U.S. Producer Inflation Slows More than Expected

Agritech startups struggle | U.S. jobless claims surge | Farm bill deadline | • Avian influenza on third dairy farm in northwest Iowa

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June 13, 2024 09:04 AM

Agritech startups struggle | U.S. jobless claims surge | Farm bill deadline | Avian influenza on third dairy farm in northwest Iowa

Today’s Digital Newspaper

MARKET FOCUS

U.S. producer inflation slows more than expected
U.S. initial jobless claims unexpectedly surge to 10-month high
FOMC: Powell was more hawkish, but market reaction wasn’t
Tesla shares surge on Musk salary expectations
Agritech startups struggle
European natural gas futures rise 5%
Biden administration watching contract talks this summer at ports
Import volumes at Port of Los Angeles remain above pre-pandemic peak
Transpacific rates increase for eighth consecutive week
Ag markets today
Unions suspend strikes at Australia’s biggest sugar maker
USDA daily export sale: 120,000 MT soybeans to unknown destinations, 2023-2024
Ag trade update
El Niño ends, La Niña looms: Concerns rise for Atlantic hurricane season
NWS weather outlook
Pro Farmer First Thing Today items

CONGRESS

House voted Wednesday to hold Attorney General Merrick Garland in contempt
TCJA extension could lose $4 to $5 trillion of revenue

ISRAEL/HAMAS CONFLICT

Hamas hardens stance on U.S.-backed cease-fire proposal.

POLICY

December is real farm bill deadline

RUSSIA & UKRAINE

G7 nations agree on loan structure to provide Ukraine with $50 billion of fresh aid
Russia halts dollar, euro trade settlements

CHINA

China’s new ambassador to Canada, Wang Di, arrives in Ottawa
Chinese farmers fighting hot temps, drought
China could target EU pork, dairy in retaliation for EV tariffs

TRADE POLICY

Canadian officials deliver unified trade policy message for U.S. leaders

ENERGY & CLIMATE CHANGE

FASB proposing new requirements for how firms account for environmental credit
Oil and corn allies challenge Biden car standards
U.S. renewable diesel production growth drastically impacts global feedstock trade

LIVESTOCK, NUTRITION & FOOD INDUSTRY

Avian influenza on third dairy farm in northwest Iowa
Companies working to find H5N1 vaccine for cattle
McDonald’s USA president Joe Erlinger: prices have risen 21% over past five years
Biden admin announces national strategy to cut food waste and boost recycling
Rep. Luna (R-Fla.) introduced two bills targeting food additives
Louisiana legislators legalize sale of raw milk, labeled ‘not for human consumption’

POLITICS & ELECTIONS

Congress and lobbyists prepare for possible Trump 2.0.

MARKET FOCUS

— Equities today: Asian and European stock indexes were mixed overnight. U.S. Dow opened around 100 points lower. In Asia, Japan -0.4%. Hong Kong +1%. China -0.3%. India +0.3%. In Europe, at midday, London -0.4%. Paris -1.2%. Frankfurt -1.1%.

U.S. equities yesterday: The S&P 500 and the Nasdaq climbed to new records after easing inflation data prompted traders to bolster bets that the Federal Reserve will cut rates this year. The Dow shed 35 points, -0.1%. The S&P 500 rose 0.9%, bringing its gains to 14% for the year, while the Nasdaq gained 1.5%.

— Tesla shares rose 7% premarket after Chief Executive Elon Musk said preliminary voting results show shareholders currently backing a proposal to ratify his big pay package.

— Ag markets today: Corn, soybeans and wheat traded on both sides of unchanged while holding in relatively tight trading ranges overnight. As of 7:30 a.m. ET, corn future were trading mostly 3 cents higher, soybeans were narrowly mixed, SRW wheat was 3 to 5 cents higher, HRW wheat was mostly a penny higher and HRS wheat was 4 cents higher. The U.S. dollar index was around 250 points higher and front-month crude oil futures were about 50 cents lower.

