RFS waivers | EU agrees to launch trade pact with U.S., sans ag | NPPC issues
— U.S./China trade policy update:
- Top-level U.S. and China trade negotiators via a teleconference Thursday discussed the remaining issues, Chinese Commerce Ministry Spokesman Gao Feng said. Both sides will keep in close communication and “spare no efforts” to continue negotiation, Gao said.
- Bottom line to recent trade talks: Both Washington and Beijing are offering a final round of concessions, hoping they will lead to an agreement. President Trump said last week that he expected to reach a deal within the next four weeks, with an additional two weeks to finalize other details, including translation, etc.
- Observers sense trade negotiations nearing an end. Signs that Beijing is addressing issues including financial support for domestic tech industry players, access to key markets — cloud computing in particular — suggest that U.S./China business ties might grow again, Jeremie Waterman, president of the U.S. Chamber of Commerce’s China Center, said. “I think China is listening,” Waterman said in a panel discussion Thursday at the China Institute’s 2019 China Institute Executive Summit in New York. “I think the two sides are working very hard. It’s not the usual practice to have shuttle diplomacy going on at the level of cabinet-level officials, and certainly with Vice-Premier Liu He going back and forth, so I think that’s very encouraging, and the reported progress on cloud, that’s also encouraging.”
- What's holding up a final U.S./China deal? Former WTO chairman James Bacchus, just back from China, told Fox Business, that the key issue is the details: “Whether we will see any type of real enforcement and something that can endure as a mechanism remains to be seen,” Bacchus said. Asked to comment on recent developments that signal President Trump's action on steel tariffs is not working as he wanted, Bacchus said, “Unilateral tariffs backfired in all kinds of ways. They have not done anything to help the U.S. steel industry because there is an overcapacity problem in the world. We should have been working harder to deal with overcapacity issues via international negotiations. A lot of this has to do with illegal subsidies... there needs to be much more of an international consensus on what to do about it. But bullying like the U.S. is doing does not work.”
- USDA Secretary Sonny Perdue told lawmakers he is hopeful of a trade deal with China “sooner rather than later.” In testimony to an appropriations hearing, he said that while estimating the timing of an accord is challenging given “you want to get it right,” he is impressed with how quickly it’s progressing.
- End-zone U.S. trade strategy, sources advise, may include a possible late-offer by the U.S. to China whereby U.S. negotiators will offer to lift most if not all U.S. tariffs on China in return for them agreeing to a no-retaliation clause in a trade deal, meaning the U.S. could impose tariffs on China in the case of an unresolved dispute and China would forgo the right to retaliate. China has rebuffed that so far.
- How China is reporting on the trade war. The Party’s Central Propaganda Department (CPD) developed a strategy both for shaping mainland media coverage of the trade war and suppressing what it perceived as unfavorable international media reports. Last summer, CPD issued instructions to media outlets requiring them to strictly follow the government’s lead in reporting. The media are to echo the statements made by Vice Premier Liu He, China’s chief trade negotiator. In brief, they must present the U.S. as waging “a war against China’s rise.” The eventual outcome of the trade war depends on “which one holds out to the end,” the CPD instructed; “we absolutely must not show any hesitation or softness.” The CPD also issued two general directives:
“Economic achievements and new developments must be given prominence. This will show that our economy has improved at a steady pace as planned. Place important economic reports on prominent pages. Timing is of the essence. Interviews must be sought from academic experts who have been recommended by the various departments. Information published on websites, Weibo and WeChat accounts must be well coordinated so that we present a picture of strength in our online propaganda. Above all, do not mention ‘Made in China 2025’. There will be consequences if you do.” Censorship and the threat of penalties have proven sufficiently effective in coercing media to comply with the CPD’s directives.
