CRS Report Raises Question: Are CFAP 3 Payments Needed?

Posted on 01/04/2021 5:49 AM

Barron’s discusses $5 or $6 corn | Biden’s trade policy and China | OPEC+ meets


In Today’s Updates


Market Focus:
• U.S. equity futures signal higher openings
• $5 or $6 corn? Barron’s article notes the possibility
• OPEC+ meets for the first time since agreeing to slowly ramp up production
• U.S. crude prices are hovering just below $50 a barrel

• Value of bitcoin surged above $34,000 for first time
• Use of blank-check companies surged in 2020


Policy Focus:
• CRS report asks: Are CFAP 3 direct payments needed?


China Update:
• What will or should President-elect Joe Biden do relative to trade policy with China?


Trade Policy:
• Report: Japan’s Suga will urge Biden administration to rejoin TPP


Energy & Climate Change:

• Christine Lagarde expected to make ECB a climate change pioneer

Coronavirus Update:
• Sen. Perdue to quarantine just before Georgia runoff after close Covid contact
• More than four million Americans have received first dose of a Covid vaccine  
• Israel’s vaccination program a winner
• North Korea requesting Covid-19 vaccines from global group: WSJ
• Japan prime minister warns he may impose a state of emergency in Greater Tokyo


Politics & Elections:
• Trump is heading to Georgia for an election-eve rally for Perdue and Loeffler
• WSJ editorial team notes what some Republicans have been unable to do re: Ga. Races
• America’s living former defense secretaries call on Trump to accept election result

Other Items of Note:
• Iran resumes 20% uranium enrichment at key nuclear facility, violating agreement
• U.K. judge rules WikiLeaks founder Julian Assange should not be extradited to U.S.




Equities today: U.S. stock futures signal a higher open. Most major stock benchmarks in the Asia-Pacific region advanced. South Korea’s Kospi Composite led gains, rising almost 2.5%. China’s Shanghai Composite gained 0.9% by the close of trading, even after a private survey showed China’s manufacturing activity moderated in December due to weak demand for the country’s exports.


     U.S. equities Thursday: All three major indices finished 2020 at record levels, recovering from their plunge into bear market territory earlier in the year. The Dow gained 196.92 points, 0.65%, at 30,606.48. The Nasdaq rose 18.28 points, 0.14%, at 12,888.28. The S&P 500 was up 24.03 points, 0.64%, at 3,756.07.


On tap today:


     • IHS Markit's U.S. manufacturing index for December is out at 9:45 a.m. ET.
     • U.S. construction spending for November is expected to increase 1.1% from the prior month. (10 a.m. ET)
     • American Economic Association's virtual annual meeting includes remarks from Atlanta Fed President Raphael Bostic on measuring the economic impact of Covid-19 (10 a.m. ET), Chicago Fed President Charles Evans on economic prospects and policies after Covid-19 (10 a.m. ET), and Cleveland Fed President Loretta Mester on diversity in economics (12:15 p.m. ET) and the economic outlook (6 p.m. ET).
     • USDA Export Inspections, 11 a.m. ET.


OPEC+ meets for the first time since agreeing to slowly ramp up production. OPEC+'s Joint Technical Committee will meet Jan. 3 while its Joint Ministerial Monitoring Committee will meet Jan. 4 to discuss the oil market and evaluate the current status of the deal. This will be the first meeting since OPEC+ agreed last month to slowly ramp up production by as much as 500,000 b/d per month as oil demand recovers in 2021.


Market perspectives:


     • Outside markets: The U.S. dollar weakened and in bond markets, the yield on the benchmark 10-year Treasury note climbed to 0.930%, from 0.913% on Dec. 31.

     • Crude oil prices have maintained a positive tone ahead of the U.S. start to trading for 2021. U.S. crude is trading around $48.90 per barrel and Brent around $52.45 per barrel. Crude oil prices moved up in Asian trade to open 2021, with U.S. crude up 56 cents at $49.08 per barrel and Brent crude gained 67 cents at $52.47 per barrel.

     $5 to $6 corn? That’s what some analysts tell Barron’s in their latest weekly magazine (link to article/paywall). A drop in corn production will result in reduced supplies of the grain, propelling prices higher over the next few months, experts say. Part of the story is that bad weather in South America will lead to a later planting of the second corn crop, or safrinha, in Brazil. In turn, that could lead to lower production levels.


