Whatever Happened to Black Sea Trade Agreement?

Dollar faces backlash in oil market | SPR update | Beer sales plummet | Internet of cows

Jim Wiesemeyer

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December 28, 2023 09:01 AM

Dollar faces backlash in oil market | SPR update | Beer sales plummet | Internet of cows

Today’s Digital Newspaper

MARKET FOCUS

Dominant dollar faces a backlash in the oil market
U.S. buys 3 million barrels of oil for SPR
Oil prices drop as investors monitor developments in Red Sea
NYT sues Microsoft and OpenAI for copyright infringement
Holiday equity rally faces rate cut reality check
IRC highlights 20 countries at high security risk in 2024
Ag markets today
Ag trade update
NWS weather outlook
Pro Farmer First Thing Today items

ISRAEL/HAMAS CONFLICT

U.S.-led Red Sea security effort faces resistance and political divisions

RUSSIA & UKRAINE

White House allocates $250 mil. in weapons for Ukraine, urges Congress to renew aid
Russia to boost fertilizer output
Putin promises Xi to ‘fight for five years’ in Ukraine
Whatever happened to Black Sea trade agreement?
Brazil welcomes Putin to G20 Summit despite ICC arrest warrant
Indian minister’s meeting with Russian President Putin amid increased oil purchases

CHINA

China’s defense ministry lashes out at U.S.
Foreign investors unwind $33 billion bet on China growth rebound
Renewables start to power China’s economy
China’s outbound businesses pivot to Latam, Middle East

LIVESTOCK, NUTRITION & FOOD INDUSTRY

USDA confirms HPAI in 709,000 bird California egg layer flock
AI-based system predicts cow illnesses before symptoms, revolutionizes dairy farming

HEALTH UPDATE

Coronavirus variant JN. 1 comprises 44% of infections nationwide as of Dec. 23

POLITICS & ELECTIONS

Presidential and vice presidential debates
Boebert to give up current seat to run in different part of Colorado in 2024 election
Rep. John Curtis preparing to launch bid for Senate in first week of January (Utah)
Trump: Tough talk on Iran, Europe, antisemitism in interview

OTHER ITEMS OF NOTE

López Obrador praises U.S. migration agreements after meeting, but no details given
Omnibus bill sent to Congress in Argentina

MARKET FOCUS

— Equities today: Asian and European stocks. In Asia, Japan -0.4%. Hong Kong +2.6%. China +1.4%. India +0.6%. In Europe, at midday, London -0.2%. Paris -0.4%. Frankfurt -0.2%. U.S. Dow opened slightly higher.

U.S. equities yesterday: The Dow rose 111.19 points, 0.3%, to 37,656.52, its sixth record high this month. The Nasdaq added 24.60 points, 0.16%, at 15,099.18. The S&P 500 closed just shy of an all-time high Wednesday, up 6.83 points, 0.14%, at 4,781.58.

— Oil prices dropped nearly 2% Wednesday, eating into Tuesday’s gains as investors monitor developments in the Red Sea. Danish shipping company Maersk said it has scheduled several dozen container vessels to travel via the Suez Canal and Red Sea in the coming weeks after calling a temporary halt to those routes this month after attacks by Yemen’s Iran-backed Houthi militia. Oil output in Russia, the third largest producer in the world after the United States and Saudi Arabia, is expected to be steady or even to increase next year as Moscow has largely overcome Western sanctions, analysts said. WTI traded down $1.46, -1.9%, to close at $74.11. Brent traded down $1.42, -1.8%, to close at $79.65.

— The New York Times sued Microsoft and OpenAI for copyright infringement, alleging they used its content without permission to create their AI products. Microsoft had no comment. OpenAI said, “We respect the rights of content creators and owners and are committed to working with them to ensure they benefit from AI technology and new revenue models.” Tech companies have said that training AI with web content is allowed under the “fair use” legal provision.

