Oil cut accord | Corporate earnings | Push for biofuels aid | Labor reg changes pushed
In Today’s Updates
* OPEC+ reach oil cut accord but analysts mixed on impact
* Big corporate earnings reports this week to be closed watched
* Gold futures rallying
* Mpls Fed's Kashkari paints gloomy view of economic recovery
* J.P. Morgan to raise mortgage borrowing standards
* Ag sector hopes Perdue gets Covid-19 aid proposal announced ASAP
* Why paragraph g in prior Covid-19 aid legislation is important to ag aid
* Meat sector increasingly impacted by Covid-19 cases
* Strains showing in U.S. food supply chain
* Covid-19 upheaval in food-distribution channels testing supply-chain software firms
* White House officials working with Perdue on potential labor regulatory changes
* Peterson leads House push for aid to biofuels industry
* Perspective from reader regarding the call for investigating packers
* China's ambassador to U.S.: China still implementing Phase 1 trade deal w/U.S.
* Trump stokes questions about the fate of Dr. Anthony Fauci
* Early analysis of Gilead's Covid-19 treatment looks promising
* MIT: This is what it will take to get us back outside
* Airlines starting to donate their huge stockpiles of food
* Schools are forced to rethink meal distribution
* Textile industry group says cotton supply chain is at a “virtual standstill”
* U.S. to likely join global push allowing cargo shipments in passenger jet cabins
* Trump admin. Backs off tougher rules on food stamps, at least for now: NYT
* Cities along Mississippi River are fighting emergencies on two fronts
* Amazon to stop accepting new online grocery customers.
Equities: Stock benchmarks in Tokyo, Shanghai and Seoul closed lower, while markets in Europe, Australia and Hong Kong remained closed for the Easter holiday. Trading in S&P 500 futures signal a loss of just over 1% on Wall Street when trading resumes after a long weekend.
Corporate earnings reports this week will be an important barometer of the economy. Among those reporting earnings next week are the country’s six largest banks (JPMorgan and Wells Fargo on Tuesday; Bank of America, Citigroup and Goldman Sachs on Wednesday; and Morgan Stanley on Thursday). Earnings reports from Johnson & Johnson (Tuesday) and Abbott Laboratories (Thursday) will be closely watched for news of progress on coronavirus therapies and testing. Reports also come from Bed Bath & Beyond and Schlumberger, which provides services to oil and gas companies. BlackRock is to report its earnings on Thursday, revealing the extent of asset outflows during the market turmoil. Data on March retail sales and industrial production will also give investors more clues about the extent of the economic damage from the coronavirus. Meanwhile, China reports first quarter GDP on Friday, widely expected to show its first contraction in more than 40 years.
Oil prices are mixed following the weekend confirmation of an OPEC+ oil production cut accord beginning May 1 that will reduce output by 9.7 million barrels a day by 23 countries, close to 10% of the world’s output, but far short of what is needed to bring oil production in line with demand — demand for oil is down about 35% since the start of the crisis. But the cut is twice the reduction made in response to the global financial crisis of 2007-09. As for oil prices, Brent crude was down just over 1% at around $31 per per barrel, having earlier climbed as high as $33.99. U.S. benchmark West Texas Intermediate rose slightly to around $22.80, but surrendering the bulk of its prior gains. Meanwhile, U.S. railroads are clamping down on requests from oil companies to store crude in idle rail cars, according to Reuters (link).
DOE chief: U.S. oil cuts ‘are real,’ driven by demand drop. Energy Secretary Dan Brouillette defended supply cuts driven by market forces that will be U.S. contribution to historic oil deal. “While it’s important to the members of OPEC that they have mandatory cuts, we simply do not have that system in the U.S,” he said on a call with reporters. Brouillette said he heard some arguments as to why the U.S. contribution was not real and not legally binding, but said that betrays a “lack of understanding of U.S. law” and cites big capex cuts announced by producers. U.S. production cuts will “subsume” part of whatever agreement Mexico would have made with OPEC+. U.S. cuts range from 1.6m-2m b/d. “You could perhaps see some continued declines in production in places like the U.S. or parts of Europe, U.K. that match the demand curve that those particular countries are facing:” Brouillette said.
