USDA Announces General Sign-up CRP Approvals, Grasslands CRP Enrollment

SAF | More Deere layoffs, to move production | Crude oil prices plunge | USDA’s strategy against bird flu in dairy cattle

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June 04, 2024 09:01 AM

SAF | More Deere layoffs, to move production | Crude oil prices plunge | USDA’s strategy against bird flu in dairy cattle

Today’s Digital Newspaper

MARKET FOCUS

Brent crude falls for 5th session
Price of Brent crude now trading at around $77 a barrel
Key natural gas supplier outage in Norway caused spike hike on Monday
Spotify increasing price of premium subscription plans for second time this year
NYSE on Monday witnessed a technical glitch that triggered trading halts
Apartment construction projects experiencing delays: higher rates and stagnating rents
Japanese PM Kishida instructs gov’t to draft new long-term economic and fiscal plan
Ag markets today
Deere & Co. to undertake additional layoffs, move production
India raises wheat production forecast
Philippines approves tariff cut for rice, extends lower tariffs on other commodities
Striking workers to be locked out of Australian sugar mills
Ag trade update
Early “heat dome” is about to sear the western United States
NWS weather outlook
Pro Farmer First Thing Today items

CONGRESS

Vince Fong sworn in on June 3, 2024, to replace Kevin McCarthy

ISRAEL/HAMAS CONFLICT

Israel & Hamas show lukewarm responses to Biden’s peace plan for different reasons

RUSSIA & UKRAINE

Ukrainian ag exports totaled 7.4 million metric tons (MMT) in May, down 11%
Biden talks aid to Ukraine in interview with Time magazine

POLICY

USDA announces General sign-up CRP approvals, Grasslands CRP enrollment
Washington Post looks at the new farm bill debate

CHINA

Power of Siberia 2 pipeline deal remains unresolved in Russia/China spat
China update from key media sources

ENERGY & CLIMATE CHANGE

Renewable energy plans fall short of COP28 goals
SAF won’t be commonplace anytime soon

LIVESTOCK, NUTRITION & FOOD INDUSTRY

USDA’s strategy against bird flu in dairy cattle
USDA proposes base pay rule for poultry-grower contracts

HEALTH UPDATE

Drinking on planes could be bad for you, new study finds

POLITICS & ELECTIONS

India election springs a surprise; markets nosedive
West Virginia Sen. Joe Manchin said he’s ‘not running for any office’

OTHER ITEMS OF NOTE

Biden’s executive order on migrants crossing southern border coming today

MARKET FOCUS

— Equities today: Asian and European stock indexes were mixed overnight. U.S. Dow opened around 110 points lower but is now up around 70 points. In Asia, Japan -0.2%. Hong Kong +0.2%. China +0.4%. India -5.7%. In Europe, at midday, London -0.5%. Paris -0.8%. Frankfurt -1.1%.

U.S. equities yesterday: The Dow ended lower, unable to work into positive territory while S&P 500 and Nasdaq both finished higher. The Dow was down 115.29 points, 0.30%, at 38,571.03. The Nasdaq rose 93.65 points, 0.56%, at 16,828.67. The S&P 500 was up 5.89 points, 0.11%, at 5,283.40.

— NYSE on Monday witnessed a technical glitch that triggered trading halts in about a dozen companies, like Class A shares of Berkshire Hathaway, which were displayed as down 99%. The issue appeared to be related to a new software release, but follows another recent glitch that had caused financial websites to halt updates of major indices for over an hour.

— Spotify is increasing the price of its premium subscription plans for the second time this year. The company states that the price hikes will allow continued investment in and innovation of its product features.

For U.S. users:

The “Individual” plan will increase to $11.99 per month, up by $1.
The “Duo” plan will rise to $16.99, up from $14.99.
The “Family” plan will cost $19.99, an increase of about $3 per month.
The “Student” plan will remain unchanged at $5.99 per month.

— Ag markets today: Corn futures showed mild followthrough selling throughout the overnight session, while soybeans and wheat have weakened this morning following two-sided trade earlier in the session. As of 7:30 a.m. ET, corn futures were trading around a penny lower, soybeans were fractionally to 2 cents lower and wheat futures were mostly 4 to 6 cents lower. The U.S. dollar index was around 150 points higher, and front-month crude oil futures were about $1.35 lower.

