U.S. Rice Industry: India Playing Games with World Rice Supply

House Ag Chair Thompson sticks with upbeat farm bill Ag panel, House vote timeline

The U.S. rice industry criticized India, the world’s largest rice exporter, for cutting off three-quarters of its overseas shipments. “This is another example of India playing games with global food security,” said Bobby Hanks, a Louisiana rice miller and a USA Rice Federation official on Monday. More in Markets section.

China’s Caixin manufacturing PMI fell to a six-month low of 49.2 in July, worse than estimates and entering contractionary territory for the first time since April. Meanwhile, the value of China’s home sales plummeted 33% year on year.

“The Chinese Communist Party continues to eat this country’s lunch every single day,” says Florida Governor Ron DeSantis, who is calling for an end to normal trade relations with China as he campaigns to win the Republican presidential primary. More in Politics & Elections.

Australia’s central bank kept its key interest rate unchanged at 4.1% for a second straight meeting, while keeping the door ajar to future hikes. The pause suggests the central bank may be approaching the end of its tightening cycle, sending the Aussie lower.

Ukraine has signaled its intent to intensify its strikes on Russian territory. Ukrainian officials have been using social media to indicate they are planning additional strikes, including some aimed at Moscow.

On the regulatory front, USDA finalizes rule changing two cotton spot market designations, definitions and shifts regs on user fees for APHIS diagnostic services for some import, export servicers on animals/animal products. Details in Policy section.

Jump in rice prices prompts Thai, Vietnam exporters to renegotiate contracts, according to Reuters. Details in Markets section.

House Ag Chair G.T. Thompson (R-Pa.) is sticking with his upbeat forecast of getting an Ag panel and then a House chamber vote on a new farm bill after lawmakers return Sept. 12 and before some provisions expire Sept. 30.

Equities today: Asian and European stock markets were mixed in low-key overnight trading. U.S. Dow opened flat and then turned slightly higher. In Asia, Japan +0.8%. Hong Kong -0.3%. China flat. India -0.1%. In Europe, at midday, London -0.1%. Paris -0.7%. Frankfurt -0.8%.

U.S. equities yesterday: All three major indices ended with gains after spending time in both positive and negative territory. The Dow gained 100.24 points, 0.28%, at 35,559.53. The Nasdaq was up 29.37 points, 0.21%, 14,346.02. The S&P 500 gained 6.73 points, 0.15%, at 4,588.96.

Stocks finished July on a positive note, with the S&P 500 up 3.1% and the Nasdaq Composite adding about 4.1% for the month. It was the fifth straight positive month in a row for both indexes. The Dow ended July up about 3.4%.

Oil giant BP reported disappointing earnings Tuesday, posting a nearly 70% year-on-year drop in second-quarter profits. Profits fell from $8.5 billion in the second quarter of 2022 to $2.6 billion in underlying replacement cost profit, which is used as a proxy for net profit. Analysts had expected to see profits of $3.5 billion for the British company, according to Refinitiv.

Agriculture markets yesterday:

• Corn: December corn fell 17 1/4 cents to $5.13, closing below the 20-day moving average for the first time since July 17.
• Soy complex: Soybeans were the weakest link in the soy complex, with the November contract falling 50 3/4 cents to $13.31 3/4. August soymeal fell $4.00 to $451.20, near the mid-point of the day’s range. August soyoil fell 202 points to 65.58 cents.
• Wheat: December SRW wheat dropped 36 1/4 cents to $6.91 3/4 and nearer the session low. December HRW wheat closed down 39 3/4 cents at $8.29 1/2. Prices closed nearer their session lows and hit two-week lows. September spring wheat futures fell 40 1/4 cents to $8.55 3/4 and closed near the session low.
• Cotton: December cotton rose 46 points to 84.72 cents, nearer the session low after posting an intraday high of 86.31 cents.
• Cattle: October live cattle fell $0.075 to $179.525. Prices hit a three-week low early on today. October feeder cattle closed up $0.025 at $251.025 today. Both markets closed nearer their daily highs.
• Hogs: August lean hogs led the complex higher today, rising 92.5 cents before settling at $104.125.
  

Ag markets today: Corn, soybeans and wheat traded on both sides of unchanged while holding in relatively tight ranges during the overnight session. As of 7:30 a.m. ET, corn futures were trading mostly a penny lower, soybeans were steady to 4 cents higher, the winter wheat markets were 5 to 8 cents lower and spring wheat was steady to a penny lower. Front-month crude oil futures were modestly weaker, while the U.S. dollar index was more than 300 points higher.