As Bloomberg put it: Trump “became the first American president to push for higher oil prices in more than 30 years.”
Analysts size up oil production cut agreement. The agreement is "too little and too late to avoid breaching storage capacity, ensuring that low oil prices force all producers to contribute to the market rebalancing," according to analysts at Goldman Sachs. "It's simply too late to prevent a super-large inventory build of over one billion barrels between mid-March and late May and to stop spot prices from falling into single digits," says Ed Morse, Citi's global head of commodities. But at least the deal allows the global oil industry and the national economies that depend on it to "avoid a very deep crisis," says IHS Markit's Daniel Yergin.
Front-month gold futures rose more than 4% to $1,736.20 on Thursday — their highest level since November 2012. Robust demand for the safe-haven metal and physical shortages due to shutdowns of mines, refineries and normal transportation of gold around the world are driving prices higher. They are up 14% for the year.
The International Monetary Fund and World Bank will hold their annual spring meetings virtually this week. On Tuesday, the IMF releases its April 2020 World Economic Outlook. The IMF’s previous update in January forecasted global gross-domestic-product growth of 3.3% and 3.4% in 2020 and 2021, respectively.
Kashkari paints gloomy view of economic recovery. Minneapolis Fed President Neel Kashkari expects the path to economic recovery from the coronavirus will be a "long, hard road" and not a V-shaped rebound. "Barring some healthcare miracle" such as an effective therapy or vaccine, "it seems we're going to have various phases of rolling flareups," Kashkari told CBS's Face the Nation, with "different parts of the economy turning back on, maybe turning back off again." Kashkari also said $350 billion in emergency funds for small business would not be enough, "because if we need to have different phases of shutdowns for the next several months or until we have a therapy or vaccine, we're going to need more help than that."
J.P. Morgan to raise mortgage borrowing standards. JPMorgan Chase will raise borrowing standards for most new home loans starting this week, Reuters reported, as the bank seeks to mitigate lending risk caused by coronavirus disruptions. Customers applying for a new mortgage will need a credit score of at least 700 and will be required to make a down payment equal to 20% of the home's value. The changes are designed to help the bank reduce its exposure to borrowers who unexpectedly lose their job, suffer a decline in wages or whose homes lose value.
Calling mother every day now... Verizon said it was now handling an average of 800 million wireless calls a day during the week, more than double the number made on Mother’s Day, which is historically one of the busiest calling days of the year.
Not papering over a problem. At a Procter & Gamble factory in Albany, Ga. — a town with one of the highest rates of coronavirus cases in the U.S. — workers are racing to keep churning out toilet paper.
Even tulips can't escape Covid-19. Lockdowns have led growers in the Netherlands to destroy hundreds of millions of flowers, upending a season that brings in about 7 billion euros ($7.6 billion). Link ot NYT article.
— Ag sector hopes USDA Sec. Perdue gets Covid-19 aid proposal announced ASAP. Roughly half of U.S. farms reportedly send their food to restaurants, schools, and places like theme parks, cruises, and stadiums. But with shutdowns across the U.S., they're having to rearrange their supply chains to get food to places like grocery stores and food banks. It is the virtual collapse of food services that is escalating the negative impacts on the U.S. farm and food processing industries. That is why ag industry stakeholders hope that USDA Secretary Sonny Perdue and his team send its proposal to the White House so it can be announced as soon as this week. USDA has been receiving a torrent of suggestions from various farm, food and commodity groups are what their segments need for a Covid-19 lifeline. “Consumers have changed how they eat, and it’s rippling back right to the farm gate,” says Dennis Rodenbaugh of Dairy Farmers of America.
