Update on U.S./Mexico NWS Trade Issue: No Firm Date on Release of Ban

News/Markets/Policy Updates: Dec. 2, 2024

— Equities today: Asian and European stock markets were mixed overnight, with Asian markets mostly up and European markets mostly down. In Asia, Japan +0.8%. Hong Kong +0.7%. China +1.1%. India +0.6%. In Europe, at midday, London +0.1%. Paris -0.3%. Frankfurt +0.9%. U.S. Dow opened around 30 points higher but is currently around 180 points lower. Two Fed speakers today, Waller (3:15 p.m. ET) and Williams (4:30 p.m. ET) and any commentary that makes a December rate cut more likely will be a positive for markets.

French financial markets are under significant strain as a deepening budget crisis collides with political instability. The CAC 40 stock index fell 0.4%, reflecting investor anxiety. Government bonds have also come under pressure, with risk premiums spiking to levels reminiscent of the euro crisis. Prime Minister Michel Barnier’s government faces a critical showdown with Marine Le Pen’s far-right National Rally, which has threatened to back a no-confidence vote unless the 2025 budget proposal is altered. Finance Minister Antoine Armand has rejected these demands, vowing not to succumb to “blackmail.” A no-confidence motion could collapse the government as early as this week.

U.S. equities Friday and for the week: Stocks rose on Friday capping off gains for the holiday shortened week, trading abbreviated hours on Friday. The Dow gained 2.37%, the Nasdaq was up 1.41% and the S&P 500 gained 1.30%. On Friday, the Dow was up 188.59 points, 0.42%, at 44,910.65. The Nasdaq gained 157.69 points, 0.83%, at 19,218.17. The S&P 500 rose 33.64 points, 0.56%, at 6,032.38.

— The 24X National Exchange plans to debut next year with an ambitious nearly around-the-clock trading schedule. Initially open from 4:00 a.m. to 7:00 p.m. ET on weekdays, it may extend operations from 8:00 p.m. ET Sunday through 7:00 p.m. ET Friday, pausing only for one hour daily. The extended trading window hinges on approval from the U.S. Securities and Exchange Commission.

— Oil markets steady Friday amid geopolitical and supply concerns. Oil prices remained stable on Friday, with Brent crude edging down 15 cents (0.2%) to $73.13 a barrel and U.S. WTI climbing 15 cents (0.22%) to $68.87 in light post-Thanksgiving trading. For the week, Brent dropped 2.8%, while WTI fell 3.4%. The Wednesday ceasefire between Israel and Hezbollah reduced oil’s risk premium, adding to earlier declines. Brent crude saw a modest dip of 0.27% (20 cents) to $72.81 on Tuesday, following Monday’s sharper $2.16 (2.87%) drop. Similarly, WTI fell 0.25% (17 cents) on Tuesday, after a $2.30 (3.23%) slide on Monday. Looking ahead, OPEC+ is set to meet on Dec. 5 to address potential oversupply concerns, as the International Energy Agency predicts excess global oil output exceeding 1% by 2025. Production cuts are likely to be extended to stabilize the market.

— Ag markets today: Corn, soybeans and wheat mildly favored the downside during a relatively quiet overnight session to open the week. As of 7:30 a.m. ET, corn futures were trading 1 to 2 cents lower, soybeans were 2 to 3 cents lower and wheat futures were 2 to 4 cents lower. The U.S. dollar index was around 500 points higher, and front-month crude oil futures were about 80 cents higher.

Cash cattle traded sharply higher last week, with the average price likely above where nearby live cattle futures ended on Friday. That suggests traders sense the recent cash market strength may end as packers will have fresh contracted supplies available with the flip of the calendar.

The CME lean hog index is down another 30 cents to $85.21 as of Nov. 27, extending the decline since early November, though it is still $1.36 above the October low. The pork cutout firmed $1.37 on Friday to $90.31 from the previous day’s low, which was the lowest since Feb. 14.

— Agriculture markets Friday and for the week:
• Corn: Futures saw strong corrective strength today as March futures gained a nickel to $4.33, though still lost 2 cents on the week.
• Soy complex: January soybeans closed a 3/4 cent higher to $9.89 1/2 and closed near mid-range, which marked a 7 1/4 cent gain for the week. March meal futures closed $3.5 lower to $291.10.
• Wheat: March SRW futures slid 1/2 cent to $5.48 and closed near mid-range, though lost 15 1/4 cents on the week. March HRW futures fell 3 3/4 cents to $5.40 3/4.
• Cotton: March cotton futures were up around 18 points on the session to 71.93 cents, over a penny gain on the week.
• Cattle: December live cattle futures dipped 2 1/2 cents to $187.975 while February futures climbed 2 1/2 cents to $188.625. The latter notched a weekly gain of 37 1/2 cents. January feeder cattle futures climbed 70 cents to $259.475, marking a $4.90 gain on the week.
• Hogs: December lean hog futures fell, 32 1/2 cents to $82.075 while February futures plunged $1.60 to $86.325. February futures climbed 72 1/2 cents on the week.

