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Futures Rise, Eye 71st All-Time High

Futures Rise, Eye 71st All-Time High

After closing at a fresh all time high on Wednesday, its 70th high for the year, which is the most new highs for the index since the 77 it set in 1995 (it’s unlikely to surpass that cumulative total in…

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Futures Rise, Eye 71st All-Time High

After closing at a fresh all time high on Wednesday, its 70th high for the year, which is the most new highs for the index since the 77 it set in 1995 (it's unlikely to surpass that cumulative total in the year's remaining two sessions), S&P futures are rising again on very light volume, up 0.2% or 8.50 to 4,793 and on pace for yet another all time high. Nasdaq futures were up 0.24% and Dow futures were higher by 50 points, or 0.14% to 36,432, on pace for a new all time high after the index set its first record close since Nov. 8 on Wednesday. Treasury yields trimmed an advance as did the dollar; oil was lower while cryptos rebounded from post-Christmas tax-loss mauling.

Stocks rose after federal health officials, who suggested omicron may cause less suffering than other strains, said virus deaths are declining even as cases increase. In premarket trading, Biogen shares fell more than 6% after Samsung Group denied a Korean media report that the drugmaker was in talks to sell itself to the company. Some other notable premarket movers include:

  • Meme stock Naked Brand (NAKD US) extended gains in post- and pre-market trading, adding to its 15% gain from Wednesday’s session.
  • FuelCell (FCEL US) traded lower in premarket, adding to losses after the company posted fiscal fourth-quarter results. Craig-Hallum analyst Eric Stine raised the recommendation on the stock to hold from sell.
  • Tesla (TSLA) dipped as much as 1.5% premarket after the EV-car maker filed a recall of 356,309 U.S. vehicles saying the rearview camera cable harness may be damaged by the opening and closing of the trunk lid, preventing the rearview camera image from displaying, increasing the risk of a crash, NHTSA says in a statement dated December 21, 2021.

With just two trading sessions left and as the year draws to a close, investors are contemplating the implications of the fast-spreading omicron coronavirus variant, decreasing stimulus and elevated inflation stoked by supply-chain bottlenecks which may get much worse if China is again forced to lock down its key ports. Key questions include whether Treasury yields will push higher and how much impetus is left in the equity bull market.

“Despite global surges in Covid cases, the markets are reflecting the new reality that Covid is here to stay albeit more on our terms than its,” Kevin Philip, managing director at Bel Air Investment Advisors, said in an email. Next year, “we are facing less of a Covid-influenced world, and a return toward normalcy,” he said.

In other covid news, the number of Covid-19 cases soared 32% to a record 1.73 million on Wednesday, marking the third day in a row with more than a million new infections worldwide. Cathay Pacific Airways plans to scrap Hong Kong flights as the city tightens quarantine rules for aircrew. Meanwhile, countries including Italy and Australia are dialing back their Covid curbs in an effort to keep essential services running, support their economies and allow people to connect. More evidence is emerging that omicron may be less dangerous, particularly in vaccinated people, as virus deaths in the U.S. declined.

In Europe, the Stoxx Europe 600 gauge was little changed, with technology shares bouncing back to pare some of Wednesday’s drop. Volumes remain dismal: according to Bloomberg, volume in the Stoxx 600 was 42% below the 100-day average on Wednesday - and that despite the reopening of U.K. markets. On the data front, U.K. house prices again surprised to the upside, with a 1% m/m rise according to Nationwide.

China’s CSI 300 index climbed on expectations of more steps to bolster economic growth amid an extension of some personal income-tax breaks and calls for policy easing. In Hong Kong, artificial intelligence giant SenseTime Group Inc. jumped on its first day of trading. MSCI Inc.’s overall Asia-Pacific index edged lower.

