PCE Inflation Slows More Than Expected; 3.2% Annual Rate in November

Exclusive AgriTalk Q&A with presidential hopeful Ron DeSantis

Jim Wiesemeyer

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December 22, 2023 09:21 AM

Exclusive AgriTalk Q&A with presidential hopeful Ron DeSantis

Today’s Digital Newspaper

MARKET FOCUS

Prices dell in November for the first time since 2020
WSJ: Inflation is approaching Fed target
Americans’ incomes rising when adjusting for price changes
Americans increasingly falling behind on auto loans
Notable increase of 5.4% in new orders for manufactured durable goods in U.S.
Nike’s stock experienced significant drop of over 10%
Biden sending Blinken, Mayorkas to Mexico for talks on border security
Biden calls for national security review of Nippon Steel’s bid for U.S. Steel
U.S. mortgage rates continue to decline, now below 7%
Population declines in N.Y. & Calif. while Southern states grow; political implications
Ag and energy markets today
Oil extends biggest weekly advance in two months
Perspective on rerouting away from Red Sea
Indonesia imposed fines on palm oil companies operating in forest areas
Indonesia secures rice import commitments from India, Thailand
Brazil boosts global soybean market competitiveness w/infrastructure improvements
NWS weather outlook
Pro Farmer First Thing Today items

CONGRESS

Just 27 bills in total have been signed into law this year (five on Dec. 19)
Senators confirmed 166 of Biden’s judicial picks this year, primarily along party lines
January’s to-do list for Congress has big carryover issues

ISRAEL/HAMAS CONFLICT

U.S. prepared to support UN resolution calling for a ceasefire
Israel conquered another Hamas stronghold in Gaza Strip
Hamas rejected an Israeli offer to implement a weeklong cease-fire
Israel indicates willingness to allow Palestinian Authority to govern Gaza

RUSSIA & UKRAINE

Biden administration mulls seizing $300 billion Russian assets to aid Ukraine
U.S. targets banks facilitating Russia’s military payments

PERSONNEL

Biden signs order finalizing 5.2% pay raise for feds in 2024

CHINA

China’s big banks cut deposit rates as growth plateaus
Chinese tech stocks plummet $80 billion on online gaming crackdown
China seeks exemptions from U.S. sanctions on Russian LNG plant
Yuan overtook Japanese yen to become fourth-most used currency by value

ENERGY & CLIMATE CHANGE

CARB unveils proposed update to its Low Carbon Fuel Standard (LCFS) program
Study: Wind farm proximity reduces property values, but effects diminish over time

LIVESTOCK, NUTRITION & FOOD INDUSTRY

H&P Report expected to show slightly smaller hog herd
November feedlot placements expected to decline from year-ago

POLITICS & ELECTIONS

Exclusive AgriTalk Q&A with presidential hopeful Ron DeSantis
Change in Michigan, Nevada ratings for president .
Republican Steve Garvey rises to second place in Senate race poll in California
Federal judges ordered all 13 of Michigan’s House & Senate district maps redrawn
No Labels mulls coalition gov’t in 2024 election if no candidate wins 270 electoral votes
Rudy Giuliani Files for bankruptcy after losing election worker defamation case

OTHER ITEMS OF NOTE

Biden hits the high road
Controversial project in Brazilian Congress on the Amazon
Cotton AWP moves lower

MARKET FOCUS

— Trading hours: While most markets will trade normal hours today (Dec. 22), the bond market will close early at 2 p.m. ET. All markets and government offices will be closed for trading on Monday for Christmas.

— Equities today: Asian and European stock markets were mixed overnight. U.S. Dow opened lower but is around 70 points higher at this writing. In Asia, Japan +0.1%. Hong Kong -1.7%. China -0.1%. India +0.3%. In Europe, at midday, London +0.1%. Paris flat. Frankfurt flat.

U.S. equities yesterday: All three major indices registered gains after one down session on Wednesday with trading action very light and expected to be even lighter today. The Dow rose 322.35 points, 0.87%, at 37,404.35. The Nasdaq gained 185.92 points, 1.26%, at 14,963.87. The S&P 500 was up 48.40 points, 1.03%, at 4,746.75. The market remains on the precipice of an eight-week winning streak — its longest in more than five years.

— Nike’s stock has experienced a significant drop of over 10% in premarket trading due to a weak outlook. The sportswear company recently announced cost-cutting measures totaling $2 billion and issued warnings about slowing sales, particularly in China and Europe. This decline in Nike’s stock value reflects concerns about consumer spending trends, suggesting that consumers may be reducing their expenditures.