— Agriculture markets yesterday:

Corn: March corn fell 3 3/4 cents to $4.76 1/2; a low-range close.
Soy complex: March soybean futures rallied 1 1/2 cents to $13.20 1/2, despite trading lower most of the session. March soybean meal dropped $2.10 to $393.80, settling near the session’s midpoint. March soyoil rose 15 points to 48.66 cents.
Wheat: March SRW fell 13 1/4 cents to $6.23, ending low range, while March HRW fell 7 3/4 cents to $6.35. March spring wheat ended 7 1/2 lower at $7.21 3/4.
Cotton: March cotton futures rallied 48 points before ending the day at 80.53 cents.
Cattle: February live cattle futures dropped $1.125 to $169.275, while January feeder cattle futures rallied 92.5 cents to $224.475.
Hogs: February lean hogs rose 57.5 cents to $69.875, closing near the session high.

— Ag markets today: Corn, soybeans and wheat traded near unchanged most of the night. As of 7:30 a.m. ET, corn futures were mostly fractionally lower, soybeans were around a penny lower and wheat futures were around two cents higher. Front-month crude oil futures were facing selling pressure for the second straight session alongside the U.S. dollar index, which was around 200 points lower and near five-month lows.

Cash cattle trade yet to take place. Live cattle futures failed to follow through on early week strength as the market awaits signals of continued strength in the cash market. Cash cattle trade has yet to take place this week, breeding uncertainty about the outlook. Cattle prices are likely to come under pressure next week as contracted supplies become available at the turn of the calendar.

Uptick in CME lean hog index. After falling to a fresh seasonal low yesterday, the CME lean hog index rose 12 cents to $65.71 today. Traders will be hesitant to believe that a seasonal low is in place, especially considering the downturn seen last week following a bounce in the index. Negotiations included fewer hogs than normal as well, opening the door for weakness once movement picks back up.

— Quotes of note:

Holiday equity rally faces rate cut reality check. Amid a quiet holiday trading period, equities are on the rise, with U.S. traders showing a strong interest in pushing the S&P 500 index to reach a new all-time high. However, this post-Christmas optimism may not last long, as concerns about overly optimistic expectations for interest rate cuts loom on the horizon, warns Swissquote analyst Ipek Ozkardeskaya. She suggests that after the initial holiday euphoria subsides, a market downturn is likely to occur. Ozkardeskaya also points out that while the U.S. Federal Reserve may indeed reduce interest rates, it is unlikely to do so as rapidly as the current market pricing suggests. She suggests that the market’s recent overbought conditions indicate that a downward correction would be a healthy development.
Sevens Report on dollar outlook: “The path of least resistance for the dollar will be lower until either 1) The ECB or BOE gets more dovish or 2) The Fed gets more hawkish. At this point a break of par, while not likely fundamentally justified, shouldn’t shock anyone. And a further dollar decline will remain a tailwind on gold especially, but also be positive for corporate earnings (although not materially so).”
International Rescue Committee (IRC) highlights 20 countries at high security risk in 2024. Many of these countries are in Africa. Despite accounting for just 10% of the world’s population, they host approximately 70% of displaced persons and represent about 86% of the global humanitarian need. While the crisis in Gaza currently dominates headlines, the IRC emphasizes the importance of addressing multiple crises simultaneously to prevent further suffering.

— U.S. beer shipments are projected to hit a 25-year low in 2023 due to changing consumer preferences towards nonalcoholic options and canned cocktails. Younger adults are drinking less alcohol overall and favor spirits over beer. Additionally, a Bud Light boycott stemming from an Instagram promotion with transgender advocate Dylan Mulvaney has had a significant impact on the domestic beer industry. Despite declining shipments, dollar sales of beer have risen, according to Anheuser-Busch InBev, the largest brewer in the United States.

— U.S. airlines see improved holiday travel compared to 2022. According to FlightAware, airlines have canceled less than 1% of all flights over the past week. During the period from December 20 to 26, airlines scheduled over 162,000 flights and canceled just 1,100. This is a stark contrast to the final 10 days of 2022 when a scheduling issue at Southwest Airlines led to the cancellation of 16,900 flights, leaving two million passengers stranded. The ongoing 10-day peak travel period, ending on Jan. 1, is expected to be one of the busiest ever at U.S. airports, with over 7.5 million air travelers anticipated.

