Putin: Not Ending, But Suspending Ukraine Export Pact; Cautions on Shipping Issues

Has China changed its zero-Covid policy? Speculation said yes, but official said no

Ukraine’s water shortages. Ukrainians in Kyiv have had to wait in long lines for water as Russia strikes Ukrainian critical infrastructure, leaving residents facing water shortages. An estimated 40 percent of people in Kyiv had lost their water supplies while 270,000 homes faced power outages as of Monday night, said Vitali Klitschko, the city’s mayor.

Black Sea grain shipments continue. Three outbound vessels left Ukrainian ports by midday Tuesday after 12 departures and two arrivals yesterday, the U.N.-led coordination center said. The U.N. coordinator for the grain export initiative continued discussions with Ukraine, Russia and Turkey to resume full participation at the inspections center that oversees safe passage of vessels. Maritime law experts said any attempt by Russia to stop ships in international waters would violate international law, which guarantees freedom of navigation. Enforcing order is another matter. Russia has considerable naval assets, including submarines and two frigates armed with rockets, torpedoes and cruise missiles.

President Biden warns oil firms he’ll seek tax on ‘windfall’ profits. Biden said he’d seek to impose higher taxes on oil companies that record “windfall” profits without reinvesting in production, with U.S. gasoline prices still high a week ahead of midterm elections. While the idea of imposing a tax on oil companies’ profits has garnered renewed attention among progressives in Congress, no such proposal is likely to pass the current Senate, which is evenly divided between Democrats and Republicans. Meanwhile, two more oil giants posted blockbuster quarterly earnings Tuesday morning as the industry benefits from higher commodities prices. Britain’s BP said its profit for the period was more than double what it was during the prior-year quarter, easily beating analysts’ expectations. Saudi Aramco’s bottom line also beat expectations, growing to $42.4 billion in the quarter from $30.4 billion during the previous year’s period.

EU aiming for deal with U.S. to resolve electric-vehicle dispute. The European Union hopes to resolve in upcoming negotiations a dispute with the U.S. over new subsidies for North American manufacturers, a senior diplomat from the bloc said on Monday. USTR Katherine Tai is in Europe.

Announcing coming re: expanding meat processing capacity. USDA Secretary Tom Vilsack was expected to announce funding today in Omaha to expand meat and poultry processing capacity in 18 states.

The man accused of attacking Nancy Pelosi’s husband will be in court today. An intruder broke into the House speaker’s San Francisco home Friday and attacked Paul Pelosi after discovering she wasn’t there, officials said. Federal authorities filed attempted kidnapping and assault charges against the suspect, 42, and alleged that he had planned to break the House speaker’s kneecaps.

District Court Judge Florence Pan has blocked Penguin Random House’s proposed purchase of Simon & Schuster, siding with the U.S. Justice Department that the combination could “substantially” harm and “lessen competition” for “top-selling books.”

Jair Bolsonaro has yet to concede defeat in Brazil’s presidential election after Luiz Inácio Lula da Silva was declared the winner on Sunday. Bolsonaro, the right-wing incumbent, suggested during the campaign that vote-rigging could yield an illegitimate result, raising fears about an orderly transfer of power should he lose. Lula won with 50.9% of the vote. Truckers who support Brazil’s outgoing President Jair Bolsonaro escalated their protests, blocking roads throughout the country in actions that could affect exports in one of the world’s top food producers and cause wider economic chaos.

WSJ poll shows the economy outweighing abortion as a midterms issue. Details below. Republicans have regained momentum and now hold a slight edge over Democrats, 46% to 44%, when voters are asked which party they would support in their congressional district if the election were held today.

Election Day 2022 is 7 days away. Election Day 2024 is 727 days away.

Equities today: Global stock markets were mostly firmer overnight. U.S. stock indexes are headed for higher openings. China stock markets initially rallied Tuesday on reports the Chinese government has a plan to phase out its “zero Covid” policies by as soon as March, but prices backed off highs on reports Foreign Minister Zhao Lijian said he is not aware of the matter. In Asia, Japan +0.3%. Hong Kong +5.2%. China +2.6%. India +0.6%. In Europe, at midday, London +1.6%. Paris +1.8%. Frankfurt +1.2%.

U.S. equities Friday: All three major indices finished the day with losses, but still managed to notch gains for the month, with the Dow posting its best monthly performance since January 1976. For October, the Dow was up 13.95%, the Nasdaq gained 3.9% and the S&P 500 was up 8%.

