China coronavirus | Trump targets Europe re: autos | Biodiesel program payment update
In today's updates:
* China tries to ease trade concerns
Markets: The commitment from authorities in China to contain the coronavirus outbreak has given investors some comfort. Overnight, the MSCI Asia Pacific Index added 0.6%, with Japan’s Topix index, China’s Shanghai Composite Index and the Hang Seng Index all posting gains. Ministries and local governments are arranging refunds on plane and train tickets, banning tourist groups from Wuhan, and organizing coverage of medical expenses, analysts at Everbright Sun Hung Kai wrote in a note. Guidelines are also in place to minimize public gatherings in the most affected regions, while President Trump said the U.S. has it "totally under control" after the first case was confirmed in Washington state. U.S. equities futures signal a higher opening.
U.S. soybean futures remain under pressure (charts below) as the Brazilian real weakens further.
— U.S./China trade policy update:
- China tries to temper trade concerns. Chinese Vice Premier Han Zheng told the World Economic Forum the country’s trade deal with the U.S. wouldn’t hurt rival exporting nations as complaints mount from governments that were left out of the agreement. In the most high-profile remarks on Beijing’s economic policies since the accord was signed last week, Han said that a commitment to purchase more from the U.S. is in line with its World Trade Organization obligations and won’t squeeze out other imports. Han also pledged to lower barrier s for foreign investors as he set out the case for China’s engagement with the global market.
- China will keep selling pork from state reserves after holiday. China’s Merchandise Reserve Management Center posted a notice today that they will continue to sell frozen pork from state reserves after the weeklong Lunar New Year holiday. Another 20,000 tonnes were released Jan. 21, with more than 200,000 tonnes already moved from the state supplies.
- U.S. publishes tariff reduction for China. The Office of the U.S. Trade Representative (USTR) today published a notice in the Federal Register stating that as of 12:01 a.m. (ET) on Feb.14, the Section 301 additional duty on imports of certain Chinese goods will be reduced to 7.5% from a prior 15% that had been put in place via an Aug. 20, 2019, Federal Register notice, and as modified via a notice on Aug. 30, 2019. “In light of the scheduled entry into force of the Phase 1 agreement, and at the direction of the President, the U.S. Trade Representative has determined that the action announced on Aug. 20, 2019, as modified by the Aug. 30 notice, no longer is appropriate,” the notice said.
- Treasury Sec. Steven Mnuchin said a Phase 2 accord wouldn't necessarily be a "big bang" that removed all tariffs. "We dealt with a lot of important issues in Phase 1," said Mnuchin. "If we get [Phase 2] done before the election, good. If not, fine. There's no deadline."
- USDA analysts anxious about sizing up Phase 1 deal with China ahead of Feb. 11 WASDE. USDA analysts know how private industry analysts feel regarding uncertainties surrounding specific commodity estimates relative to coming China purchases of farm products. USDA on Feb. 11 via its WASDE report will release its first projections of export demand for some U.S. farm products for the 2019-20 marketing year; projections for the 2020-21 marketing year will come at USDA’s Ag Outlook Forum being held Feb. 20-21. Industry analysts and ag industry lobbyists are slated to meet with USDA Secretary Sonny Perdue on Feb. 19.
- Add South China Morning Post to list of naysayers on China purchases of U.S. farm products. Link to article.
- Biggest winner in Phase 1 accord: U.S. financial sector. Of note, China agreed to scrap foreign equity limits in the securities and fund management sector by April 1, meaning U.S. investment banks and other financial services providers will no longer need to partner with a Chinese entity in order to participate in the market. Other wins include:
— Branches of U.S. banks in China will be allowed to provide custody services for Chinese investment funds from July, and their foreign assets — rather than just their Chinese ones — will be taken into consideration as part of the application.
— China agreed that by May it will review and approve license applications for U.S. credit rating agencies to rate domestic bonds.