Asian stocks edged lower on the last trading day this year for several markets as investors weighed the spread of the coronavirus.  The MSCI Asia Pacific Index fell as much as 0.3%. The consumer discretionary sector was the biggest drag on the measure, with Alibaba and Sony among those contributing the most to the drop. Japan, South Korea, Taiwan, Thailand and Indonesia will be shut Friday for new year holidays. “There’s no reason to dump stocks but then, not much reason to buy them either,” said Yasuhiko Hirakawa, head of an investment department at Rakuten Investment Management in Tokyo. “What will happen to virus infection figures in January is on people’s minds while worry over China Evergrande’s problems continues to linger.”   Cathay Pacific Airways said it plans to scrap some passenger flights to and from Hong Kong as the city tightens quarantine rules for aircrew. Australia’s most populous state posted a record number of daily infections, while severe cases reached a high in South Korea. Benchmarks in South Korea and Japan were among the region’s biggest losers for the day, while China’s CSI 300 outperformed. “Liquidity is thin with not a lot of participants in the market and prices are likely to be swayed by futures trading,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities. Solid performance in Chinese equities will support investor appetite amid a lack of any other fresh leads, he added. 

Japanese equities fell in the last trading session of 2021 but managed to lock in their third-straight annual gain. Electronics makers and service providers were the biggest drags on the Topix, which closed 0.3% lower, paring an earlier loss of as much as 0.9%. Fast Retailing and Terumo were the largest contributors to a 0.4% loss in the Nikkei 225. The Topix finished the year with a gain of 10%, while the Nikkei 225 advanced 4.9%. While far behind the 28% jump in the S&P 500, Japanese stocks outperformed regional peers, with the MSCI Asia Pacific Index headed for a loss of over 4% on the selloff in Hong Kong shares

In rates, Treasuries advanced, led by the belly and European bonds were mostly higher; the 10-year Treasury yield pared an advance to drop back toward its 50-day moving average; the benchmark bond remained higher after retracing a portion of Wednesday’s selloff, though 7- to 30-year yields remain above 50-DMA levels which they closed above for first time in weeks. Euro-area bonds also gained, even as most European stock benchmarks and U.S. equity index futures advanced. Japanese government bonds decline across the curve on the last trading day of the year. The yen dropped a second day to touch a one-month low.

In FX, a dollar gauge rose only to reverse all gains as the US session neared. The euro dropped from a one-month high, to touch $1.13, ahead of phone talks between U.S. and Russian leaders amid tensions over Ukraine. Cable dropped after earlier touching an almost six-week high; gilts advanced in line with Treasuries. The Australian dollar steadied near a five-week high against the greenback. Australia’s yield curve bear-steepened following a sell-off of in Treasuries. Iron ore halted a three-day decline and resurfaced above $120 a ton on potential support from restocking by China’s steel mills.

In commodities, iron ore halted a three-day decline and resurfaced above $120 a ton on potential support from restocking by China’s steel mills. Crude oil edged lower after its longest run of gains since February, as the market weighed a series of supply outages against smaller quotas in China, the world’s largest crude importer. West Texas Intermediate traded near $76 a barrel after a 12% jump over six sessions. Brent is heading into the end of the year near $80 a barrel, though volumes over the holiday period have been subdued. Crude was pressured Thursday as China cut the amount of import quota awarded to private refiners and favored complex processors as it seeks to reform the sector. Beijing granted 109 million tons, 11% less than last year, in the first batch for 2022, according to officials from companies that received notification of the allowances. The dollar also climbed, at least initially, making commodities priced in the currency relatively more expensive.

On today's calendar we get initial and continuing claims as well as the Chicago PMI.

Market Snapshot

  • S&P 500 futures up 0.1% to 4,790.75
  • STOXX Europe 600 up 0.3% to 489.37
  • MXAP down 0.3% to 191.84
  • MXAPJ down 0.1% to 623.75
  • Nikkei down 0.4% to 28,791.71
  • Topix down 0.3% to 1,992.33
  • Hang Seng Index up 0.1% to 23,112.01
  • Shanghai Composite up 0.6% to 3,619.19
  • Sensex little changed at 57,803.64
  • Australia S&P/ASX 200 little changed at 7,513.37
  • Kospi down 0.5% to 2,977.65
  • Brent Futures down 0.4% to $78.91/bbl
  • German 10Y yield little changed at -0.20%
  • Euro down 0.4% to $1.1302
  • Gold spot down 0.3% to $1,800.04
  • U.S. Dollar Index up 0.29% to 96.21

