Southern Ag Today: ‘If It’s Not Time to Hit the Panic Button… We Are Getting Close’

News/Markets/Policy Updates: Aug. 15, 2024

— Equities today: U.S. stock futures are following European and most Asian stocks higher, with traders’ attention turning to the next round of economic data. The strong U.S. retail sales report is helping U.S. equities with the Dow currently up around 300 points and supports the case for the Federal Reserve to cut rates at its Sept. 17-18 meeting. In Asia, Japan +0.8%. Hong Kong flat. China +0.9%. India closed. In Europe, at midday, London flat. Paris flat. Frankfurt +0.3%.

U.S. equities yesterday: All three major indices scored gains Wednesday with more subdued rises seen in the S&P 500 and Nasdaq. The Dow was up 242.75 points, 0.61%, at 40,008.39. The Nasdaq rose 4.99 points, 0.03%, at 17,192.60. The S&P 500 gained 20.78 points, 0.38%, at 5,455.21.

— Deere & Company’s stock saw an early rise after the company reported better-than-expected earnings for its fiscal third quarter. Deere announced earnings per share (EPS) of $6.29 from equipment sales of $11.4 billion, surpassing Wall Street’s expectations of $5.68 EPS from $10.9 billion in sales. Despite these positive results, Deere’s earnings and sales have declined compared to the previous year, where EPS was $10.20 from $14.3 billion in sales.

This earnings beat led to a 5% increase in Deere’s stock price in premarket trading. However, the broader agricultural market remains challenging. Lower crop prices, driven by higher inventories, have reduced farmers’ incomes, limiting their ability to purchase new equipment. As a result, farm equipment demand has weakened, and inventories at U.S. dealers have risen, indicating a mismatch between production and sales. This surplus has led to discounted prices and increased reliance on auctions to clear excess stock, further complicating the market dynamics for new equipment sales.

Analysts expect a continued decline in farm equipment demand, potentially leading to production cuts at Deere and other manufacturers. Deere’s operating profit margin is projected to slightly decrease to around 19% for fiscal year 2024.

The agricultural sector’s struggles have already impacted Deere’s peers, such as AGCO and CNH Industrial, both of which have lowered their financial guidance and seen stock price declines this year. Despite the positive earnings report, Deere’s stock is still down about 12% for the year, underperforming the broader market.

Investors will closely watch Deere’s conference call for any announcements about production cuts and their potential impact on profit margins, as the agricultural market’s weakness could continue to pressure the company’s stock. The company stated that “global ag fundamentals are expected to remain weak as construction moderates,” and it noted the “employee-separation plans that it put in place in the third quarter for salaried employees which were “largely involuntary.” The company said they expect pre-tax expenses of $150 million from the effort with $124 million recorded in its third quarter with the rest to come in 2025.

Looking forward, Deere’s fiscal 2024 net income is projected to be around $7.0 billion, unchanged from previous forecasts despite the challenging environment.

— Walmart reported strong earnings for the second quarter of its fiscal year, surpassing expectations and providing an optimistic outlook for the remainder of the year. The company’s revenue for the quarter reached $169.34 billion, exceeding the anticipated $168.46 billion, with adjusted earnings per share of $0.67, also beating forecasts of $0.65. This performance reflects a 4.8% increase in revenue and a 9.8% rise in earnings per share compared to the previous year. Walmart has successfully attracted a diverse range of consumers, including higher-income households, by offering value and convenience. This has led to an increase in market share across various income brackets. Same-store sales in the U.S. rose by 4.3%, with significant contributions from grocery sales, which account for approximately 60% of Walmart’s U.S. sales. The company’s e-commerce efforts have shown notable growth, with U.S. online sales increasing by 22% year-over-year. This growth is part of Walmart’s broader strategy to enhance its digital and omnichannel capabilities. Walmart’s strong quarterly results have led the company to raise its full-year sales and profit forecasts. The retailer now expects earnings per share to be between $2.35 and $2.43, an increase from the previous forecast of $2.23 to $2.37, with projected net sales growth of 3.75% to 4.75%. This optimistic outlook is supported by steady consumer spending and Walmart’s ability to adapt to changing market conditions, positioning it well for continued growth in the current economic environment.