— President Biden supports an investigation into Nippon Steel’s proposed $14.9 billion acquisition of U.S. Steel on national security grounds. While some say this move has caused tension between the U.S. and Japan, despite their close alliance, Japanese Industry Minister Ken Saito said on Friday that U.S./Japanese ties were “stronger than ever,” although he declined to comment directly on growing scrutiny in the U.S. of a proposed deal for Nippon Steel to buy U.S. Steel. Biden’s administration views the purchase of an iconic American-owned company by a foreign entity, even from an ally, as requiring serious scrutiny regarding its potential impact on national security and supply chain reliability. U.S. Steel has plants in crucial states for Biden’s re-election bid, such as Pennsylvania and Michigan, and this support for the investigation comes as Biden aims to revitalize rust-belt communities. The Committee on Foreign Investment in the United States (CFIUS) will conduct the investigation, and the administration will act accordingly based on its findings. The United Steelworkers, a labor union that endorsed Biden, welcomes the investigation and shares concerns about the deal’s impact on domestic steel production.

— Agriculture markets yesterday:

Corn: March corn futures rallied 2 3/4 cents before settling at $4.72 1/2.
Soy complex: March soybean futures fell 14 cents to $13.01 3/4, while nearby January futures dropped 11 cents to $12.97 1/4. Both settled nearer session lows. March soy meal futures dropped $2.30 to $386.4. March soyoil saw heavy selling before closing 143 points lower at 49.33 cents.
Wheat: March SRW wheat rose 2 1/2 cents to $6.12 1/2 and near mid-range. March HRW wheat closed up 1 3/4 cents at $6.26 3/4, near mid-range though hit a two-week low early on. Spring wheat futures saw relative weakness, falling 3 3/4 cents to $7.14 1/4.
Cotton: Concerns about export demand strength still seem to be worrying the cotton market, with the nearby March contract dipping 8 points to 79.13 cents per pound.
Cattle: February live cattle fell $1.625 to $168.675 and near the session low. March feeder cattle closed down $2.375 at $223.375, near the session, although it hit a four-week high early on.
Hogs: The nearby hog contracts rose modestly Thursday, with February futures advancing 42.5 cents to $70.65, while deferred futures posted moderate losses.

— Ag markets today: Corn, soybeans and SRW wheat modestly favored the upside, while holding in tight trading ranges during a quiet overnight session. As of 7:30 a.m. ET, corn futures were trading steady to fractionally higher, soybeans were 2 to 3 cents higher and SRW wheat were mostly a penny higher, while HRW and HRS futures were steady to fractionally lower. Front-month crude oil futures were modestly firmer, while the U.S. dollar index was down around 300 points, dropping to the lowest level since late July.

Cash cattle trade starts around $170. Cash cattle trade so far this week occurred around $170.00, which would be up $1.00 to $2.00 from last week, though most feedlots passed on those prices in hopes of even higher bids. Barring a collapse in prices today, the cash market will break the six-week string of losses.

Cash hog index ticks higher again. The CME lean hog index is up 15 cents to $66.69 (as of Dec. 20). That’s the first back-to-back gains in the cash index since early November, when there were three consecutive daily gains before it extended the seasonal decline. Traders sense a seasonal low in the cash market is close but will want to see sustained and stronger gains before they are convinced.

— Quotes of note:

Americans’ incomes are rising when adjusting for price changes “because of lower inflation, steady job growth and steady wage gains,” said Bernard Yaros, lead U.S. economist at Oxford Economics. “And that bodes favorably for real consumer spending,” which will support the overall economy next year.
Biden hits the high road. President Joe Biden announced Friday he’s issuing a federal pardon to every American who has used marijuana in the past, including those who were never arrested or prosecuted. The pardon applies to all U.S. citizens and lawful permanent residents in possession of marijuana for their personal use and those convinced of similar federal crimes. It does not apply to individuals who have been jailed for selling the drug, which is illegal under federal law. In a statement, Biden said Americans should not be sent to prison solely for using or possessing marijuana. He urged governors to forgive state offenses. This pardon does not apply for people who violated state law.
“Robots love consistency.” — Andrew Smith, founder and CEO of autonomous yard truck operator Outrider.
“We cannot ever allow them to be screwed over or left behind.” — Sen. John Fetterman (D-Pa.), speaking about steelworkers. Fetterman said he favors blocking a Nippon Steel’s plan to buy U.S. Steel.

