Washington Insider-- Friday
Retail Sales Surprise
Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.
USDA's Meyer Outlines 2021 Acreage, Trade Prospects
The USDA Outlook Forum is in virtual form this year, with USDA Chief Economist Seth Meyer laying out the economic landscape for the agricultural sector. He noted the rebuilding of the Chinese hog herd as a factor in markets, including corn and soybeans.
For corn, Meyer detailed, “What we have seen, though, in China, and what has sparked this big import of corn has been the spread between internal prices for corn in China and what corn prices are elsewhere in the world.” He put the difference in price at round $150 per metric ton.
He also said the tariff-rate quota (TRQ) will not be a limit on Chinese corn imports.
For 2021 U.S. planted acreage, he said USDA sees corn planting at 92 million acres and soybeans at 90 million for a combined 182 million acres, a record. For wheat, Meyer said that USDA sees a “small rise” in wheat area for 2021 to 45 million acres. He also noted that winter wheat harvested area is a “question.” He also said USDA sees cotton plantings at 12 million.
USDA sees season average prices for corn at $4.20 per bushel, soybeans at $11.25 per bushel and wheat at $5.50 per bushel in their respective 2021-22 marketing years, Meyer said, while the agency expects higher prices forecast compared with 2020 for live cattle at $115 per cwt., hogs at $50.50 per cwt., and broilers at 84.5 cents per pound.
But to hit the price marks, he said there needs to be “robust domestic demand and solid exports.” Interestingly, Meyer commented on the Food Box program, noting a question is if USDA maintains the program.
Overall U.S. agricultural exports in Fiscal Year (FY) are now seen at a record $157 billion against imports at a record $137.5 billion for a trade surplus of $19.5 billion. That would be $17 billion higher than FY 2020 and the biggest trade black ink since FY 2017 when it was $21.1 billion.
Senators Push For COVID Vaccinations For Farm, Food Workers
There needs to be a “swift vaccination of farm and food chain workers” as it is “imperative that these essential frontline workers be included in initial phases of vaccine distribution nationwide,” Senate Ag Committee Chair Debbie Stabenow, D-Mich., and Sen. Cory Booker, D-N.J., said in a letter to White House Coronavirus Response Coordinator Jeff Zients.
The lawmakers lamented that states and other jurisdictions have excluded farm and food chain workers in their vaccine distribution plans. They also called for vaccines distributed through employers be done in consultation with union and worker representatives.
“This must be done in order to both adequately ensure their health and safety while also guaranteeing the continuity of food production and distribution in the U.S.,” the lawmakers said.
Washington Insider: Retail Sales Surprise
Bloomberg is reporting this week that U.S. retail sales surged in January “by the most in seven months, beating all estimates and suggesting fresh stimulus checks helped spur a rebound in household demand following a weak fourth quarter.”
The value of overall sales increased 5.3% from the prior month after a 1% decline in December, the Department of Commerce (DOC) report said. “It was the first monthly gain since September. All major categories showed sharp advances,” DOC said.
Ahead of the report, the median estimate in a Bloomberg survey of economists called for a 1.1% monthly gain in retail sales.
A surge in COVID-19 cases curbed spending at year-end, but since then, virus cases have ebbed and states have started to ease some restrictions on businesses and activity. The ability to shop and eat out, paired with the latest round of $600 stimulus payments, helped drive spending increases across a variety of categories, Bloomberg said.
The jump in retail sales could further embolden Republican opposition to President Biden's $1.9 trillion stimulus plan which many in the GOP already criticize as “too big,” Bloomberg said. Even so, Democrats are on track to narrowly pass the package without Republican votes – and the new retail sales data could also be held up as evidence of how critical relief payments are to the economy and jobs.
The report shows that “when fiscal aid arrives to household balance sheets, it does get turned around fairly quickly and materializes in economic activity,” Michael Gapen, chief U.S. economist at Barclays Plc, said.
With another stimulus package likely in March, “we should see a pretty rapid acceleration in demand and household spending as we move into the into the second quarter, which could be continued if vaccinations continue apace, and mobility gradually recovers over time,” Gapen said.
Non-store retailers' sales, which includes online stores, rose 11%, the most in two years. Food services and drinking places rose 6.9% as restrictions eased at restaurants and bars across the country. Furniture stores, and electronics and appliance merchants also saw double-digit gains in the month.
The so-called “control group” subset of sales, which excludes food services, car dealers, building-materials stores and gasoline stations, rose 6%, the largest gain since June.
Bloomberg said its own economists reported that “The strength and composition of retail sales (specifically the tilt toward discretionary categories) is an encouraging signal that consumers' aggressive saving patterns from 2020 are starting to ease—a development which, if sustained, could unleash a torrent of pent-up demand in 2021.”
The report noted that gas station receipts rose 4%, at least in part reflected higher fuel prices. The retail figures aren't adjusted for price changes, so sales also reflect changes in gasoline costs. At the end of January, the average nationwide price for a gallon of gasoline was $2.42 – roughly in line with pre-pandemic prices.
Other data from the Labor Department showed producer prices increased 1.3% in January, the biggest gain in records dating back to 2009, driven by broad-based gains in categories including energy and food.
The core measure, which excludes energy and food, jumped by 1.2% – also the most in records – over the prior month. Meanwhile, the core consumer price index – a key measure of prices paid by U.S. consumers – was unchanged in January for a second straight month, pointing to the pandemic's lingering restraint on inflation.
A separate report from the Federal Reserve on Wednesday “showed manufacturing extended its recovery in early 2021. Output rose in January by more than forecast, though it remained 1.9% below the pre-pandemic level.”
Bloomberg also noted that the National Association of Home Builders showed increased confidence among residential construction firms in February as the allure of low interest rates generated more prospective buyer traffic. Still, rising construction costs threaten to slow demand, Bloomberg warned.
So, we will see. The declines in COVID-19 cases are clearly good news, as are the stronger retail markets. Still, the threats from the virus are very significant and efforts to test and vaccinate continue to be extremely important — key trends producers should watch closely as they emerge, Washington Insider believes.
Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products and on the News and Analysis Menu of DTN's Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the US Ag Policy, US Farm Bill and DTN Ag News sections on their News Homepage.
If you have questions for DTN Washington Insider, please email edit@dtn.com
(c) Copyright 2021 DTN, LLC. All rights reserved.