Pelosi’s plan to defeat House farm bill and entice ag sector voters to Democrats
— China needs soybeans, pork and will find ways. China has implemented tariffs on U.S. pork and has threatened tariffs on U.S. soybeans. Exporter contacts say Chinese importers of those products will have to deal with the tariffs, including U.S.-based Smithfield, but there are ways China’s government can and will take to limit the impact on importers. For example, lower taxes is one way, along with other possibilities, sources inform.
As for the Trump administration, the president’s threats to impose tariffs on up to $150 billion worth of imports from China are meant to show that his administration is serious about trying to get Beijing to change its ways — but it hopes it doesn't have to take concrete action, a White House trade adviser said Thursday. “We are taking action to try to show that we are serious and that this behavior needs to change, and we hope ultimately that these tariffs won’t be necessary, that we won’t have to put them in place,” Clete Willems, the special assistant to the president for international trade, investment and development, said at an Institute of International Finance event in Washington. “But,” he added, “the president has also been very clear that if things don’t change, he is willing to take the tough action that’s necessary to change behavior.”
— The war of trade policy words continues between U.S. and China. China accused the U.S. of throwing its weight around in the trade arena, saying it advocates principles of fairness but isn’t living up to them. Foreign ministry spokeswoman Hua Chunying responded today to reports the U.S. Treasury Department is considering using an emergency law to curb Chinese investments in sensitive technologies. “The U.S. is thinking and acting like a bully — only it can have high tech and others cannot. With regard to the high-tech restrictions, they are citing the reason of national security, but their motivation is protectionism. Is the U.S. really that fragile?” Hua said at the ministry’s daily briefing.
Background. The U.S. Treasury Department is considering using an emergency law to curb Chinese investments in sensitive technologies as the Trump administration looks to punish China for what it sees as violations of American intellectual property rights. A law may be used known as the International Emergency Economic Powers Act, passed in 1977, which could affect foreign investment in industries like semiconductors and 5G.
— Soybean export group commissions study to show impact if U.S./China trade clash is implemented. U.S. soybean exports to China could fall by as much as 65% if the trade clash between the two countries leads Beijing to impose retaliatory tariffs, according to a study from Purdue University. The analysis notes a U.S./China trade “war” could cause U.S. soybean exports globally to drop by up to 37% in the next five years, according to Wally Tyner, a professor of agricultural economics at Purdue and author of the report. (Link to the initial Purdue report, which was updated and will be released soon.)
The U.S. Soybean Export Council commissioned the analysis after China announced U.S. soybeans would be among U.S. imports that would face a 25% tariff if President Donald Trump officially implements threatened tariffs to punish Beijing for its intellectual property practices.
Brazil would widely be expected to garner a significant portion of China’s soybean business. But soybean import patterns would shift for other countries. For example, Tyner included the EU, Mexico, Indonesia, and Japan among the nations likely to increase imports from the U.S.
Soybean price rebound… are worried farmers hedging? While soybean futures initially plunged on China’s threatened move against U.S. soybeans, futures have since rallied to levels above where they were during the early April plunge.
Meanwhile, China’s tariffs on U.S. products could backfire, according to an article in the New York Times. Link.
— Pelosi is calling Democrats’ moves on House farm bill. It is now clear that the initial move by House Democrats on the Ag Committee to quit negotiating with Chairman Mike Conaway (R-Texas) followed the call by Minority Leader Nancy Pelosi (D-Calif.) to do nothing that would help move the House farm bill forward. Sources say the bravado among Democratic leaders about their farm bill position increased following President Donald Trump’s tariff announcements, but especially when China reacted against U.S. farm products and several U.S. farm and commodity groups issued high anxiety press releases. The thinking: U.S. farmers and ranchers are so upset about the possibility of reduced export markets and potentially a plunge in prices that it could be a time when many ag sector voters may switch their long-time favoring of Republicans to Democrats.
Pelosi used her weekly press conference Thursday to again blast the House farm bill proposals. Democrats may now follow a strategy on the floor echoing their inaction during Ag panel markup this week: throw verbal assaults at some of the farm bill provisions but offer no amendments to the underlying bill.
“I don’t think this bill is amendable,” Pelosi said when asked whether Democrats would offer amendments to the bill’s nutrition title.
