Oxford Economics, on the Eurozone economy.

— March saw a significant surge in new home sales, marking the largest increase since December 2022, with sales up 8.8% from February to a seasonally adjusted annual rate of 693,000. This rise exceeded expectations and was accompanied by an increase in the median sales price of new homes, which climbed from $400,500 in February to $430,700 in March. The inventory of new homes available also declined by 5.7% during the same period.

Regionally, the Northeast led the increase in sales, which rose in all areas except the Midwest, where the growth was more modest at 5.3%. On an annual basis, sales of new homes have increased by 8.3% compared to the previous year.

In the corporate sector, home builder PulteGroup surpassed first-quarter earnings expectations with earnings of $3.10 per share and revenue of $3.95 billion. However, higher interest rates have impacted buyer traffic, particularly among first-time buyers at Pulte’s entry-level brand, Centex. Despite this, approximately 60% of Pulte’s buyers are reportedly less affected by rate fluctuations.

Additionally, a federal judge has preliminarily approved a settlement in a lawsuit concerning real estate commissions, potentially leading to major changes in how buyers and sellers engage with real estate agents starting this summer. The final decision on commission rates remains pending, with a hearing for final approval scheduled for late November.

Market perspectives:

— Outside markets: The U.S. dollar index was higher, with the euro and British pound weaker against the greenback. The yield on the 10-year U.S. Treasury note rose, trading around 4.64%, with a positive tone in global government bond yields. Crude oil futures were down, with U.S. crude trading at around $83.05 per barrel and Brent at around $87.20 per barrel. Gold and silver were under pressure, with gold around $2,330 per troy ounce and silver around $27.20 per troy ounce.

— Japan is nearing a point where it might intervene in the currency market to support the yen, which has reached near 34-year lows against the dollar. Mitsuhiro Furusawa, a former high-ranking currency official in Japan, expressed concerns over the yen’s rapid depreciation amid stable interest rates in the U.S. and Japan. He highlighted that the yen’s current vulnerability could prompt the Japanese authorities to act before it hits 160 yen to the dollar, especially considering recent U.S. and Japanese discussions that suggest the US would not oppose such a move.

Additionally, Furusawa anticipates that the Bank of Japan (BOJ) could raise interest rates as early as July, with a potential for another hike later in the year, in response to inflationary pressures and wage increases in Japan. This comes despite expectations that the BOJ will maintain current rates in its upcoming meeting. The broader context includes substantial interventions by Japan in the past when the yen weakened significantly, with about $60 billion spent in 2022 to support the currency.

Says market analyst Jim Wyckoff: “Asian central banks fear they cannot cut rates before the Federal Reserve because it would further undermine their currencies that are already feeling the pressure of an appreciating U.S. dollar. Asian central banks lowering rates before the Fed does risks pushing inflation in the region higher. Yet, by delaying rate cuts the Asian central banks risk curbing economic growth by keeping borrowing costs higher. Recently, the Japanese yen and Chinese yuan have depreciated significantly against the dollar, as well as the currencies of South Korea, Indonesia and Malaysia.”

— Indonesia’s central bank, Bank Indonesia, raised its benchmark interest rate by 0.25 percentage points to 6.25%, a record high, in an unexpected move aimed at supporting the depreciating rupiah. The currency has fallen nearly 5% against the dollar this year due to a stronger dollar and delayed U.S. rate cuts. This rate hike is part of a strategy to counter “worsening global risks” and keep inflation within the target range of 1.5 to 3.5%. Currently, inflation is at 3.05%, the highest since August.

The decision comes amid concerns that the U.S. Federal Reserve may delay cutting rates due to persistent high inflation and solid economic performance in the U.S., which could continue to strengthen the dollar. This environment has prompted other central banks in Asia to consider rate adjustments. The Indonesian central bank has also been active in the foreign exchange markets, supporting the rupiah, and has directed state-owned companies to limit dollar purchases.

These measures are seen as necessary responses to both external economic pressures and internal political changes, as Indonesia anticipates the potential economic impacts of incoming president Prabowo Subianto’s proposed populist policies, which include significant spending on social programs.