— Key reports and events this week include:
• Federal Reserve. On Wednesday, Fed Chair Jerome Powell participates in a moderated discussion, and investors will await any assessment of the job market and inflation as well as clues to whether the US central bank will lower interest rates this month.
• The OECD will publish new economic forecasts on Wednesday.
• OPEC and its partners meet Thursday to discuss whether to proceed with reviving oil supplies, beginning with an increase of 180,000 barrels a day in January.
• Friday brings the U.S. Employment report. U.S. hiring probably jumped in November after hurricanes and a major strike undercut job growth a month earlier, consistent with a labor market that’s healthy yet gradually cooling. Nonfarm payrolls probably advanced by 200,000 in November, according to a Bloomberg survey of economists. The data are also expected to show the unemployment rate held at 4.1%.
• Earnings: Quarterly results from Salesforce and Marvell Technologies tomorrow, and Kroger, Lululemon and Dollar General on Thursday.

Market perspectives:

— Outside markets: The U.S. dollar index was firmer, with the euro and British pound both weaker against the U.S. currency. The yield on the 10-year U.S. Treasury note was firmer, trading around 4.21%, with a mostly weaker tone in global government bond yields. Crude oil futures were higher ahead of U.S. trading, with U.S. crude around $68.65 per barrel and Brent around $72.55 per barrel. Gold and silver futures were under considerable pressure, with gold around $2,658 per troy ounce and silver around $30.72 per troy ounce.

— Futures traders see a 66% probability that Fed officials will cut rates by another quarter of a percentage point when they meet Dec. 17-18, according to the CME FedWatch Tool. That expectation firmed up after October’s personal-consumption expenditures index ticked higher but matched forecasts. This follows recent trends of rate cuts, including a 25-basis point reduction in November and a 50-basis point cut in September. After the meeting, the Federal Reserve will release a statement and hold a press conference, which will be available to watch on the Federal Reserve website. The minutes of the meeting will also be published approximately three weeks later.

— Currency war brewing? The U.S. dollar is surging again amid speculation that Donald Trump’s post-election economic agenda — centered on low taxes and high tariffs — could disrupt global trade and spur inflation. The president-elect has warned of 100% tariffs on BRICS countries (Brazil, Russia, India, China, and South Africa) if they pursue a new currency to rival the dollar. This threat follows Vladimir Putin’s efforts to rally BRICS and other emerging markets against U.S. financial dominance, with proposals for alternative currencies gaining traction. However, economists see no immediate danger to the dollar’s global reserve status, though allies and markets are jittery. Trump’s trade deficit concerns and currency demands may complicate his economic goals. Analysts warn that escalating tensions could harm U.S. growth, with many viewing this as the opening move in a broader trade negotiation strategy.

Of note: Bloomberg points out that the greenback has advanced 2% since the election, but fell in eight of the last 10 Decembers, often a victim of year-end portfolio rebalancing flows and the imminent arrival of Christmas seemingly emboldening traders to sell dollars for riskier assets like stocks.

— Commodity trader and analyst Richard Crow on the cattle market: “The cattle market had the cash market trade $3 higher last week. The demand for beef has been great. The supply of beef is unchanged, and the number of animals on feed is unchanged yet prices stay elevated. The market has been looking for the demand to slide but it has held. The seasonal trend is down for the next two to three weeks. The feeder market has been helped by the screwworm and the threat of tariffs on Mexican cattle. Feeder supplies are tightening, will demand be able to hold the fat price for now?”

— USDA daily export sale:
• 134,000 MT soybeans to China, 2024-2025 marketing year.

— Ag trade update: South Korea purchased 40,000 MT of U.S. non-glutinous milled medium grain rice.

— Winter storm brings extreme snow and cold across the U.S. Large areas of the US are grappling with frigid temperatures and heavy snowfall. Parts of the Great Lakes region are expected to receive up to 2 feet of additional lake-effect snow through Tuesday, compounding challenges for cities already buried in snow as post-Thanksgiving travel concludes. Western New York has seen nearly 4 feet of snow in recent days, with some areas surpassing this total, per the National Weather Service (see more next item). Nearly 70% of the continental US will experience sub-freezing temperatures this week, with major cities like New York, Chicago, and Atlanta facing below-average cold throughout.