— In November, U.S. PCE (Personal Consumption Expenditures) price inflation unexpectedly decreased by 0.1%, falling short of market expectations that it would remain unchanged, and the first decline since April 2020. Additionally, the annual inflation rate dropped to 2.6%, down from 3%, marking the lowest level since February 2021. The core PCE prices, which exclude food and energy costs, also saw a modest increase of only 0.1%, below the anticipated 0.2%. The annual core PCE inflation rate slowed to 3.2% from 3.5%, reaching its lowest point since mid-2021.

November’s report reflected a shift in consumer appetite, as prices for services increased 0.2% while goods slumped 0.7%. A 2.7% slide in energy prices and a 0.1% decrease in food helped hold back inflation for the month.

Of note: On a six-month annualized basis, core inflation eased to 1.9%, suggesting the Fed is well on its way to reaching the target, according to the Wall Street Journal. The Federal Reserve targets 2% annual inflation using the PCE price index.

The core personal consumption expenditures (PCE) price index is the preferred inflation measure used by the central bank because it offers a more comprehensive view of inflation compared to the traditional consumer price index (CPI). Unlike CPI, which only accounts for direct household expenses, PCE takes into consideration a wider range of costs within the overall economic ecosystem. PCE also factors in how consumers adjust their spending patterns and employs specific calculations to reduce the impact of price fluctuations. As a result, it provides the Federal Reserve with a more accurate tool to assess the overall economic environment and make informed policy decisions.

The core PCE price index fell to a 2% annualized rate in the third quarter, according to new Commerce Department revisions released Thursday. This decline in inflation, even amid strong economic growth, has led to reduced concerns about an inflation resurgence among policymakers.

The first PCE reading on the fourth quarter comes next month.

Financial markets are now predicting that the Fed will cut its key policy rate to 3.8% by the end of 2024, down from 3.83% before the revised data. The ebbing of inflation is seen as making the current federal funds rate range of 5.25% to 5.5% appear increasingly restrictive. Market pricing indicates a growing likelihood of a rate cut in March 2024 and potential rate cuts totaling 1.75 percentage points next year.

Market impacts: U.S. gov’t bonds and stock futures clung to modest gains on Friday following the release of the PCE report.

— In November 2023, there was a notable increase of 5.4% in new orders for manufactured durable goods in the U.S. compared to the previous month. This rebound follows a 5.1% decline observed in October and exceeded market expectations, which had predicted a 2.2 percent increase. This represents the largest surge in durable goods orders since July 2020. The increase was primarily driven by the transportation equipment category, which saw a substantial rise of $14.3 billion, translating to a 15.3% increase, bringing the total to $107.8 billion. Excluding transportation-related orders, new orders still showed a respectable growth of 0.5%. When defense-related orders are excluded as well, new orders increased by an even more substantial 6.5%.

— U.S. mortgage rates continue to decline and are now below 7%, as per new data from Freddie Mac. The rate for the 30-year fixed mortgage dropped to 6.67%, down from 6.95% in the previous week. This marks the eighth consecutive week of rate decreases and represents the lowest level since June. Since peaking in October at 7.79%, rates have dropped by over a full percentage point. “The 30-year fixed-rate mortgage remained below 7% for the second week in a row, a welcome downward trend after 17 consecutive weeks above 7%,” Sam Khater, Freddie Mac’s chief economist, said in a statement. Builder confidence has increased as mortgage rates have fallen, he noted.

— Americans are increasingly falling behind on their auto loans, with the percentage of subprime auto borrowers at least 60 days past due on their loans reaching 6.11% in September, the highest in data going back to 1994, according to Fitch Ratings. Rising car prices and borrowing costs, coupled with interest rate hikes, are putting pressure on car owners. This situation reflects financial distress amid mixed signals about the economy’s health, especially concerning consumer spending. Delinquencies are expected to lead to more repossessions, with Cox Automotive estimating 1.5 million vehicle seizures this year, up from 1.2 million in the previous year, though still below pre-pandemic levels.

— New York and California see population declines, while Southern states grow; political implications loom. New York’s population decline has persisted for the third consecutive year, with over 101,000 residents leaving the state, as reported by the U.S. Census Bureau’s latest data. This 0.5% decrease in population, which occurred over a one-year period ending on July 1, was a slight improvement from the previous year’s 0.9% decline. California also experienced a population loss of more than 75,000 residents during the same year, while Texas and Florida continued to see substantial population increases, adding over 473,000 and 365,000 residents, respectively. North Carolina and Georgia also saw significant growth, with each adding over 100,000 residents.