On Monday, the Dow finished down 128.85 points, 0.39%, at 32,732.95. The Nasdaq declined 114.31 points, 1.03%, at 10,988.15. The S&P 500 lost 29.08 points, 0.75%, at 3,871.98.

Agriculture markets yesterday:

• Corn: December corn rose 10 3/4 cents to $6.91 1/2, the highest closing price since Oct. 13.
• Soy complex: January soybeans rose 19 1/4 cents to $14.19 1/2, the contract’s highest close since Sept. 29. December soymeal rose $2.70 to $428.10, the highest close since Sept. 22. December soyoil gained 142 points to 73.21 cents.
• Wheat: December SRW wheat rose 53 cents to $8.82 1/4 and December HRW wheat gained 53 3/4 cents to $9.78 3/4, both the highest settlements since Oct. 13. December spring wheat rose 36 1/4 cents to $9.81 1/4.
• Cotton: December cotton fell 11 points to 72 cents, the lowest close for a nearby contract since December 2020, based on continuation charts.
• Cattle: December live cattle fell 52.5 cents to $152.475, the contract’s lowest close since Oct. 21. January feeder cattle fell 92.5 cents to $179.45, the lowest close since Oct. 20.
• Hogs: December lean hogs fell $1.175 at $84.925, the contract’s lowest close since Oct. 14. The latest CME lean hog index fell 38 cents to $93.77 (as of Oct. 27), the third straight daily decline.
  

Ag markets today: Soybeans built on Monday’s gains during overnight trade, while the corn and wheat markets pulled back amid corrective selling. As of 7:30 a.m. ET, corn futures were trading 1 to 3 cents lower, soybeans were 11 to 15 cents higher and wheat futures were 7 to 11 cents lower. Front-month crude oil futures were around $1 higher and the U.S. dollar index was more than 650 points lower this morning.

Technical viewpoints from Jim Wyckoff:

On tap today:

• S&P Global’s U.S. manufacturing index for October, due at 9:45 a.m. ET, is expected to hold at 49.9, unchanged from an earlier reading.
• Institute for Supply Management’s manufacturing index, due at 10 a.m. ET, is expected to fall to 50 in October from 50.9 one month earlier.
• U.S. construction spending for September, due at 10 a.m. ET, is expected to fall 0.6% from the prior month.
• U.S. job openings, due at 10 a.m. ET, are expected to fall to 9.8 million in September from 10.1 million one month earlier.
• Federal Reserve begins its two-day policy meeting.

Federal Reserve is now paying out more in interest expenses than it earns in interest income. The central bank’s operating losses have increased in recent weeks because what it is paying banks and money-market funds to keep money at the Fed now exceeds the income it earns on some $8.3 trillion in Treasury and mortgage-backed securities it accumulated during bond-buying stimulus programs over the past 14 years. The losses don’t interfere with the Fed’s ability to conduct monetary policy, but do create potential political headaches.

Steel prices in the U.S. have fallen to the lowest level in two years, shrinking steel companies’ profits but giving manufacturers hope for lower material costs.

Deflation: Car prices. The average price paid for a new vehicle hit a record of $46,173 in July and has been trending downward in recent months, according to data from research firm J.D. Power. In October, consumers paid an average of about $45,600 for a new car or truck, still 33% higher than before the pandemic, the firm’s data show. Auto executives remain optimistic that a backlog of pent-up demand will continue to keep car prices elevated in the coming months.

Eurozone inflation. As noted Monday, the annual rate of consumer-price inflation in the eurozone increased to double digits in October, reaching a record and highlighting the challenges facing the European Central Bank.

Delta pilots nearly unanimously approved a strike authorization vote Monday. The vote does not give pilots the right to strike immediately. Pilots at United, American and Southwest airlines also are in negotiations for new contracts. In a statement, a Delta spokesperson who declined to be named said ALPA’s authorization vote “is simply to gain leverage in our pilot contract negotiations,” and expressed confidence that a deal could be struck. The airline and union did not give a time frame for a potential strike. But by law, mediation continues until the mediator declares an “impasse” after which time a 30-day cooling-off period begins ahead of a strike or lockout, ALPA said.

Market perspectives:

• Outside markets: The U.S. dollar index was under pressure, with the euro and p;ound both firmer vs the greenback. The yield on the 10-year U.S. Treasury note was lower, trading under 3.94%, with a mixed tone in global government bond yields. WTI crude futures rebounded to around $88.50 per barrel, bouncing off their weekly lows of $85.30 as a sharp depreciation of the dollar and tight global supplies sparked some dip-buying. Brent crude oil was around $94.70 per barrel. The European Union ban on Russian oil is also set to take effect in December as part of broader sanctions for the invasion of Ukraine. Gold and silver were registering solid gains, with gold around $1,656 per troy ounce and silver around $19.93 per troy ounce.

