News/Markets/Policy Updates: Nov. 27, 2024
— Trumps picks USTR, NEC in another flurry of announcements. Link to our report on the list. — U.S. ag trade deficit to surge in FY 2025; imports reach record levels amid weaker exports. U.S. agricultural imports are projected to soar to a record $215.5 billion in fiscal year (FY) 2025, driving a sharp $45.5 billion trade deficit, up from a prior forecast of $42.5 billion, and a $31.8 billion ag trade deficit in FY 2024 . Exports are forecast to decline to $170 billion, reflecting currency headwinds and shifting global trade patterns, despite slight growth in livestock and dairy exports. Key markets remain stable, with Mexico, Canada, and China as the top buyers, though exports to China are set to dip. Imports have now set records annually since FY 2017, reflecting growing demand for foreign agricultural products. Stakeholders emphasize the need for new trade agreements to bolster U.S. export competitiveness. — Mexico hints at retaliation after Trump’s tariff threat. Mexican President Claudia Sheinbaum cautioned against steep tariffs proposed by President-elect Donald Trump, hinting at reciprocal measures that could strain economic ties. Sheinbaum, addressing reporters, criticized the 25% tariffs Trump threatened on all Mexican and Canadian goods, emphasizing the potential risks to key industries like auto manufacturing. Calling for dialogue on migration and drug issues, she urged cooperation to avoid jeopardizing $800 billion in annual bilateral trade. Following the announcement, the Mexican peso fell, reflecting market concerns over escalating trade tensions. — China pushes back on Trump tariff threats over fentanyl issue. Chinese state-backed media, including China Daily, criticized President-elect Donald Trump’s proposal to impose 10% tariffs on Chinese imports as a response to China’s alleged failure to curb fentanyl shipments to the U.S. The publication dismissed the reasoning as “farfetched,” emphasizing China’s strict narcotics control measures and its willingness to continue anti-drug collaboration with the U.S. on equal terms. China Daily cautioned that escalating trade tensions would harm both nations, warning that U.S. agricultural exports could face retaliatory measures. The editorial urged the U.S. to value ongoing cooperation and avoid politicizing trade issues, stating, “If the U.S. continues to weaponize tariffs, it will leave no party unscathed.” — Why didn’t Trump’s tariff threats hit markets? Here is how Tom Essaye of The Sevens Report sizes up the markets lack of response: Markets’ muted reaction: Despite the substantial potential economic impact of 25% tariffs on Mexico and Canada, markets remained calm. This is largely because they doubt Trump will follow through. Essaye explains, “The market is using Trump’s first administration as a guide for how to react to disruptive policy headlines.” Economic implications of tariffs: Tariffs on Canada and Mexico would hit multiple industries, especially the auto sector, by lowering earnings expectations and driving inflation and Treasury yields higher. Essaye notes, “Bottom line, these would be material headwinds on markets. Markets believe Trump values strong markets: Trump’s actions are often linked to how they affect the stock market, which he perceives as a measure of economic health and voter sentiment. Essaye adds, “Trump views a strong stock market as a barometer of the economy and voter sentiment.” Past patterns of threats: Markets see this as a negotiation tactic, not a genuine policy shift. Essaye highlights Trump’s history of threats without implementation, like during his first administration when he threatened tariffs on Mexico over immigration issues. He states, “Given this history, markets view the tariff increase as merely a threat designed to produce some sort of policy movement.” Legal hurdles: The legality of implementing such tariffs is questionable under existing agreements like USMCA, which Trump himself negotiated. Essaye remarks, “The president does have wide authority on tariffs but it’s not absolute.” Upshot: Markets remain steady until Trump’s actions deviate from prior behavior. Disruptive headlines may cause temporary volatility but won’t derail market rallies unless followed by concrete action. As Essaye puts it, “Disruptive trade headlines will likely cause some short-term volatility, but won’t derail this rally.” — Trump’s trade strategy, part 2. Donald Trump’s trade strategy, particularly his proposed tariffs on imports from Mexico, Canada, and China, appears to be more of a negotiating tactic than a straightforward economic policy. Analysts, including Dennis DeBusschere, chief market strategist at 22V Research, interpret this approach as part of Trump’s broader strategy to leverage tariffs as tools for negotiation rather than strictly for trade regulation or economic improvement. Of note: Trump is more familiar with the levers of power. He plans to use the International Emergency Economic Powers Act to quickly impose tariffs by declaring a national emergency, Trump has announced