USDA Announces Surge in Funding for Climate-Smart Ag Projects

Update on potential rail strike as Congress, White House get more involved

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September 14, 2022 12:05 PM

Update on potential rail strike as Congress, White House get more involved

In Today’s Digital Newspaper

Today’s dispatch is altered due to technical difficulties with filing to the site. The usual format will return whenever the technical issues are resolved.

MARKETS

The U.S. stock market experienced its worst day of the year on Tuesday with the Dow tumbling 3.94%, the S&P 500 falling 4.32% and the Nasdaq sinking 5.2%. U.S. government bond prices fell sharply, pushing the yield on the 10-year Treasury note close to its 2022 high. In global trading today, major Asian stock indexes fell, Europe was down at midday and U.S. stock futures were up. In Asia, Japan -2.8%. Hong Kong -2.5%. China -0.8%. India -0.4%. In Europe, at midday, London -0.9%. Paris -0.3%. Frankfurt -0.6%.
Outside markets today: US dollar index was trading lower as the euro and British pound were up versus the greenback. The yield on the 10-year US Treasury note has moved up to trade around 3.46% Crude is under pressure with U.S. crude trading around $86.60 per barrel and Brent around $92.40 per barrel. Gold and silver futures were under pressure, with gold around $1,713 per troy ounce and silver around $19.45 per troy ounce.
Ag markets: Relatively quiet overnight session. Soybeans and wheat favored the upside in quiet, two-sided trade overnight, while corn faced light selling pressure. As of 7:30 a.m. ET, corn futures were trading around 4 cents lower, soybeans were 2 to 3 cents higher and wheat futures were steady to a penny higher. Front-month crude oil futures were trading just above unchanged, while the U.S. dollar index is around 250 points lower this morning.
Wholesale prices fell 0.1% in August. The Producer Price Index, a gauge of prices received at the wholesale level, declined 0.1%, according to a Bureau of Labor Statistics report Wednesday. Excluding food, energy and trade services, core PPI increased 0.2%. Economists had been expecting headline PPI to decline 0.1% and core to rise 0.3%.
U.K. inflation falls for first time in nearly a year. Britain’s annual consumer price inflation slowed to 9.9% from July’s 40-year high of 10.1%, the first decline since September 2021. However, economists warned inflation was likely to peak at around 11% in October when a new household energy tariff cap begins. The Bank of England had been expected to again raise interest rates on Thursday, but it delayed the decision by a week following the death of Queen Elizabeth II.

CPI REPORT PERSPECTIVE

Hot inflation numbers via Tuesday’s CPI didn’t stop the White House from celebrating the Inflation Reduction Act during a White House ceremony. The inflation figures put more pressure on the Federal Reserve to raise interest rates Sept. 20-21 to bring price increases under control. Fed officials raised interest rates by 0.75 percentage point at each of their last two meetings and appear on track to approve another such increase at their Sept. 20-21 gathering. CME Fed funds futures are at 30% odds for a 1% hike with 70% odds for a 0.75% increase.

CPI recap: Consumer prices rose 0.1% in August from July and were up 8.3% on the year, a slight easing from July, when year-over-year prices rose 8.5%. Excluding volatile energy and food categories, prices were up 0.6% on the month and 6.3% on the year. The increase signals that broad price pressures have strengthened. Prices for gasoline, used cars and airfare fell but those were offset by higher prices for food, medical care, electricity and natural gas.

Gasoline prices may be falling but other energy costs are rising. Electricity costs rose 15.8% in August from a year ago, the biggest jump since 1981, driven by higher prices for natural gas. About one is six American families has fallen behind on energy bills and owe a collective $16 billion, roughly twice the amount in 2019. That number could rise this winter, a time when energy bills typically increase, the WSJ reports (link).

Perspective on hot inflation: The average household is now spending about $460 more each month to buy the same basket of goods and services than last year, according to Moody’s Analytics.

Monthly Social Security payments are expected to receive their biggest cost-of-living increase in four decades. Government inflation figures for August point to a Social Security cost-of-living adjustment, known as the COLA, of 8.7%, according to an estimate by a nonpartisan group that lobbies for seniors. The Social Security Administration will announce the final figure on Oct. 13, after the release of September inflation data. The 8.7% estimate by the group, the Senior Citizens League, is lower than the league’s prediction last month of 9.6%. The revision reflects the recent slight cooling of inflation to 8.3%. But if the league’s projection holds up, the COLA still would be the largest since 1981, when the inflation adjustment was 11.2%.