“We see, among our members and customers, that they remain choiceful, discerning, value-seeking, focusing on things like essentials rather than discretionary items, but importantly, we don’t see any additional fraying of consumer health,” Chief Financial Officer John David Rainey told CNBC.

— Boeing received a significant boost with a new order from EL AL Israel Airlines, marking a positive development for the aircraft manufacturer amidst ongoing challenges. EL AL has finalized a deal to purchase up to 31 Boeing 737 MAX jets, valued at approximately $2.5 billion. This order includes a firm commitment for 20 aircraft, worth $1.5 billion, with options for 11 additional planes. This order represents the largest single purchase in EL AL’s history and is part of a broader strategy to modernize its fleet. The new 737 MAX planes are intended to replace EL AL’s existing fleet of 737-800 and 737-900 jets, with deliveries expected to begin in 2027. The 737 MAX family is known for its improved fuel efficiency, reducing fuel consumption and emissions by 20% compared to the aircraft it replaces, and it also features a 50% smaller noise footprint.

— Ag markets today: Corn, soybeans and wheat posted followthrough buying during the overnight session, while HRW and HRS wheat rebounded from recent losses. As of 7:30 a.m. ET, corn futures were trading a penny higher, soybeans were mostly a nickel higher and wheat futures were 6 to 8 cents higher. The U.S. dollar index was holding near unchanged, while front-month crude oil futures were about 75 cents higher.

Mixed cash cattle opinions. Cash cattle trade has been light so far this week, with not enough volume to set a clear price trend. Wednesday’s strong performance by cattle futures gives feedlots some hope packers may bid up for cash cattle this week, though most cash sources feel prices will be steady/weaker when trade turns active.

Slightly bigger-than-normal discount in October hogs. October lean hog futures rallied more than $3.00 on Wednesday, which narrowed the discount the new lead-month contract holds to the CME lean hog index to $14.255. That’s slightly greater than the five-year average decline of $12.62 from now until the contract settles against the index in mid-October.

— Agriculture markets yesterday:

• Corn: December corn rose 3 1/2 cents to $4.00 3/4, nearer the session high.
• Soy complex: November soybeans rose 6 cents to $9.68 1/2 and nearer the session high. September soybean meal closed up $5.30 at $305.10 and nearer the daily high. September soybean oil closed down 28 points at 40.01 cents and nearer the session low.
• Wheat: December SRW wheat rose 4 1/2 cents to $5.56 1/4, nearer the session high, while December HRW fell 1 1/4 to $5.61 1/4, forging a mid-range close. September HRS futures fell a penny to $5.92.
• Cotton: December cotton fell 94 points to 67.05 cents, near the daily low and closed at a contract low close.
• Cattle: The cattle market broke out to the two-week highs Wednesday. Expiring August live cattle futures rose 60 cents to $184.60, while most-active October surged $1.375 to $182.125. August feeder futures climbed $1.425 to $247.90, which fell short of the $2.175 rise posted by October feeders, which reached $242.10.
• Hogs: October lean hog futures surged $3.075 to $75.925 and settled near session highs. August lean hog futures expired at noon, firming 20 cents to $90.10.

— Quotes of note:

• There are two Fed speakers today, Musalem (9:10 a.m. ET) and Harker (1:10 p.m. ET) and officials might start to be more explicit about a rate cut following Wednesday’s CPI (Atlanta Fed President Bostic said he was open to a cut in September overnight).

• The Federal Reserve’s decision on whether to cut interest rates in September and by how much is a topic of significant interest. The key factors influencing this decision include recent economic data on inflation, retail sales, and industrial production.

Current economic indicators
• Inflation: Inflation has been cooling, with recent data showing a decline to 2.9% annually in July, which is below economists’ expectations. This cooling trend in inflation increases the likelihood of a rate cut as the Fed aims to bring inflation closer to its 2% target.
• Retail sales: The retail sales data out day (see related item) will provide further insights into consumer spending, a critical component of economic growth. Strong retail sales could suggest a resilient economy, potentially influencing the Fed’s decision on rate cuts.
• Industrial production: The latest data on industrial production and capacity utilization was also released today (see details below). This data will help assess the health of the manufacturing sector, which is another important consideration for the Fed.