— Disparity between USDA and Brazil’s Conab regarding Brazil’s soybean crop size estimates is significant and growing, notes a Farmdoc item (link). As of the 2023-24 marketing year, USDA estimates Brazil’s soybean production at 155 million metric tons, which is 8.5 million metric tons higher than Conab’s estimate of 146.5 million metric tons. This discrepancy has persisted and even widened since the 2018-19 marketing year, with differing methodologies in estimating production areas and yields as likely contributors.

Both agencies use various data sources including farmer surveys, field scouting, and satellite data, but how they interpret these data and the relative weight assigned to each source may differ. Notably, yield estimates have shown consistent discrepancies over the past three years, with USDA consistently posting higher area and yield values. Additionally, USDA’s forecasts have remained comparatively higher, even as both agencies have revised their estimates downward over time.

Reconciliation of production estimates with data on use and ending stocks is also critical. Both USDA and Conab produce balance sheets but use different marketing years, which affects the reported use and stocks. The USDA’s production estimates allow for higher use figures, aligning with its higher production estimates, while Conab’s figures have only recently approached the near-zero lower bound for stocks.

Despite efforts to reconcile these figures, the discrepancies persist, influenced by external factors such as domestic crushing and export needs, which must align with production estimates on the commodity balance sheet. Private analysts, such as Agroconsult, sometimes provide estimates closer to USDA’s, suggesting that the situation is dynamic and subject to further adjustments based on ongoing data collection and changing agricultural conditions.

Bottom line: The item says this situation underscores the complexities of agricultural forecasting and the need for possibly revising estimation methodologies to achieve a more consistent and accurate global soybean supply and demand balance. While official estimates are critical, the inherent uncertainties in agriculture will continue to provoke debate among traders and analysts.

— India’s wheat procurement for the current season is significantly lagging compared to last year, with only 11.92 million metric tons (MMT) secured so far, compared to 15.92 MMT at the same point in 2023. This shortfall is attributed to rain in key regions like Punjab, which has caused high moisture content in the crops, prompting farmers to delay selling their wheat until it dries. Consequently, wheat procurement in Punjab is nearly 50% below what it was last year. Due to these challenges, there is growing concern that India may not reach its procurement target of 30 to 32 MMT, potentially leading to wheat imports for the first time since 2017. Additionally, the situation is exacerbated by two consecutive years of reduced wheat output, which has driven up domestic prices. In response, the government has released wheat from national reserves to stabilize prices. Farmers, anticipating further price increases, are holding back their wheat, mirroring trends from the past two seasons.

— Ag trade update: Jordan tendered to buy up to 120,000 MT of optional origin milling wheat.

— NWS weather outlook: Unsettled weather and severe thunderstorm chances gradually expand across much of the central United States over the next several days... ...Active fire weather pattern to become situated over the southern High Plains... ...Above average temperatures shift from the Great Basin to the Plains, while the West and East remain cool through the end of the week.

Items in Pro Farmer’s First Thing Today include:

• Grain rally pauses overnight
• Blinken arrives in China for meetings
• PBOC steps up rhetoric over long-end government bond rally
• Chinese developer extends bonds to avoid first local default
• Cold Storage Report out this afternoon

CONGRESS

— Senate passed, 79-18, a $95.3 billion aid package for Ukraine, Israel and Taiwan, sending it to President Joe Biden’s desk. Just 15 of the 49-member Senate Republican Conference voted against the bill. Additional aid for Ukraine could be made available “within days” said Pentagon Press Secretary Maj. Gen. Pat Ryder, who declined to comment on what could be included in the latest arms package. Reuters said the package would be worth about $1 billion and include Stinger air defense munitions, additional ammunition for high-mobility artillery rocket systems (HIMARS), 155-millimeter artillery ammunition and other weapons.