Wholesale beef prices strengthen. Wholesale beef prices continued their recent climb on Monday, with Choice boxes up $2.40 and Select $1.99 higher, while movement totaled 90 loads. While hefty carcass weights are offsetting some of the reduced slaughter numbers, it isn’t a full offset. As a result, wholesale beef prices are climbing, though packer margins remain in the red.

Cash hog index firms, pork cutout drops. The CME lean hog index is up 24 cents to $91.73 as of May 31, marking the third straight day of gains following the recent mini slump. The pork cutout dropped $1.82 to $101.43 on Monday as all cuts weakened.

— Agriculture markets yesterday:

Corn: July corn fell 2 3/4 cents to $4.43 1/2, a more than six-week low close.
Soy complex: July soybean futures plunged 20 1/2 cents to $11.84 1/2 and settled near session lows. July meal futures closed $5.20 lower to $359.50 and closed near session lows. July bean oil futures sunk 138 points to 44.14 cents.
Wheat: July SRW wheat fell 5 3/4 cents at $6.72 3/4 and nearer the session low. July HRW wheat lost 8 3/4 cents at $7.00 and nearer the session low. July spring wheat futures closed 6 cents lower to $7.33 3/4.
Cotton: July cotton plunged the 300-point limit to 73.15 cents, marking a more than 19-month low close.
Cattle: August live cattle rose 42 1/2 cents to $178.875 and nearer the session high. August feeder cattle lost 20 cents at $256.20, nearer the session high and hit a three-week low early on.
Hogs: July lean hog futures fell 85 cents to $96.275 and settled on session lows.

— Of note:

Apartment construction projects are experiencing delays due to higher interest rates and stagnating rents, which are preventing many builders from starting or completing their projects. The average time between construction authorization and the beginning of construction has increased by 45% since 2019, now reaching nearly 500 days, according to property-data firm Yardi Matrix.

— Japanese Prime Minister Fumio Kishida has instructed the government to draft a new long-term economic and fiscal plan, aiming to boost productivity and investment while achieving over 1% annual growth and rebuilding fiscal health. This six-year plan, starting in April 2025, was announced to the Council on Economic and Fiscal Policy (CEFP). Kishida emphasized the opportunity for Japan to transition from a cost-cut-focused economy to a new growth stage. The plan will be included in a mid-year policy outline to be released later this month. This initiative responds to growing calls for action as Japan seeks to overcome decades of deflation and economic stagnation.

Market perspectives:

— Outside markets: The U.S. dollar index was firmer, with the euro, yen, and British pound all weaker against the greenback. The yield on the 10-year U.S. Treasury note was lower, around 4.36%, with a negative tone in global government bond yields. Crude oil futures were sharply lower ahead of U.S. trading with U.S. crude around $72.95 per barrel and Brent around $77.20 per barrel. Gold and silver were under significant pressure ahead of U.S. trading, with gold around $2,348 per troy ounce and silver around $29.89 per troy ounce.

— Price of Brent crude is now trading at around $77 a barrel. Until yesterday, it hadn’t been below $80 a barrel since February. Perhaps more importantly, as recently as April, it was above $90 a barrel (mainly due to geopolitical fears). The U.S. benchmark — WTI, which is usually below Brent — now sits at around $72.50 a barrel, a four-month low and in the past three trading sessions prices have lost over $5.00 a barrel. The drop in oil prices comes as OPEC has just agreed to extend its existing production cuts. Worries about slowing global economic growth are prompting much of the selling pressure on crude oil. There are also doubts OPEC can hold together its collective output reduction quotas for an extended period.

— A key natural gas supplier outage in Norway caused an initial significant spike in nat gas prices on Monday, the largest this year, due to uncertainty over the repair duration. A fault on a pipe at the Sleipner Riser platform halted operations at the Nyhamna processing plant, reducing gas flows to the UK’s Easington terminal, which supplies a third of Britain’s gas. This disruption led futures to jump as much as 13%, highlighting the market’s sensitivity despite sluggish European demand and high stockpiles. Prices partially recovered on Tuesday with news that the halt might end by Friday, but the network operator has provided limited details on the repair plan, and previous outages at Norwegian facilities have often lasted longer than initially expected.