Market expectations. Market participants are currently anticipating a rate cut at the Fed’s mid-September meeting. Fed funds futures shifted more toward a 25 basis point cut on Wednesday vs a 50 basis point cut in the wake of the CPI data. Tuesday probabilities were nearly even and one week ago, they were heavily toward a 50 bp cut. This has led to a surge in stock prices, particularly in technology stocks, as investors anticipate a more substantial easing of monetary policy.

Fed’s position. Federal Reserve Chair Jerome Powell has indicated that a rate cut could occur as soon as the Sept. 17-18 FOMC meeting if economic conditions align with the Fed’s goals. The Fed aims to achieve a “soft landing” by controlling inflation without triggering a recession. The decision will likely depend on the upcoming economic data releases and their implications for inflationary pressures and economic growth.

• Austan Goolsbee, President of the Federal Reserve Bank of Chicago, expressed growing concern about the labor market, signaling a shift in the Federal Reserve’s priorities. While recent data shows progress in reducing inflation, Goolsbee is more worried about the job market, particularly considering disappointing employment figures. He described current interest rates as “very restrictive,” appropriate only if the economy were overheating.

Goolsbee highlighted the possibility that the rising unemployment rate could either reflect a larger labor force or signal a deteriorating economic situation. If the latter, the Fed might need to prioritize employment more heavily in its policy considerations.

While Goolsbee didn’t specify details about potential rate cuts at the upcoming September meeting, he acknowledged the Fed’s economic projections, which suggest multiple rate reductions through 2025, even under less favorable conditions than currently. The Fed is expected to lower interest rates at the Sept. 17-18 FOMC meeting, though there’s debate over the size of the cut. Goolsbee emphasized that the extent of future rate cuts would depend on economic conditions, especially in the labor market.

— Why falling inflation won’t push stocks higher anymore. Tom Essaye of the Sevens Report says the recent decline in inflation, as reflected in the Consumer Price Index (CPI), no longer serves as a strong positive catalyst for the stock market. This is because the markets now expect inflation to remain low, meaning that falling inflation is no longer a surprise or a new factor that could drive stock prices higher. For the past 18+ months, declining inflation was a significant tailwind for stocks, but now that inflation is at expected levels, the market’s focus has shifted.

The key takeaway is that future stock market gains will likely depend on two factors:
• Goldilocks growth: Economic growth that is strong enough to support corporate earnings but not so strong that it reignites inflation concerns. Upcoming economic data, such as retail sales and flash PMIs, will be closely watched for signs of this balanced growth.
• Larger-than-expected Fed rate cuts: If the Federal Reserve, particularly through statements by Chair Jerome Powell, signals more aggressive rate cuts than anticipated, this could boost stocks. Powell’s upcoming address at Jackson Hole is highlighted as a key moment for potential guidance.

The bottom line is that the stock market may face challenges if growth disappoints or if the Fed does not signal a dovish stance. In that case, the current bounce in stock prices could reverse, leading to potentially painful losses. Going forward, solid economic growth and unexpected rate cuts are seen as the primary drivers that could push the stock market higher.

— Strong retail sales. Retail sales in the U.S. accelerated in July, surpassing forecasts and indicating a resilient consumer base despite high prices and borrowing costs. The value of retail purchases increased by 1% in July, following a revised 0.2% decline in June. When excluding autos and gasoline stations, sales rose by 0.4%. For the period from May 2024 through July 2024, total sales were up 2.4% compared to the same period the previous year. Notably, nonstore retailers saw a significant increase of 6.7% from the previous year, and food services and drinking places experienced a 3.4% rise from July 2023. This data indicates a continued upward trend in consumer spending, despite ongoing economic challenges such as inflation and consumer uncertainty. The report reflects a resilient consumer market, with notable growth in specific retail sectors.

— The U.S. Industrial Production report indicates a decline in industrial activity. Specifically, the report shows that industrial production decreased by 0.3% month-over-month in July, following a 0.6% increase in June. Similarly, manufacturing production fell by 0.2% in July, compared to a 0.4% rise in the previous month. These figures suggest a slowdown in industrial activity, which could have implications for economic growth and monetary policy decisions.

