SCOTUS Hears Oral Arguments in Proposition 12 Case

Producer Price Index rises at twice the rate expected | OPEC slashes oil-demand forecasts

USDA daily export sale: 526,000 metric tons of soybeans received in the reporting period for delivery to China during the 2022-2023 marketing year.

The Supreme Court on Tuesday heard a pork-industry challenge to California’s law on animal-welfare standards for meat sold in the state. The argument stretched beyond the farm to question a state’s power to enact legislation that affects production beyond its borders. We have details in a special report filed earlier.

Wholesale prices rose 0.4% in September, more than expected as inflation persists.

The U.K. government bond market is still in turmoil, as the Bank of England (BOE) this week was forced to buy inflation-linked bonds as part of its bond-buying program. The BOE today reiterated it will shut down its bond-buying program on Friday. There are worries U.K. pension funds could be lost if the U.K. bond market rout continues. Andrew Bailey, the governor of the BOE, bluntly told British pension funds looking to sell gilt (bond) holdings to raise collateral, “You’ve got three days left.” The pound sank immediately after his speech, falling below $1.10. Yields on 30-year U.K. debt reached nearly 4.9% this morning, approaching the levels that prompted the BOE to gin up the bond-buying operation in the first place. Bottom line: The BOE’s credibility is now in question.

Russia detained eight people in connection with the blast that brought down part of its bridge to Crimea.

Saudi Arabia dismissed U.S. requests to delay an OPEC+ production cut. U.S. officials asked Saudi Arabia and other big Gulf producers to delay their Oct. 5 decision for a month, according to people familiar with the talks, the Wall Street Journal reported.

Saudi Arabia will face “consequences” for teaming with Russia and other OPEC+ oil-exporting countries to curtail oil production by 2 million barrels per day starting next month, President Joe Biden said Tuesday. The reduction is anticipated to drive up global oil prices. Biden was tight-lipped on specific repercussions, and will work on his response with Congress when it returns from recess.

President Biden played down the likelihood of a recession and said if there is one it would be “very slight.”

OPEC slashes oil-demand forecasts after supply cuts. The cartel points to elevated inflation, rising interest rates and geopolitical tensions as factors that will drag on demand.

Thousands of federal officials trade stocks in companies their agencies oversee, a WSJ investigation found. More than one in five officials at agencies from the Commerce Department to the Treasury Department, during both Republican and Democratic administrations, disclosed stock investments in companies while those same companies were lobbying their agencies.’

The U.S.’ pre-eminence among the world’s top research universities continues to diminish, according to a new global ranking, while Chinese universities are on the rise, producing a greater quantity and higher quality of research than ever before.

We have the latest midterm elections predictions from respected analysts at Inside Elections with Nathan L. Gonzales. See Politics & Elections section.

Election Day 2022 is 27 days away. Election Day 2024 is 755 days away.

Equities today: Global stock markets were mixed to firmer overnight. U.S. Dow opened slightly higher and then went lower after returning to slightly higher gains. Traders await key U.S. inflation reports on Wednesday (Produce Price Index, see below for results) and Thursday (Consumer Price Index). In Asia, Japan -0.02%. Hong Kong -0.78%. China +1.53%. India +0.81%. In Europe, at midday, London +0.33%. Paris +0.55%. Frankfurt +0.64%.

U.S. equities yesterday: Tech stocks were under pressure at the close while the Dow managed to finish in positive territory Tuesday. The Dow rose 36.31 points, 0.12%, at 29,239.19. The Nasdaq fell 155.91 points, 1.10%, at 10,426.19. The S&P 500 was down 23.55 points, 0.65%, at 3,588.84.

Bank of England Gov. Andrew Bailey said that the U.K. central bank’s plan to rescue pension funds hit by interest-rate increases will end as scheduled on Friday. Bailey’s comments were taken as negative on Wall Street because they raise the prospect of further asset sales by U.K. pension funds as interest rates rise.

Millennial and Gen-Z millionaires have lost confidence in the traditional stock market and instead choose to funnel their money into crypto, with about 75% of those ages 21 to 42 who responded to a Bank of America survey indicating they think it’s impossible to achieve above-average returns by solely investing in stocks and bonds.