plans to impose a 25% tariff on all imports from Mexico and Canada and a 10% tariff on goods from China, effective from his inauguration day. His rationale links these tariffs not just to trade deficits but also to pressing domestic issues such as illegal immigration and drug trafficking. Trump argues that these tariffs are necessary to combat what he describes as an “invasion” of drugs and undocumented immigrants flowing into the U.S. from these countries. This framing suggests that Trump is using tariffs as leverage to compel these countries to take action on immigration and drug smuggling. For instance, he has stated that the tariffs will remain in place “until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!” This indicates a willingness to use economic pressure to achieve political and social goals. Market reactions have been mixed but generally cautious. Investors seem to view these announcements as preliminary threats rather than definitive policy changes. Many believe that Trump’s strategy mirrors his previous administration’s tactics, where initial threats led to negotiations rather than immediate implementation of tariffs. For example, during his first term, the threat of tariffs prompted Mexico to agree to stricter immigration policies. Economists express skepticism about the effectiveness of such tariffs in achieving their stated goals. Critics argue that imposing tariffs without preparing alternative sources for affected goods could lead to increased prices for consumers and potential job losses in industries reliant on imports. The potential for retaliatory measures from trading partners could also escalate into a broader trade conflict, which might harm the U.S. economy overall. Despite the potential risks associated with Trump’s tariff proposals, market responses have been relatively muted. Investors seem to be factoring in the likelihood that these threats are part of a longer negotiation process rather than immediate actions. As noted by various analysts, the perception is that Trump is employing these tariffs primarily as bargaining chips in broader discussions about immigration and trade compliance. |
MARKET FOCUS |
— Holiday schedule. This schedule reflects adjustments for the Thanksgiving holiday.
• Wednesday, Nov. 27: Markets are open with normal trading hours.
• Thursday, Thanksgiving Day (Nov. 28): U.S. gov’t offices and markets will be closed.
• Friday, Nov. 29: U.S. gov’t offices will be open. Most markets will have shortened trading sessions:
— The New York Stock Exchange (NYSE) closes at noon CT.
— The bond market will close at 1 p.m. CT.
— U.S. grain and livestock markets will close early at 12:05 p.m. CT.
— Equities today: Asian and European stock markets were mixed overnight. U.S. stock indexes are pointed toward weaker openings.
U.S. equities yesterday: All three major indices notched gains as the holiday-shortened week continued. The Dow rose 123.74 points, 0.28%, at 44,860.31. The Nasdaq was up 119.46 points, 0.63%, at 19,174.30. The S&P 500 gained 34.26 points, 0.57%, at 6,021.63.
— Disney settles gender pay discrimination lawsuit for $43 million. Filed in 2019 by LaRonda Rasmussen, the case alleged that Disney paid female employees less than their male counterparts in similar roles for nearly a decade. Rasmussen claimed six male colleagues, including one with less experience, earned significantly more — up to $20,000 annually. Approximately 9,000 women, both former and current employees, joined the lawsuit. Disney denied the allegations and did not admit liability.
— Taylor Swift partners with Target for exclusive book release. Target has secured exclusive rights to a $39.99 book by Taylor Swift, chronicling her record-breaking concert tour. The title hits Target stores on Friday and its website Saturday, with no discounts planned. To boost Black Friday foot traffic, Target will feature Swift’s music in-store, capitalizing on her immense popularity.
— Ag markets today: Corn, soybeans and wheat held in relatively tight trading ranges during a quite overnight session. As of 7:30 a.m. ET, corn futures were trading fractionally to a penny higher, soybeans were 4 to 5 cents higher and wheat futures were mostly 2 to 6 cents lower. The U.S. dollar index was nearly 600 points lower, and front-month crude oil futures were around 30 cents higher.
Cash cattle negotiations have been slow to develop, though most cash sources expect the bulk of this week’s activity to be completed today ahead of Thursday’s holiday. While markets are open Friday, it appears packers and feedlots would prefer to wrap up cash trade today. Opinions remain mixed on the direction of cash cattle prices.
December lean hog futures posted strong gains on Tuesday, extending their week-long corrective bounce as traders narrowed discounts to the falling cash index. The CME lean hog index is down another 56 cents to $85.90 as of Nov. 25, extending the three-week decline. The pork cutout value fell $2.18 to $91.15 on Tuesday, the lowest level since March 7. December hogs finished yesterday $2.80 below today’s cash quote.