— Beijing signed off on a quick timeline for the licensing of U.S. credit card companies to operate in China as “wholly foreign-owned” entities, and gave approval for U.S. financial services groups to buy non-performing loans from Chinese banks.
- China is sailing full-speed ahead with the expansion of its Belt and Road Initiative. Djibouti rejected a U.K. court ruling to hand back control of a container terminal to global port operator DP World, the Wall Street Journal reports (link), solidifying Beijing’s control of a strategically important port on the Horn of Africa. The case reflects Beijing’s growing influence in developing African nations, which have been willing to lease state assets in return for Chinese state investment. In this case, Djibouti is turning to China Merchants Port Holdings, which has already built a second container terminal in the country to extend China’s ocean connections. China is also stepping up its reach in Southeast Asia, Lloyd’s List reports (link), with an agreement to build a deep-sea port in Myanmar as part of broader investment there. That site will connect by road and rail to inland China trade destinations.
- Huawei Technologies is stockpiling up to a year's worth of foreign supplies for its telecom equipment business ahead of an expected toughening of U.S. sanctions. Link for details.
— China coronavirus situation update:
- China has now confirmed 440 cases of the Wuhan coronavirus and nine deaths now recorded with the virus in 13 provincial-level regions. The virus has spread outside of China, with the U.S. confirming the first case in a man in Washington state who had traveled to Wuhan recently. Other countries have also reported confirmed cases. Hong Kong reported its first case of the respiratory virus.
- Within China, the virus originated from a market will illegal wildlife transactions, according to Gao Fu, director-general of China’s Center for Disease Control and Prevention. Gao said the virus is mutating and adapting, underscoring the challenge facing officials in trying to control the outbreak. China has already discouraged public gatherings in Hubei province and tightened containment measures in hospitals. The country has held nearly 2,200 people for observation that have come into contact with those infected with the coronavirus, releasing 765 from observation.
- The approaching Lunar New Year holiday is also a concern as hundreds of millions of people typically travel for the week-long holiday. "The rise in the mobility of the public has objectively increased the risk of the epidemic spreading and the difficulty of prevention and control," National Health Commission vice-minister Li Bin told reporters. He also noted there are indications the virus is spread via “respiratory transmission,” Li said. However, officials have said there is no evidence yet that there could be “super spreaders” – those capable of spreading the virus more widely. The World Health Organization (WHO) will meet today to determine whether to declare the outbreak a global health crisis. The WHO declared emergencies previously for the still-ongoing Ebola outbreak in the Congo and the Zika virus in 2016 in the Americas.
- The focus is also is shifting to the economic impacts of the situation, with travel and services industries expected to see losses in China and in other countries where travel with China is a component of their businesses. The economic toll has the potential to negatively impact China and other countries, depending in part on the length of time that it takes to bring the situation under control.
- The World Health Organization will convene a panel of experts in Switzerland today to consider whether the coronavirus should be a global health emergency.
- Impact on China: "We think the economic impact from the virus is likely to be transitory, with the effects felt more in transportation and retail sales." — Jian Chang, Barclays
- Impact on U.S.: "Even if this first isolated case of the Wuhan virus in the U.S. develops into a full-scale epidemic, which is unlikely, we wouldn't expect it to have a significant negative impact on economic activity." — Paul Ashworth, Capital Economics
— President Trump said he would impose new tariffs on European car imports if the European Union didn’t agree to a new trade agreement. France may have reached a truce with the U.S. over a proposal to tax American internet companies, but other European countries haven’t, and that could lead to more trans-Atlantic trade battles. (Paris officials suspended their plans for a digital tax on the likes of Amazon and Facebook. In return, Washington postponed retaliatory tariffs on a range of French goods, including luxury items.)
For example, U.S. Treasury Secretary Steven Mnuchin warned that Italy and Britain would face U.S. levies if they proceeded with a tax on American digital giants such as Facebook.