— NWS outlook: Heavy lake-effect snow continues downwind from Lake Erie through Wednesday... ...Light snow over parts of the Middle Mississippi Valley, Southern Ohio Valley, and Southern Appalachians on Monday; moderate to heavy snow over parts of the Upper Peninsula of Michigan on Tuesday evening into Wednesday... ...Temperatures will be 10 to 15 degrees below average over parts of the Northern/Central Plains to the Ohio Valley and the Mid-Atlantic.

(NWS)

Items in Pro Farmer’s First Thing Today include:
• Grains mildly weaker overnight
• Traders cautious toward cash cattle market
• Cash hog index continues to drop, pork cutout firms
• Record soybean crush expected
• China skips Politburo readout

— Leadership shifts in Congress: Senate and House Democrats navigate changes. Senate Democrats will finalize their leadership team on Tuesday morning, with significant changes expected due to the retirement of Sen. Debbie Stabenow (D-Mich.), the current No. 3 leader and chair of the Democratic Policy and Communications Committee (DPCC). Sen. Cory Booker (D-N.J.) is eyeing the DPCC role, while Sen. Amy Klobuchar (D-Minn.), currently No. 4, may see a promotion. Majority Leader Chuck Schumer (D-N.Y.) is working to avoid a contested election.

In the House, leadership changes are also brewing, with potential challenges to committee leaders Jerry Nadler (D-N.Y./Judiciary), David Scott (D-Ga./Agriculture), and Raúl Grijalva (D-Ariz./Natural Resources). On the Ag Committee, Reps. Jim Costa (D-Calif.) and Angie Craig (D-Minn.) are looking to dethrone the 79-year-old Scott, who some say cannot handle the post.

— Russia’s wartime economy faces stagflation amid rising tensions. Russia’s wartime economy, once operating at full throttle, is slowing as the conflict with Ukraine nears its fourth year. Civilian industries are stagnating, the ruble has hit a two-year low, and the central bank raised interest rates to a post-Soviet high of 21% in October. Economic growth forecasts for 2024 have been slashed, highlighting the strain of sanctions and spiraling inflation. Industrial elites are clashing with the central bank over soaring borrowing costs, accusing Governor Elvira Nabiullina of stifling growth. Amid these tensions, criticism of the central bank’s independence is surfacing, threatening the economic stability Putin long sought to protect. The crisis underscores the war’s deepening toll on Russia’s economy, with no immediate resolution in sight.

The economic turbulence coincides with notable battlefield developments. Russian forces are advancing in eastern Ukraine, while Ukrainian President Volodymyr Zelenskyy has hinted at conditions for ceasefire talks, though these could undermine Kyiv’s territorial ambitions.

Meanwhile, President-elect Donald Trump’s incoming administration adds a new dimension to the conflict. His national security adviser nominee, Mike Waltz, advocates for “a responsible end” to the war, but potential terms for a deal remain unclear, particularly given President Vladimir Putin’s apparent unwillingness to relent. Intriguingly, Elon Musk, an adviser to Trump, reportedly has influence with both Zelenskyy and Putin.

Russia’s economy faces mounting challenges. Inflation, officially pegged at 9%, is suspected to exceed 18% by external monitors. In response, the central bank has raised interest rates to 21%, the highest in decades, further tightening borrowing conditions. Growth projections for 2024 range from 0.5% to 4%, reflecting uncertainty, exacerbated by new U.S. sanctions targeting Gazprombank.

Despite leveraging trade with China and India to bypass Western sanctions, Russia’s ability to sustain its war hinges on its economic resilience and the West’s commitment to supporting Ukraine. As Holger Schmieding of Berenberg warns, “The question is whether the West offers Ukraine enough help for long enough to prevail — or whether the West abandons Ukraine before the Russian economy crumbles.”

— Russia tightens wheat export limits amid smaller harvest. Bloomberg reports (link), citing Interfax, that Russia has proposed a reduced wheat-export quota of 11 million tons for February to June, citing a smaller harvest and heightened global demand. This move marks a significant shift, as quotas for corn, barley, and rye will be set at zero during the same period, unlike previous seasons when no separate restrictions were applied. Despite early-season record shipments, a 10% drop in Russia’s wheat harvest has limited available export volumes. Analysts had anticipated quotas between 9-12 million tons, aligning with the final figure. Russia’s export limits aim to protect domestic supplies and curb inflation but come amid growing efforts by Moscow to exert control over grain markets. Measures include setting a wheat price guide and excluding foreign intermediaries from trade. These restrictions could impact global grain prices, which have previously benefited from Russia’s ample wheat exports.

