Evening Report: Nov. 30, 2021

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Powell ‘wrong-foots’ markets with stance on tapering, inflation... In testimony before the Senate Banking Committee, Chair Jerome Powell took a more hawkish tone, saying the Fed likely will discuss speeding up its taper of the monthly bond purchases. Powell seemed more worried about supply-chain disruptions from the new Omicron variant of Covid than demand impacts. He also implied that if new strains continue to develop, fresh monetary stimulus programs would have limited positive impacts on economies. His comments flow in the face of many market watchers who thought the Fed could be forced to dial back its recently announced tapering of its bond-buying program.

Powell also said the risk of inflation had increased and suggested the term “transitory” should be “retired,” suggesting U.S. monetary policymakers would make a more concerted effort to rein in price increases in the months ahead.

Update on WHIP+ for 2020, 2021... Not a day goes by where a producer doesn’t ask or email about this topic. Some key points:

• WHIP+ payments have been authorized for 2020 and 2021 disasters, including for the livestock and dairy sectors.
• Operation of the coming program will include some statutorily required improvements to the program required by Congress relative to the prior WHIP+ program but otherwise key lawmakers expect the program to be administered in the same way that the 2018 and 2019 programs were run. The program for past years was very complex and saw much-delayed payouts; presumably USDA has the kinks worked out now and there is no need to recreate the wheel.
• Decisions regarding whether to use the APH policy price election or the Harvest Price Option (HPO) price election have not been finalized, despite reports to the contrary. The price election by which a producer is indemnified on a crop loss is determined in February. But with HPO, if the crop price rises, the producer will be indemnified at the higher price (sort of like replacement insurance, one contact noted). However, depending on how USDA implements the WHIP+ program (and this is still to be determined), it could result in zero payment for producers who bought HPO coverage if they calculate expected crop revenue using the APH policy price election while crop insurance indemnities that are subtracted from any WHIP Plus benefit are determined using the HPO price election. If USDA gets this wrong, it will have effectively gutted the WHIP program Congress just created.
• On dairy, about one-third of all milk in the U.S. is now covered under crop insurance. Milk losses are covered under WHIP+. High-valued commodities such as milk should receive the $900,000 pay limit.
• Congress made clear to USDA they want the 2020 and 2021 WHIP+ program to be administered more smoothly and to get the payments out quicker than in the past. Those two goals are difficult for any government program, but in the case of a streamlined and more efficient WHIP+, most of the work is done.  This does not need to be hard for USDA.
• USDA Secretary Tom Vilsack previously told us on AgriTalk that program details could be known yet this year, but even if that were to occur, actual payments would likely be made in 2022, some USDA sources add. Why so long for a program that is already stood up? USDA should make the tweaks Congress required and get help out to producers who need it is the refrain we hear in the countryside.  

Farmer groups offer $1 million to aid lock and dam project... In the effort to encourage tangible investment in the infrastructure along the Upper Mississippi River, a group of farmer-funded and farmer-led organizations – the United Soybean Board, the Soy Transportation Coalition, the Illinois Soybean Association, the Iowa Soybean Association, the Iowa Corn Promotion Board, the Minnesota Soybean Research and Promotion Council, and the Missouri Soybean Merchandising Council – have partnered together and offered $1 million to help underwrite the cost of pre-engineering and design expenses of Lock and Dam #25. The contribution would be contingent upon the Army Corps of Engineers being able to accept funding from private sector entities for such projects.

Located in Winfield, Missouri, Lock and Dam #25 was opened in 1939 and is the most southern lock and dam on the Mississippi River with a single, 600 ft. X 110 ft. lock chamber. Construction at Lock and Dam #25 would result in a new 1,200 ft. X 110 ft. lock chamber being built adjacent to the existing 600 ft. X 110 ft. lock chamber. This would enable a typical fifteen barge tow to transit the lock in one single pass (a 30-45 minute process) compared to disassembling the barge tow into two sections, which will result in two passes (over two hours). In addition, a second lock will provide needed resiliency and redundancy, allowing a key link in the supply chain to remain operational if one of the lock chambers was closed, the groups said.