- Timeline of the U.S./China trade war. The trade war that President Trump had been threatening began in earnest on Jan. 22, 2018, with U.S. tariffs worth $8.5 billion on imported solar panels and $1.8 billion on washing machines. By March, Trump had authorized tariffs of 25% and 10% on steel and aluminum, and, by 1 April, the PRC began retaliating with tariffs affecting $3 billion of American goods. U.S. tariffs on Chinese imports skyrocketed to reach $200 billion by September, when China’s retaliatory tariffs on U.S. imports reached $60 billion. The 90-day truce reached by the leaders of the two superpowers in Buenos Aires in December 2018 amounted to an agreement to halt further escalation of tariffs, with negotiations on the final deal ongoing.
- China soybean imports hit 4.92 million tonnes in March. Arrival of Brazilian soybeans helped move China's March soybean imports up to 4.92 million tonnes, compared with 4.46 million tonnes in February. However, the import mark is down 13% from March 2018. China has imported 16.75 million tonnes of soybeans the first three months of the year, down 14.4% from the same period to open 2018.
- China March exports rise, but imports fall. China total exports rose 14.2% in March compared to year-ago levels, greater than expectations for a rise of 7.3%, and the strongest increase in shipments registered in five months. Exports were a big jump from the 20.7% fall in January and February. Imports, however, fell 7.6%, more than expected and greater than the 5.2% decline seen in February. Exports in the first quarter were up 1.4% from year ago while imports declined 4.8%. The new data from the General Administration of Customs means that for the first quarter of this year, China’s exports grew by 0.9% while imports contracted by 4.4%. China’s trade surplus with the U.S. was $20.5 billion in March, according to Chinese customs data. Over the first quarter of 2019, China’s total trade surplus widened to $76.31 billion, up from $54.6 billion in the final quarter of 2018. China’s gross domestic product (GDP) growth data for the first quarter of 2019 will be released on April 17, which should offer real evidence of how the trade war with the U.S. has affected the economy.
- China’s vehicles sales fell for ninth straight month in March, fueling consumption concerns. Total automotive sales fell to 2.52 million in March, 5.2% down from a year earlier, new data showed today. Despite consecutive slumps, the China Association of Automobile Manufacturers said that the decline has been “significantly reduced.” To help offset effects of the U.S./China trade war, Chinese Premier Li Keqiang said during this year’s National People’s Congress that China would cut the value-added tax rate for manufacturing firms, to spur consumer spending to stabilize growth. But this does not appear to be helping vehicle sales much, while consumers are also being hit by a spike in inflation, data released on Thursday showed.
- U.S., Canada and EU to offer ‘robust alternative’ to state-led development finance, as Belt and Road Initiative increases reach. The new Overseas Private Investment Corporation (OPIC) alliance is its second, following one last year with Japan and Australia. OPIC head David Bohigian says, “We’re trying to hold up an example ... of the way that development finance should work.” OPIC is a U.S. federal agency that connects private American lenders with governments and developers in developing countries, and its Canadian and EU counterparts announced the new alliance in the form of a memorandum of understanding, signed into effect at a ceremony at OPIC’s Washington headquarters. Critics say China's lending program burdens weak economies with crippling levels of debt, which could in turn bolster China’s geopolitical influence abroad when borrowing countries default and cede control of infrastructural projects to Beijing. OPIC will be granted an increased portfolio cap to $60 billion, from its current limit of around $29 billion, as well as new authority to make equity investments. OPIC’s offerings now centre primarily around financing and political risk insurance. The changes, signed into law under the Build Act, will take effect on Oct. 1.
- China’s efforts to remake its agriculture industry is reaching the global ocean-going tanker business. The country’s Sinochem International Corp. industrial conglomerate is preparing to sell its logistics arm to a Chinese coal magnate, the Wall Street Journal reports (link), in the biggest-ever takeover of a state-run fleet by a private company. The deal will bring Junzheng Energy & Chemical Group Co. around 80 chemical tankers and other ships run by Sinochem International Logistics, operations valued at around $550 million. The agreement comes as the state-owned Sinochem Group moves to pare its business down to core operations. Sinochem’s chemical tankers move products like palm oil and fertilizers, primarily for China’s agriculture sector, which is at the center of China’s wider efforts to remake its industrial economy. That has also led to closer ties between Sinochem and agribusiness giant ChemChina.