Market quotes of note:

• Fed Bank of Chicago President Austan Goolsbee said slower inflation is “fabulous news” but he hasn’t yet decided on whether to support pausing interest-rate increases at the next policy meeting.
  
• Tighter credit standards “will continue to put the brakes on activity and contribute to inflation sustainably returning to target. The concern is that it will also heighten the chances of recession,” said ING economist James Knightley.
  

On tap today:

• Economic reports: PMI Manufacturing | Construction Spending | ISM Services Index | JOLTS

• Energy reports API US inventory report | Earnings: BP; Uniper; Devon Energy; Pioneer | Holiday: Thailand.

• USDA reports. NASS: NASS: Cotton System | Fats & Oils | Grain Crushings | Flour Milling | Honey Bee Colonies

The Reserve Bank of Australia (RBA) decided to maintain its cash rate at 4.1%, going against the market expectation of a 25-basis points rate increase. This decision marks the second consecutive month the RBA has chosen to hold the rate steady. The central bank noted that cost pressures in Australia have started to ease, though the inflation rate, currently at 6%, is still deemed too high. The RBA board communicated that additional monetary tightening might become necessary to guide inflation back to their target range of 2 to 3% in a suitable timeframe. However, the bank clarified that any alterations to the rate would depend on the progression of both the economy and prices. It anticipates that inflation will hover around 3.25% by the end of 2024 and return to their target range by late 2025. In GDP growth and unemployment projections set by the board, the GDP is anticipated to grow by about 1.75% in 2024, while unemployment is expected to gradually increase to roughly 4.5% by the end of next year. The bank also retained the same interest rate on Exchange Settlement balances at 4.0%.

In June, the Eurozone maintained a record low unemployment rate, reflecting the ongoing tightness in the labor market which indicates that wages may remain high and continue to keep inflation at elevated levels. This low unemployment rate of 6.4% matched the figure for May, which was downwardly revised, according to data provided by Eurostat, the European Union’s statistics agency.

Mexico’s economy grew 3.6% in the second quarter of 2023 compared to the same period last year, according to preliminary data published Monday by the National Institute of Geography and Statistics (INEGI). The estimate slightly exceeds market expectations: Grupo Monex estimated 3.2% growth and a survey conducted by Reuters anticipated 3.5%. This is the seventh consecutive quarter the Mexican economy has grown. Mexico’s positive economic activity caused the International Monetary Fund to adjust its growth forecast for Mexico, raising it to 2.6% from its previous estimate of 1.9%. The Mexican economy grew by 3.1% in 2022.

Market perspectives:

• Outside markets: The U.S. dollar index was firmer, with weakness in the euro and British pound. The yield on the 10-year U.S. Treasury note has gained to trade just above 4% with a mixed tone in global government bond yields. Crude oil futures were under pressure, with U.S. crude trading around $81.45 per barrel and Brent around $85.15 per barrel. Gold and silver futures were seeing sizable declines ahead of US trading, with gold around $1,992 per troy ounce and silver around $24.58 per troy ounce.

• The World Gold Council (WGC) said global demand for gold fell 2% in the second quarter to 921 MT, due to higher interest rates and a stronger U.S. economy, though total demand was up 7% annually. Central bank demand for gold reached a record 387 MT in the first half of 2023, WGC said, and is expected to remain strong throughout this year.

• Global rice prices have seen a significant rise due to India’s decision to ban exports of non-basmati rice. As prices surged by about $80 per metric ton after the Indian ban, rice exporters in both Thailand and Vietnam find themselves in a position where they need to renegotiate their contract prices for approximately 500,000 metric tons of rice expected to be shipped this month, according to Reuters. The contracts were previously signed at lower values compared to current market rates, leading to this renegotiation push. Besides affecting international contracts, the price rise has also influenced domestic rice prices, forcing exporters to augment their procurement efforts from local farmers.

• India, the world’s largest rice exporter, is being criticized for using measures perceived as manipulating its domestic market, which could adversely affect global food security. Observers suggest that India’s move is designed to strengthen its local market following years of over-subsidization leading to significant government-held rice stockpiles.

Kirk Satterfield, chair of USA Rice, reassures that rice acreage has increased in six of the seven rice-producing states in the U.S., ensuring ample supply. He highlighted that U.S. farmers can grow all rice types, including basmati, which India has targeted with its recent ban. As a reminder, Satterfield added, most of the rice consumed in the U.S. is locally grown on family farms.

