News/Markets/Policy Updates: Sept. 6, 2024
— Donald Trump made several statements Thursday regarding Robert F. Kennedy Jr. and food policy. Trump said that if elected, his administration “will invest in new and modern agricultural techniques” to ensure Americans have “safe, healthy, high quality foods.” He specifically mentioned that this aligns with Kennedy’s interests, stating “That’s where Bobby is so interested — foods.” Trump referenced Kennedy’s concerns about food quality, saying “He says we’re putting a lot of bad foods in our body.” Trump also claimed that other countries “that do far less ... are actually much healthier than we are,” though he did not clarify what he meant by “far less.” In his speech, Trump incorporated the phrase “Make America healthy again” (dubbed “MAHA” internally by his campaign), which echoes language used by Kennedy. Trump stated, “We’re going to get toxic chemicals out of our environment, and we’re going to get them out of our food supply. We’re going to get them out of our bodies.” Trump’s campaign appears to be emphasizing health and food policy issues to appeal to Kennedy supporters, focusing on topics like the cost of chronic illnesses, food quality, and rising rates of conditions like obesity and diabetes. However, Trump’s past record on environmental and food safety regulations has been criticized as inconsistent with these new statements. Of note: Kennedy has a commentary in today’s Wall Street Journal (link) argues that Trump is uniquely positioned to address America’s chronic disease epidemic, which has worsened due to what he said are ineffective healthcare systems and institutional corruption. He emphasizes the need for reforms, including changes to pharmaceutical advertising, conflict-of-interest regulations, and nutrition policies. Kennedy outlines various policy solutions, such as revisiting pesticide standards, increasing preventive healthcare funding, and promoting healthier lifestyle choices. Kennedy writes: “Prohibit members of the U.S. Department of Agriculture Dietary Guidelines Advisory Committee from making money from food or drug companies. Ninety-five percent of the members of a USDA panel charged with most recently updating nutrition guidelines had conflicts of interest. This is from the same government that brought you a National Institutes of Health research finding that Lucky Charms are healthier than ground beef.” He also urges a reform of crop subsidies. “They make corn, soybeans and wheat artificially cheap, so those crops end up in many processed forms. Soybean oil in the 1990s became a major source of American calories, and high-fructose corn syrup is everywhere. Our subsidy program is so backward that less than 2% of farm subsidies go to fruits and vegetables.” Kennedy contrasts Trump’s interest in health reform with Kamala Harris’ perceived lack of attention to the issue, calling for a united effort to prioritize public health. — Trump pledges 15% corporate tax rate, taps Elon Musk for federal audit task force. Donald Trump vowed to cut the corporate tax rate to 15% for U.S.-made products, a significant reduction from the current 21%, as part of his 2024 campaign agenda. Speaking at the Economic Club of New York, Trump pitched a pro-business platform, pledging lower taxes, regulations, and energy costs. He also embraced a proposal from billionaire Elon Musk to lead a task force auditing federal expenditures. The plan contrasts sharply with Democratic rival Kamala Harris’ approach, who advocates for a higher 28% corporate tax rate. — Bacon and inflation. Paul Krugman writes at the New York Times (link) that Trump’s “obsession with the price of bacon, which has long been his favorite gauge of inflation,” offers a “window into his judgment” on the economy. Krugman argues that Trump incorrectly claims that “bacon costs four or five times more than it did a few years ago,” even though it is “easily refuted by everyday experience.” Krugman claims this shows Trump is “trying to sound like someone in touch with the lives of regular Americans, while inadvertently revealing that he hasn’t actually visited a supermarket lately, or maybe ever.” — Trump pledges to rescind unspent funds from Biden/Harris climate law. Trump pledged to rescind unspent funding from Democrats’ signature climate law — the Inflation Reduction Act — as “part of the economic agenda he pitched in remarks to corporate leaders. However, it remains to be seen how Trump might make good on his pledge, as a full repeal of the law would require approval by Congress, where it’s supported by Democrats and some Republicans. Trump previously hinted he would take aim the IRA in remarks railing against what he termed as the “Green New Scam.” Of note: If Trump gets re-elected and follows through on this, it would face hurdles in Congress, as even some Republicans would oppose any