Slow developing cash cattle market. Cash cattle trade has been limited so far this week, with trade too light to set a price trend. Despite big discounts to the cash market, cattle futures weakened on Wednesday, suggesting traders sense cash prices will eventually soften this week.

Skid halted in cash hog index, pork cutout plunges. The CME lean hog index is up 6 cents to $91.38 as of June 11, ending a four-day skid that dropped prices 74 cents. June hogs, which expire Friday, finished yesterday 64.5 cents above today’s cash quote, while the July contract held a $2.32 premium. The pork cutout fell $4.64 on Wednesday, as bellies plunged $19.02, though loins, ribs and hams were also sharply lower.

— Agriculture markets yesterday:

Corn: July corn rose 4 3/4 cents to $4.54 1/4, closing near the session high and above the 100- and 20-day moving averages.
Soy complex: July soybeans fell 3/4 cent to $11.77 1/4, near mid-range and hit a five-week low. July soybean meal rose 90 cents to $360.20 and nearer the session low. July soybean oil closed up 12 points at 43.79 cents and nearer the session low.
Wheat: July SRW wheat fell 9 1/2 cents to $6.17, but ended off the session low, while HRW wheat dropped 17 3/4 cents to $6.37 1/4, marking the lowest close since May 2. July HRS futures closed 10 1/2 cents lower at $6.68 1/4.
Cotton: July cotton fell 99 points to 71.74 cents and nearer the session low.
Cattle: Expiring June live cattle futures dipped 10 cents to $183.65, while most-active August fell 60 cents to $178.325. August feeder futures slid 7.5 cents to $257.575.
Hogs: July lean hog futures surged $1.425 to $93.70 and settled near mid-range, while nearby June futures edged 7.5 cents higher to $92.025.

— Quotes of note:

“We’ve made pretty good progress on inflation.” — Fed Chair Jerome Powell said as recent inflation readings have shown some slowing, adding that more reassuring data is needed in order to cut rates.
Food for thought. “The big and important things that households spend their money on — food, transportation and shelter — there’s not been a lot of relief there.” — Sean Snaith, Univ. of Central Florida economist.
“I don’t believe in trade wars because I believe in international trade, but I do believe in policies to strengthen reindustrialization.” — Jordi Hereu, Spain’s industry minister.

— The Federal Reserve decided to maintain the current target range for the federal funds rate at 5% to 5.25%, as anticipated. They noted modest progress on inflation but emphasized the need for more substantial improvements before considering rate cuts.

The Fed’s updated economic forecasts remain largely unchanged, projecting GDP growth of 2.1% and an unemployment rate of 4% for 2024. However, inflation expectations have increased slightly, with the Personal Consumption Expenditures (PCE) price index forecasted at 2.6% by the end of 2024.

The Fed’s new projections indicate only one rate cut in 2024, down from the three cuts expected in March. Jerome Powell, the Fed chairman, reiterated the need for inflation to show consistent movement toward the 2% target before any rate reductions. He emphasized that future policy decisions will depend on incoming economic data, particularly inflation trends. Powell avoided committing to specific timelines for rate cuts, underscoring the data-dependent nature of the Fed’s approach.

Of note: Powell said it could take several years before housing inflation normalizes and for high market-based rent increases to work their way through, and that bringing down inflation is the best way to bring down mortgage rates. Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., said that “unlike in recent press conferences, Powell was not especially dovish” this time.

Bottom line: While inflation data is improving, it has not yet reached a level that would prompt the Fed to lower rates. The economic outlook remains uncertain, and the Fed’s future actions will be guided by ongoing assessments of economic conditions and inflation progress. Longer term: While the latest Fed forecast sees fewer cuts this year, it sees four next year. It also sees the prime lending rate falling to about 2.8% by the end of 2026, down from 5.25% to 5.5% today.

Outlook: FOMC officials will get one more inflation reading before their July 30-31 policy meeting, but three more monthly reports by their Sept. 17-18 meeting. That will be the policymaking group’s last meeting before the Nov. 5 presidential election.

