Year-round E15 | RFS waivers | Farm bill | Record tonnage for Panama Canal
— No USMCA vote in Senate until 2019: McConnell. Senate Majority Leader Mitch McConnell (R-Ky.) told Bloomberg that a vote on the new trade deal with Mexico and Canada (USMCA) won't happen until 2019, a development that should not surprise most trade policy watchers.
McConnell also said he does not want a government shutdown in December: "Nobody likes a shutdown. There is no education in a second kick of the mule. ... How many times do we have to figure out this is not going to work whether it's a Democrat-inspired shutdown or a Republican-inspired shutdown?”
— The Trump administration said it planned to start formal trade-deal talks with the European Union, Japan and post-Brexit Britain. Negotiations with the first two could begin within months. Talks with Britain would start “as soon as it is ready” after it leaves the EU, said U.S. Trade Representative Robert Lighthizer.
Under fast-track rules, the U.S. cannot start trade talks until 90 days after notifying Congress. The administration must provide (publish) negotiating objectives 30 days before the talks start.
— Summary of U.S. tariffs in China and China's counter-tariffs:
- On July 6, the U.S. implemented a 25% tariff on goods from China totaling $34 billion in annual import value;
- On Aug. 23, the U.S. implemented a second tranche of 25% tariffs on goods from China with an annual import of $16 billion;
- On Sept. 24, the U.S. implemented tariffs on goods from China with an annual import value of $200 billion. The tariff on this third tranche of goods will total 10% until Jan. 1, when it will increase to 25%;
- China's countermeasures: After the first and second round of tariffs were issued by the U.S., China immediately retaliated by implementing a 25% tariff on the same value amount of U.S. goods, and on Sept. 24, China issued 5% to 10% tariffs across $60 billion worth of U.S. goods.
— U.S.-China Economic and Security Review Commission will publicly release its annual report Nov. 14, the commission announced. The annual report will address bilateral trade relations, including tools to address U.S.-China economic challenges and China’s agricultural policies, as well as other issues including China’s Belt and Road Initiative.
— More stores jump to offer E15 fuel after Trump announcement. A growing number of gasoline and retail outlets have announced they will be selling 15% ethanol fuel blends in the wake of President Trump's announcement a week ago that he would be working to open up a year-round market for the fuel.
The large convenience store chain Cumberland Farms is the latest company to add its name to the list of firms that will be selling E15, the ethanol trade group Growth Energy announced on Tuesday. Cumberland Farms joins Casey’s, Kwik Trip, Sheetz, Kum & Go, Minnoco, RaceTrac, Thorntons, Protec Fuel, QuikTrip, Family Express, Holiday, Murphy USA, Rutter’s, and Cenex in selling E15.
Growth Energy supports the Prime the Pump program that works to help retailers sell E15.
Not everyone is happy. The National Marine Manufacturers Association on Tuesday released a digital essay on E15 labeling titled, “Protecting Boaters at the Gas Pump.” The boat manufacturers have warned against making E15 available year round because of the damage the fuel causes to marine engines. It wants Congress to mandate firm labeling regulations to ensure fuel retailers are protecting boaters and other users of small engines from the harm that E15 can cause.
Perspective: Until infrastructure (E15 pumps, storage) is built, industry analysts see limited impact from year-round E15 sales. Sens. Chuck Grassley (R-Iowa) and Joni Ernst (R-Iowa), in a commentary in the Wall Street Journal (link), note that, “Today only about 1,400 out of 122,000 filling stations in the U.S. sell E15. That’s a result of the Obama-era regulation, not a lack of consumer demand. With filling stations prohibited from selling higher-ethanol blends for nearly a third of the year, it often didn’t make economic sense to install the infrastructure necessary to sell the product at all. That will change after the implementation of year-round E15.”
EPA is expected to publish its proposed rule on E15 and RIN market changes by February, an EPA spokesman told S&P Global Platts, a move which would give the agency time to finalize the process by the June 1 start of the summer driving season.
— Democrats urge EPA to stop exempting refiners from biofuel mandates. Nineteen Democratic representatives are pressing the Trump administration to stop giving small refineries exemptions from biofuel blending requirements, arguing the waivers are “contributing to higher gas prices and elevated” air pollution.
The request, delivered in a letter to EPA Acting Administrator Andrew Wheeler, comes a week after President Trump gave a boost to biofuel advocates by announcing his plan to lift summertime restrictions on the sale of E15 blends. Link to letter.
Biofuel waivers for small refineries have “effectively cut blending targets by 2.25B gallons,” say the lawmakers, led by Reps. Ruben Gallego (D-Ariz.) and Danny K. Davis (D-Ill.).
The lawmakers say waived quotas should be reallocated to other, non-exempted refineries, a move opposed by the oil industry. Several GOP lawmakers in both the Senate and House have previously called for the reallocations.