• Japan spent more than $40 billion in October to prop up the yen, an effort that has had some success but remains hampered by Washington’s lack of interest in stemming the dollar’s rise. The Ministry of Finance said the government spent ¥6.35 trillion in October on intervention, equivalent to $42.8 billion. The figure came on top of the ¥2.8 trillion it spent in September. Japanese Finance Minister Shunichi Suzuki said on Sept. 22 that the government was buying yen to keep the currency from falling, the first such action in 24 years.

• Natural gas prices have fallen more than 40% since hitting shale-era highs in late August, reducing the risk of budget-busting heating bills this winter for millions of Americans and potentially easing a major cost pressure for manufacturers. The decline is due to warm autumn weather, record domestic production and gas-storage facilities that have filled up fast since the end of air-conditioning season.

• OPEC called for trillions of dollars worth of investments in the oil industry over the next two decades to meet what it expects to be booming demand for fossil fuels stretching far into the middle of the century. In an annual report on long-term energy trends, the Organization of the Petroleum Exporting Countries said the oil industry would need investments totaling $12.1 trillion by 2045 — $300 billion more than expected last year — to satisfy demand and keep global energy-security concerns at bay.

• Front-month copper futures contract slipped 0.8% to $3.4135 per pound in October, hurt by fears of a looming global recession and a slowdown in China’s property sector. It was the first time the metal has declined for seven consecutive months since 1997.

• The World Gold Council has reportedly seen substantial, unreported buying of the yellow metal, as central bank bullion purchases hit a record in the third quarter. Reports said 400 metric tons of gold were bought by central banks last quarter, pushing purchases up to their highest since 1967. “Meantime, ETF selling amid soaring U.S. real yields has pushed gold prices lower, while central bankers have been meeting depressed prices with open arms,” said broker SP Angel in an email dispatch Tuesday morning. The WGC reports Turkey and Qatar both ramped up purchases, with China and Russia also expected to be partaking, although their purchases are not reported.

• Ag trade: South Korea purchased 65,000 MT of corn expected to be sourced from South America or South Africa and 63,000 MT of feed wheat expected to be sourced from the United States. South Korea passed on a tender to buy up to 58,000 MT of corn and 8,000 MT of soymeal.

• NWS weather: Much needed precipitation to spread southward through California Monday night into Wednesday... ...Heavy mountain snows expected across portions of the northern Rockies, Oregon Cascades and northern to central Sierra followed by the central Rockies... ...A big cool down for areas west of the Rockies, while much above average temperatures persist to the east of the Rockies all the way to the East Coast... ...Fire weather threats increase Tuesday into Wednesday across the northern and central High Plains.

Items in Pro Farmer’s First Thing Today include:

• Followthrough buying in soybeans, corn and wheat retreat
• Putin: Russia not ending grain export deal
• Black Sea grain shipments continue
• Record-low fall HRW CCI rating
• Smaller soy crush, corn-for-ethanol use expected in September
• More data signals Chinese factory contraction (details in China section)
• Fresh contract cattle supplies available
• Cash hog fundamentals weaken

— Summary: Russian missile attacks plunged Kyiv into darkness as some 80% of consumers in the capital lacked water and 350,000 homes were without electricity, Kyiv Mayor Vitali Klitschko wrote in a Telegram post.

• Cargo ships are moving through the Black Sea under the threat of an abrupt halt to the flow of crucial grain supplies to the rest of the world. Russia threatened to stop vessels carrying grain from Ukraine after withdrawing from an agreement to keep exports moving. The WSJ reports (link) the threat injects new uncertainty into what had become a relatively smooth operation that had helped Ukraine restore grain exports to near-prewar levels. Grain prices are now soaring again on the prospect of shipments being stuck, as they were in the weeks after Russia’s invasion of Ukraine.

  Maritime law experts said that any attempt by Russia to stop ships in international waters would violate international law, which guarantees freedom of navigation. Enforcing order is another matter. Russia has considerable naval assets on hand, including submarines and two frigates armed with rockets, torpedoes and cruise missiles.
  

— ERP payments slightly higher. Payments under the Emergency Relief Program (ERP) edged up to $7.11 billion as Oct. 30, up from $7.09 billion the prior week, according to data from USDA’s Farm Service Agency (FSA). The rise in total payments came as specialty crop payments are now at $6.10 billion ($6.08 billion prior) and non-specialty crop payments rose to $1.10 billion ($1.03 billion prior).