— European Union agreed to launch talks for a trade pact with the U.S., despite competing demands over agriculture. The Trump administration insists that Europe open its food markets and officials have been cautioning that their patience is wearing thin, and President Trump is considering tariffs on U.S. car imports, which would hit $60 billion in European exports.
“We have made little progress,” Gordon Sondland, the U.S. ambassador to the EU, told a group of EU lawmakers earlier this week. “The more the EU leadership plays the delay game, the more the resentment grows in Washington.”
Limited agreement desired by the EU. EU governments directed on Thursday the bloc’s executive and sole trade authority, the European Commission, to focus on slashing tariffs on industrial goods, explicitly excluding agriculture. Two days earlier, the U.S. envoy to the EU said agriculture must be included for negotiations to move ahead. Brussels has stressed that the scope of the planned negotiations is strictly limited, and has rejected U.S. calls for further opening of the EU agricultural market.
EU ministers still need to give their rubber stamp, which is due on April 15.
— EPA chief Wheeler signals agency may grant fewer small refiner waivers under RFS. EPA may not grant as many small refiner exemptions relative to the Renewable Fuel Standard (RFS), EPA Administrator Andrew Wheeler told Reuters in an interview.
Prices for Renewable Identification Numbers (RINs) have been lower for an extended period, he told the news service. "The RIN prices have been relatively low and relatively calm since last spring so that would tell me that there should be less economic harm in the refining industry right now than there was a year ago," Wheeler said.
Acknowledging there is "more than just the price of RINs for economic harm," Wheeler said, "but just by that factor alone, I would think there would be fewer refinery exemptions because of that."
EPA is still awaiting recommendations from the Department of Energy on the small refiner waivers, Wheeler said, but still expects those to arrive by the end of the week.
Wheeler did not put a timeline on the decision-making for the exemptions, only saying they would be made following receipt of the DOE data.
Background. There have been 39 exemptions requested by small refiners for the 2018 compliance year. Of 37 requests received for the 2017 compliance year, EPA granted 35 exemptions with one still listed by EPA as pending and one having been withdrawn or declared ineligible.
Wheeler also reiterated the stance he has taken on the EPA plan to provide for year-round sales of E15 — that he expects they will finalize the fuel by the summer driving season.
Meanwhile, Sen. Chuck Grassley (R-Iowa) wants to know if the Department of Energy (DOE) changed its procedures to increase the number of recommendations for exemptions under the RFS. EPA has told Grassley that it leans on recommendations from DOE to decide whether to grant exemptions, according to a letter from the senator sent yesterday. Grassley is asking Energy Secretary Rick Perry to explain whether it has changed its methodology since its formula was developed in 2011, whether EPA has ever gone against its recommendations, and whether it is following previously published procedures. “With Renewable Identification Numbers at multi-year lows, it’s hard to comprehend the alleged disproportionate economic hardship that any refinery could face,” Grassley wrote in a letter (link).
Outlook: Some wary ethanol proponents said they want to see follow through on this possibility before getting too excited. A Pro Farmer industry source said, “Wheeler will be more pragmatic because he’s more politically astute on the ways of Washington than his predecessor. Consensus thinks that ultimately it’s half the number in 2017 so half of the 1.82 billion RINs waived in 2017.” That would still be above the mark exempted in 2016 of 790 million RINs.
— Grassley to join VP Pence in surveying flooding. Sen. Chuck Grassley (R-Iowa) will be joining Vice President Mike Pence Friday in surveying the devastating flooding that has wreaked havoc in his state and several others in recent weeks. Flooding has left hundreds of homes damaged or destroyed by the rising water that hit numerous states last month. Flooding relief is slow going on the federal side, and Grassley wants to begin discussing with the Army Corps of Engineers putting in place a plan to prevent future flooding expected in the coming months. A field hearing will be chaired in Iowa next week by Sen. Joni Ernst (R-Iowa) with the Army Corps, Grassley said on the Senate floor today. “We need to discuss with them how to prevent massive flooding,” Grassley said, adding that flood prevention needs to be the Army Corps’ number-one priority.