Top Overnight News from Bloomberg

  • “All switches are on track to end the remaining bond buying by the end of next year. And when that is done, the policy rate can go up early 2023,” ECB Governing Council member Klaas Knot is cited as saying in interview with Dutch Trouw newspaper
  • “We are careful” on inflation and the risks to the forecasts “are not only upwards,” ECB Governing Council member Ignazio Visco says in an interview with La Stampa daily on Thursday
  • Mario Draghi’s government has won lawmakers’ support for a 32 billion-euro ($36 billion) budget plan for next year aimed at supporting Italy’s growth
  • Italy has eased coronavirus quarantine rules and imposed a vaccine mandate for most activities in a bid to keep essential services running, after the country recorded a record number of cases for consecutive days.
  • Spain’s consumer price inflation rose 6.7% from a year earlier in December, faster than the 5.7% predicted by economists in a Bloomberg survey
  • Two doses of Johnson & Johnson’s Covid-19 vaccine slashed hospitalizations caused by the omicron variant in South Africa by up to 85%, a critical finding since the shot is being increasingly relied upon across the continent, researchers said
  • Hungary delivered the seventh interest-rate increase in as many weeks in a monetary tightening campaign that has so far failed to shore up the country’s battered currency. The forint rose
  • The cost of borrowing money in Turkey is surging, a sign that President Recep Tayyip Erdogan’s policy of driving down interest rates is starting to backfire
  • China faces “unprecedented” difficulty in stabilizing trade next year as favorable conditions that boosted export growth this year won’t be sustainable, according to a commerce ministry official

US Event Calendar

  • 8:30am: Dec. Continuing Claims, est. 1.87m, prior 1.86m
  • 8:30am: Dec. Initial Jobless Claims, est. 206,000, prior 205,000
  • 9:45am: Dec. MNI Chicago PMI, est. 62.0, prior 61.8
Tyler Durden Thu, 12/30/2021 - 08:03

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Government

Missouri Bill Prevents Doctors Being Disciplined If They Prescribe Ivermectin Or Hydroxychloroquine

Missouri Bill Prevents Doctors Being Disciplined If They Prescribe Ivermectin Or Hydroxychloroquine

Authored by Naveen Athrappully via The…

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Missouri Bill Prevents Doctors Being Disciplined If They Prescribe Ivermectin Or Hydroxychloroquine

Authored by Naveen Athrappully via The Epoch Times (emphasis ours),

Missouri lawmakers passed legislation that prevents state licensing boards from disciplining doctors who prescribe ivermectin and hydroxychloroquine.

Missouri Gov. Mike Parson signs a bill in Jefferson City, Mo., on May 24, 2019. (Summer Balentine/AP Photo)

Sponsored by Rep. Brenda Kay Shields (R-Mo.), HB 2149 also bars pharmacists from questioning doctors or disputing patients regarding the usage of such drugs and their efficacy.

With a convincing 130–4 vote in the House, HB 2149 passed both chambers on May 12 and currently heads to the office of Gov. Mike Parson to be potentially signed into law.

The board shall not deny, revoke, or suspend, or otherwise take any disciplinary action against, a certificate of registration or authority, permit, or license required by this chapter for any person due to the lawful dispensing, distributing, or selling of ivermectin tablets or hydroxychloroquine sulfate tablets for human use in accordance with prescriber directions,” reads the draft of the bill (pdf).

It adds, “A pharmacist shall not contact the prescribing physician or the patient to dispute the efficacy of ivermectin tablets or hydroxychloroquine sulfate tablets for human use unless the physician or patient inquires of the pharmacist about the efficacy of ivermectin tablets or hydroxychloroquine sulfate tablets.”

Critics of the bill have noted that the Food and Drug Administration (FDA) has not given approval for usage of the drugs. Ivermectin and hydroxychloroquine have been divisive drugs and politically polarized throughout the pandemic.

“But, nevertheless, the Missouri legislature has chosen to ‘own the libs’ by issuing a gag order against every pharmacist in this state from offering their medical opinion on taking either one of those medications—even if it could kill their patient,” wrote former Democratic nominee Lindsey Simmons in a May 12 Twitter post.

Although 22 countries across the world have approved the use of ivermectin in treating COVID-19, the FDA maintains that the current data show the drug to be ineffective. Large doses can be dangerous, it says.

A recent study published in the International Journal of Infectious Diseases analyzed a national federated database of adults that compared ivermectin with the FDA-approved COVID-19 medication, remdesivir.

