U.S. Jobs Report: Not Cooling Off Enough for Fed to Ease Up on Interest Rates

Biden warns of nuclear ‘Armageddon,’ mulls off-ramp for Putin | Update on railroad strike issues

The U.S. jobs report signals the Fed will not move off its aggressive approach to rate hikes, say analysts. We have details and analysis below.

WTI crude futures rose toward 5-week highs above $89 per barrel on Friday, and were set to gain more than 12% this week, the most since early March, following OPEC+’S production-cut move that threatens to squeeze supply further ahead of the winter season. President Joe Biden showed dismay over OPEC+’s decision on Thursday and said the U.S. was looking for ways to keep prices from rising. Adding to supply concerns, Russia warned again this week that it won’t sell oil to countries that support the US-led plan to impose a price cap on Russian oil.

President Biden says Russian leader Vladimir Putin’s threats are real and could spark nuclear ‘Armageddon.’ The president said the U.S. is trying to find an “off-ramp” for Russian President Vladimir Putin and worries his threats to use tactical nuclear weapons are real and could lead to “Armageddon.” More in Russia/Ukraine section.

The White House is weighing its options after OPEC+’s big oil production cut. Lawmakers are planning bills that would break up the oil cartel or begin dispute proceedings at the WTO. For now, President Biden is planning less combative moves like releasing more oil from the SPR.

U.S. says constructive steps needed for Venezuela sanctions relief. The U.S. is willing to reconsider Venezuela sanctions only if President Nicolas Maduro takes “constructive steps” to restore democracy, Secretary of State Antony Blinken said Thursday, reiterating that he’s seen no such progress so far.

“I want Americans to earn more money. I want families to have more money to put food on the table. But it’s got to be consistent with a stable economy, an economy of 2% growth” in inflation, Minneapolis Fed President Neel Kashkari said during a Q&A session on Thursday. “Wage growth is higher than you would expect for an economy delivering 2% inflation. So that gives me some concern.” We have more Fedspeak below.

World food prices lowest since February. The FAO Food Price Index declined to 136.3 in September, sharply below a record high of 159.7 hit in March and the lowest since February, when the Russian invasion of Ukraine started. Prices declined sharply for vegetable oils, namely palm oil while the cost of wheat rose amid uncertainty about the Black Sea Grain Initiative.

The Labor Department said it had strengthened worker protections in the agricultural guestworker program in two regulations announced on Thursday. One applies to the H-2A program and will take effect on Nov. 14. The other involves temporary labor certification under H-2A and will appear in the Federal Register next week.

Major cannabis companies all closed markedly higher on Thursday as they appeared to be beneficiaries of comments made by President Biden regarding a review of marijuana as a Schedule I substance. 38 U.S. states have already legalized pot either medically or recreationally, but it is still illegal in some states and at the federal level. Biden also pardoned 6,500 individuals convicted of “simple marijuana possession,” which will apply to federal offenders and those charged in the District of Columbia. “We classify marijuana at the same level as heroin - and more serious than fentanyl. It makes no sense,” he said in a statement. “Too many lives have been upended because of our failed approach to marijuana. It’s time that we right these wrongs.”

Election Day 2022 is 32 days away. Election Day 2024 is 760 days away.

Equities today: Global stock markets were mixed overnight. U.S. Dow opened around 250 points lower and is currently down over 500 points. In Asia, Japan -0.7%. Hong Kong -1.5%. China closed. India -0.1%. In Europe, at midday, London +0.1%. Paris flat. Frankfurt -0.1%.

U.S. equities yesterday: The Dow and S&P 500 managed only an initial spurt in positive territory during the session and finished lower for the day. The Nasdaq floated between losses and gains into early afternoon but ended lower. The Dow closed down 346.93 points, 1.15%, at 29,926.94. The Nasdaq declined 75.33 points, 0.68%, at 11,073.31. The S&P 500 lost 38.76 points, 1.02%, at 3,744.52.

