The Ag Analyst's Briefing: Week of Feb. 20

Friday marks the one-year anniversary of the war in Ukraine.

The world is still crazy: Mexico announced its intention to immediately ban U.S. GMO corn, rather than wait until 2024, but then Mexico purchased U.S. corn (yes, the GMO variety) one day later. Then, over the weekend, Barron's made a positive investment case for garbage and recycling companies. They cited the stocks as “recession proof." This comes as recession fears are fading!

Back to this week's executive briefing, we are watching a slew of items that entail the consumer, the PCE inflation report, and fourth quarter U.S. GDP figures. Also, Friday marks the one-year anniversary of the war in Ukraine. Our numbers of interest include data on average cargo rates (down 85% vs. last year’s peak) and federal deficits, among other interesting items.

7 Things On the Watchlist This Week

Black Seas Conflict: Friday the 24th marks one year since Russia invaded Ukraine. Will there be an escalation in attacks?
Cotton Acres: Growers expect to plant 11.4m acres this year, a -17% y/y decline driven by lower planting in Texas. Will acres shift to corn, soybeans or wheat?
USDA: Hosts its annual outlook forum (focus on farm labor and also releases its Food Price Outlook (2/23) and Cattle on Feed (2/24) reports.
The Fed: Releases minutes (2/22) from its latest FOMC meeting. We are watching for commentary signally the split between hawks and ultra hawks.
Consumer Data: Numerous catalysts / update: The CAGNY Conference (NY), earnings from Home De-pot and Walmart, Burger King analyst day
GDP: BEA releases is “second” estimate of 4Q22 GDP; expectations = 2.5%, down from the initial indication of +2.9%
PCE Report: The Fed’s preferred gauge of inflation comes out 2/24, expectations = 4.3%.

Economic Numbers of Interest

6.4%: Last week’s CPI print for January, down from 6.5% in December and vs. 9.1% peak in June 2022
$986 Billion: Current level of U.S. credit card balances, up $61 billion during 4Q 2022; previous high $927 billion in 2019.
362,000: Number of vehicles with Full Self Driving capability that Tesla is recalling/repairing due to reg-ulator safety concerns.
35 million and 5%: U.S. households dispose of 35+ million tons of plastic annually, yet only an estimat-ed 5% is recycled (Source; Barron’s)
$3.41: National average price of gas per gallon, down from the peak of $5.02 in June 2022.
$50 Trillion: The expected Federal Deficit 10 years from now according to Congressional Budget Office figures ($31 trillion today), due to higher veteran’s healthcare, social security / retirement benefits, more military spending and higher interest rates
$1,444: The current cost of shipping a 40-foot container from China to California, down 85% from the March 2022 peak.

Agriculture Numbers of Interest

$304 Million: Dollar value of U.S. pet food exports to China for the first 11 months of 2022, a 197% in-crease year/year.
-50%: Decline in Belarusian potash shipments in recent months according to Nutrien)
+ 34%: Deere’s sales growth for 1Q 2023
$196 billion: U.S. exported $196 billion worth of agricultural commodities in 2022 (a record), up 11% yr./yr.
11%: Adjusted EBITDA margin reported by Nutrien last week
$1.5 Trillion: Estimated cost of 2023 farm bill per the latest Congressional Budget Office (CBO) forecast.
$2 Billion+: Amount of U.S. Ag trade deficit in 2022, despite AG exports hitting a record
74%: The percentage of abandoned Texas upland cotton acres in 2022 because of mega droughts impacting soil.

Equity Performance & Select Indicators

Barrons Equity Chart

Cotton Continues to be Challenging

How Climate Change Is Making Personal Items More Expensive

Cotton farmers in Texas suffered record losses amid heat and drought last year, new data shows.
74% of Texas upland cotton acres were abandoned in 2022
For decades, the Southwestern cotton crop has depended on water pumped from the Ogallala Aquifer (located beneath eight western states from Wyoming to Texas.)
The Ogallala is shrinking, in part because of climate change, according to the 2018 National Climate Assessment, a report issued by 13 federal agencies.

NY Times Cotton

Source: NY Times

Rising U.S. Natural Gas Competition

We are increasingly concerned that LNG exports to Europe will acceler-ate in 2023 and 2024 amidst the ongoing Black Seas conflict, thereby competing with domestic usage (including Nitrogen fertilizer produc-tion.) LNG exports accounted for 11% of U.S. natural gas demand in 2021, an estimated 13% to 15% in 2022 and will continue to increase incrementally. Key question: will more U.S. capacity come on line? Or will it be blocked by environmental considerations? A wild card: could Africa (Egypt, Algeria, Mauritania and Senegal actually provide Europe with 20% of its natural gas needs within 5 years?

US Natural Gas

USDA Releases New Baseline Outlook

USDA provided its annual update on the 10-year baseline outlook; obviously, a commodity market projection 10 years out is difficult to pin-point with any accuracy, but it is a good benchmark of trends.
Looking at the context however does show some interesting and useful insights, for example feed demand and livestock production.
- Cattle inventory is forecast to remain tight; rebuilding to 2021 levels over the next 10 years
- Beef production is projected to recover at a slightly faster pace that cattle herd expansion
- Hog expansion starts to recover in 2023, and pork production trends up each year.
That implies heavier slaughter weights for cattle and higher slaughter volumes for hogs –both leading to higher feed demand for corn –forecast up 18 percent, with exports up 20 percent, and ethanol at zero

U.S. Agricultural Trade Balance is Negative

High commodity prices, supply disruptions, inflationary pressures, and a strong $USD boosted the value of US agricultural exports in 2022. Some of those same factors also constrained the volume of exports and boosted imports. By value, US agriculture faces a trade deficit in 2022 –only the second time since 2000. The last time was 2019, during the ongoing disruption from the Trump Administration tariffs.

US Trade Balance

Source: They Judey Group

January Consumer Inflation Slightly Better

Overall print was +6.4% from 6.5% in December, but Food Infla-tion remains high
Grocery prices rose 11.3% in January from a year earlier.
While grocery inflation has moderated from highs last summer, some items are considerably more expensive
Egg prices in January posted the largest annual increase in nearly half a century.
Carbonated drinks jumped the most since 1981.
Restaurant prices increased by 8.2%

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Kenneth Scott Zuckerberg is Lead Industry Analyst, Grains, Farm Supply & Biofuels, CoBank.