Agriculture markets yesterday:

• Corn: December corn futures fell 5 1/4 cents to $6.93.
• Soy complex: November soybeans rose 2 1/4 cents to $13.76 1/4, while December meal futures rose 30 cents to $406.00, and soyoil futures fell 56 points to 68.98 points.
• Wheat: December SRW wheat fell 37 cents to $9.01. December HRW wheat fell 33 1/2 cents to $9.90 3/4. December spring wheat fell 29 cents to $9.85 1/4.
• Cotton: December cotton rose 63 points at 88.86 cents, the highest close in a week.
• Cattle: December live cattle rose $1.40 to $148.40, the contract’s highest closing price since Sept. 22. November feeder futures jumped $3.10 to $175.975.
• Hogs: October lean hogs fell 72 cents to $93.025. December slipped 7.5 cents to $79.525. Tuesday’s CME lean hog index rose 33 cents to $92.98 (as of Oct. 7), still near an eight-month low. Wednesday’s quote is expected to decline 3 cents.
  

Ag markets today: Corn, soybean and wheat futures faced mild selling pressure in relatively light overnight trade ahead of USDA’s October crop reports at noon ET. As of 7:30 a.m. ET, corn and soybean futures were both trading 1 to 2 cents lower, winter wheat futures were 5 to 9 cents lower and spring wheat was mostly 3 to 4 cents lower. Front-month crude oil futures were around 50 cents higher and the U.S. dollar index was holding near unchanged this morning.

Technical viewpoints from Jim Wyckoff:

On tap today:

• U.S. Producer Price Index (PPI) for September is expected to increase 0.2% from the prior month. UPDATE: The PPI, which measures the prices that suppliers are charging businesses and other customers, rose a seasonally adjusted 0.4% last month compared with a revised 0.2% decrease in August, the Labor Department said on Wednesday. Higher food prices and home-heating costs drove the increase. It was the first increase in three months, and as noted was twice the market expectation of a 0.2% rise. Cost of services rose 0.4%, with prices for traveler accommodation services jumping 6.4%. The indexes for food and alcohol retailing (2.6%), portfolio management (2.1%), machinery and vehicle wholesaling (1.5%), oil and gas well drilling services, and hospital inpatient care (0.4%) also rose. Cost of goods went up 0.4%, with food prices rising 1.2%, namely fresh and dry vegetables (15.7%). Prices for diesel fuel (9.1%), residential natural gas (2.6%), chicken eggs (16.7%), home heating oil (10.7%), and pork (5.5%) also moved higher. Conversely, the index for gasoline fell 2%. Year-on-year, producer prices rose 8.5%, the smallest rate since July last year, but slightly above forecasts of 8.4%
• USDA Supply and Demand reports, noon ET.
• Federal Reserve releases minutes from its September 20-21 meeting at 2 p.m. ET.
• Fed speakers: Minneapolis’s Neel Kashkari on the economic outlook at 10 a.m. ET, Vice Chair for Supervision Michael Barr on new technologies and inclusion at 1:45 p.m. ET, and governor Michelle Bowman on forward guidance at 6:30 p.m. ET.

Biden: ‘Very slight’ recession possible, but downplays risk. President Joe Biden said a recession in the U.S. is possible but that any downturn would be “very slight” and that the U.S. economy is resilient enough to ride out the turbulence. “I don’t think there will be a recession. If it is, it’ll be a very slight recession. That is, we’ll move down slightly,” Biden said in an interview Tuesday with CNN.

Consumers see the U.S. inflation rate cooling modestly over the next year but are less optimistic in the longer term, according to the latest survey by the Fed Bank of New York. Meanwhile, Fed Bank of Cleveland President Loretta Mester said officials need to keep raising interest rates and cannot get complacent as they work to battle the strongest inflation in a generation.

Thousands of federal officials held investments in companies their agencies oversee, the WSJ found (link). A top official at the EPA reported purchases of oil and gas stocks. The FDA improperly let an official own dozens of food and drug stocks on its no-buy list. A Defense Department official bought stock in a defense company five times before it won new business from the Pentagon. Those were a few of the reported disclosures the WSJ found in its analysis of more than 31,000 financial-disclosure forms for about 12,000 senior career employees, political staff and presidential appointees, spanning from 2016 through 2021.

The federal deficit declined to $1.4 trillion in the just-ended fiscal year, as tax revenues increased and pandemic-related spending fell sharply, according to estimates from the nonpartisan Congressional Budget Office (CBO). The CBO’s preliminary deficit figures for the 2022 fiscal year, which ended Sept. 30, show the federal budget shortfall fell by half from nearly $2.8 trillion the prior year, a roughly $1.4 trillion decline. The CBO said the drop came as government revenues increased in all major categories, particularly from individual income taxes.

