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Your Pro Farmer newsletter is now available... USDA’s December crop reports turned into a yawner, as is often the case since there are no updates to the corn and soybean crop estimates this month. If there was a surprise, it was a bigger-than-expected increase to global wheat production. EPA this week released its RFS proposals, including retroactively reducing blending levels for 2020 and 2021, though the 2022 mandate for corn-based ethanol would return to the statutory level. Weather in South America is drawing more attention as dryness builds in southern Brazil and parts of Argentina, with forecasts mostly dry through month-end. Meanwhile, China has increased purchases of U.S. soybeans and aggressively bought feedgrains from France, Ukraine and Australia. Plus, inflation remains a focal point as central banks around the world, including the U.S. Fed, try to combat surging prices. We cover all these stories and much more in this week’s newsletter, which you can access here.
U.S. consumer prices post biggest annual gain in more than 39 years... U.S. inflation reached a nearly four-decade high in November, as strong consumer demand collided with pandemic-related supply constraints. The Labor Department said the consumer price index rose 6.8% in November from the same month a year ago. That was the fastest pace since 1982 and the sixth straight month in which inflation topped 5%. The core price index, which excludes volatile food and energy prices, climbed 4.9% in November from a year earlier. That was a sharper increase than October’s 4.6% rise, and the highest rate since 1991.
Accelerating inflation puts more focus on the Dec. 14-15 monetary policy meeting to see if the Fed more aggressively tapers its monthly bond purchases and talks about boosting interest rates sooner than previously expected.
Consumer sentiment rises unexpectedly in early December... Led by increased sentiment by lower-income households, U.S. consumers’ moods brightened unexpectedly in early December from the lowest in a decade, according to University of Michigan’s Consumer Sentiment Index.
The closely watched survey rose to 70.4 this month from a final November reading of 67.4, which had been the lowest since November 2011. Economists polled by Reuters expected consumer sentiment it to slip further, with a median estimate of 67.1.
The increase in headline sentiment was powered entirely by a 23.6% improvement among households in the lower one-third of the survey’s income distribution, the biggest monthly increase for that group since 1980. This was driven by expectations of improving incomes in the year ahead. Sentiment slipped further for the middle and upper thirds.
Readings of both current conditions and future expectations also improved unexpectedly.
Senate to vote on debt limit next week, followed by House... The Senate cleared the last major hurdle to raising the debt ceiling, approving legislation that virtually guarantees Congress will be able to move next week to steer the government away from a first-ever federal default. Some 14 Republicans joined every Democrat to effectively end their party’s monthslong blockade of debt-limit legislation, allowing the bill to advance in the 50-50 Senate. The legislation later passed by a similar margin, 59 to 35, with 10 Republicans joining Democrats for final passage.
The measure does not actually raise the debt limit. Instead, it makes a one-time tweak to the Senate’s rules, allowing Democrats in the narrowly divided chamber to lift the borrowing cap without the risk of a Republican filibuster. The House and the Senate will complete the process next week, raising the debt ceiling by trillions of dollars, in a move that could defuse the conflict into late next year.
Still to come is a disclosure of the actual dollar amount for the new cap on Treasury’s borrowing, which is expected to cover Washington’s expenses through the 2022 midterm elections that will determine control of Congress.
CBO: Democratic spending bill would add $3 trillion to deficit if provisions made permanent... The report from the Congressional Budget Office (CBO) released Friday is a blow to President Joe Biden’s efforts to push the bill through Congress, as it will add to fears that the spending measure would push the government further into debt and stoke inflation. Sen. Joe Manchin (D-W.V.), in particular, whose vote Biden is counting on, has expressed such worries.
The initial scoring from CBO only accounted for the legislation as written, sunsets included. CBO first said the legislation would increase federal deficits by $367 billion over the next 10 years.
It is worth noting that the budget office’s bottom-line estimate of the deficit effects of the bill doesn’t include revenues from the Democratic proposal to increase funding for IRS enforcement. The CBO has separately forecast that the proposal would raise $207 billion in revenues over a decade, although the Treasury Department claims it would raise nearly double that amount.
Argentina to loosen restrictions on beef exports... After a meeting with Argentina’s four largest farming groups, the Argentine government says it will remove restrictions on exports to emerging markets, while allowing premium cuts to be sent to Europe and the United States, among others.
Restrictions will remain in place, however, on the most consumed cuts in Argentina, in a bid to prevent those prices from rising.
China plans to remain ‘developing’ country... China plans to remain a “developing” country at the World Trade Organization (WTO) but would forego many of the benefits, signaling an important shift to trading partners, according to China’s ambassador to the global trade body.
Despite strong growth, China still considers itself a developing country due to lingering poverty but that it would seek carve-outs “in only a few areas” such as agriculture and financial services.
He declined to say when, or under what conditions, China would cease to consider itself a developing country altogether under WTO rules.
Abengoa fined for ethanol benchmark rigging... Spain’s Abengoa was fined $22.5 million by EU antitrust regulators for rigging ethanol benchmarks. The European Union’s competition watchdog said Spanish engineering and energy group Abengoa admitted taking part in a cartel from September 2011 to May 2014 on possible rigging of ethanol benchmark. The company agreed to settle for a reduction in the fine.
The Commission said Abengoa coordinated its trading behavior with other companies. It did not name the companies but said investigations were still ongoing.
Shipping backlog likely to continue into 2023... The global shipping crisis looks set to delay traffic of goods and fuel inflation well into 2023. Container shipping costs are unlikely to normalize before 2023, said Peter Sand, chief analyst at the freight rate benchmarking platform Xeneta. Even if plans to unload an extra 3,500 containers each week are implemented, the Los Angeles/Long Beach backlog is unlikely to clear before 2023, he said.
Ship orders have risen significantly this year. However, it takes three years to build and deliver new ships. Therefore, it will be 2024 before sizeable new tonnage hits the water.