Background. Exemptions are in play as EPA finalizes blending levels for 2019; federal law requires the agency to set those targets by Nov. 30. Under federal law, the EPA can exempt small refineries that use no more than 75,000 barrels of crude per day from mandates compelling them to use corn-based ethanol and other biofuels if they face "disproportionate economic hardship.” Eleven refineries have already asked the EPA for exemptions from 2018 biofuel blending requirements. As of Sept. 19, EPA has granted exemptions to 29 refineries covering 1.46 billion RINs for the 2017 compliance year. Five waiver applications are still pending at EPA for 2017. Link to EPA dashboard.
— Two ships with U.S. soybeans headed to China: Bloomberg. Two more vessels loaded with U.S. soybeans have departed for China, signaling that buyers may be getting more desperate for supplies amid the prolonged trade war between the nations. Star Laura and Golden Empress were loaded during the week ended Oct. 11, Bloomberg reported.
South American supplies from the 2018 harvest are dwindling, and farmers won’t begin collecting the next crop until early next year. That could force some Chinese buying of U.S. shipments.
Perspective. It may be those were purchased earlier and are now loading. There are still sales on the books to China that have not been canceled.
— Panama Canal weighs in with record tonnage, a boost of 9.5%. The Panama Canal closed its 2018 fiscal year with a record tonnage of 442.1 million Panama Canal tons (PC/UMS), a 9.5% increase from the previous year. The canal surpassed the cargo projections of 429.4 million PC/UMS tons for FY 2018, as well as the 403.8 million PC/UMS tons registered in FY 2017. Jorge L. Quijano, the Panama Canal administrator, said the record tonnage reinforces “the importance of the waterway’s expansion and its impact on global maritime trade.”
The increase was driven by the transit of liquefied petroleum gas (LPG) and liquefied natural gas (LNG) carriers, containerships, chemical tankers and vehicle carriers, according to the Panama Canal Authority (ACP).
The container segment was the leading market segment for tonnage via the canal, accounting for 159 million PC/UMS tons of the total cargo, of which 112.6 million PC/UMS tons transited the expanded canal, ACP said.
Tankers, which include LPG and LNG carriers, represented 130.3 million PC/UMS tons. The next leading segments were bulk carriers at 73.7 million PC/UMS tons and vehicle carriers at 49.5 million PC/UMS tons.
Main routes using the Panama Canal in FY 2018 were between Asia and the U.S. East Coast, the West Coast of South America and the U.S. East Coast, the West Coast of South America and Europe, the West Coast of Central America and the U.S. East Coast and intercoastal South America, ACP said. A total of 62.8% of the cargo transiting the canal had its origin or destination in the United States.
— The price of participating in the booming U.S. freight economy is going up. Industry bellwether J.B. Hunt Transport Services Inc. raised truck driver pay at a double-digit pace in the third quarter, the Wall Street Journal reports (link), “sending a strong signal that freight operators are paying up to meet strong shipping demand.” J.B. Hunt’s overall revenue jumped 20% on growing volume and strong price increases. Labor costs also surged, with salaries, wages and benefits up 21.3% from the same quarter a year ago. J.B. Hunt’s operations reach across several business lines, “so the higher labor costs suggest recruiting throughout the industrial shipping world has gotten more aggressive. Companies are betting demand will remain steady, although recent indicators show the growth pace is cooling off.” DAT Solutions LLC says its measure of demand on the spot trucking market pulled back 14% from August to September.
— Farm bill hurdles increasing, not decreasing. Listening to Rep. Collin Peterson (D-Minn.), one of the four farm bill principals, prospects for completing the farm bill after lawmakers return from Nov. 6 elections have dimmed. Lawmakers from areas impacted by recent hurricanes are likely to pressure Congress to pass a disaster-relief package after the midterms, which could complicate efforts to finish a farm bill before the end of the year, Peterson said during an interview with Agri-Talk. “What I’m more worried about now is what happened with this hurricane. I think you’re going to see, when we get back after the election, a lot of pressure from members that are in that hurricane area to either add something to the farm bill or appropriations.” Those efforts, Peterson said, “could potentially give us more problems to solve than we already have.“
Peterson detailed that a compromise farm bill must attract about 10 to 15 Democrats in the Senate and 70 to 100 in the House to pass.
— Other items of note:
- Cruz/O'Rourke debate. Sen. Ted Cruz (R-Texas) and Rep. Beto O’Rourke (D-Texas) squared off in a debate on Tuesday. O’Rourke turned aggressive during their second debate. “He’s dishonest, and it’s why the president called him Lyin’ Ted, and it’s why the nickname stuck — because it’s true,” said O’Rourke, who has fallen behind Cruz in polls. “It’s clear Congressman O’Rourke’s pollsters have told him to come out on the attack,” Cruz replied. Link to New York Times article. Link to the Associated Press account of the debate.
