Trump Steps into Border-Ukraine Aid Debate and Odds Dip Lower for Congress to Act

Core PCE falls to nearly 3-year low | Water clash between Texas & Mexico | Biden halts new LNG export terminal approvals

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January 26, 2024 10:25 AM

Core PCE falls to nearly 3-year low | Water clash between Texas & Mexico | Biden halts new LNG export terminal approvals

Today’s Digital Newspaper

Modified report today as I am in North Dakota to speak at a crop insurance meeting in Mantador given by
Matt Allen’s firm, Farmers Agency.

— Equities today: Asian and European stock markets were mixed overnight. U.S. Dow opened slightly lower and are now around 40 points higher. In Asia, Japan -1.3%. Hong Kong -1.6%. China +0.1%. India closed. In Europe, at midday, London +1.2%. Paris +2.1%. Frankfurt +0.2%.

U.S. equities yesterday: Stocks rose Thursday with both the Dow and S&P 500 finishing at new record marks, with the fifth higher finish for the S&P 500 in a row. The Dow gained 242.74 points, 0.64%, at 38,049.13. The Nasdaq was up 28.58 points, 0.18%, at 15,510.50. The S&P 500 rose 25.61 points, 0.53%, at 4,894.16.

— Ag markets today: Corn and soybeans faced followthrough selling overnight, while wheat retreated from recent gains. As of 7:30 a.m. ET, corn futures were trading 2 to 3 cents lower, soybeans were 4 to 5 cents lower, SRW wheat was mostly 6 cents lower, HRW wheat was 4 to 9 cents lower and spring wheat was mostly a nickel lower. Front-month crude oil futures were around 75 cents lower, and the U.S. dollar index was nearly 300 points lower.

Cash cattle prices strengthen. After initial trade at $1.00 higher prices on Wednesday, cash cattle traded mostly $2.00 higher yesterday. Cash sources indicated the bulk of trade was completed in the Southern Plains, while there could still be some cleanup sales in the northern market.

Cash hogs continue to climb, pork pauses. The CME lean hog index firmed another 28 cents to $69.67 (as of Jan. 24), extending the string of gains off the seasonal low to start the month. February lean hog futures finished Thursday $4.63 above today’s cash quote. The pork cutout value firmed a nickel to $88.91. After poking above $90.00 on Monday, the cutout value has settled in the upper-$80.00 range.

— USDA daily export sale: 100,000 metric tons of soybean cake and meal for delivery to unknown destinations during the 2023-2024 marketing year.

— Agriculture markets yesterday:

Corn: March corn fell 1/2 cents to $4.51 3/4 but notched a high-range close.
Soy complex: March soybeans plunged 17 1/4 cents to $12.23 cents, though settled well off session lows. March soymeal dropped $5.10 to $358.20, settling near session lows. March soyoil slipped 79 points to 46.53 cents, the lowest close since May.
Wheat: March SRW wheat rose 1 1/2 cents at $6.12 1/4 and near mid-range. March HRW wheat closed up 11 1/4 cents at $6.37, nearer the session high and hit a two-week high. March spring wheat futures rallied 4 1/2 cents to $7.09, near session highs
Cotton: March cotton futures rose 36 points, settling at 85.76 cents, near the session mid-point and marking the highest close since October.
Cattle: April live cattle rose $2.35 to $180.70. March feeder cattle gained $4.40 at $238.175. Both markets closed near their daily highs and hit 2.5-month highs.
Hogs: Hog futures seemed to follow other markets, particularly cattle futures, higher Thursday. Nearby February gained 40 cents to $74.30, while most-active April climbed 52.5 cents to $82.55.

— PCE prices rise 0.2% as expected. The personal consumption expenditure price index in the increased 0.2% month over month in December while the annual rate remained steady at 2.6%, in line with expectations. Excluding food and energy, core PCE prices were up 0.2% as expected but the annual rate fell more than anticipated to 2.9% from 3.2%.

Wells Fargo says “While we concede that a recession does not appear in the immediate offing, keep an eye on financing costs as they could crowd out spending elsewhere.”

— The U.S. economy continues to confound expects with U.S. inflation getting close to target despite strong consumer growth. ING Economics says this spending “is still being fueled by savings and credit and surely can’t continue running at these sorts of growth rates, but for now the consumer refuses to lie down. Fed rate cuts are coming, but March still looks too early.”