     • Value of bitcoin surged above $34,000 for the first time. The world’s most popular cryptocurrency increased in value by more than 300% last year. Some analysts predict that the bubble will soon burst, but bitcoin’s rally has been boosted by a growth in institutional support; last year PayPal, a digital-payments firm, incorporated the digital currency for American customers.


     • Use of blank-check companies, which go public with no assets and then merge with private companies, surged in 2020, raising a record $82.1 billion in 2020, up from $13.5 billion in 2019, according to Dealogic.




—  CRS report asks: Are CFAP 3 direct payments needed? They are indeed coming via checks the next few weeks, but the Congressional Research Service (CRS) in a report at least raises the question as to whether they are necessary. The report (link), released Dec. 21, openly asks whether most producers need another round of coronavirus relief aid. It notes that most major crop and livestock commodities “have seen their prices increase substantially” since July because of improving market conditions, with the exceptions of beef cattle and dairy. “If current market conditions were to persist into the first half of 2021, it would appear that price declines would be a possible reason for a new round of CFAP payments for livestock and dairy, but not for row crops,” the report says. 

     The report asks the following questions:

  • Have CFAP 2 payments successfully compensated (at least partially) all producers who have experienced unexpected economic costs due to Covid-19 during the second through fourth quarters of 2020?
  • Have CFAP 2 funds been distributed in a fair manner to every producer and for every commodity sector that has experienced Covid-19-related costs?
  • What is the potential for duplication of payments under existing farm programs?
  • What is the role for congressional monitoring and oversight of the large sums of taxpayer money that are being spent under a nontraditional authority?
  • Will additional assistance be needed [late in 2020] or early in 2021?
  • Will use of this nontraditional authority for such large sums of taxpayer money serve as a recurring template for future USDA payments interventions?

     Comments: With talk of “beans in the teens” and the Barron’s article mentioned previously about $5 or $6 corn possibly ahead, this topic will resonate with some. But ag sector observers note the dramatic drain in working capital since its peak in 2012 left many producers in a cash-flow bind and recent payments have helped but have certainly not made producers whole. And, the Covid-19 pandemic made the cash-flow drain even worse.




What will or should President-elect Joe Biden do relative to trade policy with China? The Wall Street Journal tries to tackle that topic and comes up with some familiar earlier suggestions by some trade policy observers, some who almost instantly cast doubt on President Donald Trump’s approach of tariffs and purchase commitments. Despite the so-called Phase 1 trade agreement struck in January 2020, tariffs between the two nations remain elevated. U.S. levies on Chinese goods have gone from an average level of 3.1% in January 2018 to 19.3% now. China’s average tariffs have risen from 8% to 20.3%. At the same time, the WSJ article notes, “China is all but certain to miss its commitments to purchase U.S. goods under the Phase 1 deal. The Trump administration also seemed to careen between an obsession with bilateral trade deficits to a focus on China’s abusive trading practices. But for all its faults, Trump’s China trade war leaves Biden one helpful legacy: He demonstrated that it is possible to get tough on China without catastrophic economic consequences. With the taboo on tariffs broken, future U.S. presidents will have a freer hand to negotiate with Beijing.” Link to article.


     China falling short

U.S./China Phase 1 tracker: China’s purchases of U.S. goods. Link




— Report: Japan’s Suga will urge Biden administration to rejoin TPP. Will Urge New U.S. Government to Rejoin TPP. Japanese Prime Minister Yoshihide Suga will urge the U.S. to rejoin the Trans-Pacific Partnership (TPP) after President-elect Joe Biden takes office, Sankei newspaper cited him as saying in an interview published on Sunday. The TPP was negotiated by Obama administration, in which Biden served as vice president, so it would be “natural” for the incoming U.S. government to return to the partnership, Sankei cited Suga as saying. The prime minister said the group would cautiously work on the issue of China joining, according to the report. President Trump pulled out of TPP, a regional trade agreement involving 11 countries across the region, during his third day as president in 2017.




— Christine Lagarde expected to make ECB a climate change pioneer. Christine Lagarde is expected to make the European Central Bank (ECB) a pioneer in fighting climate change by slashing its purchases of bonds issued by fossil fuel companies and other heavy carbon emitters, according to a Financial Times poll of economists (link/paywall).