Bolstering Satterfield’s point, Bobby Hanks, chair of the USA Rice International Trade Policy Committee, labeled India’s actions as “playing games with global food security.” Hanks expressed concern over countries that rely on India for cheaper rice and the potential impact on the world market if India decides to offload its huge rice stock at low prices.

Both Hanks and Satterfield encouraged American consumers to support local produce by checking for indicators like the ‘Grown in the USA’ label on rice packages, helping them steer clear from such international market manipulations. Link for more.

• Ag trade: Algeria purchased between 720,000 and 810,000 MT of milling wheat that’s expected to be sourced mostly from the Black Sea region, especially from Russia, Romania and Bulgaria. Taiwan tendered to buy up to 65,000 MT of corn, which can be sourced from the U.S., Brazil, Argentina or South Africa. Japan is seeking 86,290 MT of milling wheat in its weekly tender.

• The U.S. wildfire season is currently tracking below the average in relation to the size of the areas burned. A report by the National Interagency Fire Center indicates that, up to this week in 2023, wildfires have consumed approximately 1.1 million acres across the United States, a significant reduction compared to the 5.7 million acres affected by this time in 2022. Despite this slower start, fire officials remain alert as they focus on regions such as the Western U.S. and the Pacific Northwest where dry, hot conditions create an ideal environment for wildfires.

In contrast, Canada is experiencing its most severe fire season to date. Wildfires have reportedly burned more than 30 million acres of land, an area roughly equivalent to the size of Mississippi. Hundreds of these Canadian wildfires are producing hazardous smoke, which is spreading across a substantial portion of the northern U.S. To control the situation, some of these fires have been allowed to burn unchecked.

• NWS weather outlook: There is a Slight Risk of excessive rainfall over parts of the Central High Plains and Middle Mississippi Valley on Tuesday; there is a Moderate Risk of excessive rainfall over parts of the Middle Mississippi Valley on Wednesday... ... There is a Slight Risk of severe thunderstorms over parts of the Northern Plains... ...Excessive Heat Warnings and Advisories from parts of Central/Southern Plains and the Lower Mississippi Valley/Central Gulf Coast.

Items in Pro Farmer’s First Thing Today include:

• Quiet, two-sided grain trade overnight
• Consultant leaves U.S. corn, soybean yields unchanged
• Corn, soybean and spring wheat CCI ratings deteriorate amid heat
• Sharp monthly drop in soybean crush expected
• China to sell state-owned soybean reserves
• Another slow week of cash cattle trade is possible
• Seasonal top not yet in place for cash hogs

— On the Russian side, the situation appears to be relatively calm for a second consecutive day, with no reports of substantial actions or missile/drone strikes against Ukraine’s port infrastructure. A drone has struck a high-rise building in Moscow’s business district twice in the span of three days. This building accommodates three of Russia’s government ministries: economic development, digital, and industry and trade. Acknowledging these strikes, Kremlin spokesman Dmitry Peskov stated that there is indeed a threat, but measures to counter it are in place. The Russian Defense Ministry reported they had neutralized two drones west of Moscow’s center and a third one was disrupted with jamming equipment. Despite these measures, the third drone went out of control and crashed into buildings in the business district.

Meanwhile, Ukraine has signaled its intent to intensify its strikes on Russian territory. Ukrainian officials have been using social media to indicate they are planning additional strikes, including some aimed at Moscow.

— Emergency Relief Program (ERP) Phase 2 payments continue to increase, with the totals reaching $3.79 million as of July 30, 2023. This is an increase from the $3.03 million distributed the week prior. A total of 2,015 recipients have benefited from this phase of the program to date. With these new disbursements, the overall total of ERP payments has come to $7.44 billion.

— A final rule modifying the definitions and designations of two spot markets for cotton was released by USDA’s Agricultural Marketing Service (link). This amendment comes as a response to requests from the American Cotton Shippers Association (ACSA) and the National Cotton Council of America (NCC) for an evaluation of cotton market structures in certain areas. The cotton grown in Oklahoma and Kansas will now be reassigned from the East Texas/Oklahoma spot market to the West Texas spot market, as the evaluation confirmed their quality, trading terms, and pricing conditions to be on par with the West Texas cotton. The redefined West Texas market now comprises all the counties in Kansas and Oklahoma and a list of counties in Texas and New Mexico that are not part of the East Texas, South Texas, and Desert Southwest Markets.

