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Happy New Year from Pro Farmer... Pro Farmer wishes you a safe New Year’s celebration and a prosperous 2022.
Beijing fell short on its Phase 1 trade promises to the U.S., creating a dilemma for President Biden... Beijing’s commitment to step up purchases of U.S. goods and services under a 2020 Phase 1 trade pact expires today, with China expected to miss its targets by a wide margin. Observers note the White House could reinstate certain tariffs that were cut as part of the trade deal, though that could backfire if China were to cut back U.S. purchases or take measures against American companies doing business there. If the U.S. ignores the shortfall, that could signal to Beijing that it won’t face consequences.
U.S. businesses are closely watching the Biden administration’s response; many of them want smooth relations with China to ensure continued access to its massive market. Others including some domestic manufacturers take a harder line, saying the U.S. needs to nurture its own supply chains.
Ukraine grain exports up 23.5% for first half of the year... Ukraine exported 32.2 MMT of grain in the first half of the 2021-22 marketing year, a 23.5% increase from the same period last year. Its ag ministry reported exports included 15.8 MMT of wheat, 10.8 MMT of corn and 5.2 MMT of barley.
The country is expected to export 24.5 MMT of wheat, 30.9 MMT of corn and 5.3 MMT of barley for the year. Last year, Ukraine exported 16.6 MMT of wheat, 23.1 MMT of corn and 4.2 MMT of barley.
Ukraine’s total grain harvest was reported at 84 MMT this year, compared to 65 MMT in 2020.
U.S. Treasury 10-year note highest yield in eight years... The yield on the U.S. Treasury 10-year note closed the year at 1.51%, up 0.6% for the year. The yield started the year at 0.91% and hit a high of 1.776% in March. Covid-19 had the most significant influence on the bond market in 2021. Changes in fiscal and monetary policy responses and concerns about inflation helped drive the yield increases. Many market strategists expect Treasury yields to continue higher in 2022, with the Fed expected to begin raising interest rates as soon as May.
Oil prices predicted lower in 2022... U.S. crude oil prices are projected to average $71.38 per barrel in 2022, versus the previous month’s $73.31 consensus, according to a Reuters survey of 35 oil economists and analysts. Brent crude is forecast to average $73.57 a barrel in 2022, about 2% lower than the $75.33 consensus in November. It is the first reduction in the 2022 price forecast since the August poll.
Brent crude futures ended the year up around 53%, while U.S. crude futures were up 57%. It was the strongest performance for the two benchmark contracts since 2009, when prices soared more than 70%.
Slowing demand is the critical factor in the reduced price forecasts. Increased oil supplies are a secondary factor, according to analysts.
The U.S. announced it approved the release of two million barrels of crude oil from the Strategic Petroleum Reserve to Exxon Mobil. It was part of the earlier announced plan to reduce gas prices.
OPEC+ will meet on Jan. 4 to decide if they will stick with increasing output by 400,000 barrels per day per month.
Biden, Putin spoke by phone on Thursday... President Joe Biden and Russian President Vladimir Putin spoke by phone yesterday as tensions rise over a significant military buildup on the Ukrainian border. The White House released a statement which said: “He [Biden] made clear that the United States and its allies and partners will respond decisively if Russia further invades Ukraine. President Biden also expressed support for diplomacy, starting early next year with the bilateral Strategic Stability Dialogue, at NATO through the NATO-Russia Council, and at the Organization for Security and Cooperation in Europe. President Biden reiterated that substantive progress in these dialogues can occur only in an environment of de-escalation rather than escalation.”
Bottom line: Biden and Putin discussed the potential for a dangerous downturn in relations if the current crisis over Ukraine further escalates, but kept a pathway open for diplomacy. Both sides described the tone of the discussion as serious and substantive.
Pro Farmer ag story of the year: Surging inflation... Surging inflation impacted everyone in 2021, which is why we chose it for our story of the year. Higher prices inflated costs for farmers, factories and consumers. Central banks around the world unleashed a flood of stimulus amid efforts to combat Covid, leaving consumers flush with cash at the same time supply chains were constrained. Pent-up demand, an increased supply of money and limited supplies fueled aggressive inflation.
As the year came to an end, U.S. consumer inflation surged to the highest level in nearly four decades, while U.S. producer prices reached a record level. Euro zone consumer inflation leaped to the highest level ever, while producer prices in Europe jumped nearly 22% year-over-year. In China, the world’s leading producer of goods, producer prices leaped nearly 13% versus last year, though its consumer prices were held relatively in check.
Besides the higher prices farmers had to pay for normal everyday consumer goods, inputs such as fertilizer and machinery costs surged. That’s a story that will carry into the new year for agriculture.
But not all impacts from inflation were negative. The inflationary environment helped push commodity prices to multi-year highs, which is why producer prices around the world surged. For many markets, prices reached levels that far exceeded fair fundamental value. In 2021, front-month futures reached their highest levels since 2013 for corn, 2012 for soybeans and the winter wheat markets, 2011 for spring wheat, 2011 for cotton, 2016 for live cattle and 2014 for hogs.
Pro Farmer ag persons of the year: Powell, Peterson... The vote among our editorial staff was split for ag person of the year. A strong and compelling case could be made for both, so that’s the direction we chose.
The case for Fed Chair Jerome Powell as person of the year ties in with the inflation story. Powell put a “transitory” tag on inflation from the beginning, insisting prices would eventually ease once Covid impacts eased and supply chains returned to normal. The problem, however, is that neither happened as quickly as Powell or others anticipated. As prices continued to rise, Powell stubbornly dug in his heels. Enough other Fed presidents held the transitory mantra to keep that as the official stance for much of 2021. That has changed, with Powell, a host of other Fed officials and U.S. Treasury Secretary Janet Yellen now saying the period of inflated prices will last longer than originally thought. While Powell obviously held onto his inflation stance way too long, some claims about this being the “worst inflation call” in history are hyperbole (remember the 1970s?).
Former House Ag Committee Chair Collin Peterson is our other choice for ag person of the year. Why? By far the biggest policy threat to ag was the potential elimination of stepped-up basis. Peterson couldn’t directly lobby but he did pick up the pen and articulate to readers, including lawmakers, how seriously damaging this would be. His op-eds got a lot of traction. Sen. John Thune (R-S.D.) was a key GOP point man on the issue and Rep. David Scott (D-Ga.) eventually weighed in. But Collin got the ball rolling. Peterson also forcefully argued that Democrats should not mandate greenhouse gas or methane emission reductions through Clean Air Act or new legislation, including the social spending/Build Back Better (BBB) Act. He stated that it would set back efforts by decades. And Democrats listened.
Pro Farmer ag event of the year: PF crop estimates... We are tooting our own horn on this one. After sampling fields across the Corn Belt during the Pro Farmer Crop Tour and using our network of Members across the country, Pro Farmer issued our national corn and soybean crop estimates on Aug. 20. USDA’s estimates in November exactly matched our forecasts from three months prior at 177 bu. for corn and 51.2 bu. for soybeans.
Honorable mentions for ag person, story and event of the year... Supply-chain constraints: This was tied in closely to inflationary pressures and was part of that story. Supply-chain bottlenecks will continue well into the new year and the availability or lack thereof for some key ag inputs like fertilizers could be the story of the year in 2022.
Climate change: In a normal year, the broad push by the Biden administration and governments around the world for climate change would have been “the story.”
Weather/La Niña: Weather could almost always qualify for story of the year. But in 2021, floods, drought and other natural disasters greatly contributed to tightening ending stocks, which helped push grain and soy prices higher.