Market perspectives:

• Outside markets: The U.S. dollar index is stronger following the Producer Price Index which shower inflation higher than expected. The yield on the 10-year US Treasury note was slightly higher around 3.95%. Crude oil futures are lower with the WTI around $88 per barrel and Brent just over $93 per barrel. Gold is higher at around $1.670 per troy ounce and silver is lower at just over $19 per troy ounce.

• Brent crude futures fell below to just over $93 per barrel on Wednesday, extending losses into a third day on concerns about of a weaker oil demand. OPEC said in its October report that oil demand will increase by 2.64 million barrels per day, or 2.7%, in 2022, down 460,000 bpd from the previous forecast. That was the fourth time that the group cut the oil demand forecast. The cartel also cut its 2023 forecast by 360,000 bpd to 102.02 million bpd.

• Low water slows exports. U.S. grain exports from the Gulf of Mexico were the lowest in nine years during the first week of October due to shallow water on the Mississippi River that halted the flow of grain from the Midwest. Link for more via Reuters.

• Ag trade: Taiwan buys 65,000 MT of corn that is expected to be sourced from Brazil. Algeria purchased between 480,000 and 510,000 MT of milling wheat that is expected to be sourced mostly from Russia but also some from Romania and Bulgaria. Japan tenders to buy 70,000 MT of feed wheat and 40,000 MT of feed barley.

• NWS weather: There is a Slight Risk of severe thunderstorms over parts of the Lower Mississippi and Tennessee Valleys through Thursday morning... ...There is a Slight Risk of excessive rainfall over parts of the Northeast from Thursday into Friday morning... ...There is a Critical Risk of fire weather over the Northern Plains.

Items in Pro Farmer’s First Thing Today include:

• Weaker tone awaiting USDA reports
• Big balance sheet changes coming at noon ET
• China raises corn crop estimate (details in China section)
• China to auction more wheat
• France raises wheat export forecast
• Romania confirms new ASF outbreak
• Beef margins turn negative
• Short-lived rebound in cash hog index

— Summary: Ukrainian President Volodymyr Zelenskyy spoke on Tuesday to an emergency meeting of the Group of Seven leaders of large world economies, who convened as a show of unity in support of Ukraine. President Biden said Tuesday night in an interview with CNN that Russian President Vladimir Putin is “a rational actor who has miscalculated significantly.”

• Russian security service arrests eight for Crimea Bridge blast. Russia’s Federal Security Service said it had detained five Russians and three citizens of Ukraine and Armenia over the explosion that damaged the Crimea Bridge last Saturday. The FSB said the blast was organized by Ukrainian military intelligence and its director, Kyrylo Budanov.
• Western military analysts say Russia’s strikes on Ukraine this week came at a staggering cost, depleted a dwindling supply of long-range missiles, hit no major military targets and are unlikely to change the course of a war going badly for Moscow.

• Russian strikes have damaged Ukraine’s electric grid. Russian missiles and drones hit Ukraine’s electric grid for a second day, knocking out power in the city of Lviv and injuring six people at a power plant in the Vinnytsia region, according to local authorities.

— Farmers fear some potential issues arising for USDA’s Emergency Relief Program (ERP) for the 2022 HRW wheat crop. There was a lot of HRW wheat that didn’t emerge last fall, which prompted farmers to file an insurance claim. Some think this could be a potential problem if they don’t approve an ERP 2022 program because the producers that didn’t get crop insurance claims until July 2022 are left out currently.

Comments: A fall-planted crop is eligible for ERP even though it is a 2022 crop provided the cause of loss was in 2021. If a claim was delayed until 2022 but the cause of loss was still 2021, we are told farmers should contact FSA and we anticipate the agency will work through the issue with them.

— The Biden administration’s student-loan-forgiveness application will require only basic information from many borrowers. Some applicants whose income is close to the cutoff to qualify will have to submit additional information to verify their incomes.

— China raises corn crop estimate. China’s ag ministry raised its corn production estimate by 2.75 MMT to 275.31 MMT, which would be up 2.76 MMT (1.0%) from last year. The ministry left its 2022-23 corn import forecast at 18 MMT, which would be down 4 MMT (18.2%) from last year. It also maintained its 2022-23 soybean import forecast at 95.2 MMT, which would be up 4.18 MMT (4.6%) from 2021-22.

— American universities’ pre-eminence as centers of research continues to diminish, while Chinese universities are on the rise, new global rankings show.

— USTR Tai is quite consistent about new trade agreements: forget about the traditional approach to trade policy. U.S. Trade Representative Katherine Tai addressed the National Association of Business Economics (NABE) Tuesday, and was asked about the Biden administration’s trade policies and whether the pursuit of free trade agreements (FTAs) was truly not in the trade policy equation. “Not to be super dramatic about it, but I think that the era that we are in right now is not serviced by the traditional approach to free trade agreements that we have had,” Tai said.