— India raises wheat production forecast. India is likely to harvest 112.9 MMT of wheat this year, the country’s ag ministry said, up 900,000 MT from its previous forecast. The country’s rice production was estimated at 136 MMT, with total grains output seen at 328.8 MMT.

— Philippines approves tariff cut for rice, extends lower tariffs on other commodities. The Philippines approved lower tariffs on some commodities to combat inflation and ensure ample supplies. Tariffs on rice will be cut to 15% for both in-quota and out-of-quota rates, down from 35%, through to 2028. Lower tariffs on corn, pork and mechanically de-boned meat were also extended until 2028.

— Striking workers to be locked out of Australian sugar mills. Australia’s largest sugar producer Wilmar Sugar and Renewables will bar workers who take part in strike action from its mills, the company said. “Today, Wilmar Sugar and Renewables advised more than 1,200 wages employees that anyone participating in industrial action from start of shifts tomorrow morning (Wednesday, 5 June) will be locked out until further notice,” the company said. Locked-out workers would not be able to enter Wilmar’s facilities and would not be paid until the measure was lifted, it said. The company has already delayed the start of cane processing at its mills by between two and nine days after strikes beginning last month disrupted preparations. Australia is the world’s fourth-largest sugar exporter and Wilmar produces more than half of the country’s sugar during the cane crushing season.

— Ag trade update: South Korea purchased 133,000 MT of corn expected to be sourced from South America or South Africa. Japan is seeking 103,767 MT of milling wheat via its weekly tender. Egypt tendered to buy an unspecified amount of wheat from multiple sources.

— An early “heat dome” is about to sear the western United States, with temperatures topping triple digits for the first time this year in some locations. The major heat wave is set to place over 25 million people under heat alerts. The affected areas stretch from Arizona to the Pacific Northwest. The intense heat wave is driven by a high-pressure system known as a heat dome, which traps hot air and prevents precipitation. In California, temperatures could soar up to 20 degrees above normal, with Death Valley potentially reaching nearly 120 degrees. Cities like Phoenix and Las Vegas are forecasted to experience temperatures of 110 degrees by Thursday, marking the first time this year. The heat wave poses a significant health risk, as temperatures will cool only slightly during the night. This increases the danger of heat-related illnesses. Excessive heat is a serious concern, causing hundreds of deaths annually in the U.S. Last summer alone saw over 2,300 heat-related deaths, the highest number recorded in 45 years.

— NWS weather outlook: There is a Moderate Risk of Excessive Rainfall leading to Flash Flooding over parts of southeastern Oklahoma and the ArkLaTex today... ...Severe Thunderstorms possible across parts of the Mississippi Valley today... ...Growing Excessive Heat potential over portions of California’s central valley region as well as the Desert Southwest; southern Texas heat risk persists.

Items in Pro Farmer’s First Thing Today include:

• Grains weaker this morning
• Strong initial CCI ratings for corn, spring wheat
• Crop Progress Report highlights
• Cordonnier trims U.S. corn production forecast, raises soybean outlook

CONGRESS

— Vince Fong, formerly a member of the California State Assembly, was sworn in on June 3, 2024, to replace Kevin McCarthy in the House of Representatives. Fong, a Republican from Bakersfield, now serves California’s 20th Congressional District, a predominantly Republican area in the San Joaquin Valley. His swearing-in bolsters the slim Republican majority in the House, which now stands at 218 Republicans to 213 Democrats, with four vacancies.

Fong, who was McCarthy’s district director, will hold the seat for at least the next seven months and is expected to run against Tulare County Sheriff Mike Boudreaux in November for a full two-year term starting January 2025. Having defeated Boudreaux in May for the remainder of McCarthy’s term, Fong has the incumbency advantage for the upcoming election.

