Evening Report | November 6, 2023

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Winter wheat conditions improve... USDA rated 50% of the U.S. winter wheat crop as “good” to “excellent,” up three percentage points from the previous week. Traders expected conditions to be unchanged. The portion of crop rated “poor” to “very poor” declined one point to 17%.

USDA reported the winter wheat crop was 90% planted (89% on average) and 75% emerged (73%).

Corn, soybean harvest a little less advanced than expected... USDA reported corn harvest was 81% complete as of Sunday, four percentage points ahead of the five-year average but one point slower than analysts polled by Reuters expected. Harvest continues to run ahead of average in the western Corn Belt, while progress is behind normal in the eastern Belt, aside from Illinois.

USDA reported soybean harvest reached 91% done, five points ahead of average but one point slower than analysts expected. Of the top 13 production states, only Michigan (70% vs. 74%), Nebraska (95% vs. 96%) and Wisconsin (83% vs. 84%) were behind average.

Cotton harvest passes halfway point... Cotton harvest advanced eight percentage points to 57% done, which was two points ahead of average. Texas had 47% of its crop picked versus the 49% average. Georgia’s harvest stood at 46%, eight points behind average.

Passage of new farm bill facing insurmountable near-term challenges... As noted previously, House Ag Committee ranking member David Scott (D-Ga.) has called for a temporary one-year extension to the bill due to what he sees as increasing extremism and cynicism in the House Republican Conference, making a five-year farm bill reauthorization by year-end less likely. But House Ag Chairman Glenn “GT” Thompson (R-Pa.) told a home-state newspaper to expect a farm bill vote in the House during December. This would require a tight timeline for drafting, debating and voting on the $1.51 trillion bill in December. House Speaker Mike Johnson (R-La.) has allotted one week for House debate of the farm bill in December, said Thompson, so he planned to release a first-round draft two weeks ahead of debate, with the Agriculture Committee to approve it the following week.

The thorny issue: Democrats say the proposed changes in the House bill include increasing subsidies for select crops such as peanuts, cotton and rice, which will not receive price increases under the prior 2018 Farm Bill like corn and soybeans. To fund these increases, Republican supporters reportedly want to cut food stamp aid and divert funds from conservation payments.

Even a “simple” one-year extension is not so simple. Reason: House GOP conservatives are looking to cut spending, not add. Extending the farm bill would likely include funding for so-called “orphan” programs no longer covered. Another critical need is extending the Dairy Margin Coverage program.

EPA defends its decision to modify RFS... EPA on Friday argued before the D.C. Circuit that its decision to make changes to the renewable fuel standards (RFS) program was based on the Clean Air Act and that it “reasonably set and fully explained the 2022 volume requirements for total renewable fuel and advanced biofuel” within the authority granted by the statute. Key points:

• Clean Air Act Authority: EPA contends it has the discretion to set annual standards for renewable fuel volume targets, which fuel refiners and importers must follow to reduce greenhouse gas emissions. They argue that they considered both the program's implementation and statutory factors while making their decisions.
• Changes Made: EPA’s final rule, effective from Aug. 30, 2022, modified the 2021 and 2022 volume targets for different types of renewable fuels and established the 2022 volume target for biomass-based diesel. It also changed volume requirements for 2020, established annual percentage standards for obligated parties in 2020, 2021, and 2022.
• Refiners’ Objections: Refineries and biofuel groups argued EPA’s rule did not align with federal statute requirements. They claimed EPA increased renewable fuel requirements for 2022 to unreasonably high levels and disregarded statutory criteria.
• Small Refinery Exemptions: The dispute also involved hypothetical future small refinery exemptions, with refiners contending EPA wrongly reallocated them to nonexempt obligated parties.
• Cellulosic Biofuel Volume: The biofuel petitioners argued EPA set the required cellulosic biofuel volumes too low due to a misinterpretation of the cellulosic waiver provision, which is one of the types of renewable fuels regulated by EPA.
• Compliance with Standards: Obligated parties can meet fuel standards by retiring credits, known as renewable identification numbers (RINs), which they acquire through blending renewable fuels or purchasing them from third parties.
• Waivers for Cellulosic Biofuel: EPA can reduce or waive the required cellulosic volume if the projected volume of cellulosic biofuel production for a year is less than the statutory requirement. Biofuel groups claimed EPA failed to include carryover cellulosic RINs in its waiver decisions.
• RIN Lifespan: EPA disagreed with refiners’ suggestions that RINs from 2015 or 2016 could be used for compliance, stating that such an approach would be inconsistent with the statute’s provision that RINs have a 12-month lifespan.
• Supplemental Obligation: EPA imposed supplemental obligations in response to a 2017 court opinion, which raised questions about the fairness of subjecting obligated parties that were not in the market in 2016 to these obligations. EPA argued that it felt compelled to take action to address the court’s remand, and any approach it considered would have imposed some burden on obligated parties.

 Bottom line: EPA defended its actions in modifying renewable fuel standards against claims from industry groups that the changes do not comply with federal law. The case involves complex legal interpretations and disagreements over the interpretation of the Clean Air Act and its requirements.

China pledges to expand market access, boost imports... Chinese Premier Li Qiang pledged to expand market access and boost imports as part of efforts to stimulate economic growth and maintain openness in China. Key points from his speech and related developments include:

• Market Access and Import Expansion: Li stated China would continue to promote openness with inclusiveness and benefit-sharing and actively expand imports. This pledge comes at a time when the Chinese economy has been experiencing a slowdown, and imports have declined for several consecutive months.
• Protection of Foreign Investors’ Rights: Li also assured China would protect the rights and interests of foreign investors in accordance with the law. This assurance follows concerns about foreign investment into China turning negative for the first time since records began in 1998. The declining foreign direct investment (FDI) reflects factors such as strained international relations, increased attractiveness of keeping funds overseas, and differing interest rate policies between China and advanced economies.
• Economic Recovery and Foreign Investment: China has been actively seeking to attract more foreign investors to aid its economic recovery. While advanced economies have been raising interest rates, China has been lowering them to stimulate its economy.
• Positive Developments with Australia: Australian Prime Minister Anthony Albanese, attending the expo, expressed a desire to work constructively with China, emphasizing the importance of dialogue and cooperation. He highlighted recent positive steps in trade relations between Australia and China, including the removal of trade restrictions on Australian products like barley, coal and timber.
• Data Flow and Data Law: Li also pledged China would be more proactive in promoting the orderly and free flow of data in accordance with the law. This commitment is significant in the context of China’s data regulations, which have raised concerns among multinational corporations operating in the country. China has recently proposed relaxing some data flow restrictions to address these concerns and boost economic growth.
• China International Import Expo (CIIE): The CIIE is an annual event aimed at providing foreign exporters with opportunities to increase trade with China. The pandemic has affected attendance in recent years, but the expo remains a key platform for international trade relations.

Bottom line: Li’s speech at the China International Import Expo underscores China’s commitment to openness, boosting imports and protecting foreign investors’ rights amid economic challenges and evolving international dynamics. It also reflects efforts to address concerns related to data regulations and promote trade cooperation with other countries.