After using propensity score matching and adjusting for potential confounders, ivermectin was associated with reduced mortality vs remdesivir,” researchers wrote. “To our knowledge, this is the largest association study of patients with COVID-19, mortality, and ivermectin.”

According to The Associated Press, Missouri state Rep. Patty Lewis, a Democrat, agreed to the bill to satisfy a group of conservatives in the Senate. She added that the bill will not change anything significantly as medical boards do not engage in punishing doctors who prescribe drugs legally.

Tyler Durden Wed, 05/18/2022 - 23:25

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Government

“They Shut Us Down”: Michigan Businesses Sue Whitmer For Losses Due To COVID Lockdowns

"They Shut Us Down": Michigan Businesses Sue Whitmer For Losses Due To COVID Lockdowns

Authored by Steven Kovac via The Epoch Times (emphasis…

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"They Shut Us Down": Michigan Businesses Sue Whitmer For Losses Due To COVID Lockdowns

Authored by Steven Kovac via The Epoch Times (emphasis ours),

A coalition of five bowling alleys and family entertainment centers is suing Michigan’s Gov. Gretchen Whitmer, a Democrat, for losses incurred due to her mandatory COVID-19 shutdowns in 2020.

Michigan Gov. Gretchen Whitmer listens to Democratic presidential candidate Sen. Kirsten Gillibrand (D-N.Y.) in Clawson, Mich., on March 18, 2019. (Paul Sancya/AP)

Michigan Dept. of Health and Human Services director Robert Gordon is also a defendant in the case.

The plaintiffs allege that the shutdowns imposed by Whitmer and Gordon were a “taking” of their businesses without just compensation in violation of both the state and the U.S. Constitution.

The case has been winding its way through the federal courts since January 2021.

Fred Kautz runs the lane oiler at Kautz Shore Lanes in Lexington, Mich., on May 13, 2022. (Steven Kovac/The Epoch Times)

The coalition lost the first round of the legal battle when the U.S. District Court for the Western District of Michigan ruled against it.

Oral arguments were recently held before a three-judge panel of the US Court of Appeals Sixth Circuit.

Plaintiff’s chief counsel David Kallman told The Epoch Times after the appeals court hearing, “The oral arguments from both sides were vigorous. The judges asked a lot of questions. It was the kind of proceeding that makes you proud to be a lawyer.

“Even the defense acknowledges that we are presenting ‘novel’ arguments.

“Michigan is the only state in the nation where a governor’s public health emergency powers were overturned as unconstitutional.

“If we lose in the court of appeals, we will take this case to the U.S. Supreme Court.”

Scott Bennett, executive director of the Independent Bowling and Entertainment Centers Association, told The Epoch Times,

“The governor’s actions were devastating to our industry.

“Things went from ‘two weeks to slow the spread’ to indefinite shutdowns.”

Bennett said that the forced closures were not based on solid scientific proof that bowling alleys and family entertainment centers would spread the virus any more than the Walmart stores or the GM plants that were allowed to remain open.

“They were allowed to operate with hundreds and even thousands of people in them but we had to shut down. We feel our industry was unfairly singled-out.

“We cannot stand for a repeat of such arbitrary treatment and don’t want the people of Michigan to forget what was done to them.”

With the recent uptick in COVID cases and the approaching mid-term elections, Bennett said his members that survived the 2020 shutdowns feel like it can happen all over again.

“It’s like operating day-to-day with a hammer held over your head. The uncertainty is altering business plans. The value of our businesses is dropping through the floor,” Bennett said.

Brian and Mindy Hill work the counter at their bowling alley in Imlay City, Mich. on May 13, 2022. (Steven Kovac/Epoch Times)

Fred Kautz, the proprietor of Kautz’s Shore Lanes in Lexington, Michigan, started working in the family business when he was 13.

The business has 12 bowling lanes, a bar, an arcade, a restaurant, and living quarters upstairs.

“We’ve owned this place for 42 years. For me and my family, it’s more than a place to work. It’s a way of life. And it has become an institution in our community—a real gathering place,” said Kautz.

He said he is still smarting from what happened after Whitmer’s executive actions were ruled unconstitutional by the Michigan Supreme Court in the fall of 2020.

