Evening Report | August 27, 2024

Top stories for Aug. 27, 2024

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More half of ag economists think U.S. ag economy already in recession... The latest Ag Economists’ Monthly Monitor asked the more than 70 economists if agriculture is on the brink of a recession. Nearly 60% said “yes,” with more than 50% indicating a recession is already underway. The survey also asked economists to provide more explanation of why they think the U.S. ag economy is already in a recession. Economists said:

· “At least for most crop producers, the sharp drop in prices and cash receipts has resulted in lower net income and financial pressure on leveraged producers. The picture is generally less dire on the animal agriculture side of the ledger, as prices are up (cattle, milk) for some commodities and feed costs are declining.”

· “I do think the U.S. ag economy is in a recession. The projection for 2023 and 2024 farm incomes in real dollars are the two largest declines in history. Costs exceed prices for most commodities. And the outlook doesn’t provide indication of improvement soon.”

· “Farm incomes are down. Ag manufacturers are laying people off. Suppliers for those manufacturers are laying people off. What are the bright spots? Cattle, depending on the segment? Trade with Mexico? After that, the list gets pretty thin.”

· “We aren’t in one yet, but we are on the brink of one.”

· “I think we’ll enter into a recession after the election.”

What to Watch

From geopolitics to the evolving situation in supply and demand across all commodities, the Monthly Monitor asked economists to outline the factors not being covered enough in the media.

· “Deterioration in liquidity.”

· “Growing gap between the situation for crop and livestock producers.”

· “Impact of a Trump vs. Harris win and misconceptions around who is better for the farm economy.”

· “Continued high cost for many ag inputs.”

· “I’m frustrated by the continued pressure on U.S. farmers to be more sustainable which often results in higher farm costs and could lead to more regulation or hoops to jump through or reduced production. At the same time, South American producers continue to rapidly expand production in a less sustainable way. I’m also concerned that this will lead to vertical integration in crop farming.”

· “The cataclysmic risk of rising tariffs.”

· “Will congress set in to support farm incomes at these levels? ARC/PLC are ineffective at this point. Ad hoc spending has been rampant.”

· “Inflation.”

· “Possible government farm program payments this fall (last year’s crop year).”

· “Fund manager use of Algo computers.”

Ag trade deficit expected to keep swelling in FY 2025... USDA raised its forecast for fiscal year (FY) 2024 agricultural exports by $3 billion from May to $173.5 billion, due largely to higher horticultural and grain exports. USDA increased its FY 2024 ag import forecast $1.5 billion to $204 billion. That would result in a record trade deficit of $30.5 billion, though that’s down from $32.0 billion projected in May.

For FY 2025, which begins Oct. 1, USDA forecasts ag exports falling $4 billion from this year to $169.5 billion, primarily driven by lower unit values of soybeans, corn and cotton, as well as lower volumes of beef. Mexico and Canada are projected to remain the first and second largest U.S. ag markets, respectively. Ag exports to China are forecast at $24.0 billion, $3.0 billion lower than the revised FY 2024 estimate, driven by reduced import demand, strong competition and lower unit values of key U.S. exports. FY 2025 ag imports are projected to reach a record $212 billion, up $8 billion from the revised figure for the current year, largely due to rising imports of horticultural as well as sugar and tropical products. USDA’s initial outlook for FY 2027 would results in a record ag trade deficit of $42.5 billion, up $12 billion from the current fiscal year.

GM wheat moves closer to production in United States... USDA said a genetically modified wheat developed by Argentina’s Bioceres Crop Solutions may be safely grown and bred in the U.S., moving a step closer to commercialization of the product. Bioceres must still complete additional steps, including field trials, that will take years before it can commercialize HB4 wheat, modified to tolerate drought, industry group U.S. Wheat Associates said.