— Trump administration wants to accelerate trade deal with Japan. USDA Sec. Sonny Perdue said U.S. Trade Representative Bob Lighthizer is trying to secure terms that are equal to or better than the Trans-Pacific Partnership (TTP, now the CPTPP). He confirmed that there are bilateral talks going on right now with Japan, declining to answer questions on when an agreement would be reached.
— Key concerns for pork producers: Trade with Mexico, Japan and China, USMCA, ASF, labor reform. The need for fast U.S. trade negotiations with Japan and lifting the current Section 232 metals tariffs on Mexico were two of several key topics discussed Thursday during a media briefing held by the National Pork Producers Council (NPPC). Additional concerns of U.S. pork producers include ensuring African swine fever (ASF) does not spread to North America and securing a U.S./China trade deal that sees current tariffs on pork lifted.
Quickly securing a U.S. trade deal with Japan that at least includes the same tariff levels as competitors under the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and the Japan-European Union Economic Partnership Agreement (Japan-EU EPA) is critical, NPPC officials stressed. “We’re losing sales in Japan” and as time passes, the US is losing considerable market share, said Nick Giordano, NPPC Vice President and Counsel of Global Government Affairs. Observing that Japan “is our biggest value market,” Giordano stressed, “You better believe that we're going to be urging this administration and Congress to speed [a deal] along because we have a lot of skin in the game here… we can’t get it done fast enough.” On whether a mini ag-only deal or a broader pact mattered, Giordano emphasized any agreement that puts U.S. pork on equal footing with competitors in the CPTPP and the EU would be acceptable.
USMCA, Section 232 tariffs are resolution keys for exports to Mexico. Re-establishing zero-tariff access with Mexico is another major focus for the U.S. pork sector as this country's pork has been an “innocent bystander” as Mexico imposed tariffs in response to U.S. Section 232 tariffs on steel and aluminum, Giordano said. NPPC previously expected that once the U.S.-Mexico-Canada Agreement (USMCA) was signed Nov. 30, the U.S. would remove the metals duties, yet “they’re still on,” Giordano sadly remarked. Mexico’s retaliatory tariffs of 20% equate to $12 per hog, he detailed, citing data from economist Dermott Hayes of Iowa State University. If those duties remain in place indefinitely, “we lose the entire Mexican market over time,” he warned. The tariff situation might lead to increased production in Mexico, at the expense of U.S. producers. “That’s just how economics works,” Giordano observed. “Even though we’ve had the lowest cost of production, some [producers] are going to start thinking about moving outside the United States.”
Confidence that Congress will ultimately pass USMCA was voiced. “We’re optimistic that there will be a vote before the August recess,” Giordano predicted, adding, “I don’t want to downplay the bumps in the road, but I think that this thing is on target.” He later reiterated that ratification of USMCA and lifting of 232 duties must go hand in hand or else producers will be unable to enjoy any benefit from the new accord.
ASF remains a major worry. Keeping African swine fever (ASF) out of the U.S. is a major concern for the pork group. NPCC has asked Congress to appropriate funding “for 600 new U.S. Customs and Border Protection (CBP) agriculture inspectors to further strengthen our defenses” against ASF, said NPPC President David Herring. The 600-inspector figure came from discussions with CBP officials, said NPPC Chief Veterinarian Liz Wagstrom. “They've identified they need 3,000 agricultural inspectors and they currently are right around 2,400 give or take a few,” she observed. Additional appropriations are needed to reach that level because user fees alone aren’t sufficient to cover the expense, she added.
NPPC had little to add on their decision this week to cancel the 2019 World Pork Expo. Asked if they had similar ASF concerns for state and local fairs this summer, officials said those were of less concern because they typically involve only U.S. exhibitors and there are no confirmed cases of ASF in any U.S. herds.