She did not limit her criticism to the food stamp language, similar to the pattern of attack the ranking member on the Ag Committee, Rep. Collin Peterson (D-Minn.), used during markup. Republicans “have to go back to the table and start again,” she said. Pelosi noted the farmer safety net is weak given the uncertainty created by President Trump’s trade policy announcements. The bill “abandons America’s farmers and hungry families,” she said. Veteran Washington observers say the Democrats’ farm bill strategy is now in play as they found an issue and no longer want a bill.
Perspective. A veteran election-watcher said, “The seats the Democrats may win in November in the House aren’t going to be won by Nancy Pelosi liberal Democrats... it will be moderate D’s from rural and ex-urban districts. They aren’t running with her... they have their track spikes on running AWAY from her. Her commenting on farmers and the rural economy doesn’t fly... wrong message and more importantly wrong messenger. She led the House Democratic Caucus away from rural America... and Trump captured it.”
— GOP House Speaker also enters House farm bill arena. House Speaker Paul Ryan (R-Wis.) continues to tout the House farm bill as part of GOP efforts on workforce development. Republicans' next big push will be on workforce development and the farm bill that was approved Wednesday by the House Ag Committee is a key component of that effort, Ryan told conservative radio host Hugh Hewitt. Stricter work requirements for the Supplemental Nutrition Assistance Program (SNAP/food stamps) that are in the House farm bill version are seen as a key component. "It invests the savings you get from a work requirement into making sure you can give people that transition training they need to get the skills they need to get the careers they want," Ryan said.
With lots of job openings and millions of able-bodied SNAP recipients not working, Ryan said, "We want to get them into careers. And that, along with career and technical education reform, so that people can get skills they need and want to get careers that are out there, that is the final big installment of Our Better Way agenda."
Is Ryan calling the farm bill game plan for the GOP? House Agriculture Committee Chairman Mike Conaway (R-Texas) noted he began his lengthy review of SNAP long before Ryan was speaker. Ryan supports the Ag panel’s work, but isn’t the driving force, according to Conaway.
— Other items of note:
- Reuters: Ships carrying sorghum to China changing course. At least five ships loaded with US sorghum that was destined to China have shifted course and are no longer headed to deliver the cargo to China in the wake of the country requiring hefty deposits to be paid due to preliminary results of an antidumping investigation, according to Reuters. The news agency said there were 20 ships carrying over 1.2 million tonnes of U.S. sorghum and at least five of those have changed course. The report said cargoes were sold by Cargill and ADM. It is not clear where the ships that have changed course will be headed.
- Rules of origin content for automobiles remain the key focus for NAFTA 2.0 talks. Countries involved in the NAFTA 2.0 negotiations are hoping to announce a deal "as soon as possible" and automotive rules of origin are the main focus, according to Canadian Foreign Minister Chrystia Freeland. The three countries made some progress in their discussions Thursday, Freeland said, labeling the auto rules as "fiendishly complicated." However, she noted the U.S. had come up with some "creative ideas" on that front, noting the ideas presented last month "really opened up a path for us to move forward," she said. "We've been engaged very intensively since then. We continue to be working very, very hard." Freeland made the remarks after meeting with U.S. Trade Representative Robert Lighthizer and Mexican Economy Minister Ildefonso Guajardo in Washington. Talks between the three are set to continue today.
- A risky NAFTA 2.0 congressional approval strategy is reportedly being seriously considered by the Trump administration, and apparently pushed by U.S. Trade Representative Robert Lighthizer. The potential plan: Force a congressional approval on the new NAFTA by withdrawing from the existing pact even before the new one is ready. Those pushing that strategy think Congress will have to approve whatever terms are in the new deal quickly, avoiding the U.S. from being without an agreement with two of its largest trading partners. White House legislative affairs staffers visited Capitol Hill on Thursday holding briefings for the Senate Finance Committee on a pending agreement, so expect additional leaks to pour forth.
- Canada talks about NAFTA 2.0 timeline. "We recognize the timelines that are in play," Canadian Prime Minister Justin Trudeau said about NAFTA negotiations, referencing the Mexican election in July and U.S. mid-terms in the fall. "As I've said many times we are looking for a deal that is win win win. We are going to stand up for the interests of Canada in every way."