— Upcoming deadline: Beneficial Ownership Information (BOI) filing. Southern Ag Today notes (link) a critical deadline is fast approaching for many businesses and organizations. Under the Corporate Transparency Act (CTA), the deadline to file BOI with the Financial Crimes Enforcement Network (FinCEN) is Jan. 1, 2025.

Key requirements for filing BOI include:
• Unique ID details (e.g., passport or driver’s license).
• Trade names or DBAs.
• Jurisdiction of formation or registration (for foreign entities).
• Details about company applicants.
• Certification of the report’s accuracy.

Who needs to file?
• Domestic reporting companies (e.g., corporations, LLCs).
• Foreign reporting companies registered to do business in the U.S.

Failure to comply can lead to fines or felony charges. Ensure timely filing to avoid penalties. For more details and updates, visit the FinCEN website (link).

— Confidence key for China’s 2025 growth target. A prominent Chinese economist has recommended maintaining a 5% GDP growth target for 2025, emphasizing the importance of confidence and proactive fiscal measures. Wang Yiming, an adviser to China’s central bank, suggested raising the fiscal deficit ratio above 3.8% to allow for expanded stimulus, addressing trade tensions under U.S. President-elect Donald Trump and domestic economic challenges. Wang highlighted the need for increased government spending — potentially 2% of nominal GDP — to counter sluggish demand, property market struggles, and export declines. Analysts from Bank of China echoed this sentiment, stressing the role of further stimulus to sustain recovery momentum. Wang also advocated for more special government bonds and potential interest rate cuts to reduce debt burdens. The recommendations come ahead of China’s annual central economic work conference, which will set policy priorities for the coming year.

— Biden administration tightens controls on technology exports to China. The Biden administration unveiled new restrictions aimed at curbing China’s development of advanced semiconductor technologies critical to military and AI advancements. The measures include barring sales of specific chips and equipment, placing over 100 Chinese firms on a restricted trade list, and requiring companies to ensure technology is not diverted to blacklisted entities. Commerce Secretary Gina Raimondo called the move the “strongest controls ever enacted” to undermine China’s military modernization. Allies like Japan and the Netherlands are expected to implement similar restrictions. Critics argue that delays in allied coordination have allowed China to stockpile resources, while Beijing has condemned the measures as a “malicious blockade.” These steps underscore the deepening technological divide between the U.S. and China.

— Argentina seeks its first wheat shipments to China in decades. Argentina wheat traders are seeking to close their first significant sales to China since the 1990s, the head of the country’s top grain-exporting group told Bloomberg. China is making overtures for wheat purchases after it authorized Argentine shipments earlier this year, said Gustavo Idigoras, president of CIARA-CEC, whose members include the major agricultural trading houses. China also recently authorized purchases of Argentine corn, though no cargoes have yet sailed.

— China’s manufacturing sector expands in November. China’s official manufacturing purchasing managers index (PMI) rose to 50.3 in November, marking the second straight month of expansion and the highest reading since April. However, foreign orders for large, state-owned factories remained weak. The Caixin/S&P Global manufacturing PMI rose to 51.5 in November, the highest since June. New export orders among smaller manufacturers rose for the first time in four months and marked the highest in seven months.

— China’s 10-year bond yield falls to all-time low. China’s 10-year yield dropped to the lowest level on record, breaking the psychological 2.0% barrier as a sputtering economy and bets on further rate cuts drive investors into safe-haven bonds. Despite efforts from authorities to restrain the bond rally, including episodes of central bank selling and an increase in issuance, investor appetite seems insatiable, and analysts expect the rally to continue.

— Update on the New World Screwworm (NWS) situation between the U.S. and Mexico. On Nov. 22, Mexican authorities notified USDA’s Animal and Plant Health Inspection Service (APHIS) of a positive NWS detection in Chiapas, a southern Mexican state bordering Guatemala. The infected cow was discovered at a livestock inspection checkpoint near the Guatemala-Mexico border. In response, APHIS took immediate action:
• Import restrictions: The U.S. has temporarily suspended the importation of live cattle and bison from Mexico.
• Enhanced surveillance: APHIS is intensifying its collaboration with Mexican and Central American partners to monitor and control the infestation.
• Sterile fly releases: Strategic aerial and ground releases of sterile flies are being conducted throughout Central America to disrupt the pest’s reproduction cycle.