— U.S. initial jobless claims unexpectedly surge to 10-month high. Unemployment benefit claims in the U.S. rose by 13,000 to 242,000 for the week ending June 8, surpassing market expectations of 225,000 and marking the highest level since August 2023. Outstanding claims also increased more than expected to 1,820,000, the highest in nearly five months. This indicates a softening labor market, which could support multiple rate cuts by the Federal Reserve if inflation trends towards its target. The four-week moving average for initial claims increased by 4,750 to 227,000. Non-seasonally adjusted claims rose by 38,530 to 234,707, with significant increases in California, Minnesota, and Pennsylvania.

— Agritech startups struggle against industry giants, face funding challenges and operational cutbacks. Bold startups aiming to disrupt the $1.5 trillion agriculture sector, including giants like Archer-Daniels-Midland Co. and Cargill Inc., are struggling. Companies such as Indigo Ag Inc., Farmers Edge Inc., and Gro Intelligence face funding challenges and operational cutbacks, according to a Bloomberg assessment (link)

Indigo Ag has reduced its workforce and narrowed its focus.
Canadian-based Farmers Edge was privatized at a fraction of its initial value, and
Gro Intelligence is shutting down.
Farmers Business Network, meanwhile, is trying to regain its footing after a recent spate of leadership departures and worker layoffs.

The main issue has been the difficulty in applying the Silicon Valley model to agriculture and connecting with farmers. Traditional industry giants also pose strong resistance to these new entrants.

Funding for agritech startups has significantly declined, with global investments dropping nearly 50% in 2023 from the previous year. Additionally, many startups have faced pushback and legal challenges from established companies, like Farmers Business Network’s antitrust litigation against Bayer AG.

The sector’s challenges highlight the complexity of modernizing agriculture and the need for compelling, differentiated business models to attract investment. The financing climate remains tough, and many startups may fail as they struggle to adapt and secure funding.

Market perspectives:

— Outside markets: The U.S. dollar index was higher, with the euro and British pound weaker against the greenback. The yield on the 10-year U.S. Treasury note fell, trading around 4.31%, with a mixed tone in global government bond yields. Crude oil futures were lower, with U.S. crude around $77.85 per barrel and Brent around $82.05 per barrel. Gold and silver were down, with gold trading around $2,322 per troy ounce and silver around $29.22 per troy ounce.

— WTI crude oil futures fell towards $78 per barrel on Thursday, reversing gains from two-week highs. This decline was triggered by EIA data revealing a surprising increase in U.S. crude inventories by 3.73 million barrels last week, contrary to market expectations of a 1.55-million-barrel draw. Additionally, U.S. gasoline and distillate stocks rose more than anticipated. Meanwhile, investors are also keeping an eye on geopolitical developments. In Gaza, Hamas showed optimism about ceasefire negotiations with Israel. However, Houthi militants continued their assaults on Red Sea shipping, claiming responsibility for recent small watercraft and missile attacks in solidarity with Palestinians.

— European natural gas futures rose 5% to over €36.5 per megawatt-hour, approaching a six-month high. This increase is driven by concerns about LNG facility outages and Europe’s efforts to refill gas storage for winter. Repairs at Australia’s Wheatstone gas facility have halted production, impacting global LNG supply as Europe competes with high-demand Asia due to a heatwave. EU gas storage injections have slowed, with current levels at 72.33%, but future supply concerns persist, especially with potential losses of Russian gas. Additionally, Germany’s Uniper SE secured €13 billion in damages from Gazprom for unmet gas deliveries, highlighting reliability issues with Russian supplies.

— White House Economic Adviser Jared Bernstein said the Biden administration is keeping an eye on contract talks this summer at ports from Boston to Houston, but will give the dockworker union and employers space to let collective bargaining process play out.

Background. The International Longshoremen’s Association, North America’s largest maritime union, has canceled contract talks with the U.S. Maritime Alliance scheduled for this week in Newark. The union accuses some ports of violating their labor agreement by using automated systems to process trucks without human labor, affecting around 14,500 workers.