Britain and Italy appear to be moving ahead with their own digital tariffs, and London plans to introduce one in April — it is expected to raise about 500 million pounds, or about $650 million, a year.
Despite the U.S. trade policy threats, President Trump said at the World Economic Forum in Davos, Switzerland, that “We expect to be able to make a deal with Europe. And if they don't make a deal, we'll certainly give that very strong consideration.” Trump added there would be an unspecified deadline for taking action. European Trade Commissioner Phil Hogan again this week said Brussels could get over its aversion to negotiating on agriculture-related issues by lowering some regulatory barriers.
— Grassley comments on potential new trade deals with India and the U.K. Sen. Chuck Grassley (R-Iowa) told reporters he’s looking at trade deals with India and the U.K. as the next major targets for trade victories. Grassley said he expects the U.K. deal to be “a pretty comprehensive agreement,” while the pact with India is likely to be “a partial agreement.” AS for India, the push comes after reports from Pro Farmer and others noted President Trump wants to visit New Deli early this year regarding a mini trade agreement. The Washington Post wrote about it as well (link).
— Commerce publishes updated antidumping investigation agreement on sugar from Mexico. The U.S. Department of Commerce and a representative of the sugar producers/exporters accounting for “substantially all imports of sugar from Mexico” signed a Jan. 15, 2020, amendment to the agreement suspending the Antidumping Duty Investigation on Sugar From Mexico (AD Agreement), which modifies the definitions for sugar from Mexico, revises the reference prices on applicable sugar from Mexico and provides for enhanced monitoring and enforcement mechanisms, according to a notice in today’s Federal Register. Link to notice.
Commerce said it analyzed comments on the draft amendment from several parties, including CSC Sugar; the petitioners, American Sugar Coalition and its members; Imperial Sugar Company; Cámara Nacional de Las Industrias Azucarera y Alcoholera (Cámara); the Sugar Users Association (SUA); the International Sugar Trade Coalition, Inc.; and the Corn Refiners Association. Commerce said it “made changes” to the December 4, 2019, draft AD amendment based on those comments. “We have also determined that the amended AD Agreement will eliminate completely the injurious effect of exports to the United States of the subject merchandise and prevent the suppression or undercutting of price levels of domestic sugar by imports of that merchandise from Mexico,” Commerce said.
(The petitioners are the American Sugar Coalition and its individual members: American Sugar Cane League, American Sugar Refining, Inc., American Sugarbeet Growers Association, Florida Sugar Cane League, Rio Grande Valley Sugar Growers, Inc., Sugar Cane Growers Cooperative of Florida, and United States Beet Sugar Association.)
Separately, Commerce published a notice that the agency and the Government of Mexico have signed an amendment to the agreement suspending the Countervailing Duty Investigation on Sugar from Mexico which modifies the definition for sugar from Mexico, modifies the restrictions of the volume of direct or indirect exports to the United States of sugar from all Mexican producers/exporters, and provides for enhanced monitoring and enforcement mechanisms. Link to notice.
— Executive order to halt release of report. The Department of Justice said the White House can use executive privilege to decline to release a Commerce Department report advising Trump on proposed tariffs on imports of automobiles and car parts. Commerce handed the analysis to Trump’s office in February and the findings have been kept private since. Congress sought to accelerate its disclosure by requiring the Secretary of Commerce to publish it by Jan. 19, but the agency is saying it will not release it based on a determination from the Department of Justice and it is referencing the signing statement issued by the White House for the Fiscal Year (FY) 2020 appropriations package that contained the report requirement. In that signing statement, the administration noted that “several provisions” mandated the release of “certain executive branch information to the Congress or the public” which would be “unlawful or could reveal confidential information protected by executive privilege.”
Commerce Department said it would continue to withhold the results of the report. “Releasing it now would interfere with the president’s ability to protect confidential executive branch communications and could interfere with ongoing negotiations,” a Commerce spokesperson said.