This comes as Smithfield Foods — the world's biggest pork processor — has had to shut down one of its U.S. plants because of a wave of coronavirus cases there (link for details covered on Sunday). The company is keeping its Sioux Falls, S.D., pork plant closed indefinitely at the urging of the state’s governor — after it was linked to 238 coronavirus cases. Smithfield’s plant and other meatpacking facilities around the country have emerged as hot spots for Covid-19. Smithfield CEO Ken Sullivan warned that the 550 farmers who supply the plant will no longer have a place to send their hogs, and not operating the plant’s processing lines will make it harder to keep grocery stores stocked with pork. The U.S. is "perilously close to the edge in terms of our meat supply," Sullivan said after announcing the closing of his company's Sioux Falls processing facility in South Dakota, which accounts for at least 4% of U.S. pork production. "It is impossible to keep our grocery stores stocked if our plants are not running," Sullivan warned, adding that he fears "disastrous" consequences up the supply chain for the nation's livestock farmers if plants stop running. "We have a stark choice as a nation: We are either going to produce food or not, even in the face of Covid-19."
As many as 50 people at a JBS SA beef facility in Colorado’s Weld County tested positive, adding to more than 160 cases at a Cargill meat-packaging plant in Pennsylvania, union officials said on Friday. "President Trump should see right through what the agriculture lobby is demanding in the name of 'food security' at the height of a health crisis – lower wages for American workers and more cheap foreign labor," said Dan Stein of the Federation for American Immigration Reform, which supports immigration restrictions. "These appalling demands underscore that the whole way this nation produces food should be reexamined." Perdue has pushed for adjusting what is known as the adverse effect wage rate, which prevents farmers using the H-2A program from paying all workers — U.S. and guest workers — wages below the prevailing rates in the surrounding area. A USDA official told NPR that Perdue is working with Trump to "resolve long-standing challenges facing the agriculture industry, including reforms to the H-2A program. "These challenges have been exacerbated by these uncertain times," the official said in a statement.
Meanwhile, White House officials are also working with Perdue on potential labor regulatory changes, like lowering minimum wage rates for foreign ag laborers, NPR reports (link). Such a move could offer some financial relief for farm owners.
— Peterson leads House push for aid to biofuels industry. House Agriculture Chairman Collin Peterson (D-Minn.) led a letter (link) Friday urging USDA Sec. Sonny Perdue to direct funding from the recent coronavirus relief bill to support the biofuels industry. "The biofuels industry entered this crisis behind the curve following the last few years of disastrous management of the [Renewable Fuel Standard] program by the EPA," the lawmakers wrote. "The biofuels industry is going to need significant support to weather this disaster." The House letter comes after one last week from a bipartisan group of 15 senators also urging Perdue to direct some of the department's coronavirus relief aid to struggling biofuel producers.
— Strains are showing in the U.S. food supply chain as the coronavirus creates chaos in demand and disruptions in operations. Farmers and food companies are throttling back production amid declining sales to restaurants, schools and other big-scale customers, the Wall Street Journal reports (link), even as grocery stores scramble to restock shelves. “The fractured distribution markets mean American producers are dumping milk, throwing out chicken-hatching eggs and rendering pork bellies into lard instead of bacon because they are stuck with vast quantities of food they can't sell,” the article notes. “They can’t easily shift restaurant-bound products to supermarkets, and spiking grocery store demand is unlikely to offset the restaurant market’s decline in any case.” The glut of highly perishable product has overwhelmed the dairy industry: In one recent week as much as 7% of all milk produced in the country was simply dumped.
Meanwhile, the WSJ also reports that the pandemic-driven upheaval in food-distribution channels is testing supply-chain software firms. Food suppliers and distributors are looking for ways to shift materials, keep factories running and direct trucks to where they are needed. One technology executive says the efforts have come at a “frantic time” for planners, with no earlier model that can be used to guide strategies under a crisis that has buffeted supply chains simultaneously around the world. Adding to the complications, companies are trying to track both fast-changing demand and potential disruptions at every level of the supply chain, including possible shutdowns of warehouses. Link to WSJ article.
