OMB Completes Review of EPA Plan for RVP Waiver to Allow Year-Round E15 Sales

Food policy analyst offers perspective on ending of some SNAP benefits on March 1

Russia launched a new wave of Iranian-made drones against Ukrainian cities, breaking a weekslong lull in such attacks, as its forces continued to tighten their grip around the eastern city of Bakhmut.

China will welcome Alexander Lukashenko, the leader of Russian ally Belarus for a state visit this week as the U.S. again warned Beijing against supplying Moscow with weapons for its war in Ukraine.

The U.S. Energy Department concluded with new intelligence that an accidental lab leak in China was likely responsible for the coronavirus, though American spy agencies remained divided.

The White House says U.S. natural gas shipments to Europe more than doubled last year. The result is that booming trans-Atlantic shipments are attracting oil speculators and Gulf Coast ports are expanding infrastructure to service demand. “America is back in the most predominant position it has been in world energy since the 1950s,” says Daniel Yergin, an energy historian and vice chairman of S&P Global.

Overall debt for Americans in their 30s is sharply higher than it was before the pandemic.

The debt buildup could worsen a generational wealth gap that was already on the rise for millennials, reports the WSJ. More in Market section.

We should finally get an EPA announcement re: year-round E15 following OMB’s completion of its review of EPA’s proposed rule.

A food policy analyst adds some perspective on the SNAP benefits ending March 1. See Food Policy section.

Nigerian election officials announced limited early results, but the overall outcome of the country’s presidential vote may not emerge for days.

On the U.S. political front, Sen. Joe Manchin seems to be saying “call me by my name, not my party” while Ron DeSantis drew former Trump donors and Republican officials to a Florida retreat as he prepares to run for president. Iowa Gov. Kim Reynolds, Arkansas Sen. Tom Cotton and Utah Sen. Mike Lee were in attendance, and while they didn’t offer endorsements, their presence underscored the governor’s draw among elected Republicans. Finally, Democratic Rep. Elissa Slotkin announced her bid for a U.S. Senate in Michigan after Sen. Debbie Stabenow (D) stunned Michigan Democrats with her decision not to seek re-election.

A barrage of snow, rain and harsh winds is forecast from the West Coast to the Great Lakes today, following a similar string of severe weather last week. Approximately 284,000 homes and businesses were without power across the U.S. as of this morning, about half of which were in Michigan, where the region is bracing for another round of ice and snow, forecasts show. More than 100 other storm reports were recorded in parts of the Central U.S. as hurricane-force winds and thunderstorms tore through various states overnight.

Equities today: Global stock markets were mixed overnight, with Asian shares mostly lower and European shares mostly higher. U.S. stock indexes are pointed toward firmer openings. In Asia, Japan -0.1%. Hong Kong -0.3%. China -0.3%. India -0.3%. In Europe, at midday, London +0.8%. Paris +1.6%. Frankfurt +1.5%.

U.S. equities Friday: The Dow shed 336.99 points, 1%, at 32,816.92. S&P 500 fell 42.28 points, 1.1%, to 3,970.04. The Nasdaq dropped 195.46 points, 1.7%, to 11,394.94.

All major indexes notched their largest weekly losses of 2023. The S&P 500 fell by 2.7%. The Dow sank 3%, and the Nasdaq fell 3.3%.

Short-term Treasury yields, which closely track investors’ interest-rate expectations, shot up Friday to levels not seen in more than a decade after the release of the strong inflation data. The yield on the two-year Treasury note rose to 4.803% on Friday, the highest since 2007. Meanwhile, the benchmark 10-year Treasury yield advanced to 3.948% on Friday from 3.879% on Thursday. Bond yields rise as prices fall.

Agriculture markets Friday:

• Corn: March futures fell 10 1/4 cents to $6.50, on session lows. Corn fell 27 3/4 cents on the week to the lowest level since the first week in January.
• Soy complex: March soybeans fell 5 1/4 cents to $15.29, gaining 1 3/4 cents on the week. May soybeans fell 8 cents to $15.19 1/4. March meal rose $4.00 to $497.10, while May meal rose $2.00 to $480.0. March soyoil fell 93 points to 61.11 cents, while May soyoil fell 96 points to 61.22 cents.
• Wheat: March SRW closed 30 cents lower at $7.08 1/4, its lowest level in 15 months, down 60 cents on the week. March HRW closed 20 cents lower at $8.41 3/4. March spring wheat closed down 22 1/2 cents to $8.85 1/2, the lowest level since August 2022.
• Cotton: May cotton rose 274 points to 84.90 cents, a 340-point gain on the week.
• Cattle: Expiring February live cattle futures ended the week at $165.20, up 5 cents. Still, that marks a weekly advance of $1.625. Most active April cattle also rose 5 cents to $165.375, ending the week 72.5 cents above last Friday’s close. March feeder futures skidded 15 cents to $189.075, thereby marking a weekly rise of $2.55.
• Hogs: Nearby April hog futures edged 17.5 cents lower to $86.025 at Friday’s settlement. The closing quote represented a weekly rise of 75 cents.
  

Ag markets today: Corn, soybeans and wheat traded on both sides of unchanged overnight in relatively quiet price action. As of 7:30 a.m. ET, corn and soybean futures were narrowly mixed, SRW wheat futures were 4 to 5 cents lower, HRW wheat was 7 to 10 cents lower and HRS wheat was steady to 2 cents higher. Front-month crude oil futures were modestly weaker, while the U.S. dollar index was around 100 points lower this morning.

Technical viewpoints from Jim Wyckoff:

On tap today:

• U.S. durable goods orders for January are expected to fall 3.6% from the prior month. (8:30 a.m. ET)
• U.S. pending home sales for January are expected to rise 0.9% from the prior month. (10 a.m. ET)
• Federal Reserve governor Philip Jefferson on inflation and the dual mandate at 10:30 a.m. ET.
• Dallas Fed’s manufacturing survey for February is out at 10:30 a.m. ET.
• USDA Grain Export Inspections report, 11 a.m. ET.

Inflation may linger, be more painful than many think. A paper (link) presented Friday at the Booth School of Business Monetary Policy Forum in New York argued that disinflation will likely be slower and more painful than markets anticipate. “Significant disinflations induced by monetary policy tightening are associated with recessions,” said the paper. “An ‘immaculate disinflation’ would be unprecedented.” (Immaculate, in this instance, refers to the possibility of inflation falling quickly to the Fed’s 2% goal without any serious economic damage). Several Fed presidents, governors and top economists were on hand at the Booth School forum to discuss the paper and monetary policy on Friday. The majority of those speaking expressed deep concern about the stubbornness of inflation and general market reaction.

Peter Hooper, vice chair of research at Deutsche Bank, an author of the report, said that while recent data has signaled that the U.S. economy remains strong, “by the time we get to the middle of this year we expect to see some bad news coming and the sooner the markets get that message the more helpful it will be to the Fed,” he said.

Cleveland Fed President Loretta Mester said that while price growth has moderated from its recent high, the overall pace of inflation remains too high and could be more persistent than her colleagues currently anticipate.

“I anticipate further rate increases to reach a sufficiently restrictive level, then holding there for some, perhaps extended, time,” echoed Boston Fed President Susan Collins at the conference. Collins referred to inflation as “recalcitrant,” a loaded million-dollar word that means uncooperative, or defiant to authority.

Fed Governor Philip Jefferson said that inflation continues to baffle economists. “The inflationary forces impinging on the U.S. economy at present represent a complex mixture of temporary and more long-lasting elements that defy simple, parsimonious (frugal) explanation,” he said.

Perhaps the best advice came from Former Bank of England Governor Lord Mervyn King Given the complexity of the current monetary situation, he said, “I wouldn’t want to give advice to any central banks about what we should do.”

Says the Sevens Report: “Over the past several weeks we have pushed back against the budding optimism among investors that the Fed was close to done with rate hikes and the battle against inflation was close to being won. The basis for that pushback was simple. Since the start of this hiking cycle a year ago, the market has consistently been too eager in pricing in an end to Fed rate hikes, taking any hint of a drop in inflation or slowing growth and extrapolating it out to be some catalyst that will cause the Fed to back off. That expectation has been wrong every single time (including most recently) and it won’t happen until the Fed sees more progress on inflation.”

White House will release its fiscal year 2024 budget on March 9. The budget’s release will accelerate differences over the debt limit. President Biden and House Speaker Kevin McCarthy (R-Calif.) have held one meeting on the topic, but there’s been no contact between the two men since then.