The detection of NWS in Mexico raises serious concerns for several reasons:
• Rapid spread: The parasite has moved nearly 700 miles from the Nicaragua-Honduras border to Mexico in just two and a half months.
• Economic impact: The U.S. typically imports a significant number of cattle from Mexico annually. As of Nov. 21, imports had reached 1,208,354 head, up from 1,067,344 in the same period in 2023.
• Threat to livestock and wildlife: NWS can infest any warm-blooded animal, posing a risk to livestock, wildlife, pets, and even humans.
• Potential reintroduction: There are fears that the pest could re-enter the U.S., where it was eradicated decades ago at a cost of approximately $800 million.

The Wildlife Conservation Society (WCS) has urged the U.S. and Mexico to implement immediate measures, including:
• Strengthening border controls and inspection protocols
• Enhancing regional cooperation to combat illegal cattle trafficking
• Increasing support for eradication efforts in Central America

APHIS is working to re-establish a biological barrier in Panama to prevent further northward movement of NWS. The agency is also calling on producers along the southern U.S. border to remain vigilant and report any suspicious cases immediately.

The duration of the ban on Mexican cattle imports to the U.S. is currently uncertain. The suspension was implemented on Nov. 25, as an immediate response to the detection of NWS in Mexico. APHIS has described this measure as temporary, pending further information from Mexican veterinary authorities on the size and scope of the infestation.

Several factors may influence the length of the ban:
• Scope of the infestation: The duration will likely depend on how widespread the NWS problem is in Mexico and how quickly it can be contained.
• Eradication efforts: APHIS is intensifying its work with partners in Mexico and Central America to eradicate NWS from affected areas.
• Establishment of new protocols: APHIS is working to develop and implement protocols for NWS-free cattle to resume trade as safely and quickly as possible.
• Re-establishment of biological barriers: Efforts are underway to reestablish a biological barrier in Panama to prevent further northward movement of NWS.

While the exact timeline remains unclear, the impact of a prolonged ban could be significant. The U.S. typically imports a substantial number of cattle from Mexico annually, as previously noted. If the ban continues for an extended period, it could lead to sharp increases in U.S. cattle prices and potentially affect the global beef trade. Given the complexity of the situation and the ongoing efforts to address the NWS threat, it’s likely that the ban will remain in place until U.S. authorities are confident that the risk of NWS introduction has been adequately mitigated. Bottom line on duration of ban is whether they can contain the outbreak from spreading. The larger the area the longer the ban. APHIS initially signaled late December/early January for a possible lifting of the ban, but nothing is official at this time.

— U.S. finds solar imports from Southeast Asia violate trade rules. The U.S. Department of Commerce (DOC) issued preliminary findings that solar imports from Cambodia, Malaysia, Thailand, and Vietnam are being sold below production costs, constituting dumping. The case, initiated by the American Alliance for Solar Manufacturing Trade Committee, could lead to antidumping duties of up to 271% and countervailing duties of up to 292%. Final DOC rulings on the antidumping and countervailing duty cases are expected on April 18 and February 10, respectively, with the U.S. International Trade Commission (USITC) set to deliver final decisions by June 2 and March 27.

— Texas farmers blame sewage-based fertilizer for poisoning land, livestock. According to The Texas Tribune (link), Texas farmers are grappling with devastating losses they attribute to fertilizers made from sewage biosolids contaminated with “forever chemicals” (PFAS). These substances, linked to severe health risks, were found in fertilizers promoted as environmentally friendly. In Johnson County, ranchers Tony Coleman and James Farmer report losing dozens of livestock and fish after PFAS-tainted runoff from a neighbor’s fertilized fields entered their properties. Investigations revealed alarmingly high PFAS levels in local water, soil, and animal tissues. The Colemans and other affected farmers have filed lawsuits against the fertilizer companies, accusing them of failing to disclose the contamination risks. Despite mounting evidence, federal regulations on PFAS in biosolids remain absent, leaving farmers like Coleman facing financial ruin while refusing to sell potentially contaminated livestock.

— USDA publishes final decision on FMMO update. The final decision on reforms to the 11 Federal Milk Marketing Orders (FMMOs) was published (link) in the Federal Register. USDA’s Agricultural Marketing Service (AMS) will send out ballots to eligible parties and the agency previously said those ballots must be postmarked Dec. 31, 2024, and returned by Jan. 15, 2025, to be counted.

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