— The Social Security cost-of-living adjustment for 2025 could shrink to 2.6% from this year’s 3.2% increase, according to Mary Johnson, an independent Social Security and Medicare analyst and former analyst with the Senior Citizens League. In July she forecast adjustment to be a 2.7% increase. The COLA is designed to help Social Security benefits keep pace with inflation, using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as a basis for calculation. The final COLA determination for 2025 will be based on the third-quarter CPI-W data and is expected to be officially announced in October 2024.

The projected 2.6% increase aligns with the average adjustments over the past two decades but is the smallest since 2021.

Market perspectives:

— Outside markets: The U.S. dollar index was lower, with several foreign rival currencies stronger against the greenback. The yield on the 10-year U.S. Treasury note rose, trading around 3.85%, with a positive tone in global government bond yields. Crude oil futures were higher, with U.S. crude trading at around $77.80 per barrel and Brent trading at around $80.50 per barrel. Gold and silver futures were up, with gold around $2,501 per troy ounce and silver around $28.37 per troy ounce.

— Iron ore prices have dropped to their lowest level since 2022 due to concerns that global supply is outpacing demand. This decline is primarily driven by reduced steel production in China, the world’s largest importer of seaborne iron ore. Futures prices in Singapore fell below $94 per ton, marking a significant downturn as Chinese steel mills cut output by 9% year-over-year to around 83 million tons in July.

Iron ore has been one of the worst-performing commodities this year, with benchmark prices down by about a third. The situation has been exacerbated by a crisis in China’s steel industry, highlighted by China Baowu Steel Group Corp., the world’s largest steel producer, which has warned of collapsing product prices. China’s economic slowdown, particularly the ongoing property crisis, has further dampened steel demand.

Futures dropped by as much as 3.1% to $92.65 per ton, the lowest intraday price since November 2022, and were trading at $93.25 later in the day. This price slump has negatively impacted the share prices of major miners, with BHP Group Ltd.'s stock down by more than 20% in Australia this year.

On the supply side, Australia’s Port Hedland, a key hub for iron ore exports, reported a flow of 43.2 million tons last month. Although this is slightly below the record set in June, it remains consistent with the volume from the same month last year, indicating that supply remains robust despite the decline in demand.

— The phased shutdown of Canada’s freight rail network, driven by stalled labor negotiations, is set to disrupt supply chains across North America. U.S. operations, particularly at major ports, will feel the impact, with likely consequences including tighter trucking capacity and increased costs for shippers, the Wall Street Journal reports (link). The situation highlights the interconnected nature of cross-border logistics and the potential for labor disputes to have far-reaching effects on the economy.

Background: Canadian National Railway (CN) plans to begin halting intermodal traffic into Canada starting Friday, in response to stalled negotiations with unionized workers. This shutdown is part of a broader, progressive closure of operations as a potential work stoppage looms. Canadian Pacific Kansas City, another major rail operator, is also involved in similar actions as both companies prepare for a possible lockout of Teamsters members on Aug. 22.

Impacts: The embargo on intermodal services, which are critical to the manufacturing and retail sectors, is expected to push some shippers to switch to trucking. This shift is likely to tighten capacity in the trucking industry and cause spot rates to surge as demand for alternative transportation options increases. The halt in intermodal traffic from key U.S. ports into Canada could cause congestion at those ports, as containers intended for rail transport pile up. This could further strain logistics networks already dealing with challenges like tight capacity and high demand.

— Brazil soybean producers: A source says 80-90% of inputs have been booked and delivered, planting will begin soon, so 2025 production and area are set. In Mato Grosso, the largest soybean-producing state, the planting window is from Sept. 7, 2024, to Jan. 7, 2025. This structured planting calendar is part of Brazil’s strategy to manage diseases like Asian rust and optimize yields.

Despite recent challenges such as floods in southern Brazil, which have impacted the 2023-24 production expectations, the outlook for 2024-25 remains optimistic. The Brazilian government and industry players are preparing for a robust season, with a focus on maintaining high export levels to meet international demand, particularly from China.

