Evening Report | May 3, 2022

U.S. says China tariff relief ‘on the table’... U.S. tariff relief on China is now under consideration at the White House as the Biden administration confronts the strongest U.S. inflation readings since the early 1980s. “Are they on the table or not? All tools are on the table,” U.S. Trade Representative Katherine Tai said during an interview at the Milken Institute Global conference in Los Angeles. “The question is ‘What do you do with them?’”

Last week, Treasury Secretary Janet Yellen also proposed the phasing out of Trump-era tariffs on merchandise imports from China to provide price relief to Americans. “While they may have created negotiating leverage, they serve no strategic purpose,” added Daleep Singh, deputy national security adviser for international economics. “From the beginning of the administration, we talked about how some of the tariffs implemented by the previous administration were not strategic and, instead, raised costs on Americans,” White House Press Secretary Jen Psaki further declared at a press briefing. “And our effort — which has been ongoing, of course — has been to ensure current Section 301 tariffs align appropriately with our economic and trade priorities.”

Ukraine’s spring planting nearly one-third done... Ukrainian farmers have planted around 31% of the area expected for spring crops, or 4.7 million hectares, Ukrainian grain traders union UGA said, citing official data. UGA said Ukraine planned to sow 11.45 million hectares to spring grains this year, 3.5 million to 4 million hectares less than in 2021 due to the Russian invasion, including 190,000 hectares of spring wheat, 900,000 hectares of spring barley and 3.9 million hectares of corn. To date, farmers had sown 180,000 hectares of spring wheat, 844,000 hectares of spring barley, 1.274 million hectares of corn and some other grains.

Ukrainian official claims ‘blackmail’ amid grain tariff rate increase at Danube ports... With Ukraine’s Black Sea ports blocked by Russia, grain exporters looking to use Danube ports face a rapid and unjustified increase in tariffs, an interior ministry official said. Vadym Denysenko, an interior ministry adviser, said on Facebook the rate of grain transshipment at the ports of Reni and Izmail before the start of the war was $5 to $6 per metric ton. Rates have increased to $12 dollars per metric ton.

“I understand earnings, but a fourfold increase is no longer a market, it’s blackmail,” Denysenko said. “We talk about the importance of exports, but, unfortunately, all this turns into an opportunity to earn money for some people, and not into an opportunity to somehow support the economy,” he said.

Port authorities said they had no exact level of prices which “are set by commercial structures.”

As we reported in “First Thing Today,” Ukraine will have significant grain storage issues as exports have been slowed by Russia’s invasion. WTO director-general Ngozi Okonjo-Iweala says ways need to be found to get grains out of Ukraine before this year’s harvest to help alleviate food security concerns. She says 18 member countries have notified WTO of food export restrictions and she is “seriously worried” about the impact on already record-high global food prices.

Germany says ag-based biofuels not only way to reduce emissions... The European Union has agreed on a 7% cap for food-based biofuels. Germany is seeking to reduce that figure further – most recently to 4.4% – and now is looking to take it even lower, with the agriculture ministry saying it is working on new legislation to achieve this goal.

Last Friday, German paper Augsburger Allgemeine Zeitung (AAZ) reported Germany’s Environment Minister Steffi Lemke was working with the agriculture ministry on such a limit as “agricultural land is needed for food, as the war in Ukraine dramatically shows us.”

“Corn, rapeseed or soy are not the only way [to cut CO2 emissions]. Fuel makers can use synthetic and waste-based biofuels, electricity and green hydrogen,” a ministry spokesperson said, commenting on a the AAZ report that Germany would further cap production of agricultural fuels. The spokesperson said Lemke’s plans to further limit use of food products in biofuels was a “logical next step” but declined to give more details on the scope and timeline of the proposed changes.

EU wheat, barley exports running behind year-ago... AS of May 1, the EU had exported 21.95 MMT of wheat, according to official data from the European Commission. That was 1.01 MMT (4.4%) behind the same period last year. EU barley exports totaled 6.44 MMT, down 310,000 MT (4.6%) from the same period last year.