East Coast ports have grown in significance since the pandemic’s supply chain disruptions, diverting traffic from the West Coast. This importance has continued to rise due to Middle East tensions and climate change.

Automation in ports has been a longstanding contentious issue, with port workers battling over it for decades. The introduction of technology in ports has historically led to strikes due to its impact on worker demand. Harold Daggett, the Longshoremen’s president, has vehemently opposed automation, framing it as a critical battle for unionized workers’ survival. He has called for aggressive action against companies pushing for automation.

The U.S. lags behind Europe and China in port automation, largely due to strong labor opposition. The union and the U.S. Maritime Alliance have until Sept. 30 to negotiate a new contract.

— Import volumes at the Port of Los Angeles in the first five months of 2024 remained above the pre-pandemic peak despite ticking down in May.

— Transpacific rates have increased for the eighth week in a row on increased port congestion and an earlier start to peak demand because of the dislocation created by the Red Sea crisis, according to Bloomberg Intelligence analysts Lee Klaskow and Aanchal Aich.

Of note: $1,100 — Average rate to lease a 20-foot shipping container from Shanghai to Los Angeles in May, up 71% since November, according to Container Xchange.

— Unions suspend strikes at Australia’s biggest sugar maker. Unions have temporarily suspended strikes at mills run by Australia’s largest sugar producer Wilmar Sugar and Renewables, as negotiations over worker pay resume. Wilmar told union delegates at a meeting on Thursday it was willing to improve its pay offer and the unions agreed to pause their work stoppage.

— USDA daily export sale: 120,000 MT soybeans to unknown destinations, 2023-2024 marketing year.

— Ag trade update: Taiwan purchased 65,000 MT of corn expected to be sourced from Brazil. Japan purchased 109,126 MT of milling wheat, including 57,126 MT U.S., 24,230 MT Canadian and 27,770 MT Australian. Lebanon purchased 63,000 MT of Ukrainian wheat.

— El Niño ends, La Niña looms: Concerns rise for Atlantic hurricane season. El Niño has officially ended as ocean temperatures in the equatorial tropical Pacific Ocean have cooled, according to NOAA. The transition raises concerns about the upcoming development of La Niña this fall, which could intensify the Atlantic hurricane season.

Michelle L’Heureux from the Climate Prediction Center indicates that neither El Niño nor La Niña conditions are expected through August, but the probability of La Niña increases thereafter. La Niña, characterized by cooler ocean temperatures in the equatorial tropical Pacific, could form between July and September.

The slightly delayed La Niña onset might reduce the hurricane season’s hyperactivity during its peak period, mid-August to September. La Niña typically reduces wind shear in the North Atlantic, creating a more favorable environment for hurricanes. Despite this, other factors still suggest a very active hurricane season.

The end of El Niño also suggests the conclusion of the planet’s 14-month streak of record-warm months, influenced by both El Niño and human-caused climate change. This recent El Niño had set new global temperature records, alarming scientists about the acceleration of climate change.

— NWS weather outlook: There is an Enhanced Risk of severe thunderstorms over parts of the Middle Mississippi Valley/Western Ohio Valley on Thursday and a Slight Risk of severe thunderstorms over parts of the northern Mid-Atlantic/New England plus the Central/Southern High Plains on Friday... ...There is a Moderate Risk of excessive rainfall over parts of the southern tip of Florida on Thursday and a slight Risk over the southern tip of Florida on Friday... ...There are Excessive Heat Warnings/Watches and Advisories over Southern California, Southwest, Central Plains, and Southern High Plains on Thursday.

NWS

Items in Pro Farmer’s First Thing Today include:

• Varied price tone in quiet overnight grain trade
• Strategie Grains cuts EU wheat crop forecast
• EU industrial production contracts in April

CONGRESS

— House voted Wednesday to hold Attorney General Merrick Garland in contempt for refusing to release audiotapes of President Biden. Lawmakers also voted to refer the top Department of Justice official for criminal charges. It comes after Garland refused to turn over audio recordings of President Joe Biden’s interviews with former special counsel Robert Hur as part of the probe over his handling of classified documents. The 216-207 vote fell along party lines, with only one Republican, Rep. David Joyce of Ohio, voting against it.