Of note: The Brazilian real has experienced depreciation relative to the U.S. dollar. From May 5, 2024, to July 30, 2024, the exchange rate of the real to the dollar decreased by approximately 10.31%. This trend continued into August, with fluctuations in the exchange rate, reaching a low of 0.172 USD per BRL on August 5, 2024, before slightly recovering to 0.182 USD per BRL by August 9, 2024. A weaker real can make Brazilian exports cheaper and more competitive in the international market, potentially boosting export volumes. However, it also increases the cost of imports, which can affect the trade balance negatively if import costs rise significantly.

— Exchange raises Argentine corn crop estimate. The Rosario Grain Exchange raised its estimate for this year’s Argentine corn crop by 1.5 MMT to 49 MMT. The exchange expects corn production to be steady for the 2024-25 growing season.

— California’s wine grape growers are facing significant challenges due to an oversupply of grapes and declining demand for wine. This situation is exacerbated by the increasing importation of bulk wine from other countries, which is being blended with California wines and sold under the “American wine” label. This practice is legal if the blend contains no more than 25% foreign wine. (Link to AgWeb article).

Several factors contribute to the current glut of grapes in California:
• Declining wine consumption: There has been a shift in generational drinking habits, with younger consumers opting for alternatives like cannabis over traditional wines. This has resulted in a global decline in wine consumption, affecting markets in the U.S., Europe, and beyond.
• Increase in bulk wine imports: California’s largest wineries have been importing significant amounts of cheap bulk wine from countries like Australia, Chile, and Argentina. This practice allows them to reduce production costs but undermines local grape growers who struggle to sell their crops.
• Economic and environmental challenges: California’s grape growers have also been dealing with environmental challenges such as wildfires and droughts, which have impacted grape quality and yields. Additionally, rising labor and equipment costs add to the financial strain.

The combination of these factors is forcing many growers to leave grapes unharvested or to uproot vineyards entirely. Some industry experts argue that imposing tariffs on imported bulk wine could help protect domestic growers by making foreign wine less competitive.

“One of the real frustrating things for the growers in California is that our largest buyers - and the top seven wineries - control about 70% of the U.S. wine market,” says Stuart Spencer, executive director of the Lodi Winegrape Commission. “Over the last 20 years, they’ve evolved into kind of what we call global alcohol companies. And so they’re no longer just sourcing California grapes, but still selling their wine there.”k

“I’ve been digging into this for the past six months, and there is a loophole in our trade regulations, and it’s called, double duty drawback, which allows these imports to come in basically tax free,” says Spencer. “And so, they’re basically getting 99% of their alcohol taxes and duties refunded to them if they can provide matching exports. And so that’s a handful of companies getting potentially hundreds of millions of dollars, which has created a significant incentive for this bulk wine imports to take place, which has undercut the California grape grower.”

Some farmers in Napa Valley are employing various strategies to cope with the situation:
• Micro-winery ordinance: Organizations like Save the Family Farms are advocating for regulatory changes to help small producers survive. They have been working on a Micro-Winery Ordinance in Napa County, which aims to create a more feasible path for small family farms to operate legally. This ordinance would allow these micro-producers to host tastings and sell directly to consumers, helping them to maintain their businesses and pass them on to future generations.
• Diversification and crop changes: Some grape growers are diversifying their agricultural activities. For instance, in regions like Lodi, some farmers have started planting alternative crops such as almonds to mitigate the financial impact of unsold grapes.
• Water management: In response to environmental challenges such as drought, some vineyards are adopting more efficient water management practices. Research from UC Davis suggests that coastal grape growers can significantly reduce their water usage without affecting grape quality, which can help reduce costs and improve sustainability.
• Direct-to-consumer sales: With the rise of e-commerce, many wineries are exploring direct-to-consumer sales models. This approach helps them move inventory and build stronger relationships with consumers, providing a potential lifeline in a challenging market.

Bottom line: The situation is dire for many small and family-owned vineyards, particularly in regions like Napa Valley, where the high cost of land and production makes it difficult to compete with cheaper imported wines. Without significant changes, such as increased domestic consumption or policy interventions, some vineyards may be forced out of business.