Americans in their 30s are piling on debt. U.S. millennials in their 30s have racked up debt at a historic clip since the pandemic. Their total balances hit more than $3.8 trillion in the fourth quarter, according to the Federal Reserve Bank of New York, a 27% jump from late 2019. That is the steepest increase of any age group. It is also their fastest pace of debt accumulation over a three-year period since the 2008 financial crisis. The debt buildup could worsen a generational wealth gap that was already on the rise for millennials, the Wall Street Journal reports (link).

Ueda Kazuo, the incoming governor of the Bank of Japan, said he had ideas for tweaking the bank’s ultra-loose policies but believed a tighter approach was not yet needed. At the second parliamentary hearing in his confirmation process, Ueda argued that Japan’s long-term inflation rate would have to rise first for policy to change.

Market perspectives:

• Outside markets: The U.S. dollar index was weaker. Nymex crude oil futures prices are slightly lower and trading around $76.75 a barrel. The yield on the benchmark U.S. 10-year Treasury note is presently fetching 3.955%.

• Argentina’s soybean output is forecast to slide to the lowest level in 14 years amid fears of a prolonged drought, according to the Buenos Aires Grain Exchange. The dire situation for the world’s top supplier of soybean meal and soy oil may worsen as dry conditions persist. Link for more via Bloomberg.

• Container ships — the lifeblood of trade — are traveling at the slowest speeds since Bloomberg began tracking the data in October 2020. That reflects uncertainty over the pace of China’s growth this year while the nation recovers from Covid-19 and influenza outbreaks.

• In Europe, diesel is still flowing this month even after the start of sanctions on purchases from its former top supplier, mostly due to shipments from the Middle East and Asia. Total imports are set to slightly beat January’s level.

• Weekend demand news: South Korea tendered to buy 85,000 MT of milling wheat to be sourced from the U.S. or Canada.

• NWS weather outlook: Severe weather and excessive rainfall concerns in the Midwest today... ...Heavy Snow across western mountains and Northeast... ...Elevated to Critical fire risks in the Central Southern Plains... ...Below average temperatures in the West and above average temperatures in the East.

Items in Pro Farmer’s First Thing Today include:

• Two-sided grain trade overnight
• Argentina to remain mostly dry, Brazil stays wet
• Brazil soybean harvest, safrinha corn planting remain delayed
• HRW areas receive rains
• China again sells all wheat put up for auction
• Mildly bullish COF data
• Cold Storage data supportive for beef

— Ukrainian President Volodymyr Zelenskyy said he was “certain” his country will win the war against Russia as Ukraine marked the first anniversary of the Russian invasion on Friday. Meanwhile, Russia pounded the front line in Ukraine’s south and east regions with artillery strikes. And, China announced a state visit this week from the leader of Belarus, a top ally of the Kremlin.

— Three NATO nations float defense pact: WSJ. With Russia’s invasion into its second year, NATO’s largest European members — the U.K., France and Germany — are floating a defense pact with Ukraine as a way to prod Kyiv toward peace talks with Moscow. Link to WSJ article.

— China refuses to condemn Russian invasion of Ukraine. G20 finance ministers were at an impasse in India after China declined to sign onto a statement condemning Russia’s all-out invasion of Ukraine in the “strongest terms.” Russia, for its part, blamed western countries for destabilizing the G-20. According to a footnote, all members but Russia and China agreed.

India, which hosted, issued a “chair’s summary” that concluded there were “different assessments” of Russia’s war in Ukraine. Senior Indian official Ajay Seth said Russia and China insisted the summit should only be about financial matters, while other countries felt it was relevant as Russia’s war in Ukraine impacted the global economy.

— Ukraine has received aid from an unlikely donor: Saudi Arabia. The Russia oil ally signed a $400 million aid package for Ukraine after a diplomatic visit involving Saudi Foreign Minister Prince Faisal bin Farhan Al Saud, Ukrainian Foreign Minister Dmytro Kuleba and Andriy Yermak, head of the office of the president of Ukraine. The agreement calls for $100 million in joint humanitarian efforts between the countries, according to Saudi’s state press agency.

— Ukraine grain exports drop 27%. So far in 2022-23, Ukraine exported 31.8 MMT of grain, down 27% from the same period last year, according to the country’s ag ministry. The total included 18 MMT of corn, 11.2 MMT of wheat and 2 MMT of barley.

