Tensions Running High After Campus Violence in Hong Kong

Posted on 11/18/2019 6:25 AM

County FSA offices to prioritize MFP 2 second tranche payments and conclude by Nov. 22

In today's updates:

* Tensions are running high after campus violence in Hong Kong over the weekend
* U.S., Chinese trade officials held 'constructive discussions' in a Saturday phone call
* Size of China's commitment to purchase U.S. farm products not yet clear
* FCC to vote on Chinese tech ban
* U.S. struggles to stem China recruitment of scientists
* MFP 2's second installment starts coming this week
* USDA signals intent to ensure adequate U.S. sugar supply
* U.S. and South Korea postponed a joint military exercise
* North Korea rebuffs latest Trump advance
* John Bel Edwards, a Democrat, won a second term as Louisiana’s state governor
* Struggling farmers are key to trump’s hopes in Minnesota: WSJ
* Iowa’s farm debt hit $18.9 billion in second quarter of 2019, highest level in nation
* Boston Globe: Wisconsin's farmers still waiting for trade wars to pay off
* Iran's state news agency reported protests across the country
* Perdue: 'Absolutely zero regrets' re: moving two research agencies from D.C.
* Pete Buttigieg accelerates to lead in Iowa poll
* WaPo editorial: 'USMCA deal might be near. It’s a wise move for Democrats'
* Propane snafu in the Midwest has Congress' focus now
* Another biodiesel plant shut down last week in Indiana; push to extend lapsed credit
* Public impeachment inquiry hearings in the U.S. Congress continue this week
* FedEx is punching back after NYT published a front-page story on Sunday
* World’s biggest container shipping line is focusing new investment on land, not water

Markets: The CBOE Volatility Index, or VIX, closed at 12.05 on Friday, its lowest since April. A low VIX is often regarded as a sign of investor complacency

Southern California Edison said it will pay $360 million to close 26 lawsuits with 23 public entities over expenses and damages from wildfires and mudslides since 2017, according to attorneys involved in the agreement, which does not extend to other lawsuits from individuals and victims. Meanwhile, the National Weather Service issued high-level fire warnings for Southern California on Sunday, while PG&E warned of more power outages in Northern California where high winds and dry conditions also posed a fire risk. PG&E said its service area typically experiences dry vegetation that is ripe for igniting or spreading a wildfire, but this year's conditions are worse than usual. Southern California Edison is also warning that windy conditions could force shutoffs for 32,000 customers in mountain and coastal areas.


U.S./China trade policy update:

  • Hong Kong police moved on university campus, made mass arrests, and threatened live fire. Anti-government protests continued in Hong Kong for a 25th consecutive weekend. Police fired tear-gas and water cannon at several groups of demonstrators across the city. Protesters barricaded themselves inside Hong Kong Polytechnic University, where they shot arrows and launched gasoline bombs. A police media liaison officer was hit in the leg by an arrow. Those still trapped inside the campus say they are running low on food and water and need medical attention for injured protesters. State media today called the student protesters “terrorists” and the university campus a “war zone.” Meanwhile, a city court ruled that a law banning people from wearing masks at protests is unconstitutional. China says Congress is “full of prejudice” as lawmakers push to pass a bill requiring a review of whether Beijing is respecting Hong Kong’s autonomy, South China Morning Post reports (link).
  • U.S. and Chinese trade negotiators held “constructive discussions” in a phone call on Saturday to address each side’s core concerns of Phase 1 of the trade deal. China’s Vice Premier Liu He, the country’s key negotiator in the trade talks, spoke with Treasury Secretary Steven Mnuchin and U.S. Trade Representative Bob Lighthizer, according to the Chinese Commerce Ministry. The call was held at the request of the U.S. negotiators, and the two sides agreed to remain in close communication, it said in a statement. President Donald Trump had not yet agreed to remove any tariffs as part of a deal, and the size of China's commitment to purchase U.S. farm products was not yet clear, Commerce Secretary Wilbur Ross said on Friday in an interview on Fox Business Network. China's reluctance to commit to a specific amount of farm purchases remains a sticking point in the talks, as is U.S. reluctance to roll back tariffs.
  • FCC to vote on Chinese tech ban. U.S. carriers could be prohibited from using federal subsidies to buy telecom equipment from Huawei and ZTE if a Federal Communications Commission proposal passes this week. The order would designate the two Chinese companies as national security threats.
  • White House is set to issue a 90-day extension of a license today allowing U.S. companies to continue doing business with China's Huawei. The Chinese tech giant was blacklisted in May over national security concerns, though the U.S. has allowed it to purchase some American-made goods to minimize disruption for its customers. Link to Reuters article. The Chinese firm was added to an economic blacklist back in May on national security grounds. Out of $70 billion that Huawei spent buying components in 2018, some $11 billion went to U.S. firms including Qualcomm, Intel and Micron Technology.
  • U.S. struggles to stem China recruitment of scientists. National security officials say universities are at the leading edge of a plan by Beijing to illicitly gain scientific expertise and leapfrog the technology gap with the West, but prosecutors face challenges proving wrongdoing in court. Congress has a hearing on the topic this week. Link to article in Wall Street Journal.

