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European Central Bank announces wind down of bond purchase program... The European Central Bank (ECB) announced it will end its emergency bond purchasing program by March, but did not raise interest rates. The bank plans to reinvest profits from the emergency bond buys until the end of 2024 and will keep the more rigid Asset Purchase Program to limit the withdrawal effects.
ECB’s decision came on the heels of the Federal Reserve announcing on Wednesday it would wind down its bond purchase program by March and likely up to three interest rate hikes in 2022 and 2023.
As we reported in “First Thing Today,” Bank of England policymakers surprised economists by raising the benchmark interest rate by 15 basis points to 0.25%.
Norway’s central bank raised its main interest rate for the second in three months and more rate hikes are likely to come. Sweden kept its interest rate unchanged.
Reaction to the Fed’s shift on inflation... “My concern is that we’re going to go from a patient to a panicked Fed on inflation,” said Diane Swonk, chief economist at accounting firm Grant Thornton and a longtime Fed watcher. William Spriggs, chief economist at the AFL-CIO, argues that it would be a mistake for the Fed to start pulling back on support for the economy and raising interest rates soon in response to inflation. The economy is not overheating, he said, noting that the sharp drop in the unemployment rate in recent months doesn’t reflect the fact that many people are struggling to get back on their feet. There are over 1 million more unemployed people today than in February 2020, before the pandemic, plus several million more people who have left the labor force. “We’re in the middle of a storm, and the last thing you want to do is cut power to the engine,” Spriggs said.
A Wall Street Journal editorial wrote: Left unsaid is that Mr. Powell and the Fed this year badly underestimated both the rise of inflation and the strength of the labor market. The chairman made it sound as if the inflation revelation had come to him in November, right around the time of the last FOMC meeting when the Fed stood pat on a very slow pace of withdrawing monetary accommodation. A lightning bolt of data struck, and he saw the light. We guess this is as close as the Fed ever gets to admitting a mistake.”
Amount of winter wheat in drought unchanged... The U.S. winter wheat area in drought remained at 53% over the past week, unchanged from the previous week, according to USDA’s analysis of the U.S. Drought Monitor. However, the Drought Monitor was of Tuesday, Dec. 14, and does not take into account Wednesday’s high winds across the Plains and the Midwest.
Overall, there was some improvement drought conditions in the Northern Plains and Western United States. South Dakota dropped two percentage points to 78% of the state covered by abnormal dryness/drought, due to beneficial snowfall as the ground is not frozen yet.
Unseasonably warm temps and dry conditions continued to prevail in the Southern Plains. Texas had nearly 86% of the state covered by dryness/drought, up five points from the previous week. Oklahoma was 96% moisture-stressed, up three points from last week. Over half of Kansas (52%) faced moisture shortages, up five points from the previous week. Nebraska had 77% of its state in drought, compared to 70% last week. Colorado and Montana both still were 100% covered by drought.
Drought conditions in the western U.S. continued to creep eastward, with more of SRW wheat areas facing mostly mild moisture stress, primarily in southern areas.
La Niña-influenced winter outlook... The National Weather Service’s (NWS) 90-day forecast gives elevated odds of above-normal temps and below-normal precip across HRW areas of the Southern Plains. Below-normal precip is likely over nearly all of Texas, the western half of Oklahoma and southern Colorado. NWS says Kansas will likely see above-normal temps but gives “equal chances” for above-, below- and normal precip during the three-month period. Nebraska has “equal chances” for temps and precip during the January through March period.
Above-normal temps and precip are likely over much of SRW wheat areas during the three-month period.
Above-normal precip and below-normal temps are expected across white winter wheat producing states in the Pacific Northwest.
This forecast offers little hope for improvement in conditions of the HRW crop through winter, meaning the need for timely rains next spring will be critical.
Hardiness of HRW crop is another concern. The extreme winds that swept across the central U.S. Dec. 15 shredded the HRW crop and exposed roots on some acres in the Southern Plains. That creates even more concerns for a crop that already lacked a robust root structure. “The plant is just not in good shape to handle adverse conditions,” said Mark Hodges of Plains Grains.
Biden plan seeks to ease shortage of truck drivers... The Biden administration announced a three-pronged plan to recruit and retain truck drivers to combat a driver shortage that has contributed to the supply-chain problems plaguing the world since the start of the Covid-19 pandemic. The plan will not only look at the immediate driver shortage but also address long-standing challenges in the trucking industry that predate the arrival of Covid-19.