Credit Suisse said it would buy back up to $3 billion of its own debt in a bid to reassure investors amid persistent concerns about its liquidity. Before the announcement shares in the Swiss bank had fallen 55% this year, while credit default swaps, an insurance-like derivative, had risen. But the latest move helped calm markets: shares in the bank rose 3% in early trading.

Agriculture markets yesterday:

• Corn: December corn fell 8 1/2 cents to $6.75 1/2, the contract’s lowest close since Sept. 29.
• Soy complex: November soybeans fell 11 3/4 cents to $13.58, the contract’s lowest close since July 25. December soymeal fell $5.10 to $393.40, the lowest close since July 22. December soyoil rose 48 points to 66.02 cents.
• Wheat: December SRW wheat fell 23 cents to $8.79, the contract’s lowest closing price since Sept. 27. December HRW wheat dropped 25 1/4 cents to $9.65. December spring wheat fell 19 cents to $9.62 1/2.
• Cotton: December cotton fell 33 points to 82.90 cents, the contract’s lowest close since September 2021.
• Cattle: December live cattle fell 5 cents to $147.875. November feeders fell 90 cents to $176.425.
• Hogs: December lean hogs rose $1.275 to $77.775, the contract’s highest close since Sept. 26.
  

Ag markets today: Corn, soybean and wheat futures regained a portion of Thursday’s losses amid corrective buying overnight. As of 7:30 a.m. ET, corn futures were trading 1 to 2 cents higher, soybeans were mostly 2 to 3 cents higher and wheat futures were 11 to 15 cents higher. Front-month crude oil futures were around $1 higher and the U.S. dollar index was 150 points lower.

Technical viewpoints from Jim Wyckoff:

On tap today:

• U.S. nonfarm payrolls are expected to increase by 250,000 in September and the unemployment rate is forecast to hold steady at 3.7%. Follow our coverage here. (8:30 a.m. ET) UPDATE: See next item.
• U.S. wholesale inventories for August are expected to increase 1.2% from the prior month. (10 a.m. ET)
• Baker Hughes rig count is out at 1 p.m. ET.
• Federal Reserve releases its August consumer credit report at 3 p.m. ET.
• CFTC Commitments of Traders report 3:30 p.m. ET.
• Federal Reserve speakers: New York’s John Williams on the economy and monetary policy at 10 a.m. ET, Minneapolis’ Neel Kashkari on agriculture, food and inflation at 11 a.m. ET, and Atlanta’s Raphael Bostic on Atlanta’s wealth gap at 12 p.m. ET.

The U.S. labor market is not cooling off as much as expected, as 263,000 jobs were added in September, above the estimate for 250,000, while unemployment fell to 3.5% (from 3.7% expectation) because 57,000 workers dropped out of the labor force. U.S. equities fell as the numbers signal no short-term pivot by the Federal Reserve.

September’s payroll figure marked a deceleration from the 315,000 gain in August and tied for the lowest monthly increase since April 2021.

In the closely watched wage numbers, average hourly earnings rose 0.3% on the month, in line with estimates, and 5% from a year ago, an increase that is still well above the pre-pandemic norm but 0.1 percentage point below the forecast.

The Federal Reserve’s next rate decision is scheduled for Nov. 2, and officials have emphasized that the central bank is watching the jobs data closely as they determine how aggressive to be. (Source for chart: New York Times)

The IMF will lower its 2023 growth forecast from its earlier estimate of 2.9% in a report to be released next week, said the fund’s Managing Director Kristalina Georgieva in a speech Thursday. She didn’t specify the new estimate, but said it would reflect a darkening outlook as soaring inflation cuts into people’s ability to spend.

For 2022, the IMF sees the global economy expanding 3.2%, down from 6.1% in 2021.

The IMF expects a global economic output loss of about $4 trillion between now and 2026, representing the size of the German economy, she said.

Upshot: “Our world economy is like a ship in choppy waters,” she said, citing the impact of the Covid-19 pandemic, the war in Ukraine and climate disasters. “In less than three years, we lived through shock after shock after shock.”