— More info re: language in Families First Coronavirus Response Act that says Sec. of Ag can tap U.S. Treasury to purchase commodities for emergency distribution in any area of the United States. Check paragraph g in the Act (link).
— Perspective from reader regarding the call for investigating packers. A reader writes, “As you know, there’s been an outcry from the cow/calf sector — about the spread between farm-gate and retail prices. Interestingly, if more and more beef plants shut down, it’s going to reduce demand for live cattle, driving down farm-gate prices further. Then, with the plants producing less, it’s going to reduce supplies at the retail level, sending retail prices higher. In other words, the spread will likely grow even higher. It’s all fundamental supply/demand, but try convincing those who can’t be convinced. For those convinced of collusion by the packers, the only way one can prove (or disprove) is with an investigation by authorities with access to records/communications. My question: if the authorities find no market manipulation and the price-spread grows even more, then what?”
— China still implementing U.S. Phase 1 trade deal. China’s ambassador to the U.S. said his country is still implementing the first phase of a trade agreement signed with the U.S. earlier this year and called for both nations to assess the changing situation as the coronavirus presents global economic challenges.
Ambassador comments. “Even for the last few weeks, when we are faced with this very serious, critical situation, people are still working on the implementation of this phase one deal,” Ambassador Cui Tiankai said in an interview with Eurasia Group’s Ian Bremmer on the broadcast show Gzero World on April 3, according to a transcript (link) posted on the Chinese embassy’s website Sunday.
Cui said China is still buying agricultural products from the U.S. and removing some of the restrictions on foreign companies in its domestic financial market as part of the agreement.
The ambassador agreed with Bremmer that the global economic landscape has been drastically changed by Covid-19. “So I just hope our two economic teams, if they can sit down together or just have a conference call, they can really make good assessment of the changing realities and coordinate our response to that,” Cui said in the interview.
— Coronavirus update:
- Summary: Global cases of Covid-19 stand at 1 1,859,011 with deaths at 114,979, according to data Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU).The U.S. has recorded 557,590 cases with the death toll at 22,109, moving the U.S. into the top spot for deaths linked to the virus.
- By Sunday, Spain had lost 350 people per million of its population to Covid-19, Italy 322, Belgium 314, France 202 and Britain 145, according to Johns Hopkins University data. Romania, in contrast, had lost 15 per million, the Czech Republic 12, Poland 5 and Slovakia 0.4. A big reason for the discrepancy: The poorer countries of Central and Eastern Europe, fearing their relatively weak health-care systems would be overwhelmed by the virus, moved more quickly to enact strict social-distancing rules and restrict movement to contain outbreaks, the Wall Street Journal reports (link).
- President Trump stoked questions about the fate of Dr. Anthony Fauci after retweeting a critic who called for him to be fired after he said lives could have been saved if the government had acted more quickly in response to the coronavirus.
- Early analysis of Gilead's Covid-19 treatment looks promising. Gilead Sciences' experimental drug for patients with severe Covid-19 infections showed promise in an early analysis published in The New England Journal of Medicine, raising hopes that the first treatment for the novel virus may be on the horizon. A cohort analysis of 53 severely ill hospitalized Covid-19 patients who received the company's antiviral remdesivir on a compassionate use basis showed 68% needed less oxygen or breathing machine support. Results from more rigorous studies are expected by the end of this month.
- China is offering tax breaks for wild-animal exports, the Wall Street Journal reports (link). Chinese authorities have banned domestic wild-animal traders on fears their goods may have sparked the pandemic. Now, they're offering tax breaks for those animals to be shipped overseas.