such move. But also, see the next item for some other caveats. — Lighthizer hints Trump may retain parts of Inflation Reduction Act and opt for targeted tariffs. Former U.S. Trade Representative Robert Lighthizer indicated that a potential Trump administration may keep parts of the Inflation Reduction Act that support U.S. manufacturing, despite GOP opposition. He also suggested a “smart tariff” strategy, targeting specific products rather than broad tariffs. Lighthizer spoke to reporters before a speech Trump gave at the Economic Club of New York. During these comments, Politico and others reported. Lighthizer discussed potential approaches to implementing tariffs in a second Trump term, saying: “There is certainly a considerable amount of existing law that allows for tariffs to be imposed under various circumstances. We experienced this during our last administration, and I suspect a similar strategy will emerge this time as well.” Lighthizer criticized portions of the law that impose mandates for clean energy and electric vehicles. “That’s not to say there aren’t certain parts of it that we want to at least consider,” he observed. As for Trump’s tariff plans, Lighthizer suggested there could be more flexibility on the tariffs, a “smart tariff” approach which would involve higher levels on certain products as opposed to broader tariffs. “There are things you want to tariff more than others,” he noted. Trump himself has hinted at a “smart” tariff approach which suggests the policy plans on that front continue to evolve and may not be the deployment of across-the-board levies on imports that would likely prompt U.S. products, including agricultural products, to face retaliatory trade moves by other countries. |
| MARKET FOCUS |
— Equities today: Asian and European stocks. In Asia, Japan -0.7%. Hong Kong -0.1%. China -0.8%. India -1.2%.In Europe, at midday, London -0.3%. Paris -0.2%. Frankfurt -0.5%.
U.S. equities yesterday: The Nasdaq finally ended in positive territory while the Dow and S&P 500 ended lower. The Dow fell 219.22 points, 0.54%, at 40,755.75. The Nasdaq was up 43.36 points, 0.25%, at 17,127.66. The S&P 500 was down 16.66 points, 0.30%, at 5,503.41.
— Warren Buffett extended his sales of BofA shares, reaping almost $7 billion since the disposals started in July.
— Red Lobster emerges from bankruptcy with new ownership and leadership. A bankruptcy court approved Red Lobster’s restructuring plan, allowing the seafood chain to exit Chapter 11 protection. RL Investor Holdings will acquire the company by the end of September, with former P.F. Chang’s CEO Damola Adamolekun taking over leadership. A $60 million investment is set to revitalize the brand.
— Oil heads for largest weekly loss in a year as OPEC+ delays output increase. Oil prices are set for their steepest weekly decline in nearly a year, with Brent crude down almost 8% this week. Concerns over weak demand and ample supply led OPEC+ to postpone a planned output increase by 180,000 barrels a day in October and November. Despite this delay, the group still intends to restore 2.2 million barrels per day over the coming year. OPEC+ had initially signaled it would increase supply in October but reversed course as global prices dropped sharply. On Thursday, Brent settled at $72.69 per barrel, down 1 cent, and WTI at $69.15, down 5 cents (0.1%).
— Ag markets today: Corn, soybeans and wheat are mildly weaker this morning after two-sided trade earlier in the overnight session. As of 7:30 a.m. ET, corn futures were trading steady to fractionally lower, soybeans were mostly 4 cents lower and wheat futures were 2 to 4 cents lower. The U.S. dollar index was modestly weaker while front-month crude oil futures were mildly firmer.
Light cash cattle activity at lower prices. Cash cattle trade occurred at roughly $2.00 lower prices in both the Southern Plains and northern market on Thursday, which was lower than most cash sources anticipated. Cattle futures faced heavy selling pressure amid the disappointing cash trade.
Cash hog index, pork cutout diverging. The CME lean hog index is up 16 cents to $86.43 as of Sept. 4, marking a second straight daily gain. The pork cutout fell 42 cents on Thursday to $94.87, the second straight daily decline, as hams dropped $5.39 and bellies sunk $1.35 while the other cuts firmed.
— Agriculture markets yesterday:
• Corn: December corn futures closed 2 cents lower at $4.10 3/4, closing well off intraday lows.
• Soy complex: November soybeans rose 2 cents to $10.23 1/2, while December soymeal sunk $2.80 to $326.50. December soyoil rose 101 points to 41.17 cents. Each notched high-range closes.
• Wheat: December SRW wheat fell 6 cents to $5.74 3/4, while December HRW closed 4 1/4 cents lower at $5.88 3/4, though each marked high-range closes. December HRS showed relative strength, rising 2 1/4 cents to $6.25 3/4.