— Getting ready for grain harvest. BNSF Railway Co. President and CEO Katie Farmer early this month responded to concerns raised by Surface Transportation Board Chairman Robert Primus regarding BNSF’s preparedness for the upcoming 2024 harvest season. In a letter dated Aug. 8, Farmer addressed Primus’s worries about BNSF’s ability to meet the expected demand, especially through the Pacific Northwest (PNW) corridor. Primus had previously expressed concerns based on BNSF’s performance during the 2023 harvest season, where he claimed the company struggled to meet its service commitments.

Farmer disagreed with Primus’s characterization of BNSF’s 2023 performance, explaining that weather-related delays and complex logistics at the start of the harvest season contributed to the challenges. She assured that for 2024, BNSF has taken steps to ensure readiness, including monitoring crop yields, building up crew bases, preparing locomotives, and upgrading its winter plan.

Additionally, Farmer acknowledged ongoing issues with cross-border service with Mexico, largely due to disruptions from the humanitarian crisis at the southern border and temporary closures by U.S. and Mexican authorities. Despite these challenges, Farmer expressed confidence in BNSF’s ability to serve its customers during the 2024 season and highlighted the company’s continued communication with stakeholders and dedicated efforts to coordinate grain movements.

Since the 2023 harvest season, BNSF Railway has implemented several improvements to enhance its service capabilities and address previous challenges. These improvements include:
• Infrastructure enhancements: BNSF completed the Sandpoint Bridge project in Idaho, which adds a second mainline track to reduce congestion and increase capacity, especially through the Pacific Northwest corridor. This is expected to alleviate previous constraints and improve the flow of traffic during the harvest season.
• Increased resources: The company has added 50 locomotives to its fleet and prepositioned additional hoppers and locomotives in the northern regions to manage the increased demand during the harvest. This is part of their strategy to ensure they have the necessary equipment and resources where they are most needed.
• Capital investments: BNSF has committed to a capital investment plan of $3.92 billion for 2024, with $2.88 billion allocated for maintaining its core network and related assets. This includes replacing and upgrading rail infrastructure, which is crucial for reducing unscheduled service outages and increasing network capacity.
• Operational improvements: BNSF has focused on refining its system-wide maintenance program, ensuring that equipment receives thorough inspections and maintenance to prevent disruptions during peak times. This includes enhancements to their winter action plans to handle extreme weather conditions more effectively.
• Communication and coordination: BNSF has emphasized the importance of communication by maintaining a dedicated “Grain Desk” to coordinate and communicate grain movement.

Link to Farmer’s letter; Link to Primus’ letter.

— Ag trade update: Algeria purchased an unspecified amount of durum wheat, with unconfirmed reports including 200,000 to 275,000 MT from Canada and 100,000 to 200,000 MT from other origins. The Philippines purchased 50,000 MT of feed wheat expected to be sourced from Australia. Egypt reportedly made no purchases yet in informal talks to buy large quantities of wheat after getting limited participation in its recent tender to buy up to 3.8 MMT of wheat.

— The Amazon region is experiencing a severe drought in 2024, which is reportedly worse than the drought conditions in 2023. This situation poses significant challenges for grain shipments, particularly affecting barge operations along the Northern Arc, which includes ports on the Amazon and northeastern Atlantic coast used to transport crops from central Brazil. Hidrovias do Brasil SA, a leading barge operator in the country, highlighted the increased difficulties this year, noting that the drought has forced them to split shipments into smaller portions to navigate critical low-water points.

The drought has led to historically low water levels in many Amazon rivers, even earlier in the year than usual. This has prompted governments to prepare contingency plans to address disrupted navigation, increased forest fires, and other challenges. The Amazon Cooperation Treaty Organization (ACTO) reported that the drought is significantly impacting countries like Bolivia, Peru, and Brazil. In response, Brazil’s federal water authority declared a water crisis in major river basins, and states like Acre and Amazonas have declared emergencies due to water shortages.

This severe drought is part of a series of extreme weather events affecting the region, including previous droughts and floods. These conditions have led to increased transportation costs, disrupted access to food and medicine, and threatened hydroelectric power generation. Additionally, the drought has exacerbated fire risks, with a high number of fires recorded in the region, which are often human induced for land clearing and pasture management.