Fed official sees ‘almost no evidence inflation coming down.’ Minneapolis Fed President Neel Kashkari, who is typically considered one of the more dovish members of the central bank, said at a banking conference today in Minnesota that he is seeing “almost no evidence that underlying inflation is coming down.” As such, he is “not comfortable saying we are going to pause [hiking rates],” Kashkari added.

Fed’s Evans: rates headed to 4.5%-4.75% by spring of 2023. Chicago Federal Reserve Bank President Charles Evans said the U.S. central bank’s policy rate is likely headed to 4.5%-4.75% by the spring of 2023 as the Fed increases borrowing costs to bring down too-high inflation.

Food price deflation. Conagra Brands Inc. expects the soaring transportation and raw-material costs that have helped drive up food prices over the past year will moderate in the coming months, company officials said. Sean Connolly, Conagra’s chief executive, said the cost of some meats, edible oils and shipping expenses are starting to ease, bringing some relief to companies’ balance sheets. “We are seeing some commodities moderating; we are seeing some actually improve,” Connolly said in an interview with the Wall Street Journal (link).

German factory output fell in August, driven by cutbacks in energy-intensive industries as costs surged following reductions in the supply of natural gas from Russia. With separate figures showing a sharp drop in new orders during the month, and retail sales also falling, the outlook is for further declines in one of the world’s industrial powerhouses as the global economic damage caused by the Kremlin’s decision to invade Ukraine continues to mount.

Market perspectives:

• Outside markets: The U.S. dollar index was slightly higher. The U.S. 10-year Treasury note yield rose further toward 3.9%, approaching a 14-year peak of 4% hit on September 27, after the hotter-than-expected employment report reinforced market bets the Federal Reserve will maintain its aggressive tightening path to tame inflation. Crude oil continued to move higher, with U.S. crude around $90 per barrel and Brent around $96 per barrel. Gold and silver futures were lower, with gold weaker around $1,700 per troy ounce and silver firmer around $20 per troy ounce.

• Return to $4 average gas price in U.S. may come early next week. Today’s average gas price is $3.891, according to AA.

• Mississippi River low water disrupts supply chain at peak harvest. The National Grain & Feed Assn. (NGFA) said low water levels on the Mississippi River are impacting member companies, causing diminished barge capacity and one-way river traffic during peak harvest season. NGFA said it is is working with its members, stakeholder partners including the Waterways Council Inc., and the U.S. Army Corps of Engineers to ensure every possible effort is made to relieve strain on the supply chain. Barge terminals are struggling to load barges with some terminals unable to operate due to low water at docks, stalling the 2022 harvest from getting to the Gulf of Mexico for export. To keep river traffic flowing, the U.S. Army Corps of Engineers has been dredging the Mississippi at several locations and placed limits on the number of barges for each tow, the U.S. Coast Guard is marking channels and operators are light-loading barges.

The Corps’ St. Louis District issued a Sept. 30 press release saying it has been monitoring low water levels along the Mississippi River, detailing several dredges. “In addition to the Dredge Potter, we have the Dredge Jadwin from the Vicksburg District working the lower end of the Mississippi and we are using the Dredge Goetz from the St. Paul District to address the Illinois Waterway,” said Lou Dell’Orco, chief of operations. “The St. Louis District has also utilized the Louisville District’s contract Dredge Bill Holman.”

• National Railway Labor Conference issues FAQs on rail labor deal ratification process. The National Railway Labor Conference, an association representing Class I freight railroads in rail labor negotiations, shared expected ratification dates for each union as well as a series of Frequently Asked Questions (FAQ) regarding the process. Railroad and union representatives announced on Sept. 15 they had reached a preliminary agreement in time to avert a nationwide rail shutdown. The deal extends the cooling-off period as union members consider ratifying the deal. The FAQ states that if the unions fail to ratify the deal, the parties have agreed to maintain the status quo and it would “not present risk of an immediate service disruption.” Four unions have ratified the agreement, while eight are pending. The following are expected ratification dates for each union, compiled by the National Railway Labor Conference. These dates are subject to change:

• Transportation Communications International Union (TCU) – Ratified
• Brotherhood Railway Carmen (BRC) – Ratified
• International Brotherhood of Electrical Workers (IBEW) – Ratified
• American Train Dispatchers Association (ATDA) – Ratified (announced Oct. 4)
• Brotherhood of Maintenance of Way Employees Division (BMWED) – Oct. 10
• National Conference of Firemen and Oilers (NCFO) – Oct. 13
• International Association of Sheet Metal, Air, Rail and Transportation Workers – Mechanical Department (SMART-M) – Oct. 14
• Brotherhood of Railroad Signalmen (BRS) – Oct. 26
• International Brotherhood of Boilermakers, Blacksmiths, Iron Ship Builders, Forgers and Helpers (IBB) – Nov. 11
• Brotherhood of Locomotive Engineers & Trainmen (BLET) – Nov. 17
• International Association of Sheet Metal, Air, Rail and Transportation Workers – Transportation Div. (SMART-TD) – Nov. 17
• International Association of Machinists and Aerospace Workers (IAM) – no later than Nov. 20

Among the Q&As:

• Q: What happens if ratification is unsuccessful?
  A: In the event of a failed ratification, the parties have agreed to maintain the status quo for a period of time pending any further discussions and assessment of next steps. As such, a failed ratification does not present risk of an immediate service disruption.
• What is the status of negotiations over crew size?

A: The carriers have proposed to redeploy conductors from the cab of the locomotive to ground-based positions in PTC-enabled territory. This is an important issue for both the railroads and the employees. For the railroads, redeploying conductors will allow the carriers to continue to operate safely but more efficiently while maintaining customer service levels. On the employee front, ground-based conductor positions are expected to be regular assignments with predictable schedules. This type of scheduling will significantly enhance employee quality of life by eliminating the need for many conductors in through-freight service to overnight away from home.

The carriers invited SMART-TD to negotiate nationally over the crew size issue at the outset of the bargaining round, but this invitation was rejected. As a result, direct bargaining over crew size (which was delayed almost two years until SMART-TD legal and procedural objections could be resolved) has taken place on a carrier-level basis. The NCCC believes crew size must be addressed across the industry and views resolution of the carriers’ crew size and redeployment proposals as a matter of the highest priority. The national agreements were structured to allow local discussions regarding crew size to continue.

• Are railroads having trouble hiring?

A: As has been widely reported in the media, employers across the nation have faced challenges attracting and retaining qualified employees. The railroads, however, are far outperforming the broader labor market. The carriers reported more than 42 applicants per hire during 2021 – well above the benchmark ranges of 3:1 to 25:1 that normally are considered to be sufficient by workforce planning experts. Preliminary numbers from 2022 remain strong, with a similar number of applicants and even more hires.

Although the carriers’ overall recruiting data remains strong, they have been affected in certain local labor markets by some of the same forces that are impacting other employers. As a result, the railroads have ramped up their hiring efforts in those specific areas, including by offering the type of targeted incentives that are increasingly common in areas where the labor market is most challenging. The railroads currently are meeting or making progress toward their hiring goals. The new tentative agreements also increase compensation significantly, maintain platinum level healthcare benefits, and improve employee quality of life – factors that should further enhance the industry’s ongoing recruiting and retention efforts.

• Q: Are claims that mid-career employees are “quitting in droves” accurate?

A: No, claims that employees are quitting in droves are not accurate. In the first part of 2022, each individual carrier’s voluntary attrition rate was between 2.0 percent and 3.7 percent. This is just a fraction of the 13.1% quit rate during the same time period reported in the Bureau of Labor Statistics’ JOLTS survey for the transportation, warehousing, and utility sector.

Moreover, among employees with more than five years of service, the carriers have voluntary attrition rates among employees that are a small fraction of the rates currently experienced on average by other employers. For employees with more than ten years of service, the carriers’ voluntary attrition rates are even lower – meaning that the retention rate for mid-career rail employees remains among the best of any industry.

