U.S. Inflation Rate Rises to 2.6% in October, Matching Market Expectations

News/Markets/Policy Updates: Nov. 13, 2024

— Equities today: Asian and European stock indexes were mixed overnight. U.S. Dow opened up around 90 points after October’s inflation report matched expectations. The annual inflation rate in the U.S. increased to 2.6% from 2.4% in September, aligning with market forecasts, while monthly CPI growth was steady at 0.2%. In Asia, Japan -1.7%. Hong Kong -0.1%. China +0.5%. India -1.3%. In Europe, at midday, London flat. Paris flat. Frankfurt -0.1%. U.S. stock futures are modestly lower with the dollar index at a multi-year high and the 10-Yr yield holding above 4.40%, a multi-month high. There are several Fed speakers on the calendar who could move markets: Logan (9:45 a.m. ET), Musalem (1:00 p.m. ET), and Schmid (1:30 p.m. ET).

U.S. equities yesterday: The Dow and S&P managed to start the day higher but were unable to finish in positive territory. The Nasdaq also ended lower. The Dow finished down 382.15 points, 0.86%, at 43,910.98. The Nasdaq lost 17.36 points, 0.09%, at 19,281.40. The S&P 500 lost 17.36 points, 0.29%, at 5,983.99.

— Archer Daniels Midland (ADM) is seeking another extension to file its third-quarter financial report, citing an inability to meet the deadline without “unreasonable effort and expense.” This marks the second delay in filing reports, as the company indicated inconsistencies in how transactions between its Ag Services and Oilseeds and Carbohydrate Solutions segments were accounted for under segment reporting standards. ADM plans to release the corrected filings soon, according to a Reuters summary of the regulatory filing.

— DirecTV’s proposed acquisition of Dish more than likely is terminated after a group of bondholders rejected a revised offer, a DirecTV spokesperson said. DirecTV would have assumed roughly $10 billion worth of Dish debt and paid a nominal $1 to acquire Dish DBS, which includes both Dish and Sling TV, but the deal was contested by a group of bondholders.

— Ag markets today: Wheat futures faced followthrough selling during the overnight session, while corn and soybeans pivoted around unchanged in light, two-sided trade. As of 7:30 a.m. ET, corn futures were trading around a penny lower, soybeans were 1 to 3 cents lower, and wheat was mostly 3 to 4 cents lower. The U.S. dollar index was mildly weaker and front-month crude oil futures were modestly firmer this morning.

Estimated beef packer margins continued their recent decline and are now around $50.00 per head in the red, according to HedgersEdge.com. That’s likely to keep packers cautious with cash cattle bids this week, though feedlots aren’t likely to be too open to actively moving cattle at lower prices.

Primal pork belly prices plunged $11.56 on Tuesday, which along with a $5.27 drop in loins, triggered a $3.78 decline in the pork cutout to $97.68. The sharp drop in price sparked a jump in movement to 379.60 loads, signaling strong underlying retailer demand. The CME lean hog index is down 14 cents to $89.88 as of Nov. 11, the third straight daily decline.

— Agriculture markets yesterday:
• Corn: December corn futures fell 1 1/2 cents to $4.28 1/2 and nearer the session low.
• Soy complex: January soybeans fell 11 3/4 cents to $10.10 1/2, closing nearer the session low, while December soymeal closed $2.20 lower at $292.90, marking a fresh contract low close. December soyoil plunged 191 points to 46.23 cents, marking the largest daily loss since July 26.
• Wheat: December SRW futures plunged 13 1/4 cents to $5.52 1/4, settling near session lows. December HRW futures dropped 13 cents to $5.46 1/2. December spring wheat futures fell 14 1/4 cents to $5.77 3/4.
• Cotton: December cotton fell 92 points to 68.77 cents, closing near the session low.
• Cattle: December live cattle futures rallied 70 cents to $184.40 and settled nearer session highs. January feeder futures settled $1.325 higher at $243.575, near session highs.
• Hogs: December lean hogs rose 57 1/2 cents to $82.35, nearer the daily low.

— Economists are monitoring the potential for “reflation,” a resurgence in price increases driven primarily by Trump’s proposed policies rather than consumer demand. Bank of America economists Stephen Juneau and Jeseo Park highlighted pro-growth fiscal measures, tariffs, and stricter immigration as possible sources of inflation risk if enacted.