ISRAEL/HAMAS CONFLICT

— Both Israel and Hamas have shown lukewarm responses to President Biden’s peace plan for different reasons. Israeli Prime Minister Benjamin Netanyahu’s government has not yet met its objective of militarily defeating Hamas, and far-right members of his coalition are threatening to leave if the war is halted. Meanwhile, Hamas is also in no hurry to end the conflict, believing that it is drawing Israel into a protracted and difficult situation.

RUSSIA/UKRAINE

— Ukrainian ag exports totaled 7.4 million metric tons (MMT) in May, down 11%, according to the UCAB Ukrainian farm business association. Grain exports were down 12% while vegoil shipments increased by 15%, UCAB said. The group said the total volumes included 5.5 MMT of grains, 763,700 metric tons of vegetable oils, 509,900 metric tons of meals, 409,800 metric tons of other goods and 207,400 metric tons of oilseeds. The Ukrainian Agriculture Ministry has not yet released data on shipments for May.

— What President Joe Biden told Time magazine: “We spent a lot of money in Ukraine, but Europe has spent more money than the United States has, collectively.”

The facts, according to Time: “The European Union has provided over $107 billion dollars in financial, military, humanitarian, and refugee assistance since the war in Ukraine began, as of April 24. Comparatively, the United States has provided $175 billion in aid to Ukraine — $107 billion has gone directly to the Ukrainian government, while the remainder has supported other U.S. government activities associated with the war. Some European governments have made larger financial contributions to Ukraine relative to the size of their economies than the United States, according to the Council on Foreign Relations.”

POLICY UPDATE

— USDA has approved 199,214 out of 251,247 acres submitted during the general Conservation Reserve Program (CRP) sign-up in March for enrollment starting Oct. 1, with an average rental rate of $63 per acre. Additionally, the USDA has opened the Grasslands CRP enrollment from June 3-28, allowing producers to offer working lands to preserve grasslands, with a minimum rental rate of $13 per acre.

In 2023, the USDA enrolled 2.7 million acres through a sign-up that ran from April 17-May 26, with producers submitting offers for more than 4.6 million acres. Among the three CRP sign-up types — General, Continuous, and Grasslands — the Grasslands CRP now has the most enrolled acres, with 8.6 million acres compared to 8.3 million Continuous CRP acres and 7.8 million General sign-up CRP acres.

Rental rates vary significantly among the different CRP types. Grasslands CRP averages $15.59 per acre for a total of $134 million, General sign-ups average $57.05 per acre, and Continuous sign-ups average $149.14 per acre.

With 24.7 million acres enrolled in CRP by the end of March, the USDA can only enroll another 2.3 million acres under the current 27-million-acre cap. This limit could be reached soon, particularly with the potential that many of the 500,000 acres maturing from CRP on Sept. 30 could be re-enrolled in the program.

— Congress is facing potential delays in renewing the farm bill due to disputes over SNAP benefits and climate policies, the Washington Post says in its farm bill update (link). The $1.5 trillion proposal, set to expire on September 30, typically garners bipartisan support by combining resources for food assistance programs like SNAP with farm supports such as commodity price guarantees and crop insurance.

This year, however, the Republican-controlled House and the Democratic-controlled Senate have conflicting priorities. The House is drafting a bill that allocates more funds to large-scale commodity farmers and less to low-income food assistance, while the Senate aims to do the opposite, the article notes. It concludes this impasse is likely to result in a temporary extension of the current law, preserving the higher nutrition benefits favored by Democrats but frustrating Republicans who want more commodity assistance.

The 2018 Farm Bill was implemented before significant events like the Covid-19 pandemic, the war in Ukraine, and substantial inflation. These changes have increased the cost of U.S. farmland and affected global agricultural markets. Both parties are now considering extending the current law temporarily, potentially pushing a vote on a new measure to the “lame duck” session after the November elections.

The 2018 Farm Bill allowed for the re-evaluation of food assistance formulas, which President Biden and USDA Secretary Tom Vilsack used in 2021 to increase SNAP benefits significantly. It also guaranteed minimum prices for certain agricultural products, but these levels have not been updated to reflect recent economic upheavals. Republicans are now pushing to raise these price floors, while Democrats are resistant to cuts in SNAP benefits.

