Yellen Tells WSJ: Fed Likely Would Not Accept $1 trillion Platinum Coin Re: Debt Limit

U.S. ag trade officials journey to Mexico re: biotech corn trade clash

The Federal Reserve is preparing to slow interest-rate increases for the second straight meeting. Fed officials, who have grown more confident that inflation will ease further this year, could begin deliberating at the Jan. 31-Feb. 1 gathering how much more softening in labor demand, spending and inflation they would need to see before pausing rate rises this spring, according to the Wall Street Journal.

Yellen: Strong labor market, easing inflation ‘very hopeful signs’. Treasury Secretary Janet Yellen said, “We still have a labor market that is very tight. We’re seeing some signs of services inflation that need continued attention, but overall I feel good that inflation is coming down. I do think in the U.S. that we continue to see a strong labor market and progress on inflation, so those are very hopeful signs.” Meanwhile, Yellen said the Federal Reserve likely wouldn’t accept a $1 trillion platinum coin if the Biden administration tried to mint one to avoid breaching the debt limit.

Russia-Ukraine War: Fighting intensified in Ukraine’s strategically important south, where Moscow claims it is making advances, while Kyiv waits on heavier weapons from its Western allies.

President Biden plans to name Jeff Zients, who led the White House’s Covid-19 response, to be his next chief of staff. Ron Klain, Biden’s current chief of staff, is expected to step down in the coming weeks after more than two years on the job. Zients left the administration in April and in recent months was tapped by Klain to prepare for staff departures and help identify potential replacements. We have more below and also in The Week Ahead (link).

U.S. ag trade officials in Mexico for talks on biotech trade issues. Mexico’s coming ban on imports of biotech corn will be the focus as USDA Undersecretary for Trade and Foreign Agricultural Affairs Alexis Taylor and U.S. Chief Agricultural Negotiator Doug McKalip will be in Mexico today. Details in Trade Policy section.

An Abbott Laboratories plant in Michigan is under federal investigation over unsanitary workplace conditions in its baby formula production. This is the latest probe into one of the country’s biggest baby formula makers after the plant’s closure last year fueled a nationwide shortage.

Egg smuggling attempts amid high prices. High prices are driving an increase in attempts to smuggle eggs into the U.S. from Mexico, according to border officials. More in Food Industry section.

Democratic lawmakers in several states are proposing legislation that would prohibit anyone convicted of participating in an insurrection from holding public office or a position of public trust, such as becoming a police officer.

Equities today: Global stock markets were mixed but mostly up overnight. U.S. stock indexes are pointed toward slightly lower openings. Earnings reports will dominate the focus this week with Tesla, Microsoft, Visa, Mastercard, Johnson & Johnson), and Boeing due to report — about 40% of the Dow is scheduled to release their latest financial results. Investors are absorbing comments made Friday by Fed Governor Christopher Waller, who said he favors a quarter percentage point rate increase at the next FOMC meeting (Jan. 31-Feb. 1). Markets have priced in a 99.25% chance of a 25-basis point hike, according to CME Group data, which would bring the interest rate to a targeted range of 4.5%-4.75%. Investors will be monitoring another batch of economic data, including the Fed’s preferred inflation measure, the personal consumption expenditure price index, due out Friday.

U.S. equities Friday: The Dow rose 330.93 points, 1.00%, at 33,375.49. The Nasdaq rose 288.17 points, 2.66%, at 11,140.43. The S&P 500 added 73.76 points, 1.89%, at 3,972.61.

The Dow and S&P 500 registered losses for the week. The Dow declined 2.7% and the S&P 500 lost 0.7% over the week while the Nasdaq moved up 0.6%.

All the major averages remain in the green for the month. The Nasdaq is leading the others with a 6.44% year-to-date gain.

U.S. Treasury yields rose Friday, with two- and 10-year bonds extending a rise from four-month lows at mid-week but still posted a third straight weekly decline as investors weighed mixed signals on the economy.

The Federal Reserve’s favored inflation gauge, the core personal-consumption expenditures price index, is due out Friday and forecast to increase 4.4% from a year earlier compared with the 4.7% gain in November.