Attorney General Garland responded to the decision to hold him in contempt late Wednesday night saying, “It is deeply disappointing that this House of Representatives has turned a serious congressional authority into a partisan weapon. Today’s vote disregards the constitutional separation of powers, the Justice Department’s need to protect its investigations, and the substantial amount of information we have provided to the committees.”

— TCJA extension could lose $4 to $5 trillion of revenue. The Build Your Own Tax Extensions tool from the Committee for a Responsible Federal Budget is now updated to reflect the most recent estimates by the Congressional Budget Office (CBO) on the costs of extending expiring provisions of the Tax Cuts and Jobs Act (TCJA), along with other updated data. Link for details.

The cost of extending TCJA provisions has risen in this latest update. The tool shows that through fiscal year (FY) 2035:

Extending the individual and estate tax provisions of the TCJA expiring at the end of Calendar Year (CY) 2025 would cost $3.9 trillion ($4.5 trillion with interest) through FY 2035, up from $3.4 trillion previously.
Extending nearly all expired, expiring, and changing tax provisions would cost $5.2 trillion ($6.1 trillion with interest) through FY 2035, up from $4.7 trillion previously.
These extensions would increase debt in FY 2035 by 10.5% to 14.2% of GDP, growing from 97% percent of GDP at the end of 2023 to between 128.5% and 132.2% by 2035.

ISRAEL/HAMAS CONFLICT

— What Hamas wants for cease fire. Hamas wants a guaranteed end to the war, removal of Israeli troops from the Egypt-Gaza border and a say in which Palestinian prisoners get released, according to reports. But Israel says it won’t agree to end the war until it ensures Hamas will no longer govern Gaza. There are still fundamental gaps between Hamas’ desire to survive this war and Israel’s desire to make sure Hamas doesn’t survive. The challenge for negotiators is how to bridge that gap.

RUSSIA/UKRAINE

— Russia halts dollar, euro trade settlements. Russia’s main exchange said it’s halting trading in U.S. dollars and the euro after the U.S. unveiled a raft of measures designed to further isolate Moscow from the international financial system over its war in Ukraine. This decision was made in response to new U.S. sanctions targeting the exchange and its clearing house, the National Clearing Center (NCC).

The Moscow Exchange on Thursday halted trading on the foreign exchange, precious metals, stock, money and the standardized over-the-counter (OTC) derivatives markets in instruments with settlement in dollars and the euro. The Bank of Russia said it will use bank and OTC data to set the ruble’s exchange rates to those currencies.

The Central Bank of Russia has assured that companies and individuals can still buy and sell these currencies through Russian banks, and that all funds in U.S. dollars and euros in accounts remain safe.

Market impacts: The immediate market reaction included a drop in the Moscow Exchange index by 3.5-4% and a 15% fall in the exchange’s shares. The ruble’s exchange rate is expected to see increased volatility, although the Central Bank has taken steps to stabilize it by using over-the-counter trading data to set official exchange rates.

CHINA UPDATE

— China’s new ambassador to Canada, Wang Di, has arrived in Ottawa after his predecessor left in April following allegations that the Asian powerhouse had interfered in Canada’s elections to tip the scales toward candidates deemed favorable to Beijing.

— Chinese farmers fighting hot temps, drought. China’s ag ministry said record high temperatures have had an adverse impact on planting of crops. The ministry sent out several work groups to seven provinces to offer guidance in the fight against drought. China’s water resources ministry this week launched emergency responses to manage drought on in Gansu, Shaanxi, Shanxi, Henan and Shandong provinces, indicating various regions in the country spanning the northwest to the east are facing parched and scorching conditions.

Crop damage: Prolonged droughts and heatwaves have dried up crops during critical growing periods, leading to reduced yields. For instance, the northern province of Hebei experienced scorching heat that stunted corn growth, resulting in shorter stalks and potentially zero harvest if rains did not arrive in time.