Additionally, the rule designates the spot markets for cotton delivered in the settlement of the No.2 contract on the Intercontinental Exchange (ICE) to be Southeastern, North and South Delta, East Texas and South Texas, West Texas, Kansas, Oklahoma, and Desert Southwest.

— Regulations regarding user fees for USDA veterinary diagnostic services and certain import/export services related to live animals, animal products, and byproducts were released by the Animal and Plant Health Inspection Service (APHIS). Link. Previously, the individual fees for these services were defined in regulations and now, in a shift intended to increase transparency and streamline processes, APHIS plans to post them on their website. The fees will be calculated based on a formula explained in the regulations. With this move, APHIS anticipates that the need for numerous rule changes to update fees will be reduced. By using a notice-based process, APHIS wants to make the fee setting process more transparent and efficient.

— China’s economy continues to display signs of a downturn. The Caixin China General Manufacturing Purchasing Managers’ Index (PMI) experienced a downturn, coming in at 49.2 down from 50.5 in June. This figure falls below expectations of 50.3, marking the worst performance in the past six months. The reduction in new work orders, which had previously shown growth, was a significant contributing factor, with foreign demand also dwindling, hitting the lowest point since September 2022. Procurement levels fell for the first time since January, while employment figures declined for the fifth consecutive month. Despite these trends, the backlog of work remained steady. Delivery times increased marginally, likely due to some suppliers downsizing their inventory. The economic picture was further complicated by falling input costs for the fourth month in a row and a further decrease in output fees amid heightened market competition. Despite these challenges, opinions revealed a four-month high in optimism, although it was still considerably restrained compared to historical levels. Dr. Wang Zhe, an economist at Caixin Insight Group, commented on these findings, emphasized the limitations of monetary policy when it comes to boosting supply. He suggested adopting an expansionary fiscal policy aimed at spurring demand as a more effective solution.

— The Select Committee on the Chinese Communist Party, a House committee, is currently investigating BlackRock and MSCI regarding their activities with Chinese investments. According to the Wall Street Journal (link), these companies have been facilitating investments for American citizens in Chinese firms. The U.S. government alleges that these Chinese firms support the country’s military and contribute to human rights violations. While the Select Committee does not hold the power to make laws, it does have the authority to issue subpoenas as part of its investigation.

— China tries to ease pressure on yuan. China’s currency regulators have in recent weeks asked some commercial banks to reduce or delay their dollar purchases, two people with direct knowledge of the matter told Reuters. The so-called window guidance was meant to slow the pace of yuan depreciation, the sources said. One source said regulators were emphatic banks should hold off dollar purchases under their proprietary trading accounts.

— Biden and Trump tied in NYT poll, but 14% undecided. According to the first New York Times poll of the 2024 election cycle, both President Biden and Donald Trump are neck-and-neck, each with the support of 43% of registered voters if they were to be the presidential nominees. However, not all voters have chosen sides yet. There is a category of undecided voters, making up 14% of the total, who currently resist choosing either candidate. These voters are described as the Neither of the Above group. They fall into several categories —some have decided not to vote, others said they would back a third-party candidate, and a few still didn’t respond to the poll question. At present, how these undecided voters will vote remains unclear. As the election draws nearer, it is reasonable to expect a good portion of them to eventually choose either Biden or Trump, significantly influencing the final outcome. Therefore, these potentially swing-voters can play a crucial role in determining the next occupant of the White House in 2025. Says the NYT: “The race is extremely close. Anybody who assumes that the 2024 outcome is sure to repeat the 2020 outcome — even in a rematch campaign — is making a mistake.” Link for details.

— Ron DeSantis, a potential GOP presidential candidate, has made several significant policy pledges recently. If elected, he vows to revoke China’s “most favored nation” trade status. This action would make it possible to impose a variety of tariffs on China. However, such a move would potentially go against World Trade Organization (WTO) regulations, as these rules mandate that all member nations must be treated equally. Additionally, DeSantis has pledged to “rein in” the Federal Reserve, implying he may seek to impose greater control or oversight over this institution. However, the specifics of what this might entail remain unclear at this point. He said he would potentially replace Jerome Powell as part of an economic agenda and vowed to appoint a Fed chair who “will focus on maintaining a stable dollar instead of the political pressures of the day.”

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