Market perspectives:

— Outside markets: The U.S. dollar index was weaker, with only the euro managing a slight gain against the greenback. The yield on the 10-year U.S. Treasury note was firmer, trading around 3.82%, with a mixed tone in global government bond yields. Crude oil futures fell ahead of U.S. gov’t inventory data due later this morning, delayed a day by the Christmas holiday Monday. U.S. crude was around $73.25 per barrel and Brent around $78.70 per barrel. Gold and silver futures were under pressure ahead of U.S. trading, with gold around $2,085 per troy ounce and silver around $24.55 per troy ounce.

— Emerging economies pursue non-dollar commodity trade amid U.S. sanctions. Several major emerging economies are increasingly trading commodities without using the U.S. dollar, aiming to reduce their reliance on the American currency, the Wall Street Journal reports (link). Russia and Iran, facing U.S. sanctions and restrictions, have been selling oil in alternative currencies and finding buyers in countries like China and India. These nations are often willing to purchase these exports at lower prices. Additionally, countries like Brazil, the United Arab Emirates, and Saudi Arabia have taken steps to facilitate trade that bypasses the dollar.

Around 20% of the world’s oil is now bought and sold in currencies other than the U.S. dollar, according to JPMorgan Chase. In 2023, there were 12 major commodities contracts settled in nondollar currencies, a significant increase from previous years.

The tight connection between the dollar and global oil markets has existed since a 1945 deal between President Franklin D. Roosevelt and King Abdulaziz Ibn Saud. This relationship has allowed the U.S. to exert influence in global trade and finance. Recent events, such as U.S. sanctions against Russia and the potential for future sanctions, have prompted countries like China to reduce their dependence on dollar payments, particularly in trade. Oil plays a central role in this shift, with Russia redirecting oil to Asian buyers and selling it in currencies like the Chinese yuan.

For energy importers, paying in domestic currencies instead of dollars lowers transaction costs, making Russian oil a more attractive option. India, for example, has become a major customer for Russian oil, paying in currencies like dirhams, yuan, and rupees.

Bottom line: The potential for significant change lies in whether Saudi Arabia, the world’s leading crude exporter, begins selling substantial quantities of oil in currencies other than the dollar. While previous efforts to dislodge the dollar from the oil industry have had limited success, geopolitical and economic shifts are gradually reshaping the landscape. However, the dollar’s central role remains deeply entrenched in global trade and finance.

— Ag trade update: Egypt tendered to buy an unspecified amount of wheat from multiple sources.

— NWS weather outlook: Scattered areas of mixed rain and snow over the central to the eastern U.S. continue to rotate around the weakening but huge circulation of the former winter storm... ...Heavy rain and flood threat associated with a coastal low expected to depart northern Mid-Atlantic/southern New England later this morning... ...Unsettled weather lingers near the West Coast for the next couple of days... ...Above normal temperatures across the northern tier will be contrasted with below average temperatures across the southern tier.

Items in Pro Farmer’s First Thing Today include:

• Grains see limited volatility overnight on light volume
• Brazil soybean and corn exports fall below forecasts in December

ISRAEL/HAMAS CONFLICT

— U.S.-led Red Sea security effort faces resistance and political divisions. The initiative in the Red Sea aimed at safeguarding shipping routes from Houthi rebel attacks has gained support from several nations, with the administration officially naming 12 countries as participants, even though they mentioned the involvement of 20 nations. However, reports from Reuters indicate that some countries, such as Italy and Spain, have openly distanced themselves from the initiative. Additionally, Saudi Arabia and the United Arab Emirates have expressed disinterest in joining the effort. This reluctance among countries, both to participate and to publicly acknowledge their involvement, reflects the political divisions arising from the conflict in Gaza. It’s worth noting that the Houthi rebels claim that they have only targeted ships destined for Israel.