Regionally, the South remains the leader in population growth and remains the most populous region in the United States, while the Northeast is experiencing a decline and remains the least populous region. Among Northeastern states, only New York and Pennsylvania recorded declining populations this year.

The census report indicates that the country is gradually returning to pre-pandemic population levels, with an increase of 1.6 million people and more states experiencing population growth compared to the earlier pandemic period.

In terms of political implications, the shifting population trends could result in changes to congressional representation. California and New York may see a reduction in their House delegations based on these population trends, while Southern states could potentially see their congressional delegations expand. An analysis by the Brennan Center projects that California may lose four of its 52 congressional districts in the reapportionment process, which occurs once every decade and is determined by population figures.

Market perspectives:

— Outside markets: The U.S. dollar index was lower. Nymex crude oil prices are firmer and trading around $74.75 a barrel. The yield on the benchmark U.S. Treasury 10-year note is presently at 3.867%.

— Oil extended its biggest weekly advance in two months as shippers avoided the Red Sea amid increased attacks, Global benchmark Brent traded near $80 a barrel and is set for a 5% weekly gain after notching a string of seven declines, while West Texas Intermediate traded above $74 a barrel. Tanker traffic in the Red Sea has plummeted after Iran-backed Houthi rebels in Yemen increased attacks on vessels in the region. Freight rates have soared as more ships take extensive detours to avoid the Suez Canal and Red Sea, where Iran-backed Houthi rebels in Yemen have targeted oil tankers and container vessels.

Crude is headed for its first annual drop since 2020 as surging production from the U.S. and elsewhere counters efforts by the OPEC+ alliance to shore up the market through output cuts. The outlook for demand is also fragile, with the International Energy Agency forecasting that growth will slow sharply next year.

— Perspective on rerouting away from Red Sea. Global shipping companies have temporarily halted and redirected their operations in the Red Sea due to concerns about potential attacks by the Houthi rebel group in Yemen. This disruption has prompted warnings from major companies such as Swedish furniture manufacturer Ikea and dairy group Danone, who anticipate shortages and delays in their supply chains as they seek alternative trade routes. Ocean freight prices are surging. Some trade routes are witnessing a 40% increase in ocean freight rates. As of Thursday morning, 158 ships carrying approximately $105 billion worth of cargo had redirected away from the Red Sea. Logistics CEOs are warning that if these elevated costs persist for a month or longer, it will lead to inflationary pressures affecting the supply chain and eventually impacting consumers.

Of note: Chinese automaker Geely warned on Friday its EV sales are likely to be impacted by a delay in deliveries due to the “situation” in the Red Sea.

— Indonesia imposed fines on palm oil companies operating in forest areas, with the total fines amounting to 4.8 trillion rupiah ($310.1 million). The Maritime Affairs and Investment ministry has already issued fines of 475 billion rupiah to these companies. While the specific companies fined have not been disclosed, the government had previously identified approximately 200,000 hectares (494,210 acres) of palm oil plantations located within forests. These lands are slated to be returned to the government and restored to their natural forest state.

— Indonesia secures rice import commitments from India, Thailand. Indonesia’s food procurement agency Bulog has signed deals for 1 MMT of rice from India and 2 MMT of rice from Thailand to shore up supplies for 2024. Indonesian President Joko Widodo said he’s still worried about food supplies, as the “super El Niño” reduced the country’s production.

— Brazil strengthens global soybean market competitiveness with infrastructure improvements: USDA report. Brazil has become a stronger competitor with the U.S. in the global soybean market over the past decade, thanks to significant improvements in its transportation infrastructure, according to a report from USDA (link). These improvements in roads, railways, and ports have enhanced Brazil’s competitiveness, solidifying its position as the world’s largest soybean producer and exporter.

USDA forecasts that Brazil will export twice as many soybeans as the United States in the current trade year, accounting for 58% of international soybean sales, while the U.S. market share will decrease to 28%, down from 38% two years ago. Brazil’s advancements in transportation infrastructure have led to a $21-per-metric-ton reduction in transport costs over the past decade, making the country more competitive in the global market.