The plan includes connecting veterans who left the service with extensive military trucking experience — 70,000 over the last five years — with trucking jobs as they transition to civilian life. The administration will be working closely with the private sector to engage in a “90-day apprenticeship challenge” to recruit as many employers as possible to start registered apprenticeships.
Click here to view the administration’s fact sheet on the trucker action plan.
IHS Markit ups its 2022 corn, beans acres; cuts wheat, cotton... Based on a Reuters report, IHS Markit expects 2022 U.S. corn acres to slide to 91.578 million acres next year. That’s up 794,000 acres from the firm’s projection last month but would be down 2.43 million acres from this year.
The firm expects soybean acres to rise to 88.815 million acres, which is an 880,000-acre increase from last month’s projection and would be up 1.085 million acres from 2021.
IHS cut total wheat acres by 743,000 acres from last month to 48.603 million acres. That would be 1.9 million acres more than what was planted for harvest this year. The firm cut winter wheat acres to 34.033 million acres, down 360,000 from last month but it would be up 385,000 acres from 2021-22.
Spring wheat (excluding durum) acreage was cut to 12.72 million acres, down 310,000 acres from last month, but up 1.3 million acres from this year. For durum, the firm expects plantings of 1.85 million acres, down 100,000 acres from last month but a 215,000-acre increase from last year.
The projection for total cotton acres was cut by 249,000 acres to 11.844 million, but that would be up 653,000 acres from 2021.
Brazil expected to finish 2021 with record pork and poultry production, exports... Brazilian pork production and exports this year are seen rising 6% and 10.5%, respectively, according to industry association ABPA. In the domestic market, the sector is benefiting from rising per-capita pork consumption as well as a pickup in sales tied to government social programs and cash distribution initiatives broadened during the coronavirus pandemic.
ABPA also projects Brazilian poultry production and exports will grow 3.5% and 8%, respectively, from 2020 levels.
Still, meat producers face unprecedented cost pressures amid higher feed, fuel and packaging costs. “This was a tough year,” ABPA said. “Higher costs are a reality we will continue to face in 2022.”
Sales of pork products to China, which buys about 50% of Brazil’s exports, should remain strong even as it raises import tariffs next year, ABPA, said. The sector also hopes to be able to export pork to Canada next year while selling bigger volumes to Russia.
Brazil sugar, ethanol production predicted down... Brazil industry group Unica predicts sugarcane processing will be down to 525 MMT, a 13.3% reduction. It also predicts a 8.7% reduction to 27.7 billion liters in total ethanol production. Unica expects more sugarcane to be allocated to ethanol production – 55.13% this year versus 53.93% last year.
“The projections reflect what we saw during this crop: on the demand side, we suffered with mobility restrictions; on the offer side, fields were affected by frosts and a historic drought,” Unica said.
There are uncertainties regarding the sugarcane area for the next cycle, with Unica noting recent frosts created even more doubts. Yields are expected to remain “well below” their potential of 85 MT per hectare. The average yield in 2021-22 totaled 67 MT per hectare, the lowest since at least 2003-04.
AEM: U.S. tractor and combine sales up... In its monthly Flash Report, the Association of Equipment Manufacturers said 1,385 more tractors were sold in November 2021 compared to year ago. The group reported that 79 more combines were sold than over the same timeframe last year.
Categories with the highest change is sales were 2-wheel drive tractors from 40-100 horsepower and tractors over 100 horsepower.
Tractors with 4-wheel drive was the only category to decline in sales compared to November 2020.
However, all categories, tractors and combines continue to run ahead of 2020 year-to-date. Tractors with over 100 horsepower with 2-wheel drive continue to lead the sales.
Claas: More computer chip snags in 2022... German agricultural machinery maker Claas expects difficulties in securing semiconductor chips to persist for the first half of next year. The supply squeeze in chips was not expected to ease until towards the end of 2022. However, the farm machine industry is less exposed than car makers to component shortages because it produces fewer vehicles. It said steel prices for farm machinery have likely peaked.
A monthly survey in December by European farm machinery association CEMA reported order levels were at record highs while nearly half of companies plan a temporary production halt in the month ahead.