Meanwhile, Danish shipping company Maersk said it has scheduled several dozen container ships to transit via the Suez Canal and Red Sea in the coming weeks. The company earlier had halted traveling via the route due to the attacks by the Yemen-based Houthi militia.

RUSSIA/UKRAINE

— White House allocates $250 million in weapons for Ukraine, urges Congress to renew aid. The White House revealed a $250 million package of weapons and equipment for Ukraine, marking its final contribution for the year. This aid package, sourced from Pentagon supplies, encompasses ammunition for artillery and air defense systems, anti-armor munitions, and over 15 million rounds of small arms ammunition. The Defense Department specified that the package would include Javelin anti-tank systems and Stinger anti-aircraft missiles among the weapons provided to Ukraine. Additionally, officials are urging Congress to renew aid to Ukraine in the coming year.

— Russia to boost fertilizer output. Russia is set to increase fertilizer output by 10% in 2024, bringing production and exports back to 2021 levels, the Russian Fertilizers Producers Association said on Wednesday. Russian fertilizers exports encountered problems following Western sanctions on the nation following their 2022 invasion of Ukraine. While those sanctions remain in place and Russian fertilizer will not find the Western market, an influx of fertilizer should help tame world prices.

— Putin promises Xi to ‘fight for five years’ in Ukraine. Meant to keep China on Russia’s side, the words in March prompted Beijing to hedge its bets. Link for more via Nikkei Asia.

— Whatever happened to the Black Sea trade agreement? Since Russia backed out of it and has expressed no interest in renewing the accord, it is pretty much a dead deal. Russia has continued to export record amounts of grain while Ukraine is finding alternative routes via rail and limited ocean shipping and using ports out of Romania, etc., as there is no real prospect of the deal being revived.

— Indian minister’s meeting with Russian President Putin amid increased oil purchases. Indian Minister of External Affairs S. Jaishankar met Russian President Vladimir Putin and Russian Foreign Minister Sergey Lavrov in Moscow on Wednesday. Despite Western attempts to isolate Russia in response to its war in Ukraine, India has dramatically increased its purchase of Russian oil since the conflict began.

“Everything is in your hands,” Putin said, according to the New York Times (link), “and I can say that we are successful because of your direct support.” Putin also invited Indian Prime Minister Narendra Modi to visit Russia. Ahead of the meeting, Jaishankar said the officials would “focus on bilateral cooperation in different spheres,” while Lavrov said that both countries are invested in “building an international political and economic system that would be open and fair for everyone.”

Following the discussions, Lavrov hailed India’s “responsible approach” to world affairs, including the war in Ukraine. Jaishankar, for his part, called Russia a “valued and time-tested” partner. New Delhi has historic diplomatic ties with Moscow and has long relied on imports of Russian arms. (During Jaishankar’s visit, the two countries reportedly made “tangible progress” on plans for the joint production of military equipment.)

On Tuesday, India and Russia also discussed the Kudankulam nuclear power plant, which is being built in southern India with assistance from Russia. The two countries came to an agreement on the future construction of power-generating units for the plant, which is expected to become fully operational in 2027 after years of construction.

CHINA UPDATE

— China’s defense ministry lashed out at U.S. A week after resuming high level talks, Chinese military officials accused the U.S. of having a Cold War mindset surrounding its Asia-Pacific deployments, stoking confrontation. China also accused the U.S. of meddling with Taiwan, including sending arms to the nation, which China calls a “very dangerous gamble.” Beijing expects the U.S. to take concrete actions based on equality and respect to continue to develop a relationship between the two nations’ militaries. Link to more via Reuters.

— Foreign investors unwind $33 billion bet on China growth rebound. Almost 90% of money that flowed into Chinese stocks in 2023 has left amid concern about economy. Link/paywall for details via Financial Times.

— Renewables start to power China’s economy. Solar cells, batteries and EVs outranked China’s traditional export stars and drove the nation’s international trade in 2023. Link to details via Caixin.

— China’s outbound businesses pivot to Latam, Middle East. The new focus is driven partly by declining consumer demand in established markets such as the U.S. and EU, compounded by rising trade protectionism. Link for details.