- The race for the House is tightening as elections near. Despite Democrats being considered the favorites to win back control of the House, the Wall Street Journal notes a handful of sleeper races are becoming competitive as Republicans say they are more confident they could have a shot at a pair of Nevada races. Link to article. Meanwhile, President Trump told the Associated Press that he won't accept the blame if the Republican Party loses control of the House in November, arguing his campaigning and endorsements have helped GOP candidates. Link for details.
- China calls for more local oversight of large hog operations amid ASF outbreaks. Local governments in China need to boost their oversight of larger pig farms and breeding farms in the wake of African swine fever (ASF) being reported in another province. Reuters reported there have now been 40 cases reported by China in 10 provinces and municipalities since the outbreak started in August, with 50,000 animals slaughtered as a result. Local governments need to give more attention to larger farms, Yu Kangzhen, vice minister of agriculture, said as he visited Jinzhou city in Liaoning province. He also said that officials need to crack down on false reporting of ASF as some apparently have done so to gain compensation, but he did not indicate how widespread that situation is. Meanwhile, China banned imports of pigs and pig products from Moldova, adding them to a list that includes Bulgaria, Japan and Belgium. China also announced new ASF cases in Shanxi and Liaoning provinces.
- The White House released its preview of federal agencies’ plans for next year’s rule making, touting President Donald Trump’s campaign promise to pare down regulations. Each year, in the spring and fall, the administration must publish a unified agenda of federal regulatory and deregulatory actions listing all rules agencies are actively working on. The Trump administration has slashed $23 billion in regulatory costs so far in 2018 and could quadruple that number next year if it repeals key environmental rules for cars and trucks, the administration said in previewing the release of next year's regulatory agenda. Link to the fall agenda.
— Markets. The major indexes on Tuesday recovered about half their losses since tumbling last week, as both the Dow (up 548 points) and S&P 500 gained 2.2%, while the Nasdaq Composite surged 2.9%
The minutes of the Federal Reserve’s Sept. 25-26 gathering are due to be published this afternoon, with investors likely to comb through them to try to find any hint as to how high policy makers will push interest rates before pausing. One key topic: any discussion on where the neutral rate lies.
China's holdings of U.S. Treasuries fell for a third consecutive month in August, dropping $6 billion, at $1.165 trillion, as the Asian nation struggled to prevent the yuan from weakening amid tensions with America. Beijing's sale of Treasuries is sometimes viewed as a response to the ongoing trade war, especially after China’s ambassador to the U.S. signaled in March his country could scale back purchases of the debt to retaliate against tariffs.
Trade war cost: China's third quarter GDP growth seen hitting lowest since 2009 — Reuters poll. A Reuters poll of 68 economists showed gross domestic product likely grew 6.6% in July-September from a year earlier, slowing from the previous quarter’s 6.7% and hitting the weakest pace since the first quarter of 2009. The predicted third-quarter growth would still be higher than the government’s full-year target of around 6.5%. The report will be released Thursday at 10 p.m. ET.
Some 80% of online shoppers will use Amazon this holiday season. Holiday shoppers will start earlier this year and spend less while more people will begin with Amazon's big marketplace search engine, reported CPC Strategy. Meanwhile, nearly 40% of shoppers use mobile savings apps — more than half of customers are willing to receive texts with discounts while they shop in a brick-and-mortar store, according to a Forrester and RetailMeNot survey.
Former Fed Chairman Alan Greenspan talks about China, U.S. economy. In an interview with Barron's, Greenspan was asked how a trade war with China affect the U.S. economy. His response: “[Tariffs] are exactly the same as an excise tax. If you think you are going to raise the excise taxes in your country to beat the country over here — the people trying to ship into you — you are shooting yourself in the foot. [President Donald] Trump would say that if China loses more than we do, that we won. Well, good luck. Tell that to your taxpayers. There are no winners in a trade war.”
Asked about U.S. budget deficits and debt, Greenspan said, “Crises gets generated after a period of time when you disregard [something]. Most recently, we’ve disregarded the federal budget. We are going to have a $1 trillion deficit in the next fiscal year, and there is no screaming and yelling. The reason? There’s this idea that [the deficit] doesn’t affect my pocketbook. You have to wait until the consequences of the deficit emerge. No politician gets out on the stump and says to constituents, “Our budget deficit is X trillion dollars.” One person in 100 knows what he is talking about. But when inflation goes up to 4%, to 5%, it is politically disastrous. That’s when it becomes an issue. But when it starts rising, it’s already too late in the game to stabilize it. We are working toward stagflation as characterized by a weaker economy and inflation. During the 1980s, we had an obvious occurrence of that. The Federal Reserve can put a clamp on it as [then Federal Reserve Chairman Paul] Volcker did. It lasted for two to three years, and it brought it to a halt. I don’t think it will be terribly different [this time.]”