Prior trade agreements enter the blame game. While noting some “elements” of FTAs could come back into play, she said the use of FTAs is what contributed to vulnerable supply chains, economic inequality and negative impacts on labor. “Certainly, in this moment of instability and volatility, I do think that we badly need new ideas,” Tai stated. “And as much as we value innovation in our technology, we need innovation in our economic policies.”

Upshot: The Biden administration will not be pursuing FTAs which typically are the formats where tariffs and other trade restrictions are dealt with. That is not backed by most ag trade groups and lawmakers and even is getting pushback from House Ways & Means Chairman Richard Neal (D-Mass.).

— Saudi Arabia dismissed U.S. requests to delay an OPEC+ production cut. U.S. officials asked Saudi Arabia and other big Gulf producers to delay their Oct. 5 decision for a month, according to people familiar with the talks, the Wall Street Journal reported. U.S. officials warned Saudi leaders that a cut would be viewed as a clear choice by Riyadh to side with Russia in the Ukraine war and that the move would weaken already-waning support in Washington for the kingdom. Saudi officials dismissed the requests, which they viewed as a political gambit by the Biden administration to avoid bad news ahead of the U.S. midterm elections. Instead, the kingdom leaned on its OPEC allies to approve the cut. Link to more via the Wall Street Journal.

— Delta Air Lines invested $60 million in Santa Cruz, Calif.-based Joby Aviation, developer of green vertical takeoff and landing aircraft, as the companies team up on a vision to use electric air taxis to transport travelers to airports, skipping the obligatory traffic and stress that comes with getting to your flight. New York City and Los Angeles head up the list of launch sites.

— SCOTUS zeroes in on key Prop 12 issues. U.S. Supreme Court (SCOTUS) justices voiced worries about the implications of a new California humane-pork law, Proposition 12, asking whether it might open the way for other states to try to impose their moral values beyond their borders. Justices suggested they might let a pork-industry challenge to the law go forward without issuing a definitive ruling on the measure’s constitutionality. If so, that could mean allowing a pork industry-backed lawsuit challenging the law to play out in the lower courts rather than rule on its constitutionality. A decision in the case is expected sometime next year. Link to our special report on the topic for more.

Justice Elena Kagan offered a possible solution to the dilemma facing the court. She noted that the dispute came to the Supreme Court before a trial on the merits, so at this early point in the litigation, courts must accept the challengers’ allegations in their complaint as true. At this stage, she stressed, even if a state’s moral interests in a law are something that courts should consider, the challengers’ complaint “alleges great costs to the pork industry.” Because the case is still at a preliminary stage, she said, isn’t the appropriate step for the court to send the case back for the lower court to balance the burden that Proposition 12 imposes on out-of-state commerce against the benefits to California?

“A state may not project its legislation into other states,” said Chicago attorney Timothy Bishop, representing the National Pork Producers Council. “We will not have a national economic union if California can impose its moral views this way.” He argued that if California’s law is upheld, Oregon could require that products sold there from other states must be made by workers who were paid the state’s higher minimum wage, or Texas could limit sales to products made entirely by lawful U.S. residents.

The Biden administration joined the case on the side of the pork producers and emphasized a similar argument. California’s Proposition 12 “imposes a substantial burden on interstate commerce,” said Deputy Solicitor Gen. Edwin Kneedler. “It invites conflict and retaliation and threatens the balkanization of the national economic union.”

California Solicitor Gen. Michael Mongan defended the law on the grounds that it applied only to pork sold in the state and not elsewhere. “California voters chose to pay higher prices to serve their local interest in refusing to provide a market to products they viewed as morally objectionable and potentially unsafe,” he said.

But objections surfaced from both liberal and conservative justices who foresaw a threat of similar measures. “We live in a divided country,” Justice Elena Kagan said, “and the balkanization that the framers were concerned about is surely present today.”

Justice Ketanji Brown Jackson suggested the California law may have gone further than necessary. Why not require labeling instead, she said, so consumers could avoid pork if it is originated with pigs subjected to cruelty? “Why couldn’t the state advance its interest in a less burdensome way?” she asked.

Justice Neil Gorsuch said the Constitution empowers Congress, not judges, to set national regulations that protect interstate commerce. He said it would be better to “defer to the states” than to have judges decide which state laws have too much effect on businesses in other states.