“We got a little reprieve. We thought we were in the clear until she came back with another round of forced closures, this time under the authority of the Michigan Department of Public Health.

The first 30 days knocked us right on our butts. But we were willing to cooperate, to do our part. We were all scared and we did not want to see harm come to anybody.

We lost a lot of money at the time. We are coming back slowly, but our overall revenue is still down 20 percent from pre-pandemic days. That’s hard to make up.

“In the spring of 2020, I tried to do what was recommended and go along. Never again!

“If my Dad was still alive, he’d have never closed at all,” said Kautz.

Brian and Mindy Hill, owners of I.C. Strikes, a 16-lane bowling alley, bar, and snack bar in Imlay City said their business was hit hard by the shutdowns.

Brian was the town barber for 25 years, before purchasing the bowling alley where he learned to bowl as a child.

“We took over in December 2018. We’d saved up money to buy this place and make some upgrades. When COVID hit, we were forced to close down. It took all the money we saved for improvements just to survive,” said Brian.

The Hills said they never thought they’d see the day when their own government could do something like that to them.

Mary Bacon, assistant manager of Jump City, a family recreation center, cleans an arcade machine in Imlay City, Mich., on May 13, 2022. (Steven Kovac/The Epoch Times)

They shut us down. They took away our livelihood with no end date in sight. Then they wanted to loan us money. Think about that. They first put us in a situation where we had zero income to pay our previous debt. And then they wanted to loan us more money.

“Lots of small business people lost their businesses but kept their debt. It ruined them,” said Brian.

The Hills did apply for and receive a Small Business Administration loan at 3.25 percent interest for 30 years, and they participated in the Paycheck Protection Program which helped their business survive.

Up the road from the Hill’s bowling alley is Jump City, a large indoor recreation center offering an array of bouncy houses and arcade games for children.

Assistant manager Mary Bacon told The Epoch Times, “We lost a lot of business. We were forced to close for 15 months and had to make our payments with no income.”

Bacon remembers the morning of March 16, 2020, when many area businesses were gearing up for big St. Patrick’s Day celebrations.

“By afternoon everybody had to close. All that food went to waste.

“The shutdown was supposed to be for a couple of weeks. Nobody foresaw it would drag on for a year and three months.

“Oh, they said we could open again, but they so severely restricted the number of customers that we lost all of our big birthday parties. With so few kids allowed in, we couldn’t operate. We were losing too much money.”

Bacon said people are coming back to the center but are still scared, even though the games and bouncy houses are continuously cleaned and sanitized.

Navaeh Smalstig, 8, climbs out of a bouncy house at Jump City in Imlay City, Mich., on May 13, 2022. (Steven Kovac/The Epoch Times)

Before the pandemic, Danny Brown owned a roller rink in Grand Blanc and Owasso, two south-central Michigan towns.

“The lockdowns forced us to sell the Owasso rink for less than half of what we paid for it. We will be trying to make up our loss for years to come.”

Brown, who is a plaintiff in the lawsuit, told The Epoch Times, “To keep going I had to decide to triple our debt. Since the shutdown, I am three-quarters of a million dollars deeper in debt.

“Small businesses put everything on the line. All of our personal and family money. I am personally responsible for our debt. If I die my children will have to pay it.”

Brown said Michigan’s government acted without a real understanding and regarded the state’s small businesses as “nonessential throwaways.”

“One of the reasons we filed suit is to push the government to think differently,” he said.

According to Brown, family entertainment centers like skating rinks, bowling alleys, arcades, pool halls, miniature golf, and go-cart tracks have been nearly wiped out.

“A few years ago, there were 3,500 roller skating rinks in the United States. Now there are 700. There were five rinks in Genesee County, now there are two.” he said.

Brown attributes the decrease to years of ongoing government mandates and interference that led up to the COVID-19 lockdowns.

“They took, they stole our businesses!” he said.

Donn Slimmen, another plaintiff in the case, owns Spartan West Bowling in the west Michigan resort town of Ludington.

“The lockdown just about killed us. It was 14 to 15 months of agony. Our bank payments and utility bills didn’t stop. We went from being two to three months behind to more months behind.

“We entered into survival mode. We ate a lot of pork and beans and hotdogs. We’re still trying to work ourselves out of the hole. By the end of this summer, we might be solvent again.