Agriculture markets Friday:

• Corn: March corn fell 1 cent to $6.76 1/4, marking the lowest close since Jan. 13.
• Soy complex: March soybeans fell 8 1/4 cents to $15.06 1/2, ending the session below the 10-day moving average of $15.09 1/4 and down 21 1/4 on the week. March soymeal fell $7.50 to $463.70, while March soyoil dropped 118 points to 61.97 cents. Soybeans tumbled for the third straight session as weather improves in Argentina.
• Wheat: March SRW wheat futures firmed 7 cents to $7.41 1/2, though the contract slipped 2 1/4 cents for the week. March HRW wheat rallied 16 cents today to $8.48 and firmed 4 1/4 cents for the week. March HRS futures firmed 8 3/4 cents to $9.12 3/4, up 1/2 cent for the week.
• Cotton: March cotton rose 331 points to 86.70 cents, near the session high, and up 441 points on the week.
• Cattle: Cattle futures rebounded modestly to end the week, with February live cattle rising 67.5 cents to a close at $156.625. That represented a weekly loss of $1.10. And while expiring January feeders slid 17.5 cents to $177.925, most-active March climbed 87.5 cents to $180.975, which marked a weekly loss of $1.90.
• Hogs: Hog futures rebounded Friday, with nearby February rising $1.175 to $77.825 at the close. That represented a weekly drop of 82.5 cents.
  

Ag markets today: Soybeans led overnight price declines amid improved weather in Argentina, while corn and wheat followed to the downside. As of 7:30 a.m. ET, corn futures were trading around 4 cents lower, soybeans were 9 to 14 cents lower and wheat futures were mostly 5 to 10 cents lower. Front-month crude oil futures were around 50 cents higher and the U.S. dollar index was holding near unchanged this morning.

Technical viewpoints from Jim Wyckoff:

On tap today:

• Conference Board’s leading economic index for December is expected to fall 0.7% from the prior month. (10 a.m. ET)
• USDA Grain Export Inspections report, 11 a.m. ET.

WSJ: Fed sets course for milder interest-rate rise in February. Federal Reserve officials are preparing to slow interest-rate increases for the second straight meeting and debate how much higher to raise them after gaining more confidence inflation will ease further this year, the Wall Street Journal reports (link). They could begin deliberating at the Jan. 31-Feb. 1 gathering how much more softening in labor demand, spending and inflation they would need to see before pausing rate rises this spring. In recent public statements and interviews, Fed officials have said slowing the pace of rate increases to a more traditional quarter percentage point would give them more time to assess the impact of their increases so far as they determine where to stop, the WSJ concludes.

WSJ: Janet Yellen dismisses minting $1 trillion coin to avoid default. Treasury Secretary Janet Yellen said the Federal Reserve likely wouldn’t accept a $1 trillion platinum coin if the Biden administration tried to mint one to avoid breaching the debt limit. Some Biden administration officials and Democrats on Capitol Hill have discussed the possibility that the Treasury could use an obscure law authorizing platinum coins to circumvent Congress if lawmakers don’t raise the debt ceiling. Under the proposed scheme, the Treasury would mint a $1 trillion coin and deposit it at the Fed, and then draw the money to pay the country’s bills. “It truly is not by any means to be taken as a given that the Fed would do it, and I think especially with something that’s a gimmick,” Yellen told the Wall Street Journal. Link for more.

Market perspectives:

• Outside markets: The U.S. dollar index was slightly lower. The yield on the 10-year U.S. Treasury note was higher, trading around 3.5%, with a mixed tone in global government bond yields. Crude was higher, with U.S. crude around $82.45 per barrel and Brent around $88.50 per barrel. Gold and silver were narrowly mixed, with gold slightly firmer around $1,928 per troy ounce and silver weaker around $23.84 per troy ounce.

• Euro tops fresh 9-month high. The euro extended gains to approach $1.09, a fresh nine-month high, as bets increased for more aggressive ECB monetary policy tightening while markets started pricing in a downshift from the Fed. The ECB is set to raise interest rates by 50 bps in both February and March and will continue to increase the borrowing cost in the months after, ECB governing council member Klaas Knot said in an interview on Sunday.

• U.S. natural gas rebounds 10% on Monday. U.S. natural gas futures rose more than 9% toward $3.5/MMBtu on Monday, recovering from their lowest level since June 2021 of $3.1 touched last week, in anticipation of higher heating demand due to cold spell forecasts. Still, soaring domestic production and high storage levels capped further gains. U.S. natural gas production is likely to grow more than 2% this year to a record daily average of 100.3 billion cubic feet, the Energy Information Administration said. EIA data showed that utilities unexpectedly injected 11 bcf into storage in the week ending Jan. 13. Meanwhile, investors continue to monitor the situation at the Freeport LNG export plant in Texas, which was expected to restart operation in the second half of the month, even though it was still pending regulatory approvals.