LIVESTOCK, NUTRITION & FOOD INDUSTRY

— USDA confirms HPAI in 709,000 bird California egg layer flock. USDA’s Animal and Plant Health Inspection Service (APHIS) confirmed highly pathogenic avian influenza (HPAI) in a Merced County, California, commercial table egg layer flock with 709,000 birds. APHIS shows 16 commercial flocks and two backyard flocks being infected in California totaling nearly 4.4 million birds.

— AI-based system predicts cow illnesses before symptoms, revolutionizes dairy farming. SmaXtec, an agricultural technology (agtech) company, has introduced an AI-based disease-detection system that can predict when cows will become sick, specifically detecting illnesses like mastitis, days before any clinical symptoms appear. Farmers have reacted with happy disbelief, amazed that technology can provide such early warnings. SmaXtec’s system combines real-time monitoring of livestock health indicators with AI-powered data analysis to promote better dairy operations. Alisa Gusterer, a representative from the company, emphasizes that this technology aligns sustainability, animal welfare, and profitability, demonstrating that these factors can work together rather than being in conflict. Link for details.

HEALTH UPDATE

— Coronavirus variant JN. 1 comprises 44% of infections nationwide as of Dec. 23, according estimates from the Centers for Disease Control and Prevention. Citi Research analyst Andrew Baum cited the rising levels of “infections and hospitalizations related to the JN.1 variant” as among the reasons why he expects Pfizer to beat the 2024 earnings guidance it laid out earlier this month.

POLITICS & ELECTIONS

— Presidential and vice presidential debates. While Republicans and Democrats haven’t officially chosen their 2024 nominees, next year’s presidential and vice presidential debates are already scheduled. Here are the dates and locations of the events, according to the Committee on Presidential Debates:

Sept. 16: First presidential debate at Texas State University in San Marcos, Texas
Sept. 25: Vice presidential debate at Lafayette College in Easton, Pennsylvania
Oct. 1: Second presidential debate at Virginia State University in Petersburg, Virginia
Oct. 9: Third presidential debate at the University of Utah in Salt Lake City

Of note: Virginia State University will be the first historically Black college or university to host a debate in a presidential election. All debates will start at 9 p.m. ET and will run for 90 minutes without commercials, according to a press release from the committee.

— Rep. Lauren Boebert shifts congressional districts in bid for re-election. Rep. Lauren Boebert (R-Colo.) announced she will not seek re-election for her current congressional seat representing Colorado’s 3rd District. Instead, she plans to run for office in the more Republican-friendly 4th District. Boebert narrowly won her second term in the 3rd District in the 2022 midterm election, with a margin of just 546 votes. The 4th District is significantly more Republican-leaning, with a 27-point advantage for the GOP compared to the 9-point advantage in the 3rd District, according to election result analysis.

Boebert described it as a “fresh start” and acknowledged that 2023 had been a difficult year for her personally, including a divorce from her husband of 18 years and a controversial incident at a theater performance.

Despite her change in congressional districts, Boebert is not required to reside in the 4th District to represent it. She expressed gratitude for the support she received and mentioned that several Republicans were preparing to challenge her in the 3rd District primary, with Adam Frisch, her 2022 opponent, once again vying for the seat. Boebert also accused various groups and individuals of trying to influence the 3rd District congressional seat in the 2024 election.

Of note: The current 4th District representative, Ken Buck, has announced that he will not seek re-election in 2024.

Impact: David Wasserman, political analyst at the Cook Political Report with Amy Walter, wrote: “This is good news for Republicans’ chances of holding onto CO03, as Boebert was the main reason it was in so much jeopardy. Will move from Toss Up to Lean R.”

— Rep. John Curtis is preparing to launch a bid for the Senate in the first week of January, Reuters reported of the Utah Republican seeking to succeed outgoing Sen. Mitt Romney (R).