One significant development has been the paving of BR-163, the main highway in the Brazilian state of Mato Grosso, which has lowered the cost of transporting soybeans to northern ports. These ports, closer to the Panama Canal, have also contributed to reduced overall transport costs. However, the report acknowledges that Brazil’s transportation infrastructure and ports still face challenges in terms of efficiency, operating costs, and attracting investment to support the expansion of the agricultural sector.

Of note: Brazil relies more on higher-cost trucking for transportation, while the United States primarily uses rail and river transport for soybeans. Additionally, the U.S. has shorter distances from farms to ports, which can impact transportation costs. Despite these challenges, Brazil is expected to continue expanding its soybean production and exports, with USDA’s long-term baseline projecting significant growth in production and exports by 2032/33. Brazil surpassed the U.S. as the world’s largest soybean exporter more than a decade ago, and its competitive position in the global soybean market is expected to remain strong.

— NWS weather outlook: Heavy rainfall and flash flash flooding will continue to impact areas of southern California today, with the threat gradually expanding into the Southwest through tonight... ...Next round of unsettled weather will reach the Pacific Northwest today then quickly move through the Intermountain West going into Saturday... ...Snow is forecast to overspread the central Rockies Saturday night before expanding into the northern Plains by the morning of Christmas Eve... ...Unusually mild temperatures will persist across the Plains and Midwest through the early part of the Christmas holiday weekend...

Items in Pro Farmer’s First Thing Today include:

• Grains modestly favor the upside overnight
• German farmers reduce wheat plantings
• Russia cuts wheat export tax
• Cold Storage Report also out this afternoon

CONGRESS

— Just 27 bills in total have been signed into law this year (five on Dec. 19), according to the website GovTrack (link), a dramatic drop from 2021 and 2022. There were 365 new laws enacted over that 2-year period, according to the same site.

Senators confirmed 166 of Biden’s judicial picks this year, primarily along party lines.

— January’s to-do list for Congress has big issues that have been kicked down the road several times. As the Senate and House recess until the second week of January, lawmakers left several unresolved issues to address in 2024. These include funding the government, with the first step of funding (including for USDA) set to expire on Jan. 19 and the rest on Feb. 2.

Negotiations for a supplemental funding package linking foreign aid for Ukraine and Israel with changes to border policy continue, with senators hoping to find common ground in January. The outcome in the GOP-majority House remains uncertain, as members are skeptical of the Ukraine funding and border compromise.

The impeachment inquiry into President Joe Biden’s administration is ongoing, with GOP leaders aiming to conclude the investigation in January. They plan to compile a report on their findings and decide whether to draft articles of impeachment, possibly by the end of January or into February if interviews are delayed. Additionally, there are efforts to hold Hunter Biden in contempt of Congress for refusing to appear for a deposition.

ISRAEL/HAMAS CONFLICT

— U.S. is prepared to support a UN resolution calling for a ceasefire between Israel and Hamas, along with an increase in humanitarian aid to the Gaza Strip. The vote on this resolution is expected to occur today. As one of the five permanent members of the UN Security Council, if the US were to veto the resolution, it would not pass. The U.S. has previously raised concerns about an earlier draft of the resolution, particularly regarding the proposal for a UN-established monitoring mechanism for aid entering the Gaza Strip. The U.S. argues that such a mechanism could potentially slow down the delivery of critical assistance.

— Israel conquered another Hamas stronghold in the Gaza Strip. The Israeli Army took control of Shejaiya, an important sector of Gaza City and one of the strongholds of Hamas, a military spokesman reported Thursday, after one of the largest battles of the last weeks of war. “The Defense Forces will continue to occupy the area and will carry out specific operations in the neighborhood according to operational needs,” said a military spokesperson.

— Hamas rejected an Israeli offer on Wednesday to implement a weeklong cease-fire if the militant group releases 40 hostages, according to Egyptian officials mediating the talks. Hamas said it will only consider freeing hostages after a cease-fire goes into effect and Gaza receives more humanitarian aid.

— Israel indicated its potential willingness to allow the Palestinian Authority to govern Gaza after the conflict, but it would require a significant overhaul of the current governing structure in the West Bank. Israel’s National Security Council head expressed this stance in an opinion piece on Elaph, emphasizing the need for a reformed civil administration capable of taking responsibility in Gaza. Israel has stated that it does not desire an active role in the post-war administration of Gaza but recognizes the importance of addressing the dire humanitarian conditions to prevent potential security risks.