The $95.3 billion supplemental includes:

$60.8 billion in Ukraine-related funds, including: $13.4 billion to replenish US stockpiles, $13.9 billion for the procurement of defense technology, $13.7 billion to buy additional defense materiel for Ukraine, $7.3 billion for US operations in Europe and $26 billion on oversight of Ukraine aid.
$26.4 billion in assistance for Israel and Gaza, including: $4 billion for Iron Dome and David’s Sling, $1.2 billion for Iron Beam, $3.5 billion in Foreign Military Financing for Israel, $4.4 billion to replenish US stocks, and $9 billion in humanitarian aid.
$8.1 billion for various Indo-Pacific security needs, including: $3.3 billion for the submarine industrial base, $2 billion for support to Taiwan and $1.9 billion to replenish stocks given to Taiwan. Funds for the submarine industrial base would add $1.9 billion for advanced procurement of the Columbia-class submarine and $200 million in advance procurement for the Virginia-class submarine.
Several policy provisions that were not originally in the Senate’s supplemental, including language that would ban TikTok in the United States unless its Chinese owners divest from the social media app, the transfer of $5 billion in repossessed Russian assets to Ukraine, and increased sanctions on Russia and Iran. President Biden plans to sign it today — beginning a 270-day countdown for a sale or a U.S. prohibition of the popular video-sharing platform. TikTok and Beijing-based ByteDance have vowed to do all they can to stop the measure, arguing it infringes the free-speech rights of the app’s 170 million monthly U.S. users.

RUSSIA/UKRAINE

— Ukraine’s grain exports for the 2023-24 marketing year have reached nearly 40 million metric tons (MMT), slightly below the 40.7 MMT exported by this time last year, according to data from the Agriculture Ministry reported by APK-Inform. The exports consist of 22 MMT of corn, 15.2 MMT of wheat, and 2.2 MMT of barley.

CHINA UPDATE

— China’s MARA acknowledges harmful impact of low food prices on farmers. China’s Ministry of Agriculture and Rural Affairs (MARA) has acknowledged the negative impact of persistently low food prices on farmers, signaling a shift in policy focus. At a press conference addressing the agricultural economy, MARA admitted that months of declining food prices are beginning to harm farmers more than benefit consumers. Lei Lugong, the director-general of the Market and Informatization Department, highlighted that the food price slump has adversely affected farmers’ incomes and, in some cases, even impacted production.

China’s consumer price index (CPI) turned negative in October and continued to fall for four consecutive months, with flat year-on-year prices in Q1 2024. The decline in food prices, particularly for staples like pork, has been a significant driver of this deflationary trend.

Lei attributed the free fall in prices to various factors, including efforts to bolster domestic production for food security, sluggish recovery in consumption leading to lower demand for catering services, and cheap global prices for agricultural commodities.

China’s central government has previously focused on increasing farm output and reducing food waste to enhance food security. However, with officials now recognizing the risks posed by oversupply to the farm economy, observers say there will be a reassessment of policies in this regard.

— China has strongly criticized the U.S. government’s decision to initiate a formal investigation into its shipbuilding industry. The U.S. Trade Representative, led by Katherine Tai, announced the probe following demands from major U.S. union groups, amid broader U.S. measures including proposals for higher tariffs on Chinese steel and aluminum to support the American steel sector. Beijing has denounced the investigation as baseless and contrary to economic rationale, accusing the U.S. of using the probe for domestic political gains and making “false accusations” about China’s trade practices threatening U.S. national security and corporate interests.

The Chinese government insists that the U.S. is misinterpreting normal trade activities and has urged Washington to abandon these “wrong practices” and adhere to a rules-based multilateral trading system. This conflict occurs amid broader tensions and ongoing disputes between the two nations over trade policies and economic practices.

TRADE POLICY

— Mexico expects USMCA GMO corn import dispute resolution by September. The resolution of a dispute concerning Mexico’s ban on GMO corn imports, brought under the U.S.-Mexico-Canada Agreement (USMCA), is expected by September, according to Mexican Economy Minister Raquel Buenrostro. This dispute arose from a Mexican decree banning the importation of GMO corn for food use, which the U.S. argues is not based on scientific evidence. U.S. officials are optimistic about prevailing in the dispute, with a decision anticipated later in the year. Additionally, Minister Buenrostro highlighted that in the upcoming 2026 review of the USMCA, Mexico intends to advocate for reciprocal terms regarding the agreement’s rapid-response mechanism. Currently, while the U.S. has initiated multiple probes into labor rights violations in Mexico, Mexico lacks a similar capacity to address concerns about the treatment of its workers in the U.S.