• 763: The Baltic Dry Index for dry-bulk shipping prices on Jan. 20, down about 964 points since Dec. 21, 2022, and the lowest level since June 2020.

• Brazil and Argentina begin talks on creating a common currency. The move by South America’s biggest economies could eventually grow to include other countries. It could eventually make the continent one of the world’s biggest currency blocs and reduce global reliance on the U.S. dollar. Link for more via Reuters; Link for a Financial Times article (paywall).

• NWS weather: Heavy snow and coastal rain over parts of Northeast on Monday... ...Well organized storm system to bring potentially heavy snow from western Texas to Arkansas, and severe weather near the Gulf Coast on Tuesday.

NWS

Items in Pro Farmer’s First Thing Today include:

• Price pressure for grains to open the week
• Welcome rains across Argentina
• AgRural lowers Brazilian crop estimates
• Cattle on Feed Report: Neutral
• Cash hog index continues to drop

— NATO countries failed to agree on whether to send tanks to Ukraine last week. No decision was reached on sending German-made Leopard 2 main battle tanks to Ukraine after a meeting of Western and NATO leaders in Germany. Volodymyr Zelenskyy, Ukraine’s president, has pled for tanks to help his forces fend off Russia.

Poland takes the offensive. Amid growing frustration at Berlin’s indecision over whether to dispatch its tanks to Ukraine, Poland’s Prime Minister Mateusz Morawiecki criticized Germany for “wasting time” and announced plans to build a coalition of countries ready to send advanced weaponry to Kyiv. “Ukraine and Europe will win this war -- with or without Germany,” Morawiecki said. “However, it is up to Germany whether they want to join the mission of stopping Russia’s barbarism, or whether they will watch it passively, dooming themselves to being recorded on the wrong side of history.”

Germany said it would not prevent Poland from sending two of its German-made tanks to Ukraine.

— Russia could start selling oil to Pakistan, with an agreement likely to come by March, Russia’s energy minister said. Payment will be in the currency of “friendly” countries — meaning those that do not levy sanctions against Russia. Pakistan typically imports most of its oil from the Gulf. But amid a severe balance-of-payments crisis, it is eager to take advantage of the discount for Russian crude.

— The Black Sea grain deal is “more or less” being fulfilled, Russian Foreign Minister Sergei Lavrov said in South Africa Monday, but he also noted that Russia is still having difficulties exporting its own agricultural products like fertilizers despite the insistence of Western countries that there no direct restrictions on any Russian agricultural exports.

— Debt limit debate: House Speaker Kevin McCarthy (R-Calif.) wants to sit down with President Biden, who has agreed to meet with the Republican leader, without saying when. McCarthy said giving the Treasury Department authority to hike borrowing without add-on GOP conditions is “off the table.” House conservatives want to curb federal spending.

Point, counterpoint. “When it comes to the debt ceiling, the president has been clear. It should not be used as a political football, but again, he’s looking forward to meeting with the Speaker and continue to build on that relationship,” White House press secretary Karine Jean-Pierre repeated on Friday. “We cannot raise the debt ceiling,” Rep. Andy Biggs (R-Ariz.) tweeted last week. “Democrats have carelessly spent our taxpayer money and devalued our currency. They’ve made their bed, so they must lie in it.”

Sen. Dick Durbin (D-Ill.), the No. 2 Democrat, said Biden should not negotiate with Republicans over raising the cap on borrowing, while sometimes centrist Sen. Joe Manchin (D-W.Va.), has said he wants to discuss Social Security and Medicare spending with the GOP. He told CNN that it was a “mistake” for the president to refuse to negotiate. “Those who are posing for holy pictures as budget balancers… should note one important fact: Almost 25 percent of all of the national debt accumulated over the history of the United States… was accumulated during the four years of Donald Trump,” Durbin told CNN.

Senate Minority Leader Mitch McConnell (R-Ky.) is expected to play a major role in in the emerging debt ceiling fight.

— More about likely new White House chief of staff Jeff Zients, 56, who is expected to succeed outgoing Ron Klain next month. He has a track record both in private business and in the Obama and Biden administrations. He is experienced in federal budgeting and the economy, valuable experience during President Biden’s coming clashes with the GOP over spending and revenues. Zients twice served as acting director of the Office of Management and Budget and was director of the White House National Economic Council under former President Obama. He returned to government to manage Biden’s federal pandemic response, including vaccine distribution, before departing that role last year.