The House bill pushed by Ag Chairman GT Thompson (R-Pa.) proposes to increase reference prices. This proposal would be funded by ways that are sticking points for Democrats, who oppose cutting food aid and altering the Agriculture secretary’s authority via the Commodity Credit Corporation (CCC).

Other contentious issues include the allocation of funds from Biden’s 2022 Inflation Reduction Act for “climate smart” conservation practices. While Thompson’s bill seeks to remove climate-specific restrictions, allowing broader access to conservation funds, Democrats are open to compromise as most conservation practices already align with climate-smart standards.

Despite these disputes, Thompson’s bill includes several Democratic priorities, such as helping young farmers acquire land and allowing individuals with felony drug convictions to receive SNAP benefits after completing their sentences. These provisions aim to preserve the traditional bipartisan support for the farm bill, but significant disagreements remain.

CHINA UPDATE

— China update:

WSJ: Why China’s Overcapacity Problem Is About to Get Even Worse, in Seven Charts — Chinese investment in high-tech goods keeps surging, setting up more trade tension with the U.S. and Europe. Link
Financial Times: China-made EVs registered in Europe jump almost a quarter this year — Increase despite threat of higher tariffs on battery-run cars made in Asian country. Link
New York Times: Beijing Claims UK Recruited Chinese State Officials as Spies — The accusation from China came a few weeks after Britain charged three men with assisting Hong Kong’s intelligence service. Link
Caixin: China Sets Up Fund to Spur Development of Solid-State EV Batteries, Source Says — China has established a dedicated fund of about 6 billion yuan ($828 million) to stimulate the development of solid-state batteries for electric vehicles (EVs), an industry insider told Caixin. Link

ENERGY & CLIMATE CHANGE

— Plans to triple global renewable energy capacity this decade are not in line with the goals agreed to at the COP28 summit, according to the International Energy Agency. “Even if all countries were to fully implement their current ambitions, the world would fall 30% short,” the IEA wrote in its latest report. The 2030 goal is a key factor in the target of achieving net-zero emissions by mid-century and limiting global warming to 1.5 °C. It comes as delegates convene in Germany for climate talks this week, which will influence the major decisions to be made at the COP29 summit in November.

— Sustainable aviation fuel (SAF) won’t be commonplace anytime soon because its production is being hindered by significant land requirements and rising costs, according to Oilprice.com (link).

Challenges Facing Sustainable Aviation Fuels (SAFs)

Adoption of SAFs by airlines has been disappointing so far, with U.S. aircraft consuming only 15.8 million gallons of SAF in 2022 compared to 11.9 billion gallons of conventional jet fuel.
A report by the Institute for Policy Studies states there is “no realistic or scalable alternative” to kerosene-based jet fuels that can replace them quickly enough to avert dangerous climate change, despite public subsidies.
Producing enough SAFs from ethanol to meet Biden’s 2030 target would require 114 million acres of corn in the U.S., a 20% increase in current cropland area. In the UK, 50% of agricultural land would be needed.
This land use change could threaten food security and undermine carbon sequestration efforts like preserving forests and wetlands, working against the Paris Agreement emissions goals.
SAF prices are currently over double conventional jet fuel at $6.69 per gallon. Replacing just 10% of jet fuel with SAFs would significantly impact airline operating costs.

Growth Prospects for SAFs

Despite challenges, the SAF sector is poised for major growth, with airlines committing to 6 billion liters of SAFs in forward purchase agreements by 2023, 10 times current global production.
Costs are expected to decrease as production scales up and supply agreements strengthen.
Major U.S. airlines like Delta and Southwest have committed to replacing 10% of their jet fuel with SAFs by 2030.
The EU has introduced mandates for increasing SAF use at airports from 2% in 2025 up to 70% by 2050.

Bottom line: While SAFs face significant hurdles around scalability, land use, costs and adoption rates, the sector is still projected for substantial growth driven by airline commitments and regulatory mandates, which could help bring costs down over time.

LIVESTOCK, NUTRITION & FOOD INDUSTRY

— USDA’s strategy against bird flu in dairy cattle involves identifying infected herds and allowing the virus to die out naturally within them, USDA Secretary Tom Vilsack stated. Confident in their understanding of the virus and its transmission, USDA aims to contain the virus within infected herds until it dissipates.

