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Your Pro Farmer newsletter is now available... Private crop forecasters dramatically reduced their Brazilian crop estimates amid hot, dry conditions in southern areas of the country and too much rain in some other locations. Forecasts will be hot and dry in Argentina into mid-January, which will increase crop stress in that country. Meanwhile, U.S. HRW wheat deteriorated sharply in December, based on individual state crop ratings. On the economic front, minutes from the December monetary policy meeting showed the Fed turned a lot more hawkish than previously indicated, while non-farm payrolls again fell well short of expectations. There were also three major livestock/dairy policy events to kick off the new year. We cover these items and much more in this week’s newsletter, which you can access here.
Big jobs miss for December, but unemployment falls to 3.9%... December non-farm payrolls rose only 199,000, while the unemployment rate fell to 3.9%, according to Bureau of Labor Statistics data. The report covered the week including Dec. 12, which came before the worst of an Omicron spike that began heading into Christmas. Analysts had predicted around an increase of 425,000 non-farm payrolls was going to be added in the report and an unemployment rate of 4.1%.
The figures come as many grow concerned over the direction of the U.S. economic recovery in 2022. Observers note the Bureau of Labor Statistics is struggling to get data during the pandemic. The agency already adjusted its initial estimates for payrolls growth by nearly 1 million jobs in 2021, which was the highest adjustment ever.
The Fed has turned more hawkish as the labor market struggles, fueling concerns it will move too far in the opposite direction after ignoring inflation through 2021. But ING Economics says: “With an unemployment rate below 4% and pay pressure building the Fed looks set to respond swiftly.” The economic group concludes: “The upward pressure on interest rate expectations is not going to let up soon. Next week we expect to see headline inflation break above 7% year-on-year with core inflation breaching 5% YoY while later in the month all eyes should be on the 4Q employment cost index. With the NFIB and the Fed’s own Beige Book reporting broadening wage pressures another 1% quarter-on-quarter rise in this index could really tip the balance in favor of a March rate hike and open the door to the possibility of four rate increases this year. For now, we are more cautious and think May will mark the starting point for higher policy rates on the basis that the Omicron wave clouds the near-term economic outlook, but this is a fast moving situation and the Fed [has] signaled they want to get back in control.”
Despite the disappointing showing to end the year, the U.S. added jobs during 2021 at a record pace. Non-farm payrolls grew by an average of 537,000 per month last year.
Mexico challenges U.S. implementation of vehicle rules under USMCA... Mexico, as expected, requested a dispute settlement panel be established under the U.S.-Mexico-Canada Agreement (USMCA) on the U.S. implementation of rules relative origin requirements for vehicles. It maintains the U.S. interpretation of the rules is too narrow. Mexico believes USMCA gives automakers more flexibility in how they calculate how much of a vehicle is made within the three countries, making it eligible for duty-free trade. “The U.S. imposes on auto makers requirements that are incompatible with the USMCA to calculate the regional value content of passenger vehicles, light trucks, and their parts,” Mexico’s Economy Ministry said. “Mexico considers that a panel’s decision would provide certainty to the automotive industry in benefit of competitiveness in the region.”
The Office of the U.S. Trade Representative said it was studying the Mexican request but is “confident” the U.S. interpretation of the rules is in line with its USMCA commitments.
This marks Mexico’s first request to use the dispute settlement provisions of USMCA and comes after a ruling this week that found Canada did not live up to its USMCA commitments relative to operation of its dairy tariff-rate quotas (TRQs). A final decision in the Mexico auto request is expected yet this year, a far more accelerated pace compared to World Trade Organization disputes.
There are reports indicating Canada may join Mexico’s request on autos content, but that has not yet been confirmed.
Lower part of the Mississippi dredging makes progress... Cargo vessels can load more corn and soybeans and reduce shipping costs due to dredging progress on the lower Mississippi River, according to the Soybean Transportation Coalition. The allowable depth for 150 miles of the Lower Mississippi River is now set at 48 feet, down from 45 feet previously.
Ultimately, the project calls for a 50 ft. channel up to Baton Rouge (river mile 232) from the Gulf of Mexico. There are 82 more miles of shipping channel dredging needed to complete the project. The project is estimated to take two to three years to finish due to the complexity of that section of the river, including pipelines that run under the river.
Soy Transportation Coalition (STC) research says when completed to the 50-foot level, the average vessel can increase loads by 500,000 bu. of soybeans or 21%, and shipping costs would drop 13 cents per bu. for soybeans. They estimate the completed dredging project would mean an additional $461 million for soybean farmers in 31 states.
Consumers willing to pay more for retail beef and pork as market share increases... Consumers are willing to pay more for retail meat and most food service meat, according to the monthly Kansas State University Meat Demand Monitor. For December, consumers surveyed are willing to pay more than November for all five retail cuts of meats (ribeye steak, hamburger, pork chops, bacon and chicken breast). Meanwhile, consumers are willing to pay less for retail sources of protein such as plant-based patty, shrimp and beans and rice. Retail beef market share increased from 31% in November to 32% in December. Retail pork market share increased from 21% to 23%.
Consumers are willing to pay more for ribeye steaks, pork chops, baby back ribs and shrimp at the restaurants. They are willing to pay less for hamburger, chicken breasts and salmon. The restaurant market share for beef dropped by from 41% to 39%, due to a decline in hamburger market share. The restaurant pork market share increased from 15% to 16%.
Brazil unloads wheat imports... After a few days of delay due to agricultural tax collectors’ protest for higher wages, Brazil cleared two wheat shipments at its key Santos port, industry association Abitrigo said. One of the vessels was unloaded on Jan. 2. However, officials did not immediately clear the shipment under a work-to-rule effort, which ultimately affected a second vessel that needed to wait for these procedures to be concluded so it could discharge.
Port of Oakland moves help agriculture exports... The Port of Oakland will be opening a 25-acre off-terminal container yard and equipment to help with the logistics to expedite agricultural exports. The program involves using additional yard space and equipment, restoring export ship calls, and assisting export users. The project will allow for faster truck turn without waiting for in-terminal space. The port is the preferred export gateway for much of California’s agricultural exporters and refrigerated proteins.
India cotton exports drop with lower production... Due to excessive rains during harvest season that reduced India’s cotton production by nearly 4%, cotton exports have dropped as farmers hold tight supplies, according to industry officials. The premium of India’s cotton is 20 cents per lb. over the U.S. futures markets. Typically, there is a 5-cent to 10 cent per lb. premium for India’s cotton. Bangladesh, Vietnam and China cotton buyers are turning to other cotton producers such as U.S., Brazil, Australia and African countries. A trade group official noted the country is only exporting a small amount to Bangladesh.
Domestic demand for cotton in India is strong, as spinning mills are buying cotton due to high yarn prices. Some estimate that India might need to import more cotton this year. Last year, India imported 1 million bales. Importers have already contracted to import 700,000 bales and some estimate the country will need to bring in 2.5 million bales this year. However, a current 10% import tax hinders cotton from being imported.
Brazil poultry exports sets record in 2021... Brazilian poultry exports rose 9% by volume in 2021 to a record 4.6 MMT, industry group ABPA said. Revenue from poultry exports totaled $7.66 billion last year, a 25.7% jump year-on-year. Higher sales to Japan and the Philippines helped offset the 5% drop in exports to China. Brazil’s poultry exports to Africa rose 19.2% and were up 13.2% to the EU, while shipments to the Middle East dropped 0.3%.
The group expects to expand its market share as several countries have bird flu. Japan and the United Arab Emirates are expected to remain among Brazil’s top poultry clients.
