Evening Report | July 10, 2024

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Livestock producers: Extend soymeal coverage... Soymeal futures have fallen to a level we consider a value buy, though there could be more near-term downside pressure. We advise livestock producers to extend soymeal coverage another two weeks in the cash market through mid-August. We would likely further extend coverage if August futures drop to the $330.00 area.

Key balance sheet adjustments coming Friday... USDA’s updated balance sheets on July 12 will reflect adjustments to old-crop demand forecasts based on June 1 stocks. There will be major changes on the new-crop balance sheets to reflect planted acreage figures. The first all-wheat crop estimate will include the initial survey-based forecasts for other spring wheat and durum. The following pre-report estimates are from Reuters; Bloomberg for cotton.

Powell not prepared ‘yet’ to say he’s confident about inflation... Federal Reserve Chair Jerome Powell stated that while inflation is receding, he is not yet confident it is sustainably moving toward the Fed’s 2% goal. During his second day of testimony, Powell noted “modest further progress” in recent price readings but emphasized the need for more data before feeling assured. He also highlighted balanced risks in policy decisions, with concerns about both inflation and unemployment.

Powell’s comments suggest the Federal Open Market Committee (FOMC) is unlikely to cut rates at the July 30-31 meeting. The Fed has maintained its policy rate at a two-decade high of 5.25% to 5.50% for nearly a year.

Powell also discussed ongoing efforts to trim the Fed’s balance sheet, with $1.7 trillion reduced so far, and plans to continue offloading holdings cautiously to avoid market disruptions.

Regarding bank regulations, Powell mentioned the Fed and other agencies are close to revising their plan for big banks to hold more capital. This proposal is under discussion and will be issued soon, with some parts not republished for comment.

Markets are watching for signals on potential rate cuts at the Sept. 17-18 FOMC meeting, especially given recent unemployment rate increases and political pressure. The Fed’s preferred inflation measure rose 2.6% in the 12 months through May, down from 7.1% in June 2022, while unemployment has edged up to 4.1% over the last three months.

Talks regarding increasing Panama Canal water supply... Panama Canal Authority (ACP) is holding talks with community leaders of Rio Indio about building a new reservoir to increase the canal’s water supply, the head of the authority Ricaurte Vasquez said. ACP is planning to construct a $1.6 billion reservoir along the Indio River to increase the canal’s water supply. This project aims to provide water security for the Panama Canal’s operations in the coming years. ACP has set a six-year deadline to complete the construction of this new reservoir. Once operational, it is expected to maintain a minimum of 36 daily transits through the canal, which is close to the pre-drought capacity of 38 transits per day. The need for this new water source has become critical due to recent drought conditions and impacts of climate change. In 2023, the canal faced severe water shortages, forcing restrictions on ship transits and drafts. The new reservoir is seen as a long-term solution to these water supply challenges.

Biden announces new tariffs on Chinese metals coming through Mexico... President Joe Biden announced new tariffs on Chinese metals routed through Mexico, a move aimed at closing a trade loophole and protecting American industries. Mexico, which recently increased its own tariffs on steel and aluminum from certain countries, will require importers to provide more information about where their steel products come from, the announcement said. The changes will take effect immediately. Key details:

The Biden administration has implemented the following tariffs:

• A 25% tariff on Mexican steel that undergoes melting or pouring processes outside of North America before reaching its final form.

• A 10% tariff on Mexican aluminum entering the U.S. if it includes material that has been smelted or cast in China, Belarus, Iran, or Russia.

These measures are part of an agreement between the U.S. and Mexico under section 232 of the Trade Expansion Act, which pertains to imports that could potentially threaten U.S. national security.

The primary goals of these new tariffs are:

• Preventing tariff circumvention: The measures aim to stop China from evading existing U.S. tariffs by channeling its metals through Mexico.

• Protecting domestic industries: The administration seeks to safeguard American steel and aluminum factories, particularly those that have benefited from recent public investments.

• Strengthening North American supply chains: The initiative is part of a broader effort to fortify steel and aluminum supply chains within North America.

The U.S. and Mexico are working together to address this issue:

• Mexico has agreed to enhance its scrutiny of steel product imports to determine their origin.

• Importers will be required to provide more detailed information about the origins of their steel products.

• Mexico has recently raised its own tariffs on steel and aluminum from specific countries.

• The U.S. will separately continue discussions with Mexico about more general surges in imports of steel from the country, officials said.

• While the immediate financial impact may be relatively modest, the measures are forward-looking:

• In 2023, only about 13% of total steel imports from Mexico originated elsewhere.

• The U.S. imported 3.8 million tons of steel from Mexico last year, with 13% having been poured or melted outside that country.

• For aluminum, the U.S. imported 105,000 metric tons from Mexico, with only 6% smelted or cast outside the country.

CBO director: Increased immigration to boost U.S. economy, workforce and revenues... Congressional Budget Office (CBO) Director Swagel told Congress that increased immigration is expected to have a significant positive impact on the U.S. economy, workforce, and federal revenues over the next decade, despite some potential short-term effects on wages.

• Swagel emphasized that increased immigration is expected to expand the labor force, leading to higher economic output and additional tax revenue. CBO projects that this surge in immigration will boost the U.S. economy by approximately $7 trillion over the next decade.

• CBO estimates that the rise in immigration will increase the growth of inflation-adjusted gross domestic product by an average of 0.2 percentage points annually from 2024 to 2034.

• Swagel stated the immigration surge is projected to generate about $1 trillion in additional federal revenue over a ten-year period. This increase in revenue is attributed to the larger workforce and subsequent economic growth.

• CBO revised its estimate of the labor force in 2033 upwards by 5.2 million people, largely due to increased net immigration.

• Swagel highlighted that immigrants, who are typically younger and more inclined to work, will help offset the anticipated retirement of the native-born population, leading to enhanced economic growth.

• While noting the overall positive economic impact, Swagel mentioned that the influx of immigrants might exert some downward pressure on average wages, particularly in the initial years. This is partly due to migrants often occupying lower-paying positions.

• Swagel acknowledged the substantial uncertainty surrounding population projections, especially in later years, and stated that CBO assumes the current surge in immigration will persist until 2026 before tapering off.

Senators announce deal to ban stock trading by lawmakers... A bipartisan group of senators, including Gary Peters (D-Mich.), Jeff Merkley (D-Ore.), Josh Hawley (R-Mo.) and Jon Ossoff (D-Ga.), announced an agreement on Wednesday to ban members of Congress from buying and selling stocks. The Senate Homeland Security and Governmental Affairs Committee will mark up the legislation on July 24.

The deal aims to prevent lawmakers from leveraging their positions for personal financial gain. It bans members of Congress from buying individual stocks immediately and prohibits selling them 90 days after the bill’s enactment. Spouses and dependent children will also be banned from trading stocks starting in March 2027, the same date the president and the vice president would be required to divest from specified investments. However, the legislation permits holding and managing ETFs and mutual funds.

Violations of the law would incur penalties equivalent to the officials’ monthly salary or 10% of the value of the traded asset, whichever is higher.

Hawley, the only GOP co-sponsor, highlighted bipartisan support for the bill, criticizing Capitol Hill leadership for previously stalling votes on the issue. Some Republicans, including freshmen senators, have shown support for banning congressional stock trades. Critics of the bill argue the existing STOCK Act, which criminalizes insider trading by Congress members, is sufficient.

Of note: Efforts to pass similar legislation have faced obstacles in the past.