— Agriculture markets yesterday:
• Corn: March corn futures fell 5 cents to $4.28, nearer the session low and hit a three-week low.
• Soy complex: January soybeans fell 2 1/4 cents to $9.83 1/2, while January soymeal closed $4.50 lower at $291.40, each ending near session lows. January soyoil rallied 138 points to 42.71 cents, forging a close above the 100-day moving average.
• Wheat: March SRW futures rose 2 1/4 cents to $5.58 though closed mid-range. March HRW futures closed 1 3/4 cents higher at $5.58 3/4 though closed nearer session lows. March spring wheat futures rose a nickel to $6.01 1/2.
• Cotton: March cotton fell 4 points to 71.68 cents but managed to forge a high-range close.
• Cattle: December live cattle futures climbed 40 cents to $186.90 but closed nearer session lows. January feeder cattle futures surged $2.625 to $258.10, settling nearer session highs.
• Hogs: February lean hogs rose $2.35 to $88.275, near the daily high and hit a contract high.
— Holiday sales will rise between 2.5% and 3.5% this year, compared with 3.9% last year, the National Retail Federation estimates. The shorter shopping period, thanks to an unusually late Thanksgiving, isn’t helping. Kohl’s, Best Buy, Target and Dick’s are just some of the big names to have voiced caution about the tough season ahead.
— FOMC signals vigilance on inflation, cautious approach to rate cuts. Key highlights from the FOMC Minutes (Nov. 6–7 meeting):
• Unanimous rate cut: All officials supported a 25-basis-point reduction in the federal funds rate, emphasizing data-driven decision-making for future adjustments.
• Balanced risks: Most members viewed risks to employment and price stability as balanced, highlighting a cautious stance to maintain economic strength while addressing inflation.
• Data dependence: Despite the volatility of recent data, officials stressed focusing on underlying trends and economic outlooks over short-term fluctuations.
• Gradual policy adjustment: The Fed reaffirmed a gradual reduction in policy restraint, ensuring flexibility in response to evolving conditions.
Inflation and labor market observations:
• Core goods and services inflation showed disinflationary progress, with firms becoming more price-conscious amid consumer sensitivity.
• Labor market conditions remained stable, though participants noted risks of potential cooling, albeit less severe than previously anticipated.
Policy direction and neutral rate uncertainty:
• The FOMC reiterated the need for vigilance against easing policy too quickly or too slowly, striking a balance to support economic stability.
• Officials signaled that adjustments would proceed cautiously, considering ongoing uncertainty about the neutral interest rate.
Outlook and economic strategy:
• The Fed remains focused on navigating inflation sustainably toward 2% while preserving labor market strength.
• Decisions on rate paths will continue to prioritize gradualism, reflecting a cautious yet adaptable monetary stance in response to future economic developments.
Market perspectives:
— Outside markets: The U.S. dollar index was lower on a continued corrective pullback after hitting a two-year high last Friday. Nymex crude oil futures prices are slightly firmer and trading around $69.00 a barrel. Meantime, the yield on the benchmark 10-year U.S. Treasury note is presently 4.269%.
— European gas prices surge amid cold weather and sanctions. European gas prices have risen nearly 45% this year, with forecasts of colder weather heightening concerns over supply constraints. The situation is exacerbated by U.S. sanctions on Gazprombank, a key financial arm of Russia’s Gazprom. November temperatures in Northwest Europe have been below or at the 30-year average, marking the first significantly cold winter since 2021. This has driven gas storage levels down to 87.7% of capacity, further straining the market.
— Turkey drops customs tax on sunflower seed imports for oil processing. Turkey has eliminated the 8% customs tax on imports of oil sunflower seeds, aiming to stabilize sunflower oil prices, according to a government decree reported by Reuters. The tax, imposed in August on 1 million metric tons of imports, will no longer apply. However, a 20% customs tax on 400,000 metric tons of crude sunflower oil remains in effect, along with a reduced tariff of 12% (down from 27%) on imports outside the quota. The original tariff was intended to run from Jan. 1 to April 30, 2025. The policy shift is designed to ensure adequate industry supply and price stability.
— South Africa to issue U.S. corn import permits. South Africa will issue import permits for genetically engineered white and yellow corn from the U.S. after a mid-summer drought that caused 22% drop in local production. USDA reported, “On Nov. 19, South Africa’s Department of Agriculture informed stakeholders that all GE corn events that caused asynchrony with the United States had been resolved and that import permits will be issued for GE white and yellow corn from the United States.” South Africa could import about 800,000 MT of corn in the marketing year that runs from May 2024 to April 2025, the report said.