• IHS Markit lowers U.S. corn, soybean crop estimates. The firm cut its corn crop estimate to 13.839 billion bu. on a yield of 171.2 bu. per acre, per Reuters. That’s down from the firm’s forecasts of 13.944 billion bu. and 172.5 bu. per acre last month. IHS Markit lowered its soybean crop to 4.327 billion bu. on a yield of 49.9 bu. per acre. That’s down from its forecasts of 4.378 billion bu. and 50.5 bu. per acre last month.

• Palm oil soars 12% on week. Malaysian palm oil futures rose to above the MYR 3,840 per tonne mark on Friday, extending its rebound from a 1-1/2-year low of MYR 3,220 hit Sept. 28 and gaining 12% on the week, tracking higher prices for other vegetable oils as the rally in crude oil raises demand for biodiesel feedstock. Robust demand is also seen higher in China.

• FAO lowers global cereal grain production forecast. FAO cut its 2022-23 global cereal grain production to 2.768 billion MT, down 5.9 MMT (0.2%) and now 1.7% below its estimate for 2021-22. FAO’s projected global stocks-to-use for 2022-23 is now 29.7%, down from 31.0% in 2021-22 but still relatively high historically.

• Rejecting fertilizers: Fertilizer firms are starting to see farmers in Brazil, one of the world’s biggest food suppliers, pushing back on high prices for crop nutrients.

• California lowers Colorado draw. State water agencies said they would reduce water withdrawals from the Colorado River by up to 400,000 acre-feet annually, equal to 9% of the state’s allotment but far less than federal officials are seeking. Link for details via the Los Angeles Times.

• NWS weather: There is a Marginal Risk of excessive rainfall over parts of the Southwest and Southern Rockies through Sunday morning... ...There are Freeze Warning, Freeze Watch, and Frost Advisories over parts of the Northern Plain into the Middle Mississippi Valley late Sunday into Monday morning... ...Temperatures will be 10 to 15 degrees below average over parts of the Great Lakes to the Central Plains.

Items in Pro Farmer’s First Thing Today include:

• Corrective buying overnight
• Ukraine wheat, barley production falls more than 40%
• Russian wheat export tax drops again
• China’s foreign exchange reserves falls to lowest in five-and-a-half years
• Cash cattle steady/firmer
• Pork cutout back above $100

• President Biden warned the Russian invasion of Ukraine invites the highest nuclear “prospect of Armageddon since Kennedy and the Cuban missile crisis” in 1962. Putin is “not joking when he talks about potential use of tactical nuclear weapons, or biological or chemical weapons — because his military is, you might say, significantly underperforming,” Biden said at a DSCC fundraiser, at the Manhattan home of James and Kathryn Murdoch. “I don’t think there’s any such thing as the ability to easily [use] a tactical nuclear weapon and not end up with Armageddon,” he added.

Background. When ordering a partial mobilization on Sept. 21, Putin pledged to defend Russia’s territorial integrity with “all the means [of destruction] at our disposal,” adding that the threat was “not a bluff.”

“I’m trying to figure out: what is Putin’s off-ramp? Where does he find a way out?” Biden said. “Where does he find himself in a position that he does not only lose face, but lose significant power within Russia?”

• Russian President Vladimir Putin — who turns 70 today — has faced direct criticism from a member of his inner circle over his handling of the war in Ukraine, the Washington Post reports (link) from information obtained by U.S. intelligence. The information “marks the clearest indication yet of turmoil within Russia’s leadership over the stewardship of a war that has gone disastrously wrong for Moscow.” Officials told the WaPo that the information was considered significant enough to include in President Biden’s daily intelligence briefing.

  Russia’s recent pounding on the battlefield has prompted rare public criticisms, including from Kirill Stremousov, the Russian-appointed deputy governor of the annexed province of Kherson. He called Russia’s military leaders “incompetent.”

