Evening Report | January 23, 2025

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Argentine gov’t will lower taxes on grain, soy exports... Argentina’s government said it will temporarily lower taxes on its grains exports. Economy Minister Luis Caputo said export taxes on soybeans and soy products and grains will be lowered from Jan. 27 through June. Taxes on soy exports will decline to 26% from 33%, while rates on soy products will fall to 24.5% from 31%. For both wheat and corn, export taxes will be reduced to 9.5% from 12%.

Exchange cuts Argentine crop forecasts... The Buenos Aires Grain Exchange cut its soybean and corn crop forecasts by 1 MMT each due to heat and moisture stress. The exchange now estimates production at 49.6 MMT and the corn crop at 49 MMT.

Rollins clarifies stance on ethanol, RFS in confirmation hearing... Brooke Rollins, President Donald Trump’s nominee for USDA Secretary, addressed several key issues during her confirmation hearing. Some early developments:
Rollins clarified her stance on ethanol and the RFS, distancing herself from past positions of the Texas Public Policy Foundation:

• She stated the Foundation’s position on ethanol/RFS was written a decade ago and was one of 900 to 1,000 papers produced annually.
• Rollins emphasized she did not author those papers herself.
• While admitting to being a defender of fossil fuels, she insisted she would be “a secretary for all of agriculture” and a “champion for all fuels.”

Rollins committed to supporting farmers in case of tariff-related harm:

• She pledged to undertake efforts like the Market Facilitation Program (MFP) via payments from the first Trump administration. MFP was part of a broader effort by USDA to assist farmers impacted by retaliatory tariffs and trade disruptions.
• Rollins has consulted with former USDA Secretary Sonny Perdue about the implementation of such programs.

Rollins committed to working with Sen. Joni Ernst (R-Iowa) and others on addressing Prop 12 as that is affecting several states.
Rollins emphasized her dedication to the agricultural sector. She stated, “My role is to defend, honor, and elevate our entire ag community in the oval office... to ensure that every decision made has that front of mind.”
Bottom line: These statements demonstrate Rollins’ attempt to position herself as a supporter of diverse agricultural interests, including both traditional and renewable fuels, while also showing her commitment to protecting farmers from potential trade-related challenges.

Trump pushes OPEC for lower oil prices, warns of tariffs at Davos... President Donald Trump, speaking virtually at the World Economic Forum in Davos, called on OPEC to lower oil prices, linking it to reducing inflation and pressuring Russia over the war in Ukraine. Describing Saudi Arabia’s Crown Prince Mohammed bin Salman as a “fantastic guy,” Trump stated he would be asking the country to “bring down the cost of oil”. He warned of new tariffs aimed at reshoring manufacturing to the U.S., stating, “If you don’t make your product in America… you will have to pay a tariff.”

Trump declared that he will “demand” an immediate reduction in interest rates. This call for lower rates was linked to his assertion about declining oil prices. Trump stated, “With oil prices going down, I’ll demand that interest rates drop immediately.” He extended this demand beyond the United States, suggesting that interest rates “should be dropping all over the world.” Trump’s comments come just days before the Federal Reserve’s first policy meeting of his new administration, scheduled for Jan. 28-29. Despite Trump’s demands, there is a widespread expectation among economists that the Fed will maintain current interest rates at this upcoming meeting. This demand for lower interest rates marks Trump’s first critique of the Fed’s monetary policy since he assumed office just three days ago. It also echoes his past criticisms of the Fed during his first term, when he frequently called for lower rates and criticized rate hikes.

Trump criticized the previous administration’s economic policies and promised a “golden age” for the U.S., emphasizing domestic energy production and reduced government spending. His return to power has stirred mixed reactions, with some business leaders welcoming his tax and regulatory reforms, while others express concerns over tariffs and climate policy reversals.

Trump’s second term policies focus on reshaping global trade dynamics, energy independence and tough stances on immigration and climate agreements. As world leaders adjust to his presidency, Trump hinted at immediate action, including potential tariffs on China, Mexico, and Canada by Feb. 1.

On the war in Ukraine, Trump foreign policy hand Ric Grennell chided European leaders for their handling of the war and warned that efforts to fold the country into the North Atlantic Treaty Organization during peace talks with Russia would run into an American “buzz saw.”

December feedlot placements expected to rise despite Mexico cattle ban... Analysts expect USDA’s Cattle on Feed Report Friday afternoon to show the large feedlot (1,000-plus head) inventory down 0.3% from year-ago at 11.894 million head as of Jan. 1. The report is expected to show a 1.1% increase in the number of cattle moved into feedlots last month, despite a ban on Mexican feeder cattle imports that went into effect in late November. Marketings are anticipated to be up 1.2% from December 2023. Estimates from an Expana survey.