The New York Times reports the administration plans to spread out Klain’s responsibilities to several officials, including Anita Dunn, a senior Biden adviser and political and communications strategist whose former clients include AT&T, Lyft, Pfizer, Salesforce and Reddit; Steven Ricchetti, White House counselor and a former lobbyist, who like Klain is known to field calls from Wall Street; and Jennifer O’Malley Dillon, a deputy chief of staff and a co-founder of a consulting firm that advised Gates Ventures and other corporate clients.

— FERC. Matthew Christiansen, general counsel at FERC, and Rick Kessler, a senior Democratic adviser for the House Energy and Commerce Committee, are both under consideration to fill the vacant position on the commission, according to reports.

— More than 1.1 billion Chinese people caught Covid as the virus swept across the country — accounting for some 80% of the population — according to China’s chief epidemiologist. In the week leading up to the Lunar New Year holiday, more than 12,600 people died of Covid-related causes.

— Chinese markets closed for Lunar New Year. China’s markets are closed this week as the country celebrates the Lunar New Year holiday. A focal point during the week will be Covid infections and deaths as numbers spiked ahead of the holiday as Beijing removed most of its restrictions and travelers were allowed to move freely throughout the country. Other Asian markets also will be closed for varying periods this week for the Lunar New Year.

— The Pentagon is making plans for House Speaker Kevin McCarthy (R-Calif.) to travel internationally this year, including an expected visit to Taiwan, according to Punchbowl News. Prior reports from other news outlets have reported on the likelihood of McCarthy going to Taiwan.

— China’s reopening complicates global fight against inflation. Just when signs point to easing inflation worldwide, China’s economic reopening after years of strict pandemic controls is raising questions about whether it could spur costs higher again. Economists say the initial uncertainty will complicate matters for the Fed and other central banks that have been raising interest rates to fight inflation. China will likely consume more energy as its economy recovers, putting upward pressure on prices of oil and other commodities. At the same time, however, its reopening could ease supply-chain bottlenecks and enable factories to boost production, resolving some problems that contributed to higher inflation in 2022. The cross currents could give central banks a reason to keep rates higher for longer, the WSJ reports (link).

— U.S. ag trade officials in Mexico for talks on biotech trade issues. Mexico’s coming ban on imports of biotech corn will be the focus as USDA Undersecretary for Trade and Foreign Agricultural Affairs Alexis Taylor and U.S. Chief Agricultural Negotiator Doug McKalip will be in Mexico today. The two officials are expected to discuss Mexico’s recent offer to temper tensions around the ban, including holding off implementing it until 2025. But U.S. officials insist there is no compromise on the topic as they will continue to push Mexico to live up to commitments under the U.S.-Mexico-Canada Agreement (USMCA) that they would follow science relative to agricultural biotech issues.

— Energy secretary: Don’t limit presidential authority to release oil from SPR. In a letter seen by Reuters (link), Energy Secretary Jennifer Granholm warned Republicans on the House Energy and Commerce Committee that a measure to limit the presidential authority to release oil from the nation’s Strategic Petroleum Reserve would “significantly weaken this critical energy security tool” and lead to supply shortages in times of crisis and higher gasoline prices.

— Texas electrical grid still vulnerable. Despite regulations to weatherize the electrical grid in Texas, the Federal Reserve Bank of Dallas said the grid was still vulnerable to severe weather and is calling for increased enforcement of weatherization standards along with incentives that would boost thermal power generation and demand-response programs. Link for details.

— Aviation industry in crosshairs for next biofuel push. The Biden administration has thrown its support behind sustainable aviation fuels, or SAF, setting a goal for the U.S. to produce enough to meet 100% of jet fuel demand by 2050. Congress, in its 2022 climate, health care and tax package, included a tax credit of $1.25 per gallon for blenders using SAF. Link for more via Roll Call.

Details: Congress, in its 2022 climate, health care and tax package, included a tax credit of $1.25 per gallon for blenders using SAF. Appropriators also included $68 million in the fiscal 2023 government spending law to support carbon reduction efforts in the aviation industry, including provisions directing federal agencies to prioritize SAF research and development.

“The lack of sufficient supply [of SAF] is the biggest issue right now,” said Geoff Cooper, president of the Renewable Fuels Association, an ethanol industry advocate. “There’s some stuff being produced, but it’s a very small volume, and until we get more production facilities up and running, the cost is going to be high.”