• Russia could restart the supply of natural gas to Germany and its neighbors via an undamaged section of the Nord Stream 2 pipeline, Deputy Prime Minister Alexander Novak told Russian media. “Unfortunately, due to sabotage, a string [of Nord Stream 2] was damaged, and an investigation is required to make further decisions about the fate of the string,” Novak told RIA Novosti. “As for the second string, it is ready, fully built, and if the necessary legal decisions are made by our European colleagues regarding certification and removal of restrictions, I believe that Russia could provide adequate supplies through this string of the gas pipeline in a short time,” he explained.

  But a German politician said that gas will never flow via Nord Stream 2 because Germany could never again see Russia as a reliable energy supplier. Soon after, the Nord Stream 1 and 2 pipelines became the target of sabotage that seems to have damaged the older pipeline beyond repair.

• Ukrainian grain exports improving, but still well behind year-ago. Ukrainian grain exports in the first 5 days of October were 20.5% less than in the same period of 2021, according to ag ministry data. The country exported 468,000 MT of grain, mostly corn, in the initial days this month, versus 589,000 MT during the same period last year. Since July 1, Ukrainian grain exports stand at 9.17 MMT, down 5.78 MMT (38.7%) behind the same period last year. That included 5.1 MMT of corn, 3.2 MMT of wheat and 823,000 MT of barley.

— President Biden pardoned everyone convicted of marijuana possession under federal law and said the U.S. will review how the drug is classified. The pardons will clear about 6,500 people who were convicted on federal charges of simple possession of marijuana from 1992 to 2021 and thousands more who were convicted of possession in the District of Columbia, officials said. The move fulfills a Biden campaign pledge to erase prior federal possession convictions and beginning the process of loosening federal classification of the drug.

Impact: Several pot stocks surged on the news. Meanwhile, a KC Fed study notes the marijuana industry has expanded across the Tenth District and may continue growing in the years to come. Although this expansion has posed challenges for some local communities, it has also raised tax revenues, created jobs, and increased demand for commercial real estate. Link for details.

One in six Americans are smoking marijuana these days, according to a Gallup poll from the summer, which highlights how the times are rapidly changing. However, annual arrests for marijuana possession still reportedly account for around half of all drug arrests in the U.S. According to cannabis market research firm BDSA, legal weed sales nationwide are expected to increase 7% Y/Y to $27 billion in 2022, despite an inflationary environment and recession concerns that have dampened consumer spending.

— New head of USDA’s rural utilities agency. President Biden appointed Andy Berke, who expanded no-cost internet service to low-income families while mayor of Chattanooga, Tennessee, to be administrator of the USDA’s Rural Utilities Service.

— The U.N.’s human rights council rejected a debate on China’s treatment of Uyghurs and other minority groups. The motion was proposed by Western countries including the U.S., Britain and Canada. Pakistan, one of 19 countries to vote no, said it did not wish to alienate China. It is only the second time that a motion has been rejected by the council since it was established in 2006.

As China’s cotton harvest begins, Xinjiang ‘forced labor’ law and global recession fears hobble demand. Extreme weather, U.S. trade sanctions and global recession fears are disrupting the global market for cotton just as China’s Xinjiang region begins its harvest. Link for more via the South China Morning Post.

— China’s foreign exchange reserves falls to lowest in five-and-a-half years. China’s foreign exchange reserves in China declined by $26 billion to $3.029 trillion in September, the lowest since March 2017, as the dollar climbed against other major currencies. The yuan fell 3.2% against the dollar in September, while the dollar rose by about the same margin against a basket of other major currencies. China’s gold reserves dropped to $104.72 billion at the end of September from $107.49 billion the previous month.

— China has curbed exports of corn starch in a signal that the world’s top corn importer is likely worried about local supplies. The government asked companies to suspend shipments to stabilize corn prices and contain inflation risks, according to Beijing Orient Agribusiness Consultant Co. Corn starch is commonly used as an ingredient to thicken soups and sauces or for paper products and adhesives. Link to more via Bloomberg.

— Taiwan’s exports tumble for the first time in more than two years as mainland China demand slackens. Exports to mainland China, Taiwan’s largest trading partner, fell an annual 13.3% to $15.17 billion in September, after a 9.9% contraction in August, in a sign of the continued economic problems there.

