Late-Year Trade Policy Price Pump for Some Commodities Possible

Posted on 11/09/2018 7:17 AM

Florida and Georgia elections still in flux

Several trade policy decisions coming soon and perhaps early in 2019 could give some U.S. commodities a price bump if they are officially announced. They include the lifting of U.S. metal tariffs on Canada and Mexico and in return, those countries lifting their countermeasure tariffs on U.S. goods, including several farm products (pork, dairy, etc.). Canada and Mexico would like the metal tariffs removed ahead of an expected signing of the U.S.-Mexico-Canada agreement (USMCA) on Nov. 30 in Argentina amid the G20 confab. Canada and U.S. officials continue to talk about a U.S. push for metal quotas, something Canada does not want but apparently has offered some suggestions on the matter. Meanwhile, U.S./China talks today and ongoing preparatory talks ahead of a meeting late this month or early in December between President Donald Trump and Chinese leader Xi Jinping could provide a framework of resolving some of the ag-related issues, sources report. Finally, what some have not focused on, is USDA's coming purchases of U.S. commodities, especially pork, in food purchase and distribution program target amounts as part of the Trump tariff aid package. It includes the largest pork purchase in history, at $558.8 million out of the total $1.239 billion for the program. Purchases will last 12 months and will begin in December.
     Judge blocks Keystone XL Pipeline permit. A federal judge in Montana ruled against the Trump administration and barred any construction of the long-delayed project until completion of a supplemental environmental review.
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A late-year policy bump coming for some commodities? Could be if some pending issues are officially completed or framework agreements are announced. They include:

  • Lifting of U.S. metal tariffs on Canada and Mexico and in return, those countries lifting their countermeasures on U.S. products, including several farm goods (pork, dairy, etc.). Canada and the U.S. have had informal talks about steel quotas in exchange for dropping the current 25% tariff on Canadian steel, Canadian Ambassador David MacNaughton told Politico. Canada responded to the U.S. steel tariffs with retaliatory duties on about $12.6 billion worth of American imports, including food and beverage items. Canada does not like quotas, as talks continue, with Canada stressing they have taken measure to control the flow of international steel via Canada into North America. Meanwhile, Mexico’s economy minister Ildefonso Guajardo noted that U.S.-Mexico trade adds up to more than $500 billion, while the tariffs between the countries only hit about $3 billion in goods in each country. “Yes, it’s not desirable to sign an agreement without considering the tariffs,” but said they’d go ahead with signing the deal given the importance of the trading relationship.

  • USMCA signing timeline target is ahead of Dec. 1, when Mexican President Enrique Peña Nieto leaves office. He wants several trade issues completed before his successor takes office. Sources signal a USMCA signing ceremony could take place at the G20 summit in Argentina that begins Nov. 30. Mexico’s Guajardo said in a conversation with reporters that the current plan is to have ministers from the three countries sign the agreement Nov. 30 at the summit in Buenos Aires, Argentina. Legislators from the three countries still have to approve the pact before it goes into effect. Guajardo also said that U.S. Trade Representative Robert Lighthizer included provisions — especially on labor — that would appease Democrats so there’s no need to alter the deal. “I don’t see any necessity, not even through side letters, to make changes to the agreement. … The design of this agreement we already have and will be signing considered a scenario where there would be a Democrat-majority Congress,” he said.

  • U.S. ambassador to China expects 'frank' exchanges in China dialogue: Reuters. A "frank" exchange of views can be expected in top-level diplomatic and security talks between the U.S. and China today, including on issues such as human rights and the South China Sea, the U.S. ambassador to China said. Terry Branstad told reporters at the State Department on Thursday that the U.S. would seek progress on priority issues, including North Korea, and that there would also be discussions on strategic security and how "to avoid mistakes or accidents that can happen in the military arena." Meanwhile, moves to try to resolve a damaging trade war between the two countries are expected to be touched upon ahead of a planned meeting between U.S. President Donald Trump and Chinese President Xi Jinping at the G20 in Argentina at the end of November. "We want this to be a constructive, results-oriented relationship with China," Branstad said. "The U.S. is not trying to contain China but we want fairness and reciprocity." Chinese Leader Xi Jinping said on Thursday that China wants to resolve problems through talks, but Washington must respect Beijing's choice of development path and interests. Regarding U.S./China trade issues, USDA Secretary Sonny Perdue issued a statement saying he “expressed optimism that President Trump’s approach to trade will lead to a resolution of the dispute with China.” Bottom line: A Trump administration source informs that the goal is to have a major U.S./China agreement in place or a framework agreement in principle by the end of January 2019.