RUSSIA/UKRAINE

Ukraine said it was trying to extend its counteroffensive in the east, but pro-Russian officials said they were holding the line for now and President Joe Biden said the war still looked like a long haul.
The path not taken: Vladimir Putin’s chief envoy on Ukraine told the Russian leader as the war began that he had struck a provisional deal with Kyiv that would satisfy Russia’s demand that Ukraine stay out of NATO, but Putin rejected it and pressed ahead with his military campaign, according to reports citing people close to the Russian leadership.
Ukraine’s economy is stabilizing after the deep crash set off by the war, thanks to a combination of quick policy actions, military resilience and the flexible response of Ukrainian businesses to the damage and dislocation. Russia’s retreat from the area around Kyiv, the slow progress of its subsequent offensives and Ukraine’s recent counterattacks have created enough certainty for economic activity to resume in the unoccupied part of Ukraine. Link for more via the WSJ.
Ukraine’s grain exports picking up. Ukraine exported 1.5 MMT of grain in the first 13 days of this month, according to the country’s ag ministry, as shipments continue to build following the deal to restart exports on Aug. 1. But the pace was still 34% less than the same period last year. Since July 1, Ukraine has exported 5.8 MMT of grain, including 3.4 MMT of corn, 1.83 MMT of wheat and 525,000 MT of barley. The 2022-23 year-to-date export pace was 46.8% behind the same period last year.
Russia has secretly given at least $300 million to political campaigns worldwide since 2014, according to U.S. intelligence. Link for details via the New York Times.

CHINA

A meeting this week between Putin and Chinese leader Xi Jinping is expected to include discussions on how to strengthen their countries’ economic ties.
The U.S. is considering options for a sanctions package against China to deter it from invading Taiwan, with the European Union coming under diplomatic pressure from Taipei to do the same, according to sources familiar with the discussions. Taiwan’s de facto ambassador in Washington, Hsiao Bi-khim, hosted dozens of international lawmakers who back sanctions on China for aggression toward the island.

POTENTIAL RAIL STRIKE

White House looks for rail alternatives, will meet with union and rail companies today. With a railroad strike looming this week, the White House is studying whether other transportation providers can keep goods moving if rail companies and labor unions can’t reach a deal. White House officials want to minimize disruptions for food, energy and public-health-related products in particular. Labor Secretary Marty Walsh plans to meet with union and rail company leaders today.

Amtrak is preemptively canceling trips on three of its long-distance routes that operate on freight rail-owned tracks and adjusting schedules on other routes due to a possible strike by two of the country’s largest rail unions.

U.S. railroads are poised to stop shipments of farm products and other key goods starting Thursday. Norfolk Southern Corp. said it plans to halt unit train shipments of bulk commodities on Thursday ahead of a potential U.S. rail worker strike the following day. The railroad also said it would stop accepting autos for transit at its facilities starting this afternoon. Other railways are likely to follow suit, according to one agriculture group. “We are hearing several rail carriers are tentatively planning to wind down shipments,” said Max Fisher, chief economist at the National Grain and Feed Association, which represents most U.S. grain handlers.

“Our members rely on about 27 million bushels of corn and 11 million bushels of soybean meal every week to feed their chickens,” said Tom Super of the National Chicken Council. “Much of that is moved by rail.”

Railways are no longer shipping ammonia, an important component of about three quarters of all fertilizer, because it would be dangerous if the hazardous material was stranded during a potential rail strike, according to the Association of American Railroads. Ammonia is used in explosives as well as being an essential nutrient for plants.

A halt to rail shipments of ethanol threatens to reverse the recent slide in U.S. gasoline pump prices from a record high. “Almost all ethanol is moved via rail and it is produced in the Midwest,” noted Debnil Chowdhury of S&P Global Commodity Insights. “There is no easy substitute for rail and the U.S. government will have to make decisions around blend targets if ethanol movement to demand centers are constrained due to a strike.” Ethanol currently accounts for around 10% of U.S. gasoline volume, and prices for the commodity have already been raised at several marketplaces with sellers facing interruptions. Conventional wisdom is that the cost-effective limit on using trucks to transport ethanol is around 300 miles from plants where the ethanol is produced, underscoring the need for rail service to move the product into market channels

The American Petroleum Institute (API) is urging Congress to step in and avert any work stoppage at U.S. railroads. API told congressional transportation panel leaders that the oil and gas industry was already receiving notices from railroads that shipments were going to be curtailed as of Sept. 12, a situation the group warned would have “profound impacts on the ability of our industry to deliver critical energy supplies to the market.”

The group urged lawmakers take one of four actions: (1) Extend the cooling off period to provide time for further negotiations, (2) Implement the recommendations of the Presidential Emergency Board, (3) Develop Congressional contract recommendations, or (4) Move the parties into binding arbitration.