- Chinese authorities are reportedly evicting Africans from apartments. Videos of migrants being herded through rainy streets by police and refused entry into hotels are spreading, as China fears a second coronavirus wave brought by foreigners. Some African countries summoned Chinese ambassadors for explanations.
Also in China, border restrictions were tightened at some crossings with Russia, the source of many recent imported cases, Chinese authorities said.
- "More than one-third of Americans say pandemic is having a 'serious impact' on their mental health,” according to a survey released by the American Psychiatric Association.
- South Korean health authorities cautioned that any attempt to return quickly to life before the outbreak could kindle new infections with the potential to spin out of control.
- World Health Organization special envoy David Nabarro warned on NBC's Meet the Press Sunday that the coronavirus is not expected to come in seasonal waves like influenza, and that there will continue to be outbreaks that emerge "sporadically" until there's a vaccine.
- Investigators busted an alleged face-mask dealer in New York City. They claim the pharmacist hoarded N95 masks, which retail for $1.50 each and sold them for up to $22.
- This is what it will take to get us back outside. How to safely ease social distancing while we wait for a Covid-19 drug or vaccine comes from the MIT Tech Review (link).
— Other items of note:
- After closing lounges and scaling back food service in flight, airlines are starting to donate their huge stockpiles of food. Delta Air Lines said it was distributing more than 200,000 pounds of perishable food to various charities nationwide and American Airlines said it would donate about 81,000 pounds of food.
- Schools are forced to rethink meal distribution. Some school districts have halted food deliveries after the deaths of bus drivers. But with 26 million U.S. students relying on free or reduced-price meals at school, districts are getting creative. Link to WSJ article.
- A textile industry group says the cotton supply chain is at a “virtual standstill.” The early impacts of Covid-19 are crippling the cotton supply chain, according to the International Cotton Advisory Council (ICAC). “Brands and retailers are cancelling orders, leaving spinners and textile manufacturers in Asia and Southeast Asia in a financial crisis,” said the organization, which is an association of cotton producing, consuming and trading countries. “We don’t yet know what the ultimate impact of Covid-19 will be on the cotton industry, but the fast-moving pandemic has injected a tremendous amount of uncertainty into every link in the global supply chain,” ICAC stated.
- U.S. to likely join global push allowing cargo shipments in passenger jet cabins. U.S. air-safety regulators will likely soon allow cargo shipments in the cabins of passenger planes to give airlines greater flexibility amid the coronavirus crisis, according to reports. The new guidance is slated to be issued soon and is expected to resemble moves made by carriers and foreign aviation authorities. Normally, operating restrictions and aircraft structural limits mean passenger jets must put all cargo in the bellies of aircraft. But in consultation with plane makers and airlines, Federal Aviation Administration officials are ready to lift those restrictions.
- Trump administration has backed off tougher rules on food stamps, at least for now, the New York Times reports (link). “People need food and that’s what USDA does,” Agriculture Secretary Sonny Perdue said in a statement to the NYT. Initially, the Trump administration planned to appeal a court decision from the United States District Court for the District of Columbia, which issued a temporary court injunction on its work requirements rule, which were to go into effect on April 1. But it has since changed its tone. By USDA's own estimates, the change would have led to nearly 700,000 people losing their Supplemental Nutrition Assistance Program benefits, formerly known as food stamps.
- Cities along the Mississippi River are fighting emergencies on two fronts: Covid-19 is straining resources just as they face spring flooding and the coming hurricane season. Link to WSJ item for details.
- Amazon to stop accepting new online grocery customers. Amazon said it will begin placing new grocery delivery customers on a wait list and reduce shopping hours at some Whole Foods stores to prioritize orders from existing customers buying food online during the coronavirus outbreak. Many shoppers seeking to purchase groceries from Amazon recently have found they could not place orders due to a lack of available delivery slots, so the company said it will relegate all new online grocery customers to a wait list while it works to add capacity. Amazon also plans to shorten public hours at some Whole Foods stores so employees can more quickly fulfill online grocery orders.