Fed Chair Jay Powell indicated that the central bank will not adjust its economic models until Trump’s initiatives are officially enacted. After this morning’s CPI report, CME Fed funds futures shifted toward 70% probabilities of a 25-basis-point cut in December after those odds had declined to near 60% to open the week.

Market perspectives:

— Outside markets: The U.S. dollar index was down, with the euro and yen stronger against the greenback. The yield on the 10-year U.S. Treasury note fell, trading around 4.42%, with a positive tone in global government bond yields. Crude oil futures were up, with U.S. crude around $68.40 per barrel and Brent around $72.15 per barrel. Gold and silver futures were up, with gold around $2,616 per troy ounce and silver around $30.95 per troy ounce.

— Indonesia reaffirms B40 biodiesel plan for 2025. Indonesia’s government reaffirmed to lawmakers a plan to implement a 40% mandatory biodiesel mix with palm oil-based fuel, known as B40, in January 2025, as part of the new government’s “quick wins” program. Energy Minister Bahlil Lahadalia also told a parliamentary hearing the government expects to implement a B50 mandate by 2026. The plan to increase the biodiesel blend from the current 35% is part of an effort to reduce fuel imports, which analysts have said would increase demand and prices for palm oil.

— Deadline for dockworkers on the East and Gulf coasts of the U.S. to negotiate a new contract with their employers is Jan. 15. If an agreement isn’t reached, it could lead to a strike similar to the one in early October, which lasted three days and highlighted the rapid formation of cargo bottlenecks when operations are disrupted. The unresolved issues in these negotiations primarily revolve around automation, despite a temporary suspension of strikes in October following an agreement for a 62% pay raise. Discussions on automation were postponed until after the U.S. elections.

As for Canada, the recent intervention by Canadian Prime Minister Justin Trudeau’s government to end lockouts at Canada’s largest ports, though necessary to mitigate economic damage, offers a cautionary tale of how port disruptions can quickly escalate into economic crises.

If no U.S. agreement is reached by Jan. 15, the issue will likely become a significant challenge for President-elect Donald Trump. He will need to navigate the economic and political implications of siding with unionized dockworkers or employers pushing for modernization, including automation, of U.S. ports. Trump previously expressed support for the dockworkers’ wage negotiations and skepticism toward certain new technologies promoted by the employers, particularly noting that many shipping companies are foreign-flagged vessels.

— USDA daily export sales:
• 401,357 MT corn to Mexico, 2024-2025 marketing year
• 290,820 MT corn received in the reporting period to unknown destinations, 2024-2025

— Ag trade update: South Korea purchased 133,000 MT of corn in two separate tenders – all to be sourced from the U.S., South America or South Africa – and 65,000 MT of optional origin feed wheat, excluding Russia, Argentina, Pakistan, Denmark and China. Japan purchased 4,100 MT of feed wheat and 220 MT of feed barley. Jordan tendered to buy up to 120,000 MT of optional origin milling wheat.

— NWS outlook: Atmospheric River brings heavy coastal rain and high-elevation mountain snow to the Pacific Northwest and northern California Wednesday... ...Showers and thunderstorms will bring locally heavy rainfall to the Lower Ohio, Tennessee, and Mississippi Valleys Wednesday, with the risk for some scattered flash flooding in Louisiana and Mississippi... ...Above average temperatures continue for much of the central U.S. and Gulf Coast states while colder air moves into the Northeast and the West.

(NWS)

Items in Pro Farmer’s First Thing Today include:
• Wheat lower, corn and beans choppy
• Beef packer margins turn red
• Bellies, loins pressure pork cutout
• Notable improvement in HRW, SRW CCI ratings
• France cuts wheat export forecast.

— The Biden administration announced it will continue arms transfers to Israel, despite Israel missing a 30-day deadline to significantly increase humanitarian aid to Gaza. The U.S. State Department said Israel has made some progress in facilitating humanitarian aid to Gaza. Vedant Patel, a State Department spokesperson, stated that the U.S. has not determined that Israel is breaching U.S. laws regarding humanitarian access. The U.S. emphasized that it is not giving Israel “a free pass” and aims to see comprehensive improvement in the humanitarian situation.