• Cotton: December cotton futures fell 37 points to 69.44 cents, nearer session lows.
• Cattle: October live cattle futures dove $1.975 to $177.25 and settled nearer session lows. October feeder cattle futures plunged $2.875 to $234.575.
• Hogs: Nearby October fell 87.5 cents to $80.70. Pork cutout was still within striking distance of the $100.00 level.
— Quotes of note:
• The Fed’s Austan Goolsbee told MarketWatch the longer-run trend of jobs and inflation data justify the central bank cutting rates soon, and then steadily over the next year.
• Billionaire John Paulson expects Fed to cut interest rates to 2.5%-3% by late 2025, stating the Fed has delayed rate cuts for too long. Paulson, who gained fame for his profitable bet against mortgage bonds in 2008, shared his views in a Bloomberg interview (link). Attending an Economic Club of New York event alongside Donald Trump and other business leaders, Paulson also stressed the importance of government input on economic policies, including interest rates, as Trump’s team considers reforms that could reduce the Fed’s independence.
— U.S. added 142,000 jobs for the month, less than the 161,000 economists expected. This was the weakest August for job growth since 2017, when nonfarm payrolls increased by 135,000. Private-sector employers added 118,000 jobs, missing 136,000 forecasts. Government jobs rose by 24,000. Job growth over the past year has been propelled by a just few key service-related industries: health care, government and social assistance. Beyond those industries, hiring — especially for white-collar jobs — has mostly stalled.
The government downwardly revised July job growth by 114,000 to 89,000 and June from 179,000 to 118,000, reporting 86,000 less jobs created during that period.
The unemployment rate was 4.2%, down from 4.3% in July.
Average hourly earnings rose 0.4% in August, above 0.3% estimates. Twelve-month wage growth of 3.8% exceeded 3.7% forecasts.
Market impacts: Stock futures remained lower shortly after the report. The 10-year yield edged below Thursday’s settling level of 3.73%, the lowest level in over a year. The report shifted the probabilities higher for a 25-basis-point cut at the Sept. 17-18 Fed meeting to 60% and those for a bigger cut eased to 40%.
— USDA revised its forecast for farm income in 2024, projecting a far less severe decline than initially anticipated compared to 2023 levels.
Notable changes September compared to the February estimates:
Net farm income projection:
• September forecast: $140 billion for 2024
• February forecast: $116.1 billion for 2024
The latest estimate is significantly higher, representing a $23.9 billion upward revision.
Decline from 2023:
• September forecast: 4.4% decline from 2023 to 2024
• February forecast: 25.5% decline from 2023 to 2024
* After adjusting for inflation, net farm income is forecast to decrease $10.2 billion (6.8%) in 2024 relative to 2023.
The latest projection shows a much smaller year-over-year decrease.
Net cash farm income is expected to fall 7.2% to $154.1 billion.
Total production expenses:
• September forecast: $457.5 billion, a $4.4 billion (1%) decrease from 2023
• February forecast: $455.1 billion, a $16.7 billion (3.8%) increase from 2023
The latest estimate indicates expenses are now expected to decline slightly rather than increase (more details, below).
Total farm cash receipts are forecast at $516.5 billion.
Livestock receipts:
• The September forecast shows stronger-than-expected performance in the livestock sector, contributing to the improved overall outlook: $267.4 billion, an increase of $17.8 billion from 2023.
• From September compared to the February forecast, there have been significant changes in livestock price projections for 2024:
Cattle and calves:
— February forecast: $1.6 billion (1.6%) decline
— September forecast: $6.6 billion (6.5%) increase
The outlook for cattle producers has dramatically improved, shifting from an expected decline to substantial growth.
Dairy:
— February forecast: $900 million (2%) decline in milk receipts
— September forecast: $4.3 billion (9.4%) increase in milk receipts
Dairy farmers are now expected to see significant gains rather than losses.
Eggs:
— February forecast: 12% decline in receipts
— September forecast: 38.7% increase in receipts
Egg producers are now projected to see a substantial increase in receipts, largely due to price gains related to avian influenza impacts.
Hogs:
— September forecast: $700 million (2.7%) increase in receipts
While positive, the growth for hog producers is more modest compared to other livestock sectors.
Turkeys:
— September forecast: $2.7 billion (41.5%) decrease in receipts
Turkey producers are facing a severe downturn, contrary to the positive trends in other livestock sectors.