The Humane Society of the United States and several animal-protection groups objected to the Justice Department’s contention that Californians have no “legitimate” interest in preventing cruelty to animals. “The citizens of California do not want to be complicit in patronizing or condoning the abuse and cruel treatment of these intelligent, social animals,” wrote Katherine A. Meyer, director of the Harvard Animal Law and Policy Clinic. She noted that in the Dobbs vs. Jackson Women’s Health Organization decision that overturned Roe vs. Wade, the court said that questions of “profound moral and social importance” are “unequivocally” left to the people to decide. If so, she said, “Californians should be able to decide not to be complicit in such blatant cruelty to animals with respect to the food products sold in their state.”

— Lawsuit wants to force EPA to respond on CAFO regulation. A coalition of public interest and environmental justice organizations filed a lawsuit last Friday (link) to compel the EPA to respond to an earlier rulemaking petition (link) submitted to the agency in 2017, that asked the EPA to overhaul how large-scale animal production facilities are regulated under the Clean Water Act. The lawsuit argues that the agency’s five-year delay to respond to the petition is unreasonable and violates the Administrative Procedure Act (APA), which requires agencies like EPA to respond to petitions “within a reasonable time.” Filed in the Ninth Circuit Court of Appeals, it aims to force EPA to issue a formal response.

Petitioners in the lawsuit include: Food & Water Watch, Center for Food Safety, Dakota Rural Action, Dodge County Concerned Citizens, the Environmental Integrity Project, Helping Others Maintain Environmental Standards, Institute for Agriculture and Trade Policy, Iowa Citizens for Community Improvement, Kewaunee CARES, Midwest Environmental Advocates, and North Carolina Environmental Justice Network.

— Summary:

• Global Covid-19 cases at 622,738,437 with 6,560,898 deaths.
• U.S. case count is at 96,772,781 with 1,063,338 deaths.
• Johns Hopkins University Coronavirus Resource Center says there have been 624,198,981 doses administered, 268,373,101 have received at least one vaccine, or 81.45% of the US population.

— Many coronavirus patients have not fully recovered months after being infected, one of the largest studies on Long Covid finds. The Scottish study, which drew on nationwide data, found that between six and 18 months after infection, 1 in 20 people had not recovered and 42 percent of people reported feeling only partially better. There were some reassuring aspects: People with asymptomatic infection are unlikely to suffer long-term effects, and vaccination appears to offer some protection from Long Covid.

— Latest election predictions from Inside Elections with Nathan L. Gonzales:

House: GOP net gains of 8 to 20 seats. Nominees are within a few points of each other in at least two dozen races.

Senate: Republicans +1 seat to Democrats +1 seat. Two of the three outcomes within that likely range would keep Democrats in control. For the second cycle in a row, control of the Senate could hinge on a Georgia runoff. This time it would be on Dec. 6.

— House Minority Leader Kevin McCarthy raised $20 million in the quarter ended September, bringing his total so far this year to a record $145 million.

— President Joe Biden said Tuesday night that there will be “consequences” for Saudi Arabia after it joined with Russia and other OPEC+ countries last week to cut oil production. Meanwhile, Senate Foreign Relations Committee Chair Bob Menendez (D-N.J.) has called for “a freeze in all aspects of our cooperation with Saudi Arabia,” including arms sales. Senate Majority Whip Dick Durbin alleged Saudi Arabia “is not a trustworthy ally.” Sen. Dick Blumenthal (D-Conn.) and Rep. Ro Khanna (D-Calif.) have drafted a resolution to block all arms sales to Saudi Arabia for one year and one a vote on the measure.

— Final rule H-2A program changes released. The final rule from the Department of Labor’s Employment and Trading Administration on reforms to the H-2A guestworker program were published in the Federal Register (link), setting the stage for the changes to become effective Nov. 14. The changes still do not address broader immigration issues that have lacked a consensus.

— A proposed Labor Department rule would add more gig workers to company payrolls. The rule would scrap a Trump administration rule that made it easier for firms to classify workers as independent contractors, and put in place a more stringent test to determine when companies can count workers as contractors rather than employees. The proposal would affect millions of workers across a range of industries; most prominently, it could lead to a push to classify drivers for ride-share or food-delivery companies such as Uber and Lyft or DoorDash as employees rather than gig workers. The companies have opposed similar efforts in the past.

— NASA’s asteroid-smashing mission was deemed a success. The space agency said the intentional collision successfully shifted the asteroid’s orbit around a larger asteroid, changing its trajectory.

— New Zealand farmers are irate about the government’s proposed “fart tax” on cows and sheep. Link for details via the Financial Times.

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 |