If Lock and Dam #25 proceeds to construction, it would be the first construction project within the Navigation and Ecosystem Sustainability Program (NESP). The NESP program calls for the construction of seven new locks – five north of St. Louis on the Upper Mississippi River (#25, #24, #22, #21, and #20) and two on the Illinois River (LaGrange and Peoria).

Rabobank releases 2022 Agriculture Outlook… A return to normalcy looks unlikely in 2022 for agricultural commodity prices, and inflation almost certainly won’t be just “temporary,” according to Agri Commodity Markets Research Outlook 2022 by Rabobank. It says 2022 will start from a position of low stocks in many agricultural commodities, which should lead to heightened price volatility. As a result, food prices are likely to stay near record highs next year due to consumers stocking up, high energy and shipping prices, adverse weather and a strong dollar.

Rabobank says weather cannot be expected to be normal until the second quarter of 2022 at the earliest. Current La Niña conditions are the main weather concern. La Niña correlates with dryness in Argentina, southern Brazil and the southern United States.  

Rabobank says global oil demand has rebounded sharply. On the supply side, OPEC+ controls the market as U.S. crude oil production remains below the pre-pandemic highs.

The sharp rise in consumer inflation has investors seeking commodity index products, a trend expected to accelerate in 2022 as fund managers chase what looks like very strong commodity returns.

With recent positive U.S. economic data and the possibility of a Fed rate hike in 2022, the firm expects the U.S. dollar will be a favored currency in the months ahead.

Hours of service exemption extended... The Federal Motor Carrier Safety Administration (FMCSA) has extended to Feb. 28, 2022, a waiver for commercial truckers from the federal Hours of Service (HOS) regulation. The exemption applies to commercial motor vehicle operations providing direct assistance in support of emergency relief efforts related to Covid-19 and is limited to transportation of (1) livestock and livestock feed; (2) medical supplies and equipment related to the testing, diagnosis and treatment of COVID-19; (3) vaccines, constituent products, and medical supplies and equipment including ancillary supplies/kits for the administration of vaccines, related to the prevention of Covid-19; (4) supplies and equipment necessary for community safety, sanitation, and prevention of community transmission of COVID-19 such as masks, gloves, hand sanitizer, soap and disinfectants; (5) food, paper products and other groceries for emergency restocking of distribution centers or stores; (6) gasoline, diesel, jet fuel, and ethyl alcohol; and (7) supplies to assist individuals impacted by the consequences of the Covid-19 pandemic (e.g., building materials for individuals displaced or otherwise impacted as a result of the emergency).  Direct assistance does not include non-emergency transportation of qualifying commodities or routine commercial deliveries, including mixed loads with a nominal quantity of qualifying emergency relief added to obtain the benefits of this emergency declaration. 

A provision in the infrastructure bill recently signed into law expanded the miles agricultural truckers can drive without the HOS restrictions. Divers hauling livestock already were exempt from the HOS rule for the first 150 air miles of their runs. Now they also will be exempt from HOS rules for the final 150 air miles from their final destination, providing additional flexibility to ensure drivers can safely complete their deliveries while protecting other drivers and ensuring the welfare of the animals in their care.

India plans record fertilizer subsidies for 2021-22... India plans to increase 2021/22 fertilizer subsidies to a record of more than 1.55 trillion rupees ($20.64 billion) to avoid shortages amid a sharp increase in global prices, according to Reuters. The figure is almost double the amount budgeted for fertilizer subsidies in the fiscal year ending on March 31.

India is a major buyer of diammonium phosphate (DAP), bringing in an average of 60% of its 10 MMT to 12 MMT annual consumption. Of that total, 40% comes from China, but some shipments have been delayed due to Chinese export restrictions.

“We have asked some of the NPK (nitrogen, phosphate and potassium) manufacturers to switch to production of DAP,” a source familiar with the situation told Reuters.

India does not control prices of DAP but raises the subsidy to keep an indirect check on retail prices. Retail prices of a metric ton of DAP in India are around 25,000 rupees ($332.85), whereas global prices have surged to about $750.