Payments under the Coronavirus Food Assistance Program 1 (CFAP 1) effort were basically steady, while CFAP 2 payments are now at $19.15 billion ($19.14 billion prior), with traditional CFAP 2 payments at $14.32 billion ($14.31 billion prior). Top-up payments were basically steady at $4.83 billion.

— Payments triggered under DMC for some Tier 1 coverage in September. USDA calculated the national average margin under the Dairy Margin Coverage (DMC) program to be $8.62 per hundredweight (cwt) in September, triggering payments $0.38 per cwt for producers with Tier 1 margin coverage levels at $9 and $0.88 per cwt for producers with Tier 1 margin coverage levels at $9.50. No other Tier 1 payments were triggered and no payments for Tier 2 margin coverage were triggered.

USDA currently projects that for 2022, there will be $10 million more taken in under DMC than paid out.

— Boozman seeks accounting details from USDA on unspent pandemic aid funds. Senate Agriculture Committee Ranking Member John Boozman (R-Ark.) asked USDA Secretary Tom Vilsack in an Oct. 27 letter (link) to provide an audit of the unspent funds from $11 billion pandemic aid efforts provided to USDA for fiscal year (FY) 2021.

USDA distributed billions of dollars in relief to producers and others via various programs to address Covid impacts. Since demand for pandemic aid has waned, Sen. Boozman is concerned USDA “has begun using unobligated balances” of funds for “projects unrelated to mitigating the impacts of the coronavirus.” Boozman wants details of USDA’s rationale for using the funds, including any legal and economic analysis of the use of the funds and the amount obligated and expended for each action. Boozman is requesting the information by Nov. 30.

— China lashed out at a recent report that rekindled allegations that a lab leak sparked Covid-19, saying it was driven by politics in the U.S. Vanity Fair and the investigative news outlet ProPublica published an article on Friday that alleged that the Wuhan Institute of Virology was more troubled than previously known. It also says Chinese President Xi Jinping may have been briefed on problems at the facility in November 2019, months before the virus was first detected in Wuhan.

— More data signals Chinese factory contraction. China’s smaller and privately owned factories contracted in October as Covid-19 restrictions slowed production and reduced demand. The Caixin/S&P Global manufacturing purchasing managers index (PMI) rose to 49.2 in October, up from 48.1 in September, though that was still below the 50.0 level separating contraction from expansion. “There is still tremendous downward pressure on the economy, and the foundation for recovery is not yet solid,” said Dr. Wang Zhe, an economist at Caixin Insight.

— China to release more pork reserves. China’s state planner said on Tuesday it will release its seventh batch of frozen pork from reserves, without providing details. China sold 200,000 MT of pork from state reserves last month to help ease surging domestic pork prices.

— EU/U.S. talks on EV subsidies. The European Union hopes that negotiations later this week can help a lingering dispute with the U.S. over new subsidies for electric vehicles. “It has to be worked out,” Stavros Lambrinidis, the EU’s ambassador to the U.S., said in an interview on Bloomberg Television, referring to the subsidy question. “This is what I hope we will reach in those talks. When both of us do the right thing in the right direction, I have no fear for where we are going.”

Background. The climate and tax law/Inflation Reduction Act, which provides a $7,500 consumer tax credit to electric vehicles built in North America, is seen as discriminatory by the EU, South Korea and other trading partners.

Following talks with U.S. Trade Representative Katherine Tai, European Commission Executive Vice President Valdis Dombrovskis said that an exemption is an ideal solution for the EU. Hyundai and the South Korean government have also been ratcheting up lobbying to loosen restrictions on tax credits for electric vehicles.

— President Joe Biden invoked “war-profiteering” by America’s oil-and-gas firms — along with the possibility that he could slap a windfall tax on the gains they have earned since the Ukraine war sent their revenues rocketing. But he implied they could avert extra taxes by passing on profits to consumers; if they did, he said, “gasoline prices would be down about 50 cents” a gallon.

— Iowa egg layer flock positive for HPAI. Iowa Department of Agriculture officials announced Monday that a commercial egg layer flock in Worth County, Iowa, with 1.1 million birds, has been confirmed with highly pathogenic avian influenza (HPAI). This is the first find in Worth County in 2022 and the first discovery in a commercial flock in Iowa since April 20, 2022. Reports indicated that the state has now had 14.4 million birds affected by HPAI. USDA’s Animal and Plant Health Inspection Service (APHIS) has not yet publicly confirmed the case and they update their data on HPAI daily at noon ET.