RUSSIA/UKRAINE

— Biden administration mulls seizing $300 billion Russian assets to aid Ukraine. The Biden administration has quietly shown support for the idea of seizing over $300 billion in Russian central bank assets held in Western countries to assist Ukraine’s war effort, according to the New York Times (link). Initially, Treasury Secretary Janet Yellen had concerns about the legality of such an action without congressional approval, and there were fears it could raise international concerns. However, due to dwindling financial support for Ukraine and warnings of dire consequences from Ukrainian leaders, discussions have become more urgent. Diplomatic negotiations are underway to access funds held in Europe, and talks among finance ministers, central bankers, diplomats, and lawyers have intensified, with a deadline set for Feb. 24, the second anniversary of the invasion.

— U.S. targets banks facilitating Russia’s military payments, adds secondary sanctions over Ukraine war. The U.S. will announce new measures to target banks that facilitate payments for Russia’s military-industrial complex as part of ongoing efforts to disrupt President Vladimir Putin’s funding for the invasion of Ukraine. President Joe Biden is set to amend two executive orders, allowing the U.S. to impose secondary sanctions related to the Ukraine war for the first time. This means that banks could potentially face severe financial penalties for conducting transactions with firms already sanctioned due to their ties to Russia, even if they are unaware of these connections. This move may pose challenges for some U.S. banks, which have already implemented costly compliance procedures to ensure they comply with sanctions. Although many international banks have ceased direct dealings with Russia, they can serve as correspondent banks for financial institutions in other countries that continue to engage in trade with Russia. Under the new measures, certain banks could be subject to penalties for maintaining these correspondent relationships if the trade involving sanctioned entities persists.

PERSONNEL

— Biden signs order finalizing 5.2% pay raise for feds in 2024. The measure confirms that the federal workforce will see its largest pay increase in more than 40 years. The average pay increase for federal workers in the U.S. has been authorized at 5.2% for the upcoming year, marking the largest raise for federal employees since the Carter administration implemented a 9.1% average raise in 1980. This increase includes a 4.7% across-the-board boost to basic pay, besides an average 0.5% increase in locality pay. The pay raise for military service personnel is also set at 5.2%, and this increase is the highest authorized for federal workers in over 40 years, surpassing last year’s 4.6% raise, which itself represented a 20-year high.

The Office of Personnel Management must now publish pay tables outlining the pay raise across all General Schedule pay grades and locality pay areas. Once updated, they will be available on the agency’s website.

The pay raise will go into effect for the first full pay period of 2024, which for most feds begins Jan. 14.

CHINA UPDATE

— China’s largest state banks cut deposit rates to boost economy amid slowdown. Five of China’s largest state banks, including the China Construction Bank, lowered their interest rate on their deposits in the country’s latest push to stimulate economic activity. The move was among Beijing’s latest efforts to support the country’s economy through its recent signs of slowing down, as policymakers gauge the appropriate levels of stimulus to prevent a further slide in property prices while complying with their goal to phase out the Chinese economy’s overdependence on property construction.

— Chinese tech stocks plummet $80 billion on online gaming crackdown. Chinese tech stocks experienced a sharp decline, resulting in a loss of $80 billion in market capitalization for some of China’s largest companies. This drop followed the unveiling of draft rules proposing a new crackdown on online gaming by Chinese authorities. The development suggests that despite recent efforts to present a more business-friendly image, Chinese leader Xi Jinping intends to maintain strict control over private enterprise in the country.

— China seeks exemptions from U.S. sanctions on Russian LNG plant. China is preparing to ask the U.S. for exemptions from sanctions on a new Russian liquefied natural gas (LNG) export plant, Bloomberg reported, citing people familiar with the matter. State-owned companies CNOOC Ltd and China National Petroleum Corp (CNPC), who have a stake in Novatek PJSC’s Arctic LNG 2 project in Russia, are planning to ask for the exemptions as the U.S. measures threaten deliveries. LNG vessels could fall foul of U.S. sanctions if they pick up fuel from Arctic LNG 2, the report said, adding that CNOOC and CNPC also purchase LNG from the U.S., and don’t want to endanger their supply from American projects.

— The yuan overtook the Japanese yen to become the fourth-most used currency by value in global payments for the first time in almost two years, according to a monthly tracker of the Chinese currency released by the Society for Worldwide Interbank Financial Telecommunication (SWIFT).

ENERGY & CLIMATE CHANGE

— California Air Resources Board (CARB) on Dec. 19 unveiled a proposed update to its Low Carbon Fuel Standard (LCFS) program, which holds potential benefits for the U.S. soybean industry. The American Soybean Association (ASA) has actively engaged with CARB over the past two years to shape this proposed update, aimed at reducing greenhouse gas emissions through a credit-generating program.