— NWS outlook: Flash flooding and severe weather threat continues over the Midwest the next couple of days... ...Potentially dangerous heat anticipated across the southern Plains, lower Mississippi Valley, and Gulf Coast.

(NWS)

Items in Pro Farmer’s First Thing Today include:

• Grains firmer overnight
• Record July NOPA crush figure expected
• China asks rural commercial banks to rein in public fund investment
• Japan’s economy strengthens in Q2
• UK economy expands in Q2

— Russia attacks Ukrainian grain facility in Odesa. On Wednesday evening, Russian forces attacked port infrastructure in the southern Ukrainian city of Odesa, specifically targeting a grain facility operated by the Louis Dreyfus Company (LDC). The missile strike hit the truck discharge bay at the company’s “Brooklyn Kyiv” facility. Fortunately, no employees were harmed in the attack, and the products stored in the silos remained undamaged. Despite the damage, LDC stated that repair work is not expected to significantly disrupt terminal operations due to alternative logistics options available at the site.

This attack is part of a broader strategy by Russia to target Ukraine’s agricultural infrastructure, which has been ongoing since Russia withdrew from a United Nations-brokered deal last summer that guaranteed safe shipments of Ukrainian grain. Since then, Ukraine has established its own maritime corridor for grain shipments. The attack on Odesa is seen as part of Russia’s deliberate strategy to harm Ukraine’s economy and disrupt food exports, which are crucial for many countries, particularly in Asia and Africa.

— Southern Ag Today: If it’s not time to hit the panic button… we are getting close. The article (link) raises significant concerns about the current state of the agricultural economy in the U.S., particularly in relation to the upcoming farm bill. The article was written by Dr. Joe Outlaw, Professor and Extension Economist Co-Director Agricultural & Food Policy Center at Texas A&M University, Dr. Bart Fischer, Research Assistant Professor Co-Director Agricultural & Food Policy Center at Texas A&M University, and Natalie Graff, Research Assistant Professor.

Summary of the article:

• Need for a new farm bill: Over the past three years, there has been a growing need for a new farm bill that offers enhanced support to the agricultural sector. This need has become more urgent due to declining market prices.
• Current economic pressures: USDA’s price projections indicate that some crops are being sold below their average cost of production. Despite a decrease in some input costs from their 2022 highs, commodity prices have fallen even more sharply, creating financial pressure on farmers.
• Farmers holding crops: Some producers are holding onto their 2023 crops, reluctant to sell at a loss. However, with the 2024 harvest approaching, they face the prospect of two consecutive years without profit, exacerbating financial strain.
• Rising loan delinquencies: Reports from Federal Reserve banks indicate an increase in loan delinquencies among farmers, a worrying sign of the broader financial challenges facing the sector.
• Urgent need for legislative action: The article argues that if Congress fails to pass a new farm bill this year, there will be strong demands for immediate financial assistance to farmers, like the large-scale aid provided during the 2020 pandemic. Even if a new farm bill is passed, it won’t take effect until the 2025 crop year, which could lead to a gap in support.
• Market dynamics: The steady decline in commodity prices, despite decreasing input costs, suggests that market dynamics are unfavorable for farmers, pushing many towards financial instability.
• Legislative implications: The timing of the farm bill is critical. If delayed, it could lead to political pressure for short-term financial interventions, which are often less efficient, and more reactionary compared to a well-structured farm bill.
• Economic impact: The increase in loan delinquencies highlights the vulnerability of the agricultural sector. This could have broader economic implications, particularly in rural areas where agriculture plays a central role in the economy.

Bottom line: The article underscores the urgency for legislative action to support the agricultural sector. Without a new farm bill or some form of financial relief, farmers could face significant economic hardship, potentially leading to broader economic and political consequences.

(USDA/Dr. Seth Meyer)

Source: Dr. Seth Meyer, USDA Chief Economist, July 2024.