Livestock losses: High temperatures have also caused mass losses of livestock and fish, with some regions enduring weeks of temperatures exceeding 104°F

Economic impact: The economic losses due to extreme weather events are substantial. In 2022, droughts caused over $7.6 billion in damage to Chinese agriculture.

Flooding: Unexpected torrential rains, such as those in Henan province, caused pre-harvest sprouting and blight in wheat crops, leading to significant yield reductions. In Heilongjiang Province, 40% of the Wuchang rice crop was wiped out due to flooding.

Infrastructure damage: Floods have also damaged infrastructure, making recovery and future agricultural activities more challenging. For example, the city of Zhuozhou in Hebei Province faced severe damage from redirected floodwaters.

— China could target EU pork, dairy in retaliation for EV tariffs. Food companies from dairy producers to pork exporters are on high alert for potential retaliatory tariffs from China after the European Union’s decision on Wednesday to impose anti-subsidy duties on Chinese-made electric vehicles (EVs). China’s state media reported domestic companies are preparing to request investigations into some EU dairy and pork imports over anti-subsidy or anti-dumping concerns. As trade tensions between the EU and China intensify, some European officials have warned against imposing import duties on food products.

European dairy and pork producers are particularly vulnerable to these potential retaliatory tariffs. The EU is a significant exporter of these products to China, with dairy exports alone valued at approximately 1.7 billion euros in 2023. Key products include whey powder, cream, and fresh milk, with major exporters being countries like the Netherlands, France, Germany, Ireland, and Denmark.

For pork, China is a crucial market, especially for parts of the pig that are less popular in Europe. In 2023, China imported $6 billion worth of pork from the EU, with Spain being the top supplier, followed by Brazil and the United States.

TRADE POLICY

— Canadian officials push for duty-free access to U.S. market amid pre-election season. Canadian officials are actively engaging with U.S. leaders to emphasize the strategic importance of maintaining duty-free access to the U.S. market, especially as the pre-election season heats up. This effort involves Industry Minister François-Philippe Champagne, Trade Minister Mary Ng, and Canada’s ambassador to the U.S. Kirsten Hillman, who have been meeting with members of Congress, state governors, and business leaders across the U.S.

Their message underscores Canada’s vital role in supporting the U.S. economy, including supplying critical minerals for manufacturing and collaborating on defense and economic security, particularly against China’s influence. This campaign echoes a similar effort in 2017 when Canada successfully renegotiated the North American free-trade agreement, now known as USMCA, securing preferred access to the U.S. market.

With annual two-way trade between the U.S. and Canada amounting to about $900 billion, and Canada being the largest buyer of U.S. goods exports, the Canadian officials are stressing the mutual benefits of this relationship. They also highlight Canada’s contributions to continental security and economic resilience.

As the U.S. approaches its election season, the Canadian push aims to ensure continued cooperation and address any potential trade uncertainties, particularly considering previous trade tensions and the current administration’s policies on domestic subsidies and tariffs. The Canadian strategy includes addressing U.S. concerns about border enforcement, fentanyl exports, and resource development, demonstrating a commitment to a cooperative and responsive relationship.

ENERGY & CLIMATE CHANGE

— Financial Accounting Standards Board (FASB) is proposing new requirements for how companies account for environmental credits, such as renewable energy certificates and carbon offsets. This move comes as more state governments in the U.S. establish mandatory environmental programs.

On Wednesday, the FASB unanimously voted to propose that U.S. public and private companies apply a single accounting model for various environmental credits obtained for compliance programs or voluntary use. Currently, there are no specific rules for recording these transactions.

This project has been a priority for the FASB this year, alongside establishing new requirements for software costs and income-statement expenses. Similar to a recent proposal on government grants, this plan aims to fill a gap in U.S. accounting rules, making environmental credit information more comparable for investors.