The proposed LCFS update contains several key points that impact soybean oil, notes ASA.

Firstly, CARB intends to end the existing LCFS exemption for interstate jet fuel. Currently, only in-state air travel is subject to the LCFS program, with petroleum jet fuel resulting in a deficit while sustainable aviation fuels generate credits. By ending the interstate exemption, all air travel through California, including two major airports, will be required to participate, likely leading to increased production of sustainable aviation fuel (SAF). CARB cited federal tax credits and the Renewable Fuel Standard as reasons for this change, along with commitments from domestic airlines to boost SAF utilization.
Additionally, the update includes a new prohibition on palm oil-derived feedstocks. As California is a significant importer of used cooking oil from China, this prohibition may reduce imports of palm-based cooking oil and potentially create a larger market share for soybean oil.

One major concern for the ASA is a proposal to prevent deforestation by mandating point-of-origin tracking for crop-based feedstocks by 2028. While the Renewable Fuel Standard also has deforestation prevention provisions, it employs a mass-balance approach. ASA says it will advocate for CARB to adopt a similar approach and collaborate with industry partners to identify existing national and international standards related to deforestation prevention.

Of note, the proposal did not include a cap on agricultural feedstocks, despite earlier recommendations during the workshop phase. This omission is seen as a positive development, ASA says, as it eliminates one of the potential threats to soy and other vegetable oils in the California market.

Since the LCFS was implemented in 2009, California has become a significant consumer of biofuels, including biodiesel and renewable diesel. This program has been replicated in Oregon, Washington, and British Columbia, increasing demand for soy-based biofuels.

More details: CARB’s Dec. 19 proposal would tighten requirements for fuel makers to generate tradable credits after a glut of low carbon fuels like renewable diesel pushed credit prices notably lower. Higher prices for the credits incentivize investment in producing low carbon fuels that help the state meet its climate change targets. Regulators proposed targeting a 30% carbon intensity reduction in transportation fuels from a baseline level, up from 20% currently, a new 90% carbon intensity reduction target by 2045, and interim reduction targets. CARB added a mechanism that will pull forward the standards by one year if the program is in credit surplus for the previous year and the bank of credits exceeds the quarterly surplus by three times. As noted, CARB will also require producers of crop-based biofuels to have independent certification that the crops are not contributing to deforestation.

Timeline: The proposed update to California’s LCFS will undergo a comment period and public review. The public comment period will run from Jan. 5, 2024, to Feb. 20, 2024, with a hearing on March 21, 2024.

— Study: Wind farm proximity reduces property values, but effects diminish over time and vary by location. A new paper published in the journal Energy Policy (link) suggests that properties within a mile of a proposed wind farm experience an average decrease in value of 11% following the announcement of the project, compared to properties located three to five miles away. However, this decrease in property value begins after the wind farm is announced and continues during construction. Still, it gradually fades away a few years after the project becomes operational to the point that properties within a mile of a wind farm have values that are indistinguishable from those three to five miles away.

This research may impact the ongoing debate about the impact of wind energy development on property values. Opponents of wind farms have argued for years that such projects lead to decreased property values, while the companies proposing these projects have refuted these claims. The paper’s findings provide evidence that while there is a temporary decrease in property values near wind farms during construction, these effects diminish over time. However, it’s essential to note that the study does not consider the potential financial benefits of wind farms, which can include new revenue for local governments and schools, potentially outweighing the temporary loss in property value. The paper also highlights that the negative effects on property values are more apparent for wind farms located near urban areas compared to those in rural areas, suggesting different valuation perspectives in these settings. Link for more via Inside Climate News.

LIVESTOCK, NUTRITION & FOOD INDUSTRY

— H&P Report expected to show slightly smaller hog herd. Analysts expect USDA’s Hogs & Pigs Report this afternoon to show the U.S. hog herd as of Dec. 1 at 74.475 million head, which would be down 0.5% from year-ago. Fall farrowings are anticipated to have declined 4.8% from last year, resulting in a 1.7% smaller pig crop. Winter and spring farrowing intentions are expected to be down 2.1% and 1.7%, respectively. As is typically the case with the H&P Reports, any revisions to past data will be key, with the fall slaughter rates signaling upward adjustments are likely.