USDA: More than 2 million acres to be accepted into CRP via general signup... USDA announced that over 2 million acres have been accepted into the Conservation Reserve Program (CRP) via the general signup that ended in March. USDA said producers submitted offers on just over half of expiring CRP contracts for re-enrollment via the general signup, but there were less 400,000 acres offered as new acres to be enrolled into the program. Last year, USDA noted there were over 700,000 new acres offered for enrollment via the general signup conducted then.

The announcement from USDA does not quite mesh with comments USDA Secretary Tom Vilsack made April 5, when he told reporters on a call that 52% to 56% of acres under contracts that mature at the end of September were not offered for re-enrollment. Vilsack also said that around 800,000 acres of land not currently under a CRP contract were to be enrolled in the program. The detailed signup information will be important to view. 

Big new investment money is heading into cold storage... Private-equity firm Bain Capital and real-estate developer Barber Partners are teaming up on a $500 million plan to build 10 to 15 refrigerated warehouses across the U.S. in the next few years. The Wall Street Journal says the companies are targeting grocery chains and logistics operators with multi-tenant facilities measuring around 300,000 square feet apiece. The joint venture managing sites under the name Chill Storage could bring significant new capacity to a refrigerated market that has seen strong demand driven by the growth of e-commerce in the past two years. The broader online demand is waning, but Bain’s David DesPrez says demand for fresh, local food “is a very durable trend.” The refrigerated sector has been active lately, with Lineage Logistics and Americold dominating the market and building scale in part by consolidating smaller operators.
 

Record U.S. job openings in March, wage inflation likely to increase... U.S. job openings increased to a record 11.5 million in March. The Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) report, also showed a record 4.5 million people voluntarily quit their jobs, underscoring growing wage pressures. The government reported last week that compensation for American workers notched its largest increase in more than three decades during the first quarter.

“For the economy, this points to another strong jobs report on Friday, and for workers, this means continued strong wage increases, especially for those who change jobs,” said Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, Virginia. “The situation likely will continue well into this year given the Federal Reserve’s efforts to cool the labor market probably won’t gain traction for months.”

The job-workers gap, which Goldman Sachs argues is a better measure of labor market tightness, widened to 5.6 million from 5.08 million, accounting for an all-time high of 3.4% of the labor force, up 0.3 percentage points from February.

“Traditionally, the Fed has concentrated on unemployment as a measure of the number of workers who can't find jobs,” said Lou Crandall, chief economist with Wrightson ICAP. “In today’s environment, the Fed is more focused on the number of firms who can’t find workers. The Fed’s near-term policy goal is to slow aggregate spending enough to reduce the excess demand for labor.”

The job openings rate climbed to 7.1% in March, up from 7.0% in February, and matched December’s all-time high.

BOC official: ‘Committed to getting inflation back on target’... An official with the Bank of Canada said if domestic demand was allowed to get too far ahead of supply, it could risk further boosting inflation, which is already at a 31-year high and more than three times the central bank’s target. Senior Deputy Governor Carolyn Rogers said, “With the Canadian economy starting to overheat, we can't let demand get too far ahead of supply or we risk adding further to inflation. Raising the policy rate will help moderate spending and rein in inflation," adding the central bank is “committed to getting inflation back to target.” She did not refer to the bank possibly needing to act “forcefully,” a phrase other central bank officials have used recently. Rogers acknowledged interest rates remain low, despite the Bank of Canada making a rare 50 basis point (bps) increase last month to 1%.

ECB official: Rate hike may be needed as soon as July to combat inflation... The European Central Bank may need to raise interest rates as soon as July to stop “extremely high” inflation from getting entrenched, ECB board member Isabel Schnabel told German newspaper Handelsblatt. “Talking is no longer enough, we need to act,” Handelsblatt quoted Schnabel as saying. “From today’s perspective, a rate increase in July is possible in my view.” A precursor to any rate hike must be the end of bond purchases, and this could come at the end of June, said Schnabel.

Euro zone inflation hit a record high 7.5% last month, nearly four times the ECB’s target.

The ECB last raised rates in 2011 and has kept its benchmark deposit rate, now at minus 0.5%, in negative territory since 2014.