These revisions reflect stronger-than-anticipated prices across key livestock sectors, particularly for cattle, dairy, and eggs. However, the benefits are not uniform across all livestock categories, with turkey producers notably facing significant challenges
Crop receipts:
• While improved from February, crop farmers are still expected to face significant challenges in 2024. Projected to fall to $249.0 billion in 2024, a $27.7 billion decrease from 2023.
Government payments:
• September forecast: $10.4 billion for 2024, down $1.8 billion from 2023.
• February forecast: $10.2 billion for 2024
The decline from 2023 is attributed mostly to a fall in Dairy Margin Coverage (DMC) payments and smaller ad hoc disaster assistance. USDA now expects DMC payments in 2024 to be $100.1 million, a sharp decline from $3.64 billion in 2023.
Payments received in 2024 under the Price Loss Coverage (PLC) program are seen falling to just $1.3 million after they were just $7.9 million in 2024. For perspective, those payments peaked in 2020 at $4.95 billion. Payments under the Agriculture Risk Coverage (ARC) program are expected at $123.3 million, down from $270.4 million in 2023, down from a peak in 2016 of $6.06 billion.
Supplemental and ad hoc disaster payments are put at $6.140 billion in 2024, down from $7.15 billion in 2023 and down sharply from the 2020 record of $31.4 billion which included pandemic assistance alone totaled $23.5 billion for the sector with another $5.9 billion in non-USDA pandemic aid.
The chart above shows the Direct Government Payments estimate just released. Note that direct payments to farmers (in apples-to-applies inflation-adjusted terms) is at the lowest level since 1982. Is Congress asleep at the wheel? One analyst emailed: “Yes, we have crop insurance now. And for 2024 it will help blunt ‘some’ losses…but this is shaping up to be major for 2025… when I suspect the Direct Government Payments estimate will fall even more absent action from Congress or a massive turnaround in the markets.”
Look for lawmakers to use this as justification for making changes in the farmer safety net programs like ARC and PLC that are paying out little at this stage even with prices declining. House Ag Chairman GT Thompson (R-Pa.) said “USDA’s September update to the farm financial outlook continues to present a bleak picture. Declining commodity prices, record farm production costs driven by the reckless spending of the Biden/Harris administration, the largest agricultural trade deficit on record, and an outdated farm safety net threaten to wipe out family farms across the country. These numbers are more than data points on spreadsheets, they tell a story of struggling American farmers desperate for relief, certainty, and stability. The bipartisan Farm, Food, and National Security Act of 2024 is the legislative remedy our rural communities so desperately need. It’s time to put partisan bickering and red lines aside and pass a farm bill.”
Expenses
• Farm expenses are expected to decrease slightly:
• Total expenses for 2024 are forecast at $457.5 billion, down from $461.9 billion in 2023.
• Feed purchases are projected to decrease by $9.8 billion due to lower prices.
• Interest expenses are expected to rise by $1.8 billion due to higher debt levels and interest rates.
Farm sector debt:
• September forecast: $540.8 billion for 2024, a 4.2% increase
• February forecast: $547.6 billion for 2024, a 5.2% increase
• Working capital is forecast at $127.2 billion for 2024, down from $132.7 billion in 2023.
• Debt-to-asset ratio for 2024 is projected at 12.81, the lowest since 2015.
• Debt-to-equity ratio is forecast at 14.69, also the lowest since 2015.
Bottom line: Overall, while the September forecast presents a less severe decline than initially projected in February, it still indicates significant challenges for farmers in 2024, particularly for crop producers. The revisions reflect stronger performance in the livestock sector and slightly lower production expenses than previously anticipated. The ag secor, while facing lower farm income, is still on solid financial footing.
Of note: USDA Secretary Tom Vilsack noted in a statement that the new forecast indicates farm income will have beaten the 20-year average for four straight years. But the Farm Bureau notes in an analysis (link) of the new forecast that net farm income would still be down 57% from the record set in 2022.
Market perspectives:
— Outside markets: The U.S. dollar was slightly lower ahead of the jobs update, though the euro, yen and British pound are all seen losing ground against the greenback. The yield on the 10-year U.S. Treasury note fell, trading around 3.71%, with a negative tone in global government bond yields. Crude oil futures are higher, with U.S. crude trading at around $69.50 per barrel and Brent trading at around $73.05 per barrel. Gold and silver futures were up, with gold around $2,546 per troy ounce and silver around $29.12 per troy ounce.