Some trade restrictions imposed on Georgia poultry due to HPAI... The confirmation of highly pathogenic avian influenza (HPAI) in a commercial poultry operation in Georgia has led to trade restrictions on U.S. poultry. Taiwan, Mexico, Uruguay, Iraq and Benin have halted imports from the state, according to the USDA’s Food Safety and Inspection Service. South Korea and Japan have not implemented any restrictions related to this HPAI outbreak.

White House clarifies executive order on IRA funds... The White House Office of Management and Budget (OMB) has new guidance to clarify the limits on disbursing Inflation Reduction Act (IRA) funds, following President Trump’s recent executive order. This clarification comes in response to concerns raised by both Democratic and Republican lawmakers about the potential impact of a full halt to fund disbursement.
Key points of the clarification:

• Limited scope: the pause on fund disbursement only applies to programs, projects, or activities related to climate change mitigation and electric vehicle charging incentives.
• Definition of “Green New Deal” funds: The OMB memo defines these as appropriations that contradict the policies established in Section 2 of the executive order.
• Agency discretion: Agency heads retain the authority to disburse funds as necessary, after consulting with the OMB.

This clarification aims to address concerns about the potential economic impact of a complete halt to IRA fund disbursement, particularly in red states and districts. It also highlights the ongoing debate surrounding climate policies and their implementation.

Biden’s climate-smart agriculture program halted... The Trump administration has implemented a freeze on climate funding, affecting a key Biden initiative aimed at making the food system more environmentally friendly. The Partnerships for Climate-Smart Commodities program, which received $3.1 billion in funding from USDA, is among the first programs impacted by this freeze. This initiative involved contracts with numerous companies and nonprofit organizations to develop these climate-friendly agricultural practices.

The program’s funding came from the Commodity Credit Corporation (CCC), which USDA typically uses for various purposes including buying farm commodities and providing disaster relief. Notably, President Donald Trump had previously used CCC funds during his first term to support farmers affected by high tariffs.

Of note: A temporary suspension has been placed on all grant-related actions, including those for the Climate-Smart Commodities program. The pause affects new contracts and contract amendments. Existing contracts and their funding disbursements appear to be unaffected at this time. Further clarification expected in the coming days.

The effort to claw back these funds may face significant obstacles:

• Many projects have already received funding or have signed agreements.
• Legal challenges are possible from groups that were promised funding but haven’t received it yet.
• Small businesses and farmers who were counting on these funds may be particularly affected.

Seven political trends investors should watch in 2025... Key policy shifts are likely to shape the economy and markets, according to Monica Guerra and Daniel Kohen, Morgan Stanley Wealth Management. As a new Republican-led White House and Congress take the helm, they note 2025 promises significant changes in U.S. policies, potentially impacting the economy and financial markets. Here’s a summary of their seven major trends and investment implications:

• Individual tax provisions likely to be extended. Key tax benefits from the 2017 Tax Cuts and Jobs Act are set to expire in late 2025. A GOP-led Congress is expected to extend many provisions while adding new breaks, such as changes to SALT caps and potential tax holidays. Investor takeaway: Extensions could spur economic activity and benefit portfolios.
• Corporate tax cuts could face challenges. Further reductions in the 21% corporate tax rate are unlikely due to concerns over the federal deficit. Investor takeaway: Limited tax changes may disappoint markets expecting more corporate-friendly policies.
• Debt-ceiling debates may delay reforms. While a debt-ceiling increase is expected, debates about government debt could stall broader GOP priorities. Investor takeaway: Delays in reforms could create uncertainty and weigh on economic momentum.
• Tariff proposals add risk to certain stocks. Aggressive tariff policies targeting Chinese, Canadian and Mexican goods may drive inflation and productivity losses. Investor takeaway: Sectors dependent on imports or foreign manufacturing face increased risks.
• Clean energy may outperform traditional energy. Despite potential challenges, rate cuts and sustained incentives could boost clean energy investments. Investor takeaway: Clean energy stocks may gain momentum amid favorable monetary policies.
• Healthcare industry faces headwinds. Policies targeting the Affordable Care Act and stricter FDA oversight may drag down healthcare sector performance. Investor takeaway: Pharmaceuticals and insurance companies may struggle, presenting investment risks.
• Restrictive immigration policies could hinder growth. Tighter immigration policies may reduce consumer spending and workforce availability, slowing GDP growth. Investor takeaway: Industries reliant on labor and consumption may face growth challenges.

Bottom line: Increased political uncertainty, combined with shifting policies on tariffs, immigration and deregulation, could weigh on sectors like healthcare and energy.