For the U.S., this would mark the first commercial flock discovery since two commercial Minnesota turkey meat bird flocks were confirmed with HPAI Oct. 27 with a total of 95,100 birds.

— Britain orders chickens indoors. With the nation facing its largest-ever outbreak of bird flu, Britain’s chief veterinary officer ordered owners to keep all poultry and captive birds indoors for one week and to practice “scrupulous biosecurity.” Link for details.

— Summary:

• Global Covid-19 cases at 630,621,566 with 6,590,564 deaths.
• U.S. case count is at 97,495,091 with 1,070,389 deaths.
• Johns Hopkins University Coronavirus Resource Center says there have been 636,871,557 doses administered, 266,031,472 have received at least one vaccine, or 80.74% of the U.S. population.

— Ruling stands that let TSA require masks. The U.S. Supreme Court let stand a ruling that said the Transportation Security Administration (TSA) could require airline passengers to wear masks during the height of the pandemic, keeping in place a precedent issued by a federal appeals court.

— Johnson & Johnson strikes a $16.6 billion deal for a maker of heart devices. It will pay $380 a share for Abiomed, equal to its 52-week high, and a 50 percent premium to the company’s closing share price. The takeover is part of J.&J.’s effort to bolster its high-end medical operations as it spins out its consumer health arm.

— GAO confirms investigation into baby formula situation. The Government Accountability Office (GAO) will examine the recent baby formula shortages and the impact that sole-source contracts crafted via the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) program may have had on the availability of formula, according to Senate Agriculture Committee Ranking Member John Boozman (R-Ark.).

— WSJ poll: GOP prospects rise amid economic pessimism. Voters are giving Republicans a late boost in support just ahead of the midterm elections, as pessimism about the economy and the direction of the country jump to their highest levels of the year, a new Wall Street Journal poll finds. The survey, conducted about two weeks before Election Day, suggests that abortion rights are less important in voting decisions than voters indicated in the summer.

— Bolsonaro’s silence. Brazilian President Jair Bolsonaro has not spoken publicly since being narrowly defeated by Luiz Inácio Lula da Silva in the Oct. 30 runoff election; there are fears that he may challenge the legitimacy of the results or refuse to concede. Truck drivers who support him have blocked roads in more than 300 locations across the country while other supporters have surrounded army bases, urging the military to intervene. The Brazilian Supreme Court ordered the truckers to dismantle roadblocks and disperse or face fines of over $19,000 per hour.

— House GOP leadership elections sooner than expected. House Republicans will announce later today that their leadership elections will take place just one week after the midterms, the Washington Post reported, citing a source familiar with the planning. The move is seen as strategic if Republicans retake the House and cement the top leadership team and pave the way for House Minority Leader Kevin McCarthy (R-Calif.) to become speaker in January. The far-right House Freedom Caucus, however, have said they want the conference to vote on House rule changes to give rank-and-file members more power before leadership elections. Rep. Steve Scalise (R-La.), the current minority whip, is running for the No. 2 spot, whether it’s majority leader or minority whip. Rep. Elise Stefanik (R-N.Y.) is very likely to win re-election as conference chair — the No. 3 slot in Republican leadership right now.

The candidate forum will take place Monday, Nov. 14, the WaPo said, the first day the House is back in session after the midterms, the announcement is expected to say. That’s also the day that newly elected lawmakers make their first trip to the Capitol as members-elect. The elections are conducted via secret ballot. The winner of the conference election for speaker must then be elected speaker by the full House in January.

— Man accused of attacking Paul Pelosi was charged Monday with assault and attempted kidnapping, among other charges, the Justice Department said. David DePape, 42, reportedly had a list of potential targets and could have been planning to attack other people.

— A federal judge in Washington blocked a planned merger between Penguin Random House (PRH) and Simon & Schuster, two of America’s biggest publishing houses. It was a victory for the Biden administration, which had argued against it on antitrust grounds. PRH, itself the product of a merger in 2012 and now owned by Bertelsmann, a German giant, promised to appeal the judgment. The case involved an unusual focus by federal prosecutors on the threat to author earnings, instead of harm to consumers: Essentially, it drastically widens the scope of how regulators view consolidation, to include the impact on workers and suppliers.

— The Supreme Court appears ready to strike down affirmative action programs. Questions from the court’s conservative justices suggest that they will bar race-conscious admissions policies at Harvard and the University of North Carolina. Nearly 70 major companies had joined a briefing to the court supporting affirmative action programs as good for business.

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 | Election predictions: Split-ticket | Congress to-do list | SCOTUS on WOTUS | SCOTUS on Prop 12 | New farm bill primer | China outlook |