- Trade tensions big topic at IMF confab. Trade tensions between the U.S. and China risk eroding business and investor confidence, even as global growth enjoys its best upswing in years. That is the consistent message being conveyed to finance ministers and central bankers from around the world gathered in Washington for spring meetings of the International Monetary Fund (IMF). “What is extraordinarily meaningful is the questioning of the overall system under which operators have been operating in for decades,” IMF Managing Director Christine Lagarde said yesterday at a press conference. “It’s the confidence that risks being eroded. A Group of 20 meeting will take place on the sidelines. In its World Economic Outlook this week, the IMF listed trade tensions as a key downside risk to the global recovery and warned that it could hurt economies connected by international supply chains.
- A lengthy imbalance in car-trade could be a sticking point in U.S.-Japan trade talks, the Wall Street Journal reports. Japanese car exports to the U.S. are booming, lifted by the growing popularity of SUVs among American consumers. It’s a sore point for President Donald Trump, the WSJ notes, “and stakes are high for Japan, whose auto industry is far more important than its steel industry.” While many Japanese cars sold in the U.S. are assembled at American plants, those factories are weighted heavily toward sedans. Toyota Motor Corp. is importing more RAV4s from Japanese plants, while Nissan Motor Co.’s exports to the U.S. rose by a third last year, led by its Rogue crossover SUV, the article details. The U.S. share of the Japanese car market remains tiny, partly because Japanese buyers prefer smaller, more fuel-efficient models. Link to article.
- Pompeo garners key Democratic vote ahead of hearing. CIA Director Mike Pompeo is nearing the votes he needs for confirmation as secretary of State after Sen. Heidi Heitkamp (D-N.D.) said yesterday she’ll cross party lines to back him.
- Cuba for the first time in six decades has a new president without the last name Castro. But in his acceptance speech, Miguel Díaz-Canel said he would continue the policies of the Castro brothers after being elected by the National Assembly. While Raul Castro is stepping down as the president of Cuba's Council of State, he will remain as head of the country's Communist Party until the next scheduled party congress in 2021.
- USDA Secretary Sonny Perdue holds a media availability this afternoon after meeting with mid-Atlantic state agriculture secretaries and commissioners, administration officials and industry leaders. Meanwhile, Perdue next Tuesday will appear before the Senate Ag Committee hearing on Rural America. Members will likely focus on trade policy issues and RFS topics, along with farm bill queries.
- Senate Minority Leader Chuck Schumer (D-N.Y.) will introduce legislation that would decriminalize marijuana at the federal level. His announcement, the first time he has openly backed federal decriminalization, follows a crackdown on the drug from the Trump administration. In an interview with Vice News, Schumer said that “I’ve seen too many people’s lives ruined because they had small amounts of marijuana and served time in jail, much too long. Ultimately, it’s the right thing to do.”
- USDA to issue guidance to reduce pathogens in meat, poultry, providing best practices for controlling pathogens like Salmonella and Campylobacter on hog farms, based on recommendations made by the Government Accountability Office (GAO). It will also document its approach to setting new limits on pathogens allowed in meat and poultry products.
- Cotton AWP edges lower; another upland cotton import quota set. The Adjusted World Price (AWP) for cotton edged down to 74.16 cents per pound, effective today. That is slightly under the 74.32 cents per pound in effect April 13, but still keeps the AWP above 70 cents and well above the cotton loan rate. Meanwhile, USDA announced the Special Import Quota #26 for upland cotton will be established April 26 for 60,492 bales of upland cotton. This applies to cotton purchased no later than July 24 and entered into the U.S. no later than Oct. 22.
— Markets. The Dow on Thursday finished down 125.90 points, 0.51%, at 24,622.17. The Nasdaq lost 57.18 points, 0.78%, at 7,238.06. The S&P 500 declined 15.51 points, 0.57%, at 2,693.13.
The signal on inflation is coming from TIPS. Even as U.S. economic data has remained solid, but not stellar, expectations for inflation are still on the rise. Based on 10-year Treasury inflation-protected securities (TIPS), inflation expectations now stand at 2.19%, the highest since September 2014, according to Tradeweb data. The expectations for inflation to return to 2% continue to grow, and that is translating into the rise in TIPS.