“We were lucky to survive. We are still hanging on by threads,” said Slimmen.

Along with 16 bowling lanes, Slimmen operates a full-service restaurant.

It’s never come back. Pre-pandemic, we’d serve 200 customers at an ordinary Friday fish fry. Now our best night is 100.

“Our restaurant went from a thriving seated-guest business to a take-out operation grossing only two to three percent of the seated sales.

“We were spending $400 to take in proceeds of $100.

“The politicians and bureaucrats don’t understand. They never cleaned a toilet seat or climbed into a bowling machine to fix it,” said Slimmen.

Slimmen blames Gov.Gretchen Whitmer for the plight of his community and the state.

“You didn’t see Republican governors closing businesses. Their states did so much better.

“Drive through downtown Ludington or Muskegon and look at all the boarded-up storefronts. So many places are out of business. Michigan is in terrible shape,” Slimmen said.

The Tomassoni family has been in the bowling business for 84 years in the western Upper Peninsula town of Iron Mountain, Michigan.

We had to close bowling and our banquet facility a total of 161 days in two different periods of time in 2020. After the second shutdown, we could operate at 25 percent occupancy and only during restricted hours. No wedding receptions, no special events. It was a disaster.

“It ripped my heart out. I am so bitter towards my government,” said owner Pete Tomassoni.

Tomassoni’s business suffered further because of its proximity to Wisconsin which is only minutes away.

“Wisconsin closed for just 30 days. For the most part, they were wide open. That really hurt us.

“Our governor was picking and choosing which of our state’s businesses could operate. To force a business to close with no notice and without proven science is straight out wrong.

“I think that she came down so hard on small business because we, by and large, lean to the right.

“The state dangled the threat of yanking business licenses to keep people in line.

“Some of our businesses tried to defy the state and stayed open

Tyler Durden Wed, 05/18/2022 - 21:25

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Diesel Costs Deliver Body Blow To Trucking Industry, Impacting Broader Economy

Diesel Costs Deliver Body Blow To Trucking Industry, Impacting Broader Economy

By Noi Mahoney of Freightwaves

With diesel prices remaining…

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Diesel Costs Deliver Body Blow To Trucking Industry, Impacting Broader Economy

By Noi Mahoney of Freightwaves

With diesel prices remaining elevated — forcing significant costs onto shippers and trucking companies — the impact of fuel costs on inflation could put a dent in consumer spending, according to experts.

Diesel pump prices averaged $5.61 a gallon nationwide, 51% higher than diesel prices across the country in January

Economist Anirban Basu said the elevated price of diesel fuel damages the near-term U.S. economic outlook and “renders the chance of recession in 2023 much greater.”

“These high diesel prices mean that despite the Federal Reserve’s early stage efforts to curb inflationary pressures, for now, inflationary pressures will run rampant through the economy,” Basu, CEO of Baltimore-based Sage Policy Group, told FreightWaves. 

Earlier this month, the Federal Reserve announced a half-percentage-point increase in interest rates, the largest hike in over two decades. The U.S. inflation rate is at 8.3%, near 40-year highs.

Basu said consumer spending remains strong, even with elevated diesel prices, but that could change as shippers and trucking companies eventually must pass higher fuel costs on to the public. 

“One of the things we’ve been seeing in the U.S., particularly on the East Coast, is that diesel fuel inventories have been shrinking, which suggests that despite all this inflationary pressure, there’s still a lot of consumer activity, still lots of trucks on the road and the supply is unable to keep up with demand,” Basu said. “The higher price of diesel fuel will become embedded in the cost of everything consumers purchase.” 

Prices of fresh produce rising

Jordan DeWart, a managing director at RedWood Mexico, based in Laredo, Texas, said the types of consumer goods that could be immediately affected by higher diesel prices include fresh produce. Redwood Mexico is part of Chicago-based Redwood Logistics.

“With produce, that’s typically more in the spot rate business, and any of those smaller trucking companies are going to be heavily impacted by fuel costs,” DeWart said.

The U.S. imported more than $15 billion in fresh produce from Mexico in 2021, including avocados, tomatoes, grapes, bell peppers and strawberries, according to the U.S. Department of Agriculture.