The Fed is widely expected to keep interest rates unchanged following the Jan. 30-31 monetary policy meeting. Fed fund futures reflect slightly less than 50% odds of a rate cut in March; about 90% chances for the April 30-May 1 meeting.

— The head of the CIA will reportedly help mediate a deal between Hamas and Israel to free Israeli hostages. William Burns, along with Israel’s spy chief, will meet Egyptian and Qatari officials. Earlier this month Qatar and France helped broker a deal that would allow more humanitarian aid into Gaza. Negotiations to free hostages, however, have been slow.

— The International Court of Justice (ICJ) ordered Israel to take steps to limit harm to Palestinians in Gaza, but it did not order a cease-fire in the conflict between Hamas and Israel. The court’s decision is an interim one, and a final ruling in the case could take years to be resolved. Israel has rejected the charges of conducting genocide in its military operations in Gaza.

— More grain ships diverted from Red Sea. More ships carrying grain were diverted from the Suez Canal to sailings around the Cape of Good Hope this week after attacks on vessels in the Red Sea, shipping analysts said. “Another 16 vessels were confirmed diverted this week, taking the total grain cargoes diverted to some 3.9 million tons, up from 3.0 million tons last week, Ishan Bhanu, lead agricultural commodities analyst at data provider Kpler, told Reuters. “Many of the diverted ships are carrying U.S. grain cargoes showing caution with this freight,” Bhanu said. About 7 million metric tons of grain cargoes normally transit the Suez Canal into the Red Sea each month.

— Chinese officials have reportedly called on their Iranian counterparts to help end Houthi attacks on ships in the Red Sea or risk harming business ties between the two countries. China is the biggest trading partner of Iran, which has been the biggest backer of the Houthis.

— China equity funds draw largest weekly inflows since 2015. Investors poured almost $12 billion into Chinese equity funds in the week ended Jan. 24, the largest inflow since 2015 and the second largest ever, a BofA Global Research report showed. A sharp fall in Chinese property stocks made China “the world’s most enticing contrarian long ‘trade,’” BofA analysts said, noting: “No one believes it’s an ‘investment.’”

— China’s hog herd declines notably. China’s pig herd at the end of 2023 fell declined 1.8% from the previous quarter and 4.1% from a year ago to 434.22 million head, the ag ministry said. The sow herd dropped 2.3% from the previous quarter and 5.7% from last year to 41.42 million head.

— Biden administration halts new LNG export terminal approvals. The Biden administration has decided to indefinitely halt approvals for new liquefied natural gas (LNG) export terminals along the U.S. coastline. This decision has significant implications for the LNG industry and represents a victory for climate activists. The U.S. is currently the world’s largest exporter of LNG, and the demand for LNG has been increasing, particularly in Europe, due to the European energy crisis caused by Russia’s invasion of Ukraine. However, climate activists have been critical of the rapid expansion of LNG infrastructure, arguing that it will prolong reliance on fossil fuels. The Department of Energy’s decision to pause approvals will affect 17 projects that were awaiting approval to proceed.

This decision comes as President Joe Biden enters an election year and aims to gain support from younger and climate-conscious voters. Many of these voters were disappointed when the administration approved ConocoPhillips’ Willow oil project in Alaska last year. President Biden stated that this pause on new LNG approvals recognizes the climate crisis as an existential threat and aims to evaluate the impact of LNG exports on energy costs, energy security, and the environment.

Energy Secretary Jennifer Granholm emphasized the importance of being a responsible actor and determining whether additional LNG exports are in the public interest.

“It’s time for the administration to stop playing politics with global energy security,” said American Petroleum Institute President Mike Sommers, while noting the decision walks back promises to U.S. allies and benefits Russia.

— Senate Republicans face challenges in bipartisan border-for-Ukraine deal amid Trump opposition. The deal involves stringent border policy changes to pass $60 billion in Ukraine aid requested by the White House. Some Republicans fear that the deal could harm Trump’s chances of re-election by removing a key campaign issue. Sen. Mitch McConnell (R-Ky.), the Senate Minority Leader, initially acknowledged the political complexities caused by Trump’s opposition. The deal aims to make it harder for migrants to seek asylum and includes changes to the use of parole for migrants. The next few days will be critical for the future of the package, with GOP leaders hoping to attract at least half of the Republican conference’s support.

Trump comments. “We need a Strong, Powerful, and essentially ‘PERFECT’ Border and, unless we get that, we are better off not making a Deal, even if that pushes our Country to temporarily ‘close up’ for a while,” Trump posted on Truth Social on Thursday evening.