— House trade panel head seeking to revive U.S./EU trade pact. House Ways and Means Chairman Richard Neal (D-Mass.) said Democrats should prioritize free-trade negotiations with Europe if they are able to maintain their hold on Congress after the Nov. 8 midterm elections. “On the European side, there’s 500 million consumers,” Neal told Bloomberg News during an interview in Geneva. “We want to sell our goods there.” However, the Biden administration has generally been cool towards traditional free-trade deals and is now facing EU complaints that clean-energy tax credits in the Inflation Reduction Act discriminate against European car manufacturers.

— Biden mulls options after OPEC+ moves to cut oil output. OPEC+’s decision to slash oil production has the White House considering responses that could include measures aimed at breaking the cartel’s hold on markets or limiting U.S. oil exports should shortages emerge. “There are a lot of alternatives, and we haven’t made up our minds yet,” Biden said to reporters Thursday outside the White House. The cutback is the latest dilemma for President Biden, who has sought to transition the U.S. away from fossil fuels while at the same time keeping consumer prices in check. A long fall in gasoline prices has started to reverse, and this week’s OPEC decision to cut oil production by 2 million barrels a day threatens to push prices higher again just weeks before the Nov. 8 midterm elections, the WSJ reports (link).

Legislation (NOPEC) that would allow the U.S. to sue OPEC nations is being considered as a possible response to the oil cartel’s production cut this week that benefited Russian President Vladimir Putin, said Senate Majority Leader Chuck Schumer (D-N.Y.) on Thursday. Some are pitching bills that would potentially seize the assets that OPEC member countries own in the U.S., or mandate the removal of U.S. armed forces from Saudi Arabia and the UAE.

Brent crude, the international benchmark, was hovering just below $95 per barrel on Friday morning, up about 6% since Monday.

Goldman Sachs raised its 2022 price forecast for Brent crude from $99 to $104 per barrel. The increase was driven by the OPEC+ announcement. Although the 2-million-barrel figure is nominal and the actual output cut would be smaller, at around half that, the bank believes the physical oil market is tight enough to justify such price forecast updates. On a quarterly basis, Goldman sees Brent trading at $110 this quarter and rising to $115 per barrel in the first quarter of 2023. The bank’s analysts commented that such a deep cut would prompt a response from the United States and that this response would most likely be a further release of strategic reserve crude. According to Goldman, even the International Energy Agency might join the reserve release to keep a lid on oil prices. Bottom line: “The oil market’s buffers (stocks and spare capacity) remain critically low, and higher prices remain the key viable, long-term solution to increased inventories in the short term and higher supply capacity medium term,” Goldman analysts said.

“The royal Saudi family has never been a trustworthy ally of our nation,” said Sen. Dick Durbin (D-Ill.).

— OPEC chief: Output cuts will leave room to deal with future crises. OPEC+’s decision to cut their output targets by 2 million barrels per day (bpd) will leave the countries able to tap more supplies in the event of future crises, OPEC Secretary General Haitham al-Ghais said on Al Arabiya TV, according to Reuters. “This was not a decision from one country against another, and I want to be clear in saying this, and it’s not a decision from two or three countries against a group of other countries,” Ghais told the station. “There are strong indicators that there is a high possibility that recession will happen, we decided in this meeting to be pre-emptive.”

Regarding sanctions and a coming cap on the price of Russian oil to be deployed by the European Union (EU), al-Ghais said he was unable to comment. “The truth is, the shape of these proposed sanctions is not quite clear, and how they will be implemented is also unclear, so we cannot comment,” he said.

— White House still wants to refill SPR… when prices are lower. The Biden administration is still planning on replenishing the nation’s crude oil emergency stockpiles when the price of oil goes down, White House energy advisor Amos Hochstein said on Thursday. The White House made the decision in March to release a million barrels of crude oil per day from the nation’s petroleum reserves to supplement the market while U.S. production ramped up to meet demand, with the intent on lowering prices. The drawdowns were supposed to last until October, but a portion of the sale of reserves has been pushed out into November — the month when OPEC+ will likely see about a million-bpd cut from its production. Meanwhile, the U.S. has seen just a 200,000 bpd increase in crude oil production since the SPR decision was made.