— Russia’s winter wheat plantings to fall to 7-year low. Winter wheat seedings in Russia will shrink to 15.4 million hectares in 2025-26, the lowest since 2018-19, according to Igor Pavensky, an expert at Russian grain carrier Rusagrotrans. Drought in key regions restricted winter wheat plantings this fall. He forecasts Russia’s total grain production for 2025-26 at around 133 MMT, including 84.5 MMT of wheat.

— Ukraine heavily front loads 2024-25 wheat exports. Ukrainian traders have exported just over a half of the government-agreed 16.2 MMT of wheat available for export in 2024-25, ag ministry data showed. As of Nov. 13, Ukraine’s 2024-25 wheat exports totaled 8.2 MMT. Ukraine exported around 18.3 million tons MMT of wheat in 2023-24. Ukraine’s total grain exports since July 1 reached almost 16 MMT, up from about 11 MMT during the same period last year. Besides wheat, the export volume included 5.7 MMT of corn and 1.7 MMT of barley.

— CBO updates analysis of House farm bill. The Congressional Budget Office’s (CBO) adjusted its cost projections for the farm bill (link) passed by the House Ag Committee, reducing the bill’s projected cost by $8 billion from previous estimates. The updated figures show that the bill would exceed the baseline by $25.2 billion from 2025 to 2033, down by $7.8 billion compared to earlier estimates, with another $2.9 billion increase expected for 2034. The overall cost for 2025-2034 is estimated at $28.1 billion above the baseline.

Spending under the commodity title is projected to be $32.1 billion over baseline for 2025-2033, which represents an $11.3 billion reduction compared to earlier estimates. There is also a $4.9 billion increase for 2034.

CBO revised its savings estimate from changes to the USDA’s Commodity Credit Corporation (CCC) authority, predicting $5.4 billion in savings for 2025-2034, up from the prior estimate of $3.6 billion for 2024-2033. This falls short of savings expectations from House Ag Republicans.

Nutrition program spending is projected to increase by $8.9 billion above the baseline, representing a $1.2 billion reduction from previous estimates, with an additional $1.2 billion in spending for 2034.

Outlook. The bill’s prospects during the lame-duck session remain uncertain, with attention focused on Senate Ag Committee Chair Debbie Stabenow’s (D-Mich.) decision on moving forward with a new bill. A statement from her is expected soon.

— Dairy farmers to vote on milk pricing reforms. USDA announced that dairy farmers will soon vote on milk marketing reforms aimed at raising the price for fresh milk consumed at the table. Following a 60-day comment period, the Agricultural Marketing Service cleared the proposal for a farmer referendum, which requires a two-thirds majority for approval. Ballots will be mailed to producers and cooperatives, with votes due by Jan. 15, 2025. Link for details.

The proposal could increase revenues by $800 million annually for producers by altering the pricing formula for Class I milk used in grocery stores. Other changes include adjustments to protein content in Class III and IV milk, modifications to cheese pricing calculations, and location-specific pricing differentials.

Public webinars will detail the amendments and voting process later this month.

— Snyder launches consulting firm; Kircher to lead Chicken Council. Rod Snyder, former EPA agriculture adviser, has launched Junction Strategies, a consulting firm focused on agriculture, climate, environmental issues, and supply chain sustainability.

Meanwhile, Harrison Kircher has been appointed CEO of the National Chicken Council, effective Jan. 1, after serving as senior vice president for governmental affairs since 2021.

— China indicated its discomfort with yuan weakness through its daily reference rate for the currency amid the threat of higher U.S. tariffs under a new Trump administration.

— COFCO: China’s soybean imports may fall 9.5%. China’s soybean imports will drop to 98.8 MMT in 2024-25 from 109.4 MMT last year, an executive of China National Cereals, Oils and Foodstuffs Corporation (COFCO) said. The COFCO executive did not provide reasons for the anticipated drop in soybean imports but said they would need to see if buyers are willing to take on U.S. cargoes. “If we look at the long-term trend, looking at December and January shipping schedules, profit margins from U.S. soybeans are relatively good. But we have to monitor the effectiveness of the profit margins – whether people will dare to buy U.S. soybeans,” the official said. China’s ag ministry forecasts soybean imports will fall to 94.6 MMT in 2024-25 from 104.74 MMT last year.