— Trump: Tough talk on Iran, Europe, antisemitism in interview. In an interview with Just the News (link), former President Donald Trump outlined his potential policies if re-elected as president. He emphasized key priorities, including securing the U.S. southern border, imposing sanctions on Iran to cut off funding for weapons and terrorism support, and addressing antisemitism. Trump also dismissed rumors of considering Nikki Haley as his vice president and criticized European countries for not contributing more to Ukraine’s war effort. He expressed concerns about the current administration’s handling of border security and the impact of mass illegal immigration on the United States.

OTHER ITEMS OF NOTE

— López Obrador praises U.S. migration agreements after high-level meeting, but no details given. During a high-level meeting in Mexico City, Secretary of State Anthony Blinken, Homeland Security Secretary Alejandro Mayorkas, and White House homeland security advisor Liz Sherwood-Randall discussed strategies to address the surge in illegal migration at the southern U.S. border. President Biden dispatched these officials to Mexico amidst record-high border crossings and mounting pressure to resolve the crisis. Mexican President Andrés Manuel López Obrador advocated for increased U.S. support to Latin America as a more humane and effective solution than building barriers or walls.

Homeland Security officials have recently discussed a range of ways Mexico can help drive down numbers at the U.S. border, including moving migrants south, controlling the railways used by migrants to move north, and providing incentives to not journey to the border, like visas, to remain in the country and avoid migrating irregularly.

After the meeting, Mexican officials announced “important deals” with the United States, although specific details were not disclosed. They agreed to form a working group to jointly confront the record numbers of illegal immigrants arriving at the southern U.S. border. Homeland Security officials discussed potential measures, including moving migrants south, controlling railway routes used by migrants, and providing incentives such as visas to discourage irregular migration.

President López Obrador expressed his willingness to assist but emphasized the importance of progress in U.S. relations with Cuba and Venezuela, two major sources of migrants, as well as increased development aid for the region. Despite deploying over 32,000 military troops and National Guard officers to enforce immigration laws, Mexico faces challenges in halting the flow of migrants, as demonstrated by a recent caravan of around 6,000 migrants passing through an immigration inspection point near the Guatemala border.

Rep. Nancy Mace (R-S.C.) criticized Secretary Blinken’s visit to Mexico, characterizing it as an attempt to pay lip service to the migration issue.

Of note: Migrant border crossings this year outnumber the populations of 17 states.

— Omnibus bill sent to Congress in Argentina. The Argentinian government has submitted an omnibus bill to Congress, titled “Bases and Starting Points for the Freedom of Argentines,” in honor of Juan Bautista Alberdi’s text. The bill, comprising 664 articles across 351 pages, will be discussed during extraordinary sessions running until Jan. 31. Key provisions of the bill include:

Declaration of Public Emergency until Dec. 31, 2025, aimed at addressing emergencies in various areas, granting the government legislative powers in economic, financial, fiscal, pension, security, defense, tariffs, energy, health, administrative, and social matters. Grants the government “legislative powers” in these matters.
Privatization of public companies to foster competition, improve economic efficiency, reduce tax burdens, enhance service quality, encourage private investment, and professionalize management.
Political reform, including the elimination of the STEP (Simultaneous and Mandatory Open Primaries) system and the introduction of a new system for electing deputies based on single-member constituencies and modifying closed lists.
Retirement and pension updates, with the elimination of the current formula. The government assumes the authority to make periodic increases, prioritizing low-income beneficiaries. Specific details regarding frequency and reference indicators are not provided.
Regulations for organizing demonstrations, imposing penalties on those obstructing transportation (land, water, or air), with potential prison sentences ranging from 1 to 3 years and six months. Penalties increase when weapons are involved and for organizers (3 to 6 years). Organizers are held jointly responsible for damages during protests. The Ministry of Security can oppose demonstrations for reasons of personal or national security and propose changes.

Additionally, the bill includes provisions for a broad tax debt moratorium, money laundering for assets within and outside the country, and modifications to the Personal Assets tax, allowing for advance payments for future obligations and gradual rate reductions. These provisions are separate from the Income Tax project recently announced.

KEY LINKS

Policy Updates