The H5N1 avian flu virus was first confirmed in dairy cattle in the Texas panhandle on March 25 and spread to eight other states by April 25, with no new states reporting outbreaks since. There have been three cases of cattle-to-human infections among dairy farmworkers, with one case in Michigan involving respiratory symptoms. The CDC confirmed that H5N1 remains an avian virus with low risk to the general public, but advised protective measures for those in contact with infected animals.

USDA requires testing of lactating cows for bird flu before interstate shipping and offers financial incentives to dairy farms for improved biosecurity. A voluntary program for weekly testing of milk samples from bulk storage tanks on dairy farms is also being launched to gather more data. To date, H5N1 has been confirmed in 80 herds across nine states, with Michigan having the most infected herds at 23.

Over the weekend, the Iowa state Agriculture Department (link) said highly pathogenic avian influenza was discovered on a turkey farm in Cherokee County in northwest Iowa. It was the second outbreak in a week in Iowa. The other was an egg farm with 4.2 million hens. Bird flu has killed 96.6 million birds, mostly hens and turkeys, in U.S. domestic flocks since outbreaks began in February 2022, according to a USDA database (link).

— USDA proposed a rule on Monday to prohibit poultry processors from making deductions from the base prices listed in contracts with growers. This move, reported on Monday on Profarmer.com, is aimed at addressing abuses in the “tournament system,” which determines farmers’ revenue and imposes demands for additional investments in their facilities.

Andy Green, USDA competition adviser, emphasized that the rule is intended to ensure fairness for poultry growers and consumers. It aims to provide a clear base price in contracts, ensure fair comparisons in the tournament system, and prevent coercive investment demands on growers. Under the proposal, processors could still award bonuses to top-performing growers but could not make deductions from the base price. They would also be required to conduct fair comparisons of growers.

The Campaign for Contract Agriculture Reform praised the proposal as a step toward fairness in poultry contracting practices.

The National Chicken Council opposed the rule, calling it “anti-business” and warning it would increase costs and stifle innovation.

The proposal will undergo a 60-day comment period after its publication in the Federal Register within the next seven to 10 days.

Additionally, USDA introduced a new data visualization tool, the Livestock Mandatory Reporting Live Cattle Data Dashboard, which aims to provide an easy-to-understand view of cattle market information.

HEALTH UPDATE

— Drinking on planes could be bad for you, new study finds. A new study, published in the medical journal Thorax on Monday, found that when people fell asleep after drinking alcohol in a low air pressure environment like that on airplanes, their blood oxygen decreased and their heart rates increased. Researchers observed this trend even in people who were young and healthy.

POLITICS & ELECTIONS

— West Virginia Sen. Joe Manchin said he’s “not running for any office” after his decision to leave the Democratic Party.

— India elections update. Indian Prime Minister Narendra Modi’s alliance was winning a majority of seats about halfway through the count in the general election, but the numbers were well short of the landslide predicted in exit polls. The early election returns indicate Prime Minister Narendra Modi’s party will struggle to win an outright majority. Final results are due late today. Market impact: India’s benchmark indices tumbled the most in four years overnight. The slump reversed the record gains seen on Monday, when a landslide victory for BJP, led by Modi, was widely expected.

OTHER ITEMS OF NOTE

— President Biden and first lady Jill Biden will host the White House congressional picnic on the south lawn of the White House where, at 6:15 p.m. ET, the president is set to deliver remarks. At 8:10 p.m. ET, Biden is scheduled to depart Joint Base Andrews for Paris ahead of the D-Day Anniversary commemoration ceremony in Normandy, France, on Thursday.

— President Biden is expected to sign an executive order today that would ban migrants who cross the southern border illegally from claiming asylum, a last-resort effort meant to quell voter discontent with his handling of immigration ahead of the presidential election. This has been conjectured for days.

More than 6 million migrants have crossed into the U.S. illegally under the Biden administration.

The action will rely on an authority in the U.S. Code known as Section 212(f). It would temporarily shut down the border to asylum seekers when a daily threshold of crossings exceeds 2,500, but would reopen when the number falls below 1,500.

KEY LINKS

Policy Updates