Evening Report | October 3, 2023
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Lithuania opens corridor for Ukrainian grain transit... Lithuania agreed on a corridor for Ukrainian grain transit to Baltic ports. Ukrinform reported Ukraine, Lithuania and Poland have agreed to transfer veterinary, sanitary and phytosanitary checks of Ukrainian agricultural products to the port of Klaipeda.
SovEcon said impacts will be limited, noting: “This grain needs to pass Poland with its different rail gauge compared to Ukraine and Baltic countries, so it won't work well. A way more important/timely/simple measure would be the provision of more ship pilots to deal with 100+ ships stuck near the Danube terminals.”
Weakening crop prices, high production costs weigh on farmer sentiment... Farmers’ sentiment for the second month in a row during September as the Purdue University-CME Group Ag Economy Barometer fell 9 points to a reading of 106. That was 6 points (5.4%) below last year. Producers expressed concern about both their current situation as well as future prospects for their farms. The Current Conditions and Future Expectations Indices both declined 10 points in September with reading of 98 and 109, respectively.
Worries about the risk of declining prices for crops and livestock along with ongoing concerns about high input costs and interest rates weighed on producer sentiment. Despite the weak sentiment reading, producers remain relatively optimistic about farmland values as expressed by both the short- and long-term farmland values indices.
The survey noted, “The relative optimism about farmland values expressed by producers is somewhat surprising given concerns expressed about high input costs, rising interest rates and the risk of lower crop and or livestock prices. Respondents who expect farmland values to rise over the next five years continue to point to non-farm investor demand for farmland along with inflation as the top two reasons for farmland values to continue rising.”
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Small refiners challenge EPA’s denial of SREs... Two small refiners are once again challenging the Environmental Protection Agency’s (EPA) decision to deny small refinery exemptions (SREs) under the Renewable Fuel Standard (RFS). The legal proceedings took place in the Fifth Circuit Court of Appeals, where one of the refiners called on the court to vacate EPA’s denials in April and June 2022 and reinstate the SREs granted for 2017-2018. Meanwhile, the other refiner sought either the granting of the exemptions or alternative relief.
However, Judge Patrick Higginbotham raised concerns about whether these cases should be viewed as reflecting a national decision warranting consideration in the DC Circuit. EPA argued it had evaluated the SREs and made a singular determination concerning them. In contrast, the refiners contended that each company had specific needs and circumstances that justified keeping the case in the Fifth Circuit.
The outcome of this legal battle remains uncertain, including whether the Fifth Circuit will order the cases to be transferred to the DC Circuit. This ongoing litigation adds to the lengthy history of disputes involving small refiners in the RFS program.
Schumer leads bipartisan delegation on Asia trip, aiming to address U.S.-China relations... Senate Majority Leader Chuck Schumer (D-N.Y.) is set to embark on a significant visit to China as part of a bipartisan three-country tour across Asia, signaling the importance of the trip. Schumer has a long history as a China hawk. He plans to focus on advancing U.S. economic and national security interests in the region, amid escalating tensions between Washington and Beijing. Schumer will be accompanied by Sen. Mike Crapo (R-Idaho), the ranking member of the Senate Finance Committee, along with Sens. Bill Cassidy (R-La.), Maggie Hassan (D-N.H.), John Kennedy (R-La.), and Jon Ossoff (D-Ga.). The delegation will also visit South Korea and Japan.
The goal is to secure a meeting with Chinese President Xi Jinping. The senators intend to engage with government officials, business leaders and U.S. companies operating in each country during their trip. The delegation’s departure is scheduled after the late Sen. Dianne Feinstein’s funeral in San Francisco, and their trip aligns with a Senate recess next week.
Schumer plans to address several key issues during his China visit, including semiconductor manufacturing, human rights concerns, China’s role in the fentanyl crisis in the United States and foreign policy. He also seeks to explore potential areas for cooperation, aligning with recent priorities of the Biden administration. The U.S. has accused China of committing genocide against the Uyghur Muslim minority in Xinjiang and has been responding to China’s assertive actions in the South China Sea and toward Taiwan by investing in Indo-Pacific deterrence strategies.
Earlier high-level U.S. government visits to China this year by Secretary of State Antony Blinken, Treasury Secretary Janet Yellen and Commerce Secretary Gina Raimondo all aimed at addressing critical issues in U.S./China relations.
Chinese export focus shifting... Chinese exports to the Group of Seven (G7) industrial nations have seen a notable 7% decrease between March 2022 and August of this year, according to Geneva-based Trade Data Monitor. Meanwhile, recent data from the U.S. Census Bureau highlights that China’s share of U.S. goods imports has reached its lowest point since 2006 in the 12 months through July. While the U.S. remains China’s largest export market, Beijing is actively diversifying its trade relationships, with a growing focus on nations that align more closely with its geopolitical objectives. These nations include Singapore, Kazakhstan, Saudi Arabia, Turkey, Uzbekistan, United Arab Emirates, and Kyrgyzstan.
Trade between Europe and China continues to maintain its strength, although certain vulnerabilities are becoming evident. Over the past 18 months, Chinese exports to Germany and the U.K. have both experienced nearly a 7% decline when compared to the corresponding period leading up to a significant geopolitical event.
Drought and high temperatures prompt 6% cut in U.S. hydroelectric power generation forecast... The U.S. Energy Information Administration (EIA) revised down its forecast for total U.S. hydroelectric power generation for the year, citing above-normal temperatures in May and persistent drought conditions in the Northwest. Approximately half of the nation’s hydropower originates from the Northwest region, but reduced water availability during the first half of the year resulted in a significant 24% decline in output compared to the same period the previous year. Therefore, EIA lowered its outlook for hydroelectric power generation in the United States by 6%. This reduction is somewhat offset by better-than-expected generation in California, where abundant winter precipitation and a substantial Sierra Nevada snowpack have filled reservoirs and increased power generation capacity.