Opportunity seen for U.S. pork to China. U.S. pork shipments to China represent a major opportunity, Giordano said, citing China’s need to meet domestic demand at the same time ASF continues “ravaging” its domestic production. China is the biggest pork consumer and producer in the world, and “they’re really short of pork today.” That is a “huge” opportunity for U.S. exporters, especially if the U.S. and China ink a deal that sees current retaliatory tariffs lifted. “To maximize the opportunity for U.S. producers, we need to get out from under the tariffs,” Giordano observed. USDA in its weekly Export Sales report Thursday announced a huge Chinese purchase of U.S. pork — 77,700 MT for the week ending April 4.
Reforms to the H2-A foreign guest-worker program are needed, Herring said. Specifically, the group would like to see the program provide year-round visas, not just seasonal. “In all of U.S. agriculture, there is a shortage of workers,” and ultimately the U.S. has to decide whether its wants “to import our workers or import our food,” he said. Removing seasonality requirements for H2-A visas is particularly important for livestock producers, noted NPPC Vice President Jan Sorenson. “Animals require care every day,” so making the program allow for those year-round needs is “critical,” she emphasized.
Improvements seen following Midwest weather challenges. Difficulties for producers from recent Midwest flooding and excessive snow have improved, said NPPC CEO Neil Dierks. When conditions were at their worst and many rural secondary roads were in poor condition, some producers voluntarily restricted load weights and shifted operations to nighttime when muddy roads were firmer due to below-freezing temperatures, he noted. “There was a lot of damage, but it appears more recently to have corrected itself,” he remarked.
— Other items of note:
Issues where Democrats believe there is consensus with Trump. House Speaker Nancy Pelosi (D-Calif.), at a press conference during the Democrats’ 2019 Issues Conference, said she hopes to find common ground with Trump on immigration as well as Infrastructure spending and prescription drug pricing. Meanwhile, Senate Minority Leader Chuck Schumer (D-N.Y.) said he and Pelosi will meet with Trump on infrastructure in the next few weeks, though he’s skeptical any agreement can be reached.
The Senate voted 56-41 to confirm David Bernhardt as Interior secretary. Bernhardt was serving as acting secretary since December, when Ryan Zinke resigned.
Indiana farmer Kip Tom is headed to Rome after being confirmed by the Senate to be the U.S. ambassador to the United Nations food and agriculture programs based there. Tom was approved on a voice vote just before the Senate began its Easter recess.
Manchin says he supports Collins' re-election. Sen. Joe Manchin (D-W.Va.) said Thursday he would support Sen. Susan Collins’ (R-Maine) reelection bid in 2020 and even offered to campaign for her in Maine. Manchin and Collins have worked together on several issues over the years. Both are also centrists who have bucked their parties.
— Markets. The Dow on Thursday declined 14.11 points, 0.05%, at 26,143.05. The Nasdaq lost 16.88 points, 0.21%, at 7.947.36. The S&P 500 edged up 0.11 point, 0.00%, at 2,888.32.
Labor Department reported that claims for unemployment benefits dipped to 196,000 in the week ended April 6 — the first reading below 200,000 in half a century.
China's consumer inflation hit five-month high in March on food prices. Pork prices rose for the first time in 25 months, leaping 5.1% and adding 0.12 point to the CPI, while fresh vegetables surged 16.2% because of the spring off-season and contributed 0.42 point to the CPI. A sharp increase in pork prices since March, due to the number of live pigs and fertile sows continuing to drop because of African swine fever, has raised concerns about a surge in inflation.
Retail forcefully responds to Bezos challenge. The U.S. retail industry has issued an in-your-face response to yesterday's challenge from Jeff Bezos, which dared Amazon's top competitors to "match our employee benefits and our $15 minimum wage." "How about paying your taxes?" declared Walmart's Dan Bartlett, stating Amazon paid $0 in federal taxes on more than $11 billion in profits last year. "We decided to put [tax savings] back into the community of our colleagues," Macy's CEO Jeffrey Gennette added, while eBay CEO Devin Wenig fired back, saying, "We don't compete with our sellers. We don't bundle endless services to create barriers to competition."