  • USDA will begin its purchases of U.S. farm products in December as part of the Trump tariff aid plan. The amount of some products is so large that some food banks have told USDA that they may not have storage (coolers, etc.) for all the products they may receive. Meanwhile, Smithfield, owned by the Chinese firm WH Group, will sell 144,000 pounds of pork products — or $240,000 worth — to the U.S. government under the Trump administration’s trade assistance program for U.S. agribusinesses and farmers hurt by retaliatory tariffs, the Washington Post reports (link). Under USDA's food purchase and distribution program target amounts, it includes the largest pork purchase in history, at $558.8 million out of the total $1.239 billion for the program. Purchases will last 12 months beginning in December.

A U.S. meat glut has Tyson Foods Inc. seeking stability abroad. The biggest American meat processor wants to reduce exposure to domestic agricultural-market swings and is looking at possible deals outside the U.S., the Wall Street Journal reports (link). “The U.S. is awash in record levels of chicken and pork, and the oversupply along with tariffs by Mexico and China has tamped down prices and sharpened competition. Buying meat-processing or food companies elsewhere could help spread the risk, says Tyson Chief Executive Noel White. The company is also retooling its strategy in China to focus on selling branded products like chicken nuggets after avian influenza outbreaks and slowing economic growth eroded poultry demand.” A recent deal to acquire McDonald’s supplier Keystone Foods will expand Tyson’s broader Asian portfolio, adding facilities that could supply more products to the Middle East and Northern Africa.

Other items of note:

  • A federal judge blocked a permit by President Donald Trump's administration allowing the Keystone XL pipeline. It barred any construction of the long-delayed project until completion of a supplemental environmental review how the 1,184-mile project would affect the environment. The pipeline would transport up to 830,000 barrels of crude oil daily from Canada to Nebraska. While Canada's loonie extended its decline on the news, no immediate impact was seen in the oil markets as the pipeline isn't scheduled to come online for years.

  • Florida and Georgia elections still uncertain. Officials are still counting absentee, provisional and overseas ballots in Georgia and Florida races for governor as well as in Florida’s Senate contest. Sen. Bill Nelson (D-Fla.), the Democratic incumbent, trails Rick Scott, the outgoing Republican governor, by about 15,000 votes, or 0.18 percentage points. The margin is slim enough to trigger a recount under state law. Scott has declared victory and his spokesman called the possible recount a “sad way for Bill Nelson to end his career.” Scott has a lawsuit against election officials, accusing them of “rampant fraud.” Scott announced Thursday night that he was calling for a state investigation into Broward County’s handling of tens of thousands of ballots that have led to statewide recounts in three races. Scott’s campaign also filed a public-records lawsuit against Broward County Election Supervisor Brenda Snipes, accusing her of failing to provide details about the ballots tabulated after Election Day.

  • The Associated Press has not declared winners in 12 House races. Also of note: A record 34 women were newly elected to the House on Tuesday, beating a previous high set in 1992.

  • Sessions' replacement. Labor Secretary Alex Acosta, former New Jersey Governor Chris Christie, and U.S. Appeals Court Judge Edith Jones are among the people under consideration to replace Jeff Sessions as the nation's attorney general. Until a successor is seated, Trump’s acting attorney general is Matthew Whitaker, who served as Sessions' chief of staff. Congressional Democrats are calling on Whitaker to recuse himself from overseeing the Mueller investigation because of comments about the Mueller probe that Whitaker made last year before he became Sessions' chief of staff.

  • Cotton AWP moves higher. The cotton Adjusted World Price (AWP) moved up to 69.86 cents per pound, effective today, up from 68.56 cents per pound the prior week. This still marked seven straight weeks of the AWP being under 70 cents per pound. Meanwhile, USDA announced Special Import Quota #3 would be established for 58,822 bales of upland cotton on Nov. 15, applying to cotton purchased not later than Feb. 12 and entered into the U.S. not later than May 13.

Markets. The Dow on Thursday edged up 10.92 points, 0.04%, at 26,191.22. The Nasdaq was down 38.97 points, 0.53%, at 7,530.88. The S&P 500 lost 7.06 points, 0.25%, at 2,806.83.

The Federal Reserve as expected held its key interest rate in a range between 2% and 2.25% at the conclusion of its two-day meeting on Thursday and signaled it would continue raising rates gradually amid stable economic growth.

Oil in bear market. A barrel of West Texas Intermediate for December delivery dropped below $60 in trading this morning as the commodity heads for its longest losing streak on record. With prices now more than 20% below the high hit in early October, oil is now in a bear market. New U.S. sanctions are unlikely to cut as much oil out of the market as initially expected with Washington granting temporary exemptions to Iran's biggest buyers. American production has also reached a new record high of 11.6 million bbl/day.

Saudi Arabia's top government-funded think tank is studying the possible effects on oil markets of a breakup of OPEC, the Wall Street Journal reports (link). Senior Saudi officials see the study as a high-priority economic policy inquiry, but it does not reflect an active debate inside the government over whether to leave OPEC in the near term.


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