— China unveils new tax incentives to revive struggling property sector. China cut home purchase deed taxes to 1% for first- and second-time buyers of flats of 140 square meters and below, from a current level of as much as 3%, effective Dec. 1. That paves way for reduced costs for property purchases in mega cities including Beijing and Shanghai. China will also allow the biggest cities to scrap the distinction between ordinary and luxury homes, which would substantially lower purchasing costs for people seeking to upgrade their residences. The minimum pre-collection rate for land value-added tax also will be reduced by 0.5 percentage points.

— Steve Madden is planning to reduce its reliance on Chinese imports, anticipating potential tariff increases under Trump 2.0. During a Nov. 7 earnings call, CEO Edward Rosenfeld stated the company aims to cut imports from China by 40% to 45% over the next year. Currently, about two-thirds of Steve Madden’s U.S. imports come from China, accounting for roughly 70% of its overall goods.

— Ontario premier calls for U.S./Canada trade deal if Mexico fails to align on Chinese tariffs. Ontario Premier Doug Ford has called for Canada to negotiate a bilateral trade agreement with the U.S. unless Mexico aligns with North American partners on tariffs for Chinese imports. Ford stated that Mexico should match U.S. and Canadian tariffs on Chinese goods or risk exclusion from a trade partnership with the U.S., which he described as “the largest economy in the world.” Ford characterized Mexico as a “backdoor” for Chinese imports into North America, urging a stronger bilateral focus on U.S./Canada economic ties.

Ford’s comments come in the context of anticipated changes to trade policy as Donald Trump prepares to return to the White House, with his promises to introduce new tariffs and reopen the North American trade agreement. Ontario, a major hub for Canada’s auto industry, is closely tied to U.S. manufacturing and stands to be heavily affected by shifts in trade policy.

In response, Canadian Prime Minister Justin Trudeau has indicated Canada’s willingness to cooperate with the U.S. and Mexico to address concerns around Chinese trade practices. Trudeau warned of the impact of potential tariffs on Canadian and U.S. workers. He emphasized a unified approach among North American partners to safeguard jobs.

Mexico asserts that it has already taken steps to address Chinese imports, such as tariffs on steel products. Mexican officials have been working to reduce trade imbalances with China and deny claims that Chinese cars are being exported from Mexico to the U.S.

Of note: Ontario is the top trading partner for 17 U.S. states.

— Fuel groups warn of price hikes without tax credit clarity. Over 30 trade groups from the energy, agriculture, and transport sectors have urged Congress to extend expiring tax credits, including a $1-a-gallon biodiesel incentive, to avoid potential fuel price hikes. They warn that a lack of clear government guidance and new incentives set to begin in January could lead to market instability and uncertainty for fuelmakers, airlines, and crop processors. With a change in administration and evolving policies, industry leaders are seeking clarity to stabilize markets and encourage clean energy investment.

— Lunchables have been withdrawn from the National School Lunch Program, following months of scrutiny over high sodium content highlighted by Consumer Reports. Kraft Heinz, the company behind Lunchables, cited unmet demand targets as the reason for the decision. Brian Ronholm, Consumer Reports’ director of food policy, urged USDA to uphold stringent eligibility criteria for the school lunch programs, emphasizing the need for healthier options for millions of dependent children. The National School Lunch Program, a federally subsidized initiative providing low-cost or free balanced meals to nearly 30 million students, remains a significant channel for children’s nutrition.

— Calley and Casey Means, siblings leading RFK Jr.’s “Make America Healthy Again” campaign, are set to influence Donald Trump’s health agenda. They advocate for healthier school meals, sustainable agriculture, and banning certain food additives, blending left-leaning wellness ideas with conservative themes, according to a Wall Street Journal account (link). The duo’s distrust of traditional medicine and push for holistic health measures, including reducing pharmaceutical influence and changing food industry practices, mark a shift from Trump’s previous administration’s health policies. They aim to reshape U.S. health systems with RFK Jr., who may hold a prominent role in Trump’s administration.

WSJ quote: “The ascent of the siblings, who are top advisers to Robert F. Kennedy Jr., has underscored the unusual bedfellows that have comprised Trump’s winning coalition.”

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 |