POLICY

Do I have your permitting permission? Senate Majority Leader Chuck Schumer (D-N.Y.) said yesterday he won’t change his plan to attach the energy-permitting measures to the continuing resolution (CR), the stopgap spending measure to keep the gov’t funded into fiscal year 2023, which starts Oct. 1. “I’m going to add it to the CR, and it will pass,” Schumer said yesterday. That’s despite more than a few Democrats saying they disliked the linkage, even though most of them did not say they would vote against the CR. It looks like Democrats will need some Republicans vote in the Senate and the House. Rep. Tom Cole (R-Okla.) said he’ll keep an open mind about the measure, but said it wouldn’t be wise for House leaders to count on Republican votes for the bill. Rep. Mike Simpson (R-Idaho) also said he likes the idea of an energy-permitting bill but that he wants to see the legislative text before deciding how he’ll vote.
The CR will not be a “clean bill” as some riders will be attached, including further aid for Ukraine. And some senators say the only way to avoid layoffs at the FDA is to attach user fee legislation to a gov’t funding bill. Sen. Patty Murray (D-Wash.), chair of the Senate panel that oversees the fees that industry pays to the Food and Drug Administration, said Tuesday that time was running out to reauthorize the fees before the current agreement expires Sept. 30 — which would force the FDA to potentially lay off thousands of employees.
Republicans continue to criticize administration hunger conference. The White House recently unveiled its agenda for their Conference on Hunger, Nutrition, and Health to take place Sept. 28. House Agriculture Committee Ranking Member GT Thompson (R-Pa.) raised questions about what he labeled minimal outreach, organization and programming of the conference. “The administration seems to be hand-selecting participants to drive a specific narrative and outcome related to the creation of a national strategy,” he said in a letter to Susan Rice, director of the Domestic Policy Council. He noted the Department of Health and Human Services was taking a lead role in the conference versus USDA where the Supplemental Nutrition Assistance Program (SNAP) operated.

ENERGY & CLIMATE CHANGE

A huge taxpayer pot of money is pouring out of USDA, and Ag Secretary Tom Vilsack was giddy about spewing it out. The latest mountain of money is $2.8 billion in funding for an initial set of 70 projects to develop markets for climate-smart commodities. But that’s not all. Vilsack is increasing the total funding for the initiative to $3.5 billion from the $1 billion originally planned. That leaves another $700 million for smaller projects. Meanwhile, China continues to flaunt any ideas they will reduce emissions as they continue on a torrid path of increasing coal plants/production.
OPEC signals cuts ahead. The Organization of the Petroleum Exporting Countries (OPEC) said Tuesday that the supply of oil has gotten disconnected from demand, a possible sign that it is planning to cut output to prop up prices. The group last week cut its oil production levels by 100,000 barrels a day, but prices have continued to fall. Higher oil prices would complicate gov’t efforts in Europe and elsewhere to shield their populations from higher energy costs.

Meanwhile, the International Energy Agency (IEA) lowered global crude oil demand by 100,000 barrels per day in 2022, to 2 million bpd. The IEA cut its forecast for Chinese oil demand by 400,000 barrels a day this year. China’s stop-start Covid-19 lockdowns are weighing on global demand for crude.

Biden may buy oil just below $80; Democrats stymied Trump at $24. The Biden administration is considering replenishing the Strategic Petroleum Reserve (SPR) when oil dips below $80 a barrel, just two years after Democrats blocked former President Donald Trump from filling the reserve at a fraction of that price, Bloomberg News reports (link). Trump in March of 2020 was looking to stabilize the oil industry after Covid-19 hit in 2020 and crushed global petroleum demand. With oil at the time priced at about $24 a barrel, Republicans proposed spending $3 billion to fill up the reserve. But Senate Democratic Leader Chuck Schumer (D-N.Y.) proclaimed that his party had blocked a “bailout for big oil.”

It also will take more oil to fill the reserve than two years ago. In March 2020, the reserve had 634 million barrels stored out of a capacity of 727 million barrels. After a record drawdown last week, the reserve is down to 442 million barrels, its lowest level since 1984.

Gas prices dropping just about everywhere but California. Politico reports (link) gas prices “are dropping for nearly everyone in the country but remain stubbornly high in California, where state officials are blaming oil companies and reminding voters that relief is on the way in the form of tax rebates scheduled to arrive in weeks. ... Experts say factors to blame for the high cost of gas in California — now more than $5 a gallon — include problems at refineries that supply the state as well as higher taxes, more regulations and the same global issues driving the overall U.S. market.”
President Biden headed to Detroit to highlight investment in electric vehicles. The president plans to tour the North American International Auto Show and tout funding to build a network of chargers across the country that was included in the Bipartisan Infrastructure Law that he signed last year.