— President Biden has used executive orders more than any recent president. Take a look:

— CIA head: China has doubts about its ability to invade Taiwan. Russia’s struggles to seize and keep territory in Ukraine over the past year has likely fueled doubts by Chinese leader Xi Jinping that China’s military could successfully invade Taiwan later this decade, Central Intelligence Agency Director William Burns said. “I think our judgment at least is that (Chinese) President Xi and his military leadership have doubts today about whether they could accomplish that invasion,” Burns said Sunday on CBS. “As they’ve looked at Putin’s experience in Ukraine, that’s probably reinforced some of those doubts.”

Burns said that the U.S. continued to take the threat of a Chinese invasion of Taiwan seriously, noting the risks of a conflict would likely grow further into the decade and beyond. U.S. intelligence and defense officials believe Xi wants to be ready to do so by 2027, if not sooner, but Burns said that goal isn’t set in stone. “President Xi has instructed the PLA, the Chinese military leadership, to be ready by 2027 to invade Taiwan, but that doesn’t mean that he’s decided to invade in 2027 or any other year as well,” he said.

— Providing military support for Moscow — which Washington accuses it of considering — would worsen China ties with the U.S. still further. President Joe Biden said he did not believe China would do so, but experts told the South China Morning Post that Beijing could do little to stop Moscow acquiring Chinese-made weapons via third parties.

The U.S. again warned China that it would face “real costs” if it provided arms to support Russia’s invasion of Ukraine. Jake Sullivan, the White House’s national-security adviser, told ABC News that though China had not yet moved forward in sending weapons, it could not be ruled out. Meanwhile, Michael McCaul, a senior Republican legislator, said he had seen reports that China was “contemplating sending 100 drones into Russia.”

— U.S. regains its energy clout. A year of war in Ukraine has highlighted the return of oil as a source of U.S. financial influence and geopolitical power. As the West has shunned most Russian energy, unleashing a pressure campaign against the Kremlin’s petroleum revenues, record U.S. crude exports have helped fill the gap in Europe with the oil needed to produce gasoline, diesel and jet fuel, the Wall Street Journal reports (link).

— Europe tempers its criticism of U.S. clean-energy subsidies. The Wall Street Journal reports (link) that after months of denouncing the measures, European officials now believe the subsidies aren’t as anticompetitive as they feared. Officials had worried that made-in-America provisions attached to some U.S. clean-energy subsidies under the Inflation Reduction Act would steal business from Europe. But European Union Executive Vice President Margrethe Vestager, a specialist in competition policy, says companies weigh numerous factors when considering where to invest in projects like wind farms and electric-vehicle battery factories. Vestager says there are plenty of reasons why companies might stay in Europe and that a subsidy on its own isn’t enough to draw business to the U.S. Europe isn’t just hoping for the best. The EU’s executive body this month set out proposals that include loosening rules for member government subsidies and speeding up permitting.

— OMB finalizes review of EPA plan on states’ requests for RVP waiver to allow year-round E15 sales. The Office of Management and Budget (OMB) Friday (Feb. 24) completed its review of the requests by eight states to remove the volatility waiver provided under law for ethanol blends, the Reid Vapor Pressure (RVP) waiver of 1 pound per square inch (PSI). Removing the waiver would allow sales of E15 fuel year-round in the states.

Background. Illinois, Iowa, Kansas, Minnesota, Nebraska, North Dakota, South Dakota, and Wisconsin made their requests early in 2022 and EPA sent forward its proposed rule Dec. 5, 2022.

Now what? EPA can now release the proposed rule. The timing of the comment period associated with the proposed rule may dictate whether or not the waivers, if granted, can be in place for the 2023 summer driving season which starts June 1 and runs through Sept. 15. Without the waiver, states will be unable to sell E15 fuel in the summer months.

— Farm and food policy analyst comments on ending of SNAP emergency benefits. Says the analyst, “I appreciate the food stamp proponents are trying on for size this narrative that catastrophic cuts are upon us, but your readers are missing the full picture. Not only were the benefits always intended to be temporary but let’s look at actual benefit value pre-pandemic and post pandemic. The update to the TFP (Thrifty Food Plan) directed by the 2018 Farm Bill and effectuated in October 2021 increased maximum SNAP benefits by 21%, raising average benefits per person per day by about $1.20 to about $5.45, per the Center on Budget and Policy Priorities. Furthermore, every year SNAP benefits are adjusted for inflation, and beneficiaries will get a 12.5% cost-of-living adjustment (COLA) for fiscal year 2023. The COLA kicked in on Oct. 1, 2022, and will run through Sept. 30, 2023.”