LIVESTOCK, NUTRITION & FOOD INDUSTRY

— U.S. agencies address bird flu outbreak in dairy cows, assure safe milk supply. The U.S. is actively monitoring and addressing an outbreak of Highly Pathogenic Avian Influenza (HPAI) that has recently been detected in dairy cows across multiple states. HPAI, typically known as bird flu and often deadly in poultry, has caused symptoms in cattle such as decreased lactation and low appetite. This scenario is especially noteworthy because, while HPAI viruses like strains H5 and H7 don’t usually infect humans, they are highly contagious and lethal in birds and now are impacting cattle. Link to FDA release.

USDA, FDA, and CDC, in collaboration with state partners, have reassured the public that the commercial milk supply remains safe. This assurance is based on two main factors: the pasteurization process, which effectively kills harmful pathogens in milk, and the proactive measures taken to divert or destroy milk from infected cows. Despite finding the virus in raw milk via quantitative polymerase chain reaction (qPCR) tests, pasteurization has been emphasized as likely to inactivate the virus, though it does not remove the presence of viral particles entirely.

Extensive ongoing research, including laboratory tests and field studies, aims to further understand how the HPAI virus behaves in milk. These studies are crucial as they test milk under realistic conditions to ensure pasteurization processes remain effective against this novel presence of HPAI in dairy cattle. The FDA is conducting additional tests such as egg inoculation studies to confirm the viability of any detected virus, ensuring that it does not pose a risk to consumers.

Moreover, the FDA continues to advise against the consumption of raw milk and has recommended strict precautions regarding the disposal of milk from affected cows to prevent further spread of the virus.

— OMB completes review of controversial USDA cattle EID tag rule. The Office of Management and Budget (OMB) has completed its review of a proposed USDA rule that would require visually and electronically readable identification (EID) tags for cattle and bison. This rule aims to enhance animal identification and traceability during disease outbreaks. However, the proposal has sparked controversy, particularly regarding the financial implications for the cattle industry.

During the review process, the Livestock Marketing Association (LMA) and Representative Harriet Hageman (R-Wyo.) both raised concerns about the financial burden the rule would impose on the industry. The LMA highlighted that transitioning to the EID system could be nearly nine times more costly than the current low-cost options. They noted that while USDA currently provides certain identification devices at no cost, the proposed rule could shift significant expenses onto producers.

Additionally, concerns were voiced about the rule’s potential to accommodate future technological changes in eartag technology, which could introduce further costs. Despite these issues, the FY 2024 appropriations for USDA include $15 million intended to support the EID effort, suggesting some financial assistance for the industry.

Of note: Given the substantial discussions and the funds allocated in USDA’s budget, it appears unlikely that the rule will be withdrawn. The focus now shifts to whether USDA will modify the rule to address these concerns or if further legislative actions will be taken to ensure the costs of the EID system and infrastructure are not fully passed onto producers.

— USDA releases new rule aimed at improving nutritional standards in school meals. The rule (link) introduces limits on added sugars, particularly in flavored milk, and call for a reduction in sodium content by 2027, though these reductions will not be as steep as initially proposed. Whole grain standards remain unchanged. The rule will be phased in over several years, allowing schools time to adjust. USDA Secretary Tom Vilsack highlighted the importance of school meals for student health and family assurance. USDA’s approach considers public feedback and includes gradual “Buy America” provisions, tightening the percentage of food schools can purchase from foreign sources over time. Link/pdf to summary of rule.

USDA asserts that the new regulations will have minimal cost implications and have removed penalties for schools striving to meet standards. School nutrition professionals and food suppliers have already begun preparations to meet the updated regulations, focusing on offering palatable meals with better nutritional profiles.

OTHER ITEMS OF NOTE

— Biden administration introduced two new regulations aimed at enhancing airline transparency and customer service. Under these new rules, airlines are required to automatically issue full refunds to passengers for canceled or significantly altered flights, significant baggage return delays, and undelivered paid services such as inflight Wi-Fi. Additionally, the regulations are part of a broader initiative to eliminate “junk fees,” ensuring that competition among airlines focuses on service rather than the imposition of unexpected charges. Transportation Secretary Pete Buttigieg emphasized that the goal is to encourage airlines to compete for passengers’ business based on service quality rather than through hidden fees.

KEY LINKS

Policy Updates