— Ag trade update: South Korea purchased 65,000 MT of U.S. corn. Algeria purchased an unspecified amount of corn to be Brazil or Argentina and an unspecified amount optional origin soymeal. Jordan tendered to buy up to 120,000 MT of optional origin milling wheat.
— NWS outlook: Pre-Thanksgiving to Thanksgiving Day storm to push from the Mid Mississippi/Ohio Valley today into the Northeast on Thursday... ...Dry conditions on tap for the West Coast after several days of wet weather... ...Much above average temperatures from the Southern Plains into the Gulf Coast today, while much below average temperatures spill out into the Great Plains and Mississippi Valley through the end of the week.
Items in Pro Farmer’s First Thing Today include:
• Quiet grain trade overnight
• Cash cattle trade expected today
• December hogs narrow discount to falling cash index
• Thanksgiving costs shift amid falling turkey production
ISRAEL/HAMAS CONFLICT |
— Middle East: Ceasefire offers fragile hope in Lebanon-Israel conflict. Displaced residents in Lebanon have begun returning home as a ceasefire between Israel and Hezbollah takes effect, potentially ending a 13-month conflict that claimed thousands of lives. The truce mandates a 60-day halt in hostilities, during which Hezbollah fighters will retreat 25 miles from the Israel border, and Israeli forces will withdraw from Lebanon. While negotiators view this as a step toward lasting peace, tensions remain high. Israel has vowed to respond to any breach, threatening the stability of U.S.-supported diplomatic efforts.
RUSSIA/UKRAINE |
— Russia warns of retaliation as Ukraine strikes with U.S. missiles. Russia’s Defense Ministry announced preparations for retaliatory measures after Ukraine used U.S.-supplied ATACMS missiles to strike air defense units in Russia’s Kursk region. In recent days, Ukraine targeted a radar system near Kursk and an airfield with long-range missiles, causing damage and casualties, according to Russia. Seven of eight missiles fired on Monday were reportedly intercepted. The strikes follow a sharp escalation in the conflict, including Russia’s use of a new ballistic missile on Ukraine and President Putin lowering the threshold for nuclear weapon use. Western nations justified Ukraine’s use of these advanced weapons as a response to Moscow deploying North Korean troops to the conflict. Ukraine continues to face intense Russian drone and missile attacks, with the latest wave involving 188 Shahed drones and ballistic missiles overnight.
CHINA UPDATE |
— China’s industrial profits fall less sharply in October. China’s industrial profits fell 10% from year-ago in October, improving from the 27.1% slump in September. Through the first 10 months of the year, industrial profits dropped 4.3% from the same period last year, steeper than the 3.5% decline in the first nine months.
HEALTH UPDATE |
— Biden administration proposes expanded coverage for anti-obesity drugs. The Biden administration has unveiled a proposal to expand coverage for costly anti-obesity drugs to millions of senior citizens and lower-income Americans. This plan could provide access to approximately 3.4 million Medicare beneficiaries and 4 million Medicaid recipients. Currently, these medications, often priced up to $1,000 per month for the uninsured, are not covered under Medicare due to legal restrictions on weight-loss drug coverage. However, the Centers for Medicare and Medicaid Services (CMS) is exploring a reinterpretation of the statute to classify obesity treatment as a chronic disease. If implemented, some Medicare enrollees could see out-of-pocket costs reduced by up to 95%, with changes potentially taking effect in 2026.
OTHER ITEMS OF NOTE |
— Possible sabotage in Lithuanian cargo plane crash. German officials have suggested sabotage or hybrid warfare could be behind Monday’s fiery crash of a Swiftair cargo plane near Vilnius, Lithuania. Operating under contract for DHL, the plane was en route from Leipzig, Germany, when it crashed just short of the runway. German Chancellor Olaf Scholz acknowledged the potential for hybrid warfare but noted investigations are ongoing. Lithuanian authorities, however, stated there is no current evidence to support claims of sabotage.
KEY LINKS |
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 | | Russia/Ukraine war, lessons learned | | SCOTUS on WOTUS | SCOTUS on Prop 12 pork | New farm bill primer | | Gov’t payments to farmers by program | Farmer working capital | USDA Ag Outlook Forum |