     The ECB president has pledged to make tackling climate change a major part of the central bank’s strategic review of its remit and tools, which is due to be completed by the second half of 2021. Two-thirds of the 33 economists polled by the FT believe the review will result in the ECB deciding to break with its long-held principle of “market neutrality,” which requires it to buy bonds in proportion to the overall market.




 Summary: Global cases of Covid-19 are at 85,180,344 with 1,844,518 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 20,639,854 with 351,590 deaths.


       Link to Covid Case Tracker
       Link to Our World in Data


— Sen. Perdue to quarantine just before Georgia runoff after close Covid contact. Both GOP Sen.  David Perdue and his wife, Bonnie, tested negative for the virus on Thursday, but following his doctor’s recommendations and in accordance with CDC guidelines, they will quarantine.


— More than four million Americans have received the first dose of a Covid vaccine. Dr. Anthony Fauci said he expects the pace of vaccinations in the U.S. to quicken after a lackluster rollout.


— Israel’s vaccination program a winner. Within two weeks of rolling out its vaccination campaign, Israel has become the first country globally to inoculate more than 10% of its population and nearly half its most at-risk citizens.


— North Korea is requesting Covid-19 vaccines from a global group, the Wall Street Journal reports (link). North Korea has submitted an application to receive Covid-19 virus vaccines from the main global alliance helping lower-income countries with inoculations, the WSJ noted, citing a person familiar with the matter. Gavi, the international vaccine alliance, declined to comment on North Korea’s application. But the group is assessing individual economies’ demands and expects to provide an update early in the year, a Gavi spokesman said. In recent weeks, North Korea has reached out to several European embassies, inquiring how the country might obtain Covid-19 vaccines, the WSJ added.


— Yoshihide Suga, Japan’s prime minister, warned that he may impose a state of emergency in Greater Tokyo. The country is grappling with a new surge of coronavirus cases, linked to the more infectious variant of the disease discovered in England.


     Elsewhere, Chinese officials said they will inoculate 50 million front-line workers before the Lunar New Year next month, when widespread travel is anticipated.




— Trump is heading to Georgia for an election-eve rally for Perdue and Loeffler. President Trump escalated his attempts to overturn the election results during an hourlong call Saturday with Georgia Secretary of State Brad Raffensperger, urging him to “find 11,780 votes” and repeating baseless conspiracy theories, according to the Washington Post (link), which obtained a recording of the call. The WaPo reported that Trump referenced the upcoming runoffs during the call and signaled he would bring up the allegations of election fraud during the Monday rally.


— The WSJ editorial team is pointing out what some Republicans have been unable to do with any fervor lately: the difference between a Democratic and Republican Senate this year and what’s a stake in Georgia’s two runoff contests on Tuesday. After detailing several major Democratic initiatives that could unfold if the Democrats win both Senate runoffs, the WSJ editorial concludes: “All of this is what the candidates should be debating in Georgia. But President Trump has obscured the stakes with his claims of November vote fraud and demand for $2,000 Covid checks. The irony is that if Democrats take the Senate, Mr. Trump will have made it much easier for Mr. Biden and Mrs. Pelosi to repeal the President’s achievements. The consequences would echo far into the future.” Link to WSJ commentary.


— Every one of America’s living former defense secretaries called on the president to accept the country’s election result, warning him against using the army to try to cling to power. In a letter published in the Washington Post, the ten men, including Republicans such as Donald Rumsfeld, Dick Cheney and President Trump’s own former Pentagon chiefs, said “civilian and military officials” abetting such an attempt would be held accountable for their actions.




— Iran says it resumed 20% uranium enrichment at key nuclear facility, violating nuclear deal. A gov’t spokesman said that Iran today began the process of enriching uranium at a level of 20%, a short technical step from the 90% purity level needed to produce a nuclear weapon — something the multilateral nuclear deal was meant to prevent. The move comes amid heightened tensions between Iran and the Trump administration as Tehran on Sunday marked the first anniversary of the U.S. killing of senior military commander Maj. Gen. Qasem Soleimani.


— U.K. judge rules WikiLeaks founder Julian Assange should not be extradited to the U.S. The judge ruled the WikiLeaks founder should not be extradited to face charges of violating the Espionage Act, citing the high risk of suicide in U.S. custody.



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