— New-crop U.S. soybean, sorghum, and cotton sales mark latest weekly data for China. There was some export activity for 2023-24 relative to China for the week ended Aug. 29, but much of the attention was on new-crop business. For 2023-24, activity included net sales of 61,950 metric tons of sorghum and net reductions of 101,836 metric tons of soybeans. For 2024-25, activity included net sales of 251,000 metric tons of sorghum, 1,002,449 metric tons of soybeans, and 11,705 running bales of upland cotton. Sales activity for 2024 included 836 metric tons of beef and net reductions of 17 metric tons for pork.
— India to extend sugar export ban to boost domestic supplies, ethanol output. India plans to extend a ban on sugar exports for the second straight year as the world’s biggest consumer of the sweetener grapples with the prospects of lower cane output, government sources told Reuters. New Delhi is also considering an increase in ethanol procurement price by more than 5% for the new marketing season beginning in November, sources said. Late last month, a government order said India would allow sugar mills to use cane juice or syrup to produce ethanol starting in November.
— Cotton AWP edges higher. The Adjusted World Price (AWP) for cotton moved up to 57.27 cents per pound, effective today (Sept. 6), up from 56.98 cents per pound the prior week. However, the AWP remains more than 5 cents above the level that would trigger farm program benefits. Meanwhile, USDA announced Special Import Quota #21 will be established Sept. 12 for the importation of 38,901 bales of upland cotton, applying to supplies purchased no later than Dec. 10 and imported into the U.S. no later than March 10.
— Ag trade update: South Korea purchased up to 68,000 MT of U.S. corn.
— NWS outlook: Dangerous heat continues to impact large sections of the West into this weekend......Heavy rain and instances of flash flooding are likely throughout the central Gulf Coast and Southeast over the next few days... ...Showers and isolated severe thunderstorms possible from the Ohio Valley to the Lower Great Lakes today.
Items in Pro Farmer’s First Thing Today include:
• Quiet overnight session
• French wheat quality lacking
• Eurozone Q2 GDP revised lowe
| CHINA UPDATE |
— Former PBOC chief urges China to tackle deflationary pressures. Former People’s Bank of China Governor Yi Gang has called for urgent measures to combat deflation, warning that falling prices threaten China’s economic recovery. Speaking at the Bund Summit in Shanghai, Yi emphasized the need to turn the GDP deflator positive, as the broad price measure has been negative for several quarters. His remarks highlight growing concerns over weak domestic demand and the need for proactive fiscal and accommodative monetary policies to stabilize the economy.
— China halts foreign adoptions amid declining birth rates. China announced it will stop allowing foreign adoptions, except for blood relatives, without providing a clear reason. This decision affects hundreds of pending applications, with American families having adopted nearly 83,000 Chinese children to date. The move comes as China’s birth rate hit a historic low, with new births dropping by 5.7% to 9 million in 2023.
— U.S. and China make progress in climate finance talks despite ongoing tensions. U.S. climate adviser John Podesta announced that recent climate talks with China in Beijing helped narrow differences on climate finance and emissions cuts. While key challenges remain, the discussions were seen as productive, focusing on funding for developing nations and setting new climate goals. The talks are a critical step before upcoming U.S. elections and the UN climate summit in November.
| ENERGY & CLIMATE CHANGE |
— Toyota Motor plans to significantly slow its production of electric vehicles, cutting its global output forecast for 2026 to 1 million cars, some 30% lower than the previously announced sales forecast for the same year, Nikkei has learned (link). The Japanese automaker’s decision to cut EV production was prompted by the slowdown in the global EV market.
| LIVESTOCK, NUTRITION & FOOD INDUSTRY |
— FAO food price index slips again in August. The UN Food and Agriculture Organization global food price index slipped 0.5% in August, the second straight small monthly decline, as decreases in sugar, meat and cereal grains outweighed increases for vegoils and dairy products. The August index was down 1.1% from last year. Compared to year-ago, prices declined 12.0% for cereal grains and 23.1% for sugar, while they rose 3.6% for meats, 14.3% for dairy and 8.1% for vegoils.
| KEY LINKS |
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 | | Russia/Ukraine war, lessons learned | | SCOTUS on WOTUS | SCOTUS on Prop 12 pork | New farm bill primer | | Gov’t payments to farmers by program | Farmer working capital | USDA Ag Outlook Forum |