— November feedlot placements expected to decline from year-ago. Analysts polled by Reuters expect USDA’s Cattle on Feed Report this afternoon to show the feedlot inventory up 2.2% from year-ago at 11.950 million head. That would be the third straight month of year-over-year increases in feedlot numbers. After two months of placements topping year-ago, analysts anticipate that category will decline 3.8%, while marketings in November are expected to be down 6.7%.

POLITICS & ELECTIONS

— Exclusive AgriTalk Q&A with presidential hopeful Ron DeSantis. Ron DeSantis, candidate for 2024 Republican presidential nomination and current Florida governor, joined AgriTalk to share his plans for the agriculture industry if successful in his run for president. AgriTalk has extended an invitation to all presidential candidates to join Chip Flory and answer the same set of questions. Link for details of the Q/A with DeSantis.

— A change in Michigan, Nevada ratings for president. As President Joe Biden’s numbers continue to sag, the Cook Political Report with Amy Walter moved Michigan (15 electoral votes) and Nevada’s electoral votes (six) from Lean D to Toss Up.

Of note: The firm also notes that South Dakota Rep. Dusty Johnson, a moderate Republican and critic of the Freedom Caucus, will likely draw a primary challenger, noting his actions have “soiled his image among many MAGA devotees back home on the prairie. Insiders agree that there is genuine hunger for a primary challenge among conservative activists in South Dakota, especially after Johnson limped to a 59%-41% primary victory over state Rep. Taffy Howard in 2022.”

— Republican Steve Garvey has risen to second place in a recent U.S. Senate race poll in California, positioning himself for a potential November runoff. The race, triggered by the passing of Sen. Dianne Feinstein is currently led by Rep. Adam Schiff with 26% support. Garvey holds 15% support, narrowly ahead of Rep. Katie Porter at 14%. Rep. Barbara Lee follows with 12%. Approximately 19% of respondents remained undecided, while no other candidate received double-digit support in the poll conducted by Politico and Morning Consult among 858 likely California voters from Dec. 15 to 19.

— Federal judges ordered all 13 of Michigan’s House and Senate district maps to be redrawn, while also ordering officials to refrain from holding elections in each of them until those districts are redrawn. The three judges from the U.S. District Court Western District of Michigan ruled the recently redrawn maps are in violation of the Equal Protection Clause of the U.S. Constitution, according to the Dec. 21 order.

— Rudy Giuliani files for bankruptcy after election worker defamation loss. The former lawyer of Donald Trump reported estimated assets ranging from $1 million to $10 million, while his estimated liabilities amounted to at least $152 million. This includes the $148 million he was ordered to pay for making false accusations against two Georgia women regarding the 2020 presidential election. Giuliani’s bankruptcy filing will provide him with time to appeal the recent verdict. Additionally, he listed Hunter Biden, Dominion Voting Systems, and Smartmatic as unsecured creditors with unspecified amounts. These parties have pending lawsuits against him.

— No Labels considers coalition government in 2024 election if no candidate wins 270 electoral votes. The centrist organization No Labels, which has been advocating for a unity ticket in the 2024 election, is now considering the possibility of a “coalition government” forming if no candidate secures the 270 Electoral College votes required to win the White House. This information comes from a report by NBC’s Vaughn Hillyard and Dan Gallo (link). No Labels officials are apparently envisioning a scenario where they could play a significant role in shaping policy, filling Cabinet positions, or even influencing the vice presidency if their yet-to-be-determined ticket manages to win electoral votes and prevents a major-party nominee from securing an outright presidential victory. This concept of a coalition government is considered unusual and largely unprecedented in the context of U.S. presidential elections.

OTHER ITEMS OF NOTE

— Controversial project in the Brazilian Congress on the Amazon. The Brazilian Chamber of Deputies passed a bill aimed at easing the construction of a contentious highway through the Amazon. This highway would link the city of Manaus to the rest of the country and utilize funds from the Amazon Fund. The bill seeks to streamline the environmental licensing process for the project, which has faced criticism from environmentalists concerned that the construction could facilitate illegal logging activities in the Amazon rainforest. The legislation will now need approval from the Senate to become law.

— Cotton AWP moves lower. The Adjusted World Price (AWP) for upland cotton fell to 65.80 cents per pound, down from $65.67 cents per pound the prior week. Meanwhile, USDA said that Special Import Quota #10 will be established Dec. 28 for 33,103 bales of upland cotton, applying to supplies purchased not later than March 26 and entered into the U.S. not later than June 24.

KEY LINKS

Policy Updates