OTHER ITEMS OF NOTE

Corteva, the seed and pesticide manufacturer, is preparing to lay off roughly a thousand of its workers across the globe as part of a broader restructuring plan.
The U.S. federal government’s deficit widened to $220 billion in August over the previous year, largely due to calendar differences. But through the first 11 months of the fiscal year, the deficit has shrunk by almost $1.8 trillion, or 65%. Tax collections have hit record levels and government spending has declined.
New illegal immigrants cost U.S. $4 billion more than Trump’s wall. The estimated 2.3 million illegal immigrants who have crossed the border and stayed since Joe Biden became president will cost taxpayers over $9,000 each a year in housing, food, medical, and other services, according to a new report. The Federation for American Immigration Reform, which regularly tabulates the costs of illegal immigration, has put a price tag of $20.4 billion on providing “benefits and services” for the illegal immigrants being spread across the U.S. since Biden became president. That, said the group, is on top of the $140 billion taxpayers are spending to provide services to illegal immigrants who were already in the U.S. before Biden replaced President Donald Trump and signaled that the border is now open.

For comparison, the added $20.4 billion annual bill is $4 billion more than the $16.4 billion the former Trump administration spent building and restoring hundreds of miles of the border wall.

Since January 2021, an estimated 1.3 million illegal immigrants have crossed through border facilities and are inside the U.S. Another estimated 1 million crossed undetected.

Median household income was essentially unchanged at $70,800 last year after adjusting for inflation, according to the U.S. Census. The flat reading for 2021 follows a decline in 2020, the first year of the pandemic.

Poverty rate: The official poverty rate in 2021 was 11.6%, with 37.9 million people in poverty. Neither the rate nor the number in poverty was significantly different from 2020. The poverty threshold for a four-person household last year was $27,740. That reflects the pandemic’s lingering economic pain as inflation is also taking the largest bite out of pocketbooks in four decades. Link for details.

Rural poverty rate: 15%. The U.S. poverty rate held steady at 11.6% in 2021, and the rural poverty rate of 15% was not significantly different from 14.1% in 2020.

CONGRESS

House panels gain members. Speaker Nancy Pelosi (D-Calif.) announced Rep. Joseph Morelle (D-N.Y.) was recommended to serve on the House Appropriations Committee, pending full approval from the Democratic Caucus. Meanwhile House Minority Leader Kevin McCarthy (R-Calif.) said Rep. Joe Sempolinski (R-N.Y.) was sworn in Tuesday and will serve on the House Budget Committee. Meanwhile, Rep. Glenn “GT” Thompson, ranking on the House Ag Committee, welcomed Rep. Brad Finstad (R-Minn.) to the House Ag panel. Rep. Finstad was elected to serve Minnesota’s First Congressional District — filling the vacant seat after the untimely passing of former Agriculture Committee Member Jim Hagedorn.
Right to repair: House Small Business Subcommittee on Rural Development, Agriculture, Trade and Entrepreneurship hearing this morning on Right to Repair and What it Means for Entrepreneurs.
Sen. Lindsey Graham (R-S.C.) proposed new national restrictions on abortion, saying he wanted to help define Republicans on an issue seen as a potential albatross for his party. Meanwhile, West Virginia lawmakers passed a sweeping abortion ban that prohibits the procedure even in the earliest days of pregnancy with limited exceptions in cases of rape, incest and when the health of the mother is at risk.

POLITICS & ELECTIONS

Don Bolduc clinches Republican nomination in New Hampshire Senate primary. Retired Army Brig. Gen. Don Bolduc won the Republican nomination to compete against Sen. Maggie Hassan (D-N.H.) in November. The Cook Political Report with Amy Walter has rated New Hampshire’s general election as “leans Democrat.” Many Republicans fear Bolduc, who unsuccessfully ran for Senate in 2020, will complicate the party’s efforts to defeat Hassan with his far-right platform in a purple state. A Democratic political action committee started boosting Bolduc, betting that he would be easier for Hassan to beat in November.
MyPillow CEO Mike Lindell says FBI seized his phone at Hardee’s drive-thru. Lindell, an outspoken supporter of Trump and his theories about the 2020 election, said the FBI seized his mobile phone Tuesday while he was pulled over at a Hardees drive-thru in Mankato, Minnesota.
Election Day 2022 is 55 days away. Election Day 2024 is 783 days away.

Policy Updates