— Oil and corn allies challenge Biden car standards. Advocates for oil and ethanol are uniting to contest new Biden administration pollution limits in court, arguing these rules unlawfully force automakers to sell electric vehicles, reducing demand for their fuels. Nearly three dozen companies and trade associations, including the American Petroleum Institute and the National Corn Growers Association, are filing petitions with the US Court of Appeals for the District of Columbia Circuit.

EPA’s new standards, issued in March, set stringent carbon dioxide emissions limits, promoting electric vehicle sales. Opponents argue the EPA overstepped its authority under the Clean Air Act and that the standards unfairly target tailpipe emissions while ignoring other environmental impacts. Critics also suggest that boosting gasoline octane levels could have been a viable alternative to increase ethanol sales.

The legal challenge comes as Biden’s EV policies become a contentious issue in the upcoming presidential election, with Donald Trump promising to revoke them if elected.

Background. The EPA’s approach requires automakers to meet fleet-wide emission averages, balancing the sale of high-emission vehicles with an increasing number of EVs. This shift has led to substantial investments in EV and battery manufacturing in the U.S. The legal fight will test the reach of Biden’s climate regulations and their impact on the auto industry.

— USDA report: U.S. renewable diesel production growth drastically impacts global feedstock trade. The landscape for U.S. renewable diesel production has changed dramatically, similar to the growth of ethanol and biodiesel in the past two decades, according to a report from USDA’s Foreign Agricultural Service (link). Federal and state policies aimed at reducing emissions have driven this growth, significantly impacting both domestic and international feedstock markets. Renewable diesel, produced from renewable feedstocks like vegetable oils and animal fats, can be blended at higher levels and transported using existing pipelines.

This expansion has increased U.S. imports of animal fats and vegetable oils to support renewable diesel production. Domestically, U.S. soybean crush has expanded due to high soybean oil prices, reducing U.S. soybean exports and making the U.S. a net soybean oil importer for the first time in 2023. However, higher soybean crush has boosted soybean meal exports, particularly due to a drought in Argentina.

The renewable diesel production boom is largely policy-driven. The federal Blender’s Tax Credit and the Renewable Fuel Standard (RFS) incentivize biomass-based diesel production. However, California’s Low-Carbon Fuel Standard (LCFS) has been the primary driver, creating strong financial incentives for renewable diesel in California.

Renewable diesel production has led to increased imports of fats and oils, such as canola oil, which surged after the EPA recognized it as a qualifying feedstock for renewable diesel. This has driven up U.S. imports of canola oil from Canada, and imports of other feedstocks like used cooking oil (UCO) have also increased significantly.

The boom in renewable diesel has also altered U.S. soybean oil and meal exports. High domestic demand for soybean oil has made U.S. exports uncompetitive, leading to a sharp decline in soybean oil exports. Conversely, the abundance of soybean meal from increased crush has boosted U.S. soybean meal exports, even amidst reduced competition from Argentina due to drought.

Looking ahead, the expansion of renewable diesel production will depend on federal and state policies, feedstock availability, and sustained U.S. soybean meal export gains. The Producer’s Tax Credit and California LCFS will continue to drive demand for lower carbon-intensity feedstocks, influencing U.S. import demand for fats and oils.

LIVESTOCK, NUTRITION & FOOD INDUSTRY

— Avian influenza has affected cattle on a third dairy farm in northwest Iowa. The infections were found within the past week, with the latest cases in Sioux County herds of 1,700 and 250 cows, following an earlier case in an O’Brien County herd of 4,500 cows. These detections were reported by dairy operators to the Iowa Department of Agriculture and Land Stewardship (IDALS).

The virus, which has been prevalent among wild birds for the past two years, primarily impacted domestic poultry until March, when it was first detected in Texas dairy herds. Since then, it has spread to dairy farms in other states, including Iowa, Minnesota, and South Dakota. Infected cattle show high levels of the virus in their milk but usually recover within two weeks. However, the virus is often fatal to poultry, leading to culling of entire flocks to prevent further spread.