— New-crop U.S. soybean sales to China hefty. USDA Export Sales data for the week ended August 8 showed activity for 2024-25 that included net sales of 536,000 metric tons of soybeans and 7,206 running bales of upland cotton. Activity for 2023-24 included net reductions of 1,928 metric tons of wheat, net sales of 3,672 metric tons of sorghum, and net reductions of 38,001 metric tons of soybeans. Activity for 2024 included net sales of 4,404 metric tons of beef and 178 metric tons of pork.

— China’s economic challenges have persisted into the third quarter of 2024, characterized by a slowdown in key economic indicators and a need for more effective fiscal stimulus. The country’s economic malaise is largely attributed to a prolonged housing market downturn and faltering domestic demand.

Key economic indicators
• Fixed-asset investment: There has been a notable slowdown in fixed-asset investment, which grew by only 3.6% year-on-year from January to July 2024. This was below expectations and a decrease from the previous month’s 3.9% growth. The real estate sector, in particular, has seen a significant decline in investment, dropping by 10.2% year-to-date as of July.
• Retail sales: Retail sales in July 2024 rose by 2.7% compared to the previous year, slightly exceeding expectations but still reflecting sluggish consumer demand. This growth was primarily driven by a seasonal uptick rather than a sustained recovery.
• Industrial production: Industrial output increased by 5.1% in July, which was slightly below forecasts. Despite this, industrial production continues to outpace consumption, indicating an imbalance in economic growth drivers.
• Currency and trade: The offshore yuan has remained weak, and trade figures showed unexpected growth in imports (7.2% year-on-year) while exports grew by only 7%, less than anticipated.
• China’s new home prices in 70 cities shrank by 4.9% from year-ago in July. That was the 13th straight month of decrease and the sharpest drop since June 2015, despite continued attempts from Beijing to ease the impact of a prolonged property weakness. Among 70 cities surveyed, only two — Shanghai and Xian — reported a rise in new home prices in monthly terms, and only Shanghai registered a price rise in the resale home market.

The Chinese government has attempted to stimulate the economy through various measures, including interest rate cuts and fiscal stimulus. However, these efforts have had limited success. The fiscal stimulus is seen as losing its effectiveness, functioning more as a temporary measure rather than a long-term solution. High levels of public debt and structural challenges in the economy, such as the real estate market slump, further complicate these efforts.

China’s economic outlook remains challenging. The government aims for a GDP growth rate of around 5% for the year, but this target is considered ambitious given the current economic conditions. The focus is on long-term objectives, such as technological advancement and new growth drivers, to sustain economic growth.

— White House touts $6 billion in Medicare drug price savings. The White House announced that Medicare will save an estimated $6 billion because of the first round of drug price negotiations, which will take effect in 2026. This initiative is part of the Biden administration’s efforts to reduce prescription drug costs for Medicare beneficiaries, a significant component of the Inflation Reduction Act. The Biden administration reported the results of the first year of its initiative to lower prescription drug prices using Medicare’s negotiation power. This initiative is expected to save seniors about $1.5 billion in out-of-pocket costs by 2026, when the new prices take effect. The current negotiations involve 10 high-cost drugs, with plans to expand to dozens more over the next four years. These drugs, which include treatments for conditions such as cancer and heart disease, accounted for $50.5 billion in Medicare Part D spending between June 2022 and May 2023. The Centers for Medicare and Medicaid Services (CMS) plans to expand the negotiation program by selecting up to 15 more drugs for negotiation in 2025 and increasing the number of drugs each subsequent year. Despite the anticipated savings, the initiative faces legal challenges from pharmaceutical companies. However, federal courts have not yet ruled in favor of these challenges.

— New Jersey Governor Phil Murphy is set to appoint George Helmy, his former chief of staff, to replace Senator Bob Menendez (D), who will step down next week. Helmy, who served as Murphy’s chief of staff until October and currently works as an executive in a health care company, has a background in politics, having worked for Sen. Cory Booker (D-N.J.) and former Sen. Frank Lautenberg, the five-term former NJ senator. Menendez’s resignation comes after his conviction on corruption charges, including bribery and acting as an agent for the Egyptian government. The New Jersey Globe reports that Helmy will be offered the position today, with an official public announcement expected from Murphy on Friday. Helmy’s appointment will fill the vacancy left by Menendez as the state moves forward from the scandal.

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