— Treasury Secretary Janet Yellen said the Biden administration’s economic agenda isn’t finished. Funds for infrastructure, energy, and manufacturing are still being distributed, and the White House still aims to expand child care, tuition-free community college, affordable housing, and other initiatives.

— ADM shareholder files lawsuit over accounting practices amid investigation. An individual investor has filed a proposed class action suit against ADM (Archer Daniels Midland) following an investigation into the company’s accounting practices. The investor claims that ADM misled investors regarding the profitability of its nutrition segment. The lawsuit alleges that executive stock awards linked to the nutrition segment’s performance incentivized company officials to make false statements to investors. ADM has not commented on the lawsuit. The investigation into ADM’s accounting practices led the company to postpone its financial results and reduce its outlook, resulting in a significant drop in its stock price of approximately 24%.

— Report highlights $993.2 million economic loss in Texas due to Mexican water deficit. A recent report (link) by Texas A&M’s Center for North American Studies estimates a potential 2024 total loss in economic output of over $993.2 million due to the absence of irrigation water for crop production in the Lower Rio Grande Valley (LRGV) region. The lack of irrigation water is mainly due to Mexico’s failure to deliver water to the U.S. as per the 1944 Water Treaty.

The current Mexican water deficit is the second largest in the last three decades.

The report examines the total economic impact on LRGV agricultural production, leading to an estimated loss of over 8,000 jobs and substantial economic losses in vegetable, sugarcane, and other crop production. Stakeholders are urging the current Administration to address the issue urgently.

“We are past the time for big guns, yet we still have no water. There is a lot of history on this issue but the bottom line is we need water, they have it and they aren’t giving it to us,” says Jen Cervantes, Rio Grande Valley Sugar Growers, Florida Sugar Cane League.

In November of 2023, Reps. Monica De La Cruz and Henry Cuellar were able to get a resolution passed through the House that indicates its support for efforts to resolve this issue and get the water.

— USDA forecasts a 1.3% increase in the Consumer Price Index (CPI) for all food in 2024, a slight uptick from the 1.2% forecast in December. Grocery store prices are expected to decrease by 0.4% in 2024, a less significant decline than the 0.6% decrease previously projected. Meanwhile, restaurant prices are predicted to rise by 4.7% in 2024, a slight reduction from the December estimate of a 4.9% increase.

These forecasts still exceed the 20-year averages for all food (3%) and grocery prices (2.7%).

While USDA projects relief for consumers in grocery prices, several products are expected to see higher prices in 2024 after two years of above-average increases. The impact of highly pathogenic avian influenza (HPAI) on egg prices remains a key concern.

— UK suspends trade talks with Canada over agricultural disputes. Specifically, disputes regarding market access for Canadian dairy and beef products have led to the temporary suspension of talks. This interruption in trade discussions comes as the UK seeks to establish new trade agreements following its exit from the European Union, and similar trade negotiations with the U.S. are also on hold.

— EU considers carbon market in agriculture for climate goals by 2040. The European Union is considering the establishment of a carbon market in the agriculture sector as part of its ambitious climate goals for the next decade. To achieve its binding target of climate neutrality by 2050, the EU must accelerate emissions reductions in farming. Diederik Samsom, a senior official at the European Commission, suggests that in 2040, agriculture will be the largest emitter of greenhouse gases, and action must be taken. One option being considered is the implementation of a new emissions trading system, where the agriculture sector would also produce certificates for nature-based solutions to remove carbon.

The EU currently employs a market tool, the Emissions Trading System (ETS), to reduce nearly half of its carbon emissions. The ETS covers various sectors, such as electricity production and manufacturing, with gradually decreasing pollution caps. Additionally, the EU plans to introduce a second ETS for heating and road transport fuels in the coming years. However, efforts to reduce carbon emissions in agriculture have faced challenges in the past, as they encountered resistance from farmers. Under the proposed market for agriculture, these certificates would be tradable, allowing farmers to sell them to companies seeking to reduce emissions.

Samsom suggests the possibility of having an “ETS 3 for farmers,” but any decisions regarding this idea will be made by future commissions. The roadmap for the 2040 climate goal, set to be released by the European Commission on Feb. 6, will provide options for the EU to consider, but concrete laws and actions will be determined after the new commission takes office following the European Parliament elections in June.

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