The avian flu virus has been confirmed in two Iowa poultry flocks prior to the recent cattle infections: a Sioux County flock with 4.2 million egg-laying chickens and a Cherokee County flock with 103,000 turkeys. The virus strain affecting cattle has also been found in at least one of these poultry flocks and is capable of transmitting from cows to poultry and humans.

— Companies working to find H5N1 vaccine for cattle. Twenty-four companies are working to develop an H5N1 vaccine for cattle, as the virus spreads among U.S. dairy herds, USDA Secretary Tom Vilsack told Reuters. Besides the two dozen companies working at varying stages of vaccine development, USDA is conducting its own preliminary research into a vaccine at its laboratory in Ames, Iowa, Vilsack said. The agency is looking for a vaccine candidate to test for efficacy, he said, noting “that could happen tomorrow, or it could take six months, or it could take a year.”

— McDonald’s USA president Joe Erlinger stated in an open letter that prices have risen about 21% over the past five years, which is slightly less than overall inflation. This contrasts with a FinanceBuzz analysis claiming McDonald’s prices have doubled since 2014. Erlinger acknowledged that some locations might have significantly higher prices, with viral TikTok complaints highlighting $3 hash browns and $16 meals.

— Biden administration announces national strategy to cut food waste and boost recycling. A “National Strategy for Reducing Food Loss and Waste and Recycling Organics,” aiming to cut waste, boost organics recycling, reduce climate pollution, and support a circular economy, was announced by the Biden administration (link). The strategy involves the U.S. Environmental Protection Agency, USDA, and the Food and Drug Administration. It seeks to cut food loss and waste by 50% by 2030 through consumer education, innovative waste reduction methods, and expanding organics recycling infrastructure. The initiative aligns with the United Nations’ Sustainable Development Goal Target 12.3 and supports the U.S. Methane Emissions Reduction Action Plan. Key objectives include preventing food loss and waste, increasing organic waste recycling, and supporting relevant policies.

— Rep. Anna Paulina Luna (R-Fla.) introduced two bills targeting food additives. The Do or Die Act aims to restrict food dyes like Red No. 40 and Yellow Nos. 5 and 6, while the Stop Spoonfuls of Fake Sugar Act seeks to ban high fructose corn syrup. These proposals follow California’s 2023 ban on certain food additives and a new bill under consideration to prohibit artificial food dyes in school cafeterias, including titanium dioxide and various red, green, blue, and yellow dyes linked to hyperactivity and behavioral issues in children.

— Louisiana legislators passed a bill legalizing the sale of raw milk, provided it is labeled “not for human consumption.” Over 30 states now permit the sale of unpasteurized milk. Mike Strain, commissioner of the Louisiana Department of Agriculture and Forestry and a veterinarian and former Republican legislator, warned that raw milk can be risky during normal times, citing statistics that the milk causes 840 times more illnesses and 40 times more hospitalizations than pasteurized products. But considering a multi-state outbreak of H5N1 among more than 80 herds, consuming raw milk comes with additional risk, said Strain. Milk from an infected cow has “tremendous” levels of the virus.

POLITICS & ELECTIONS

— Congress and lobbyists prepare for possible Trump 2.0. Energy companies and lobbying firms are preparing for the potential impact of a Donald Trump re-election on climate and environmental policies, according to Axios.

A Trump administration would likely roll back regulations and alter the distribution of IRA funds. House Speaker Mike Johnson’s (R-La.) staff is gearing up for a possible reconciliation bill in the next Congress, targeting measures not subject to Senate filibusters (and some observers say this could include a new farm bill if one is not delivered before then).

Of note:

A significant tax debate is expected in 2025 when Trump’s 2017 tax cuts expire.
The IRA is unlikely to be fully repealed, but parts could be used as negotiation tools or funding sources.
If Republicans gain unified control, a reconciliation bill could reduce subsidies and uncapped tax credits from the IRA.
The EV tax credit is particularly vulnerable to repeal or reduction.
Trump would likely scale back federal rules on auto emissions and power plant greenhouse gas regulations.

Trump is scheduled to meet with congressional Republicans today, which could provide more insights into future policy directions.

KEY LINKS

Policy Updates