The Ag Analyst’s Briefing: Week of Feb. 27 Watchlist
Is the air getting thin?
Friday was a volatile day with several different cross-currents that negatively impacted equity and credit markets (the S&P 500 finished the week down 2.7% and is now only 3.4% YTD). The main event was higher-than-expected January Personal Consumer Expenditure (PCE) (aka, inflation) both for the current and prior month.
Meanwhile China’s proposal to help guide a cease fire between Russian and Ukraine was an outline, rather than an action plan. Looking ahead, the Russian/Ukraine conflict is unlikely to resolve itself in the near-term, and thus, expect continued volatility in agriculture, energy, materials, metals commodities even if hedge funds are no longer “long” commodities for the “inflation trade.” On weather, several large snow falls in the Upper Midwest, Great Lakes region (and California), may prove to be well-timed, given the potential to alleviate drought conditions as Spring planting season approaches.
As the week begins, we are focused on geopolitics, U.S. farm bill discussions and the interest rate / inflation / economic growth / credit deterioration debate.
Equity Performance & Select Indicators
Source: Barron’s, Wall Street Journal
The Watch List
Global GDP: Economic activity has picked up in U.S., EU and U.K. in February, a boost for the global economy and a sign of resilience as Russia’s war on Ukraine is poised to enter its second year. (Source: S&P Global survey)
Black Seas Grain Deal: Current deal expires March 18th, Russia is already telegraphing it will not renew
Geopolitical Risk: Russia made threatening comments vis a vis the US/Russia nuclear treaty, Will China provide weapons to Russia? Could Moldova be the next target for Moscow?
Ag Exchange Rate Report: Important to help guide what 2023 will bring given recent data showing an ag trade deficit (only the 2nd time in past 20 years.)
Washington: Senate Agriculture Committee will focus on farm bill conservation and forestry programs, while House Republicans will focus on the waters of the U.S. (WOTUS) rule (Source: AgriPulse.).
Commercial Real Estate: Hearing comments that the number of large office landlords defaulting on loans is on the rise = suggests remote / hybrid work habits may permanently impair the U.S. office market.
Numbers of Interest
Agriculture
60, 13, 10 At the end of 2022, 60 soybean crush plants were operational in the United Sates and 13 new and 10 expansion projects are planned to be running by 2025 (Source: American Soy Association.)
-29% and -17% USDA indicated that Ukraine wheat and corn exports will be down 29% and 17% during 2023.
Economic and Other
2.7% Second estimate of U.S. Q422 GDP (down from advanced estimate of 2.9%) due to weaker consumer spending in the final quarter of 2022.
4.7% January PCE, which was above the 4.3% expected; also December PCE revised higher to 4.6% from original 4.4% figure. Note – inflation figures will look “wonky” as we get to March 2023 and beyond given base effect distortion (i.e., last year’s inflation rates were high following Russia’s invasion into Ukraine. )
6.5% Expected GDP growth for India in 2023 (highest among major world economies)
U.S. 4Q GDP Lowered But Still Positive at 2.7% as Consumers Continue to Spend
Kenneth Scott Zuckerberg is Lead Industry Analyst, Grains, Farm Supply & Biofuels, CoBank.