U.S. Wheat Associates said it will continue monitoring Bioceres’ commercialization plans to ensure careful stewardship and alignment with the “Wheat Industry Principles for Biotechnology Commercialization” developed jointly with the National Association of Wheat Growers (NAWG).

Preview of South America’s 2024-25 growing season... South American crop consultant Dr. Michael Cordonnier notes the following on planting of crops for the 2024-25 South American growing season.

Brazil corn: Farmers are allowed to start planting their first corn crop whenever they feel the conditions are suitable for germination and stand establishment. Nearly all the first corn crop in Brazil is planted in the states of Parana, Santa Catarina, Rio Grande do Sul, Sao Paulo and Minas Gerais, and it accounts for approximately one-quarter of Brazil’s total corn production. As of last Thursday, AgRural reported Brazilian farmers had planted 4.2% of the first corn crop.

Brazil soybeans: Farmers in Brazil are allowed to start planting soybeans on Sept. 1, approximately two weeks earlier than last year. It is currently cold in southern Brazil, but there is rain in the forecast for the southern states of Parana, Santa Catarina and Rio Grande do Sul so it is possible soybean planting could start in Parana on Sept. 1 if temperatures warm. In central Brazil, the first summer rain usually occurs sometime during the first half of September but the rains do not “kick in” until sometime in October.

Argentina corn: Corn planting in Argentina is split into two parts. Planting of the early corn starts in early September with generally less than 15% of the corn planted by mid-September. The early corn planting concludes near the end of October. Farmers then skip November and plant the late corn in December and January. The early planting accounts for approximately 40% of the total corn acreage with the late planting accounting for approximately 60%.

Argentina soybeans: Soybean planting in Argentina starts late in October with generally about 5% of the crop planted by the end of the month. Planting will continue until about mid-January when the last double crop soybeans will be planted.

Brazil making significant investment in SAF... Brazil is committing approximately $1.1 billion to the development of sustainable aviation fuel (SAF) as part of a broader initiative to promote the production and use of sustainable fuels for aviation and maritime transport. The funding is provided by Brazil’s development bank, BNDES, and the government funding agency, Finep, with each contributing BRL 3 billion (approximately $1.1 billion in total) to support local production of these fuels.

The initiative aims to establish biorefineries in Brazil, which will help in the country’s energy transition and align with global efforts to reduce carbon emissions in the aviation sector. The investment is expected to support various activities, including research, technological development, engineering projects and the acquisition of machinery and equipment necessary for the production of SAF.

China’s industrial profits growth expands in July... China’s industrial profits grew faster in July buoyed by high-tech manufacturing, even as sluggish domestic demand weighed on the economic recovery. Industrial profits jumped 4.1% from a year earlier in July following a 3.6% rise in June. For the January-July period, profits expanded 3.6% compared with 3.5% growth in the first half of the year.

Despite this positive trend, concerns persist regarding the sustainability of growth due to weak domestic demand. The Chinese economy is currently facing challenges such as sluggish domestic consumption, a prolonged housing market downturn and employment uncertainties. These factors are crucial as they impact future investment decisions by industrial sectors, including factories, mines and utilities.

In response to these challenges, the Chinese government is considering shifting its economic stimulus focus towards boosting domestic consumption to counteract the weak demand.

USTR seeks public comments on China’s WTO challenge over IRA subsidies... The U.S. Trade Representative (USTR) is requesting public comments on China’s World Trade Organization (WTO) case against subsidies provided under the Inflation Reduction Act (IRA). China argues these subsidies, which include tax credits for clean vehicles, energy property and renewable electricity, violate U.S. WTO commitments. China specifically challenges provisions related to domestic content, North American assembly and critical minerals sourcing. Public comments are being accepted until Sept. 26 as the dispute settlement proceeds.

H5N1 confirmed in Michigan dairy herd... An outbreak of the H5N1 virus was confirmed in a Michigan dairy herd, marking the nation’s first detection in almost two weeks. This brings Michigan’s total affected dairy herds to 28.