Trucking industry representatives have raised concerns that a larger reliance on SAF will take away key feedstocks from biodiesel, an alternative fuel that’s already been used for years. But a U.S. soyoil analyst told Pro Farmer: “We don’t say food vs fuel, we say food and fuel.”

NASA recently said it would partner with Boeing Co. to create a SAF-powered single-aisle aircraft.

— High prices are driving an increase in attempts to smuggle eggs into the U.S. from Mexico, according to border officials. “The San Diego Field Office has recently noticed an increase in the number of eggs intercepted at our ports of entry,” director of field operations Jennifer De La O said in a tweet (link). “Failure to declare agriculture items can result in penalties of up to $10,000,” she said. The rise in attempted egg smuggling can be attributed to the spiking cost of eggs in the U.S., a Customs and Border Protection specialist told CNN. A massive outbreak of deadly avian flu among American chicken flocks has caused egg prices to skyrocket, climbing more than 11% from November to December and nearly 60% annually, according to the Bureau of Labor Statistics (link).

The WSJ reports (link) the relentless nature of the avian outbreak has frustrated efforts to keep the virus from affecting U.S. egg prices and supply. Deaths of hens and turkeys are being counted in the millions across a swath of the country and the virus has been spreading even as farms have replaced entire flocks. The impact is straining consumer markets. Wholesale prices of Midwest large eggs surged to a record $5.46 a dozen in December before retreating this month. Egg supplies are strained, with an industry group estimating there are about 6% fewer hens laying eggs than normal nationwide. Buyers are seeking other sources, but experts say the problem won’t be solved until the virus runs its course.

“One of the challenges is that we don’t know why it has been able to thrive for so long,” says Maggie Baldwin, Colorado’s state veterinarian, on bird flu.

— Summary:

• Global Covid-19 cases at 668,913,979 with 6,739,859 deaths.
• U.S. case count is at 102,006,320 with 1,104,118 deaths.
• Johns Hopkins University Coronavirus Resource Center says there have been 667,815,331 doses administered, 268,765,902 have received at least one vaccine, or 81.57% of the U.S. population.

— DOJ probes Abbott. Abbott Laboratories, at the center of the baby formula shortage last year, confirmed to NBC News (link) that it was being investigated by the Justice Department. The company did not reveal the subject of the investigation. However, the Wall Street Journal reported (link) that federal investigators were probing what happened in early 2022 at Abbott’s baby formula plant in Sturgis, Michigan. The company shut down production at the factory Feb. 17, 2022, after babies who consumed formula made at the plant were sickened.

— Democrats expressed concern that the classified-documents probe could overshadow President Biden’s agenda. The Justice Department searched Biden’s home in Wilmington, Del., for more than 12 hours Friday and took more items with classified markings, at least the fifth time that officials uncovered secret material connected to Biden in an improper location. “Let’s be honest about it. When that information is found, it diminishes the stature of any person who is in possession of it, because it’s not supposed to happen,” said Senate Majority Whip Dick Durbin (D-Ill.), speaking Sunday on CNN.

— Democratic Rep. Ruben Gallego announces bid for Arizona Senate seat held by Kyrsten Sinema. Gallego, a member of the House Progressive Caucus, cites Sinema’s record as an impetus for his run after she switched from Democrat to independent late last year. Sinema has not announced whether she would seek re-election in 2024 in what likely will be a highly competitive contest.

— Congress’ schedule: Congress returns to work this week focused on partisan priorities in each chamber — and a looming debt-ceiling fight that could hit crunch time in late June or July. The Senate, narrowly controlled by Democrats as it opens its new session, is expected to focus primarily on confirming President Biden’s executive and judicial nominees, while the House is set to dive into investigations focused on President Biden, his family and his administration, starting with a hearing on border security.

— Buckingham Palace revealed details of King Charles III’s coronation, which will see three days of celebrations across the country during which the public will be invited to participate. Link for the details.

WASDE | Crop Production | USDA weekly reports | Crop Progress | Food prices | Farm income | Export Sales weekly | ERP dashboard | California phase-out of gas-powered vehicles | RFS | IRA: Biofuels | IRA: Ag | Student loan forgiveness | Russia/Ukraine war, lessons learned | Election predictions: Split-ticket | Congress to-do list | SCOTUS on WOTUS | SCOTUS on Prop 12 | New farm bill primer | China outlook | Omnibus spending package |