— Summary:

• Global Covid-19 cases at 675,053,621 with 6,870,330 deaths.
• U.S. case count is at 103,374,864 with 1,119,560 deaths.
• Johns Hopkins University Coronavirus Resource Center says there have been 671,582,379 doses administered, 269,459,752 have received at least one vaccine, or 81.78% of the U.S. population.

— The U.S. Dept. of Energy has assessed that the Covid-19 pandemic most likely came from a laboratory leak in China. The new assessment further adds to the divide in the US government over whether the pandemic began in China in 2019 as the result of a lab leak or whether it emerged naturally. Various intelligence agencies have been split on the matter. “Right now, there is not a definitive answer that has emerged from the intelligence community on this question,” national security adviser Jake Sullivan told CNN on Sunday, noting that President Joe Biden has put resources into getting to the bottom of the origin question.

— Nigerian voters headed to the polls over the weekend to decide one of the most consequential elections since democracy took hold there 23 years ago. Saturday’s vote spilled over into Sunday, and technical issues were an impediment. A final tally to reveal who will replace Muhammadu Buhari is now expected at some point this week.

— President Joe Biden will meet separately with House and Senate Democrats this week. The president will speak to House Democrats on Wednesday during their retreat in Baltimore. On Thursday, Biden will attend a special Senate Democratic Caucus lunch. A White House official says, “The president will discuss how to keep bringing jobs back to America at an historic rate, keep lowering costs like prescription drugs and energy, and further cutting the deficit by having rich special interests pay their fair share. He will reiterate his promise to release his budget to the American public, and his call on Republicans to do the same. He will also highlight that congressional Republicans are now threatening to trigger a catastrophic default if they are unable to take health coverage away from millions of families.”

— Sometimes centrist Sen. Joe Manchin (D-W.Va.) declined to describe himself as a Democrat in a TV interview and didn’t say if he is running for re-election. The West Virginia senator’s position highlights the challenges facing the Democratic Party’s thin majority in the Senate ahead of what is widely expected to be a tough mission to retain the chamber in 2024. “I identify as an American,” Manchin said, when asked repeatedly during a Fox News appearance if he still considered himself a Democrat. Link to more via the WSJ.

— Democratic Rep. Elissa Slotkin announces bid for U.S. Senate in Michigan, a battleground state in 2024 for president and Congress. Slotkin’s run was widely anticipated after Sen. Debbie Stabenow (D) stunned Michigan Democrats with her decision not to seek re-election. Slotkin, a 46-year-old former CIA analyst, is seen by many top Democrats as a formidable contender.

— House Republicans plan to impose stricter limits on earmarks in government funding bills, a move that will likely complicate negotiations with senators on an eventual spending package. Conservatives have criticized certain earmarks as frivolous glamour projects. They’ve said they’ll block similar proposals from this year’s spending bills, even as the vast majority of House Republicans chose to allow the earmarking process to continue. The anticipated changes could widen discrepancies between House and Senate rules, an obstacle for the earmarking system — revived after a decade-long ban on the practice — in its first year operating in a divided Congress. Appropriators will release guidance in the next few weeks, which will detail which funding programs won’t be eligible for earmarks, a House Republican aide said.

— The new House select committee on China will hold its first primetime public hearing on Tuesday evening, with some experts fearing that the rare bipartisan agreement on competition issues could escalate tensions with Beijing and increase the risk of conflict.

— Turkey’s huge hurdles. The nearly 1.7 million people displaced by devastating earthquakes in Turkey face the almost impossible task of rebuilding their lives while many remain homeless and disease looms. Link for more via the New York Times.

— NASA’s Crew 6 mission, which would take four crewmembers to the International Space Station on a SpaceX rocket, was delayed early Monday — just two and a half minutes before launch — due to a technical glitch concerning the flow of ignition fluid. It was set to carry two U.S. astronauts, a Russian cosmonaut and a United Arab Emirates crewmate on a six-month trip. SpaceX said later Monday morning it would target “no earlier than Thursday” morning, just after midnight, for another launch attempt.

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 | Russia/Ukraine war timeline | Election predictions: Split-ticket | Congress to-do list | SCOTUS on WOTUS | SCOTUS on Prop 12 | New farm bill primer | China outlook | Omnibus spending package | Gov’t payments to farmers by program | Farmer working capital | USDA ag outlook forum |