“Everything coming northbound from Mexico through Laredo, the rates have been very sustained, but fuel prices keep going up, presumably with any differences being absorbed by the trucking companies in the spot market,” DeWart said. “When we talk to asset-based truckers, especially the smaller companies, they’re really feeling the pinch.”

It’s not only cross-border operators feeling the pinch. Growers and shippers in Texas’ Rio Grande Valley are also suffering because of increased fuel costs, said Dante Galeazzi, president of the Texas International Produce Association (TIPA).

“Our growers, shippers, importers, distributors … basically our entire supply chain has been and continues to be impacted by rising fuel costs,” Galeazzi told FreightWaves. “Between one-third to one-half of the costs for fresh produce is the logistics; you can see how quickly increases in that expense category can impact the base price.”

The Rio Grande Valley is the epicenter of the Lone Star State’s fresh produce industry, stretching across the southeastern tip of Texas along the U.S.-Mexico border. More than 35 types of fruits and vegetables are grown in the valley, which contributes more than $1 billion to the state economy annually.

“More concerning is that this wave of fuel increases is in line with the statistic that our industry is paying anywhere from 70% to 150% more year-over-year for OTR shipping,” Galeazzi said. 

TIPA, which is based in Mission, Texas, represents growers, domestic shippers, import shippers, specialty shippers, distributors and material and service providers. 

Right now, Rio Grande Valley growers and shippers are absorbing higher input costs instead of passing them on to consumers, but that could soon change, Galeazzi said.

“While the fresh fruit and vegetable industry continues to experience rising input costs across the board (seed, agrochemicals, labor, fuel, packaging, etc.), we have yet to experience sufficient upstream returns associated with those expense increases,” Galeazzi said. “Our industry is citing an 18% to 22% anecdotal increase to overhead costs. Meanwhile food inflation for fresh produce is hovering around 7%. That means the costs are slowly being felt by consumers, but it’s not yet at a commensurate level with input expenses.”

Diesel fuel prices at all time highs

The cost of diesel continues to soar across the country. Diesel pump prices averaged $5.61 a gallon nationwide, according to weekly data from the Energy Information Administration (EIA). That’s 51% higher than diesel prices nationwide in January. 

California averaged the highest fuel prices across the U.S., at $6 per gallon of gas and $6.56 per gallon for diesel, according to AAA. Diesel prices are also at an all-time high of $6.41 in New York.

The higher prices of diesel fuel and gasoline are being caused by a combination of factors, including surging demand and reduced refining capacity, along with the disruption to global markets caused by COVID-19, the current lockdown in China and the ongoing Russia-Ukraine conflict, said Rory Johnston, a managing director at Toronto-based research firm Price Street.

“The overarching oil market is feeling much tighter because of the Russian-Ukraine situation,” Johnston, also writer of the newsletter Commodity Context, told FreightWaves. “What we’ve seen is a larger immediate impact from the loss of Russian refined products; in addition to exporting millions and millions of barrels a day of crude oil, Russia also exported a lot of refined products, most notably middle distillates, like gasoline or diesel.”

Several refineries on the East Coast — including facilities in Newfoundland and Labrador, Canada — scaled back during the early days of the pandemic, which has hurt diesel capacity, Johnston said.

“There was also a refinery in Philadelphia that exploded just prior to the COVID-19 period starting,” Johnston said. “There’s not enough refining capacity on the global level, and particularly in the West right now and particularly in the northeastern U.S.”

He said he doesn’t foresee any relief from increasing diesel prices over the next few months or more.

“Things are going to be really tight for at least the next year, barring any kind of economic recession and some kind of demand slowdown materially,” Johnston said. 

DeWart said trucking companies that don’t have a fuel surcharge component or contract in place and are depending on spot rates could be in big trouble over the next several months as diesel prices either keep rising or stay higher than average. 

“Their fuel costs keep going up, but they’re really not able to negotiate higher rates right now with a really tight spot market,” DeWart said. “It’s really impacting small trucking companies, anyone that decided to kind of play the spot market, rather than being locked in contracted rates. They’re really feeling the pain right now.”

DeWart said for trucking companies, it’s critical to get some type of fuel reimbursement program in place “just to protect themselves in case the cost of fuel goes even higher.”

Tyler Durden Wed, 05/18/2022 - 19:25

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