So far this year, 177 million barrels have been sold out of emergency inventory. Hochstein said on Thursday that oil prices hadn’t spiked as much as the White House initially feared following the OPEC+ announcement.

— Record turkey prices expected as Thanksgiving approaches. Families can expect to pay record high prices at the grocery store for turkey this upcoming holiday season thanks to the impacts of the bird flu and inflation. Farm Bureau economists analyzed turkey and egg costs in a recent report (link). The retail price for fresh boneless, skinless turkey breast reached a record high of $6.70 per pound in September, 112% higher than the same time in 2021 when prices were $3.16 per pound. The previous record high price was $5.88 per pound in November 2015, during the 2015 highly pathogenic avian influenza outbreak.

— U.N.: 45 countries in need of food aid, including 33 in Africa, nine in Asia, two in Latin America and the Caribbean and one in Europe, according to the latest U.N. Crop Prospects and Food Situation report. The situation in East Africa is due to “multi-year droughts,” the FAO said, with famine conditions are expected in areas of Somalia. “High inflation rates, challenging macroeconomic environments and depreciating currencies are aggravating food insecurity conditions in low-income food deficit countries,” the report said.

— Bird flu was discovered in a backyard flock in the Albuquerque area, making New Mexico the 42nd state where the viral disease has been confirmed this year, said USDA on Thursday. Link for details.

— Summary:

• Global Covid-19 cases at 620,566,418 with 6,554,948 deaths.
• U.S. case count is at 96,612,509 with 1,062,130 deaths.
• Johns Hopkins University Coronavirus Resource Center says there have been 619,765,972 doses administered, 268,373,101 have received at least one vaccine, or 81.45% of the U.S. population.

— Republican Sen. Ben Sasse of Nebraska plans to resign from the Senate by the end of the year to take a job as the president of the University of Florida, KFAB News reports (link). A Sasse resignation would not change the balance of power in the Senate, with his seat to be temporarily filled by an appointment made by outgoing Nebraska Gov. Pete Ricketts, a Republican.

— Cotton AWP falls to lowest mark since Aug. 13, 2021. The Adjusted World Price (AWP) for cotton fell to 77.19 cents per pound, effective today (Oct. 7), down from 82.42 cents per pound the prior week and the lowest since it was at 77.19 cents per pound the week of Aug. 13, 2021. Given the fall in prices, USDA did not announce a Special Import Quota for upland cotton for a second consecutive week.

— Dept. of Labor to unveil final H-2A worker rule updates (link). The Department of Labor (DOL) on Oct. 12 will publish its final rule on H-2A workers (link to pre-publication doc) with adjustments to the wage methodology contained in a draft rule issued in 2019, while making other changes. DOL said the final rule contains what it says are improvements in safety and health protections for workers housed in rental or public accommodations. It streamlines and updates bond requirements for labor contractors, clarifies the housing certification process to allow state and local authorities to conduct housing inspections, makes electronic filing mandatory for most applications to improve employers’ processing efficiency and modernizes the methodology and procedures for determining the prevailing wage to allow state workforce agencies to produce more prevailing wage findings. The latter provision requires workers to get the higher of the prevailing wage; state or federal minimum wage; or what is known as the adverse-effect wage rate. The final rule takes effect Nov. 14.

— The U.S. issued new sanctions Thursday on seven senior Iranian officials over the Iranian government’s violent crackdown on mass protests and restrictions on internet access in the country. For weeks, a protest movement in Iran’s capital of Tehran has gathered momentum since the death in mid-September of Mahsa Amini, the 22-year-old Kurdish Iranian woman who died after being detained by the country’s morality police for apparently not wearing her hijab properly. More than 1,000 people are believed to have been detained in the demonstrations.

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