— Other items of note:
Senate clears Trump impeachment trial rules. The Senate approved rules for President Trump’s impeachment trial on a 53-47 party-line vote after hours of debate. The vote came after President Trump’s legal team clashed with Democrats over their allegations of abuse of power and obstruction of Congress. Beginning as soon as today, each side will make opening arguments for its case, a process that could take up to six days. A question-and-answer period comes next, followed by a vote on whether the Senate wants to request fresh testimony or new evidence.
WOTUS rule coming… again. Sen. Chuck Grassley (R-Iowa) expects the EPA to release the new Waters of the U.S. (WOTUS) rule before the end of the week. “The Trump administration will set common sense limits on state versus federal jurisdiction over the waterways and make it easier for state local governments and farmers to comply,” Grassley told reporters.
Biodiesel program payment update. National Biodiesel Board CEO Donnell Rehagen said the Internal Revenue Service released application guidelines for the credit last week. “Our understanding is in 60 to 90 days, (producers) should be seeing refund checks,” Rehagen told media at a conference in Tampa. IRS released a revised Form 8864 and instructions for using that form on Jan. 3, 2020. "The section 40A biodiesel and renewable diesel fuels credit is retroactively extended for fuel sold or used in calendar years 2018 through 2022," IRS said in its instructions for the form. "Don’t claim the credit for biodiesel and renewable diesel fuels sold or used after 2022, unless the credit is extended again." Link to form. Link to instructions.
Ag industry is likely to remain on front lines of climate change. Heavy rain and flooding across the Midwest last year caused massive damage to farmland. Extreme weather is becoming a common occurrence as the planet heats up, and the ag industry is likely to remain on the front lines of climate change. Link to article from Popular Science.
How chicken producer Tyson is fighting back against the rise of plant-based protein makers like Impossible Foods and Beyond Meat. Link to Bloomberg article.
Trump campaign wants to turn Minnesota red in 2020, after a narrow loss in the 2016 election. But struggling farmers in the state are weighing their support for the president against the growing financial pain they’ve felt for the last few years. Link to article in Minneapolis Star Tribune.
Report focuses on billions paid out to the U.S. ag sector via MFP. A report from the National Foundation for American Policy (link) advocates more congressional oversight over the billions of dollars taxpayers via tweets from President Trump paid out to the U.S. ag sector relative to the Market Facilitation Program (MFP), now in its second package. The report said the taxpayer cost of Trump’s trade aid program exceeded federal funding for the State Department, the Navy’s shipbuilding expenses, maintaining the U.S. nuclear arsenal and NASA. “The $28 billion in aid to farmers raises serious questions,” the report noted. “Should Congress delegate up to $30 billion a year for executive branch officials to use for political purposes, including to limit the political fallout from raising tariffs and not anticipating the likely response from other nations?”
Supreme Court denied requests to quickly decide the fate of the Affordable Care Act, likely meaning that any court consideration of the law won’t happen until fall at the earliest.
— Markets. The Dow on Tuesday finished down 152.06 points, 0.52%, at 29,196.04. The Nasdaq declined 18.14 points, 0.19%, at 9,370.81. The S&P 500 lost 8.83 points, 0.27%, at 3,320.79.
President Donald Trump told CNBC Wednesday that the U.S. economy's GDP growth would have been closer to 4% if it weren't for the lingering effect of Federal Reserve rate hikes. "But we had Boeing. We had the big strike with General Motors (GM). We had things happen that are very unusual to happen," Trump said.
The price of natural gas has dropped to multiyear lows. On Tuesday, gas futures fell below $2 per million British thermal units to their lowest level in almost four years, highlighting the persistent glut that has buffeted energy investors and producers. Some weather models are predicting the warmer weather will continue into at least the first week of February, which could push prices even lower, says Brian Lovern, chief meteorologist at Bespoke Weather Services.