MFP 2's second installment starts coming this week. Second-tranche MFP 2 payments to farmers under the 2019 Market Facilitation Program (MFP 2) will start coming this week, USDA Secretary Sonny Perdue announced (link). While USDA said the second round of MFP payments would be made Nov. 18-28, county FSA offices have been directed to prioritize processing of the payments and conclude that by November 22.

Background. A first tranche of payments that will eventually total $7.25 billion started being released in late August and account for 50% of a farmer’s total expected MFP 2 payment of $14.5 billion — the amount to be paid out should USDA deliver all three tranches of aid. Second and third payments (both at $3.625 billion) were contingent on continued trade disruptions with China and other trade partners affecting farmers. ($14.5 billion total payments; 50% paid in first tranche, 25% to be paid in second tranche prior to Thanksgiving and third tranche, if authorized, will be another 25%.)

Perdue, in a statement, said: “This second tranche of 2019 MFP payments, along with already provided disaster assistance, will give farmers who have had a tough year due to unfair trade retaliation and natural disasters, much needed funds in time for Thanksgiving.”

President Trump talked up the new round of payments in a Sunday tweet. “Our great Farmers will receive another major round of ‘cash,’ compliments of China Tariffs, prior to Thanksgiving,” Trump wrote. “The smaller farms and farmers will be big beneficiaries. In the meantime, and as you may have noticed, China is starting to buy big again. Japan deal DONE. Enjoy!”

USDA earmarked $14.5 billion for total MFP 2 payments to farmers and has paid out $6.8 billion as of Nov. 12 of the total expected first-tranche payouts of $7.25 billion. A third payment of $3.625 billion would come in January or early February 2020 if it is also approved, as sources say is quite likely. Perdue hasn’t ruled out a third installment of payments under MFP 2, but he said farmers should not count on the program being repeated in 2020. “I’m not encouraging anyone to expect a 2020 payment,” he said. “If we can get a trade deal done, I’m telling you, with China on the kinds of numbers we’re talking about, I mean I may want to go back to farming,” Perdue said.

Perdue on Friday in Kansas City, Mo., said that USDA has no plans to change the payment rates. "I haven't heard farmers complaining, aside from this report that was put out in the Senate," he said, referring to a minority paper (link) that Senate Ag Committee Democrats released last Tuesday and has been criticized by some as offering no solutions to charges presented in the publication. Senate Democrats charged in a report last week that the formula on which the 2019 payments are based is skewed in favor of cotton and southern farms. Perdue said, “This is nothing more than a political conversation again trying to bash the administration.” Link for perspective on the minority report; link to additional analysis.

USDA signals intent to ensure adequate U.S. sugar supply. USDA on Friday announced that it fully intends to take appropriate actions to ensure an adequate supply of sugar to the U.S. market.

In recent weeks, USDA said in a statement, prospects for U.S. sugar production have declined significantly due to adverse weather in both sugar beet and sugarcane regions. In the November 2019 World Agricultural Supply & Demand Estimates Report (WASDE), the U.S. sugar production projection declined by 572,000 short tons raw value from the previous month, while ongoing weather concerns threaten further reductions. With a 10.5% ending stocks-to-use ratio forecast for FY 2020, USDA said it will be addressing options in the near future in order to stabilize U.S. sugar supplies.

USDA intends to make an announcement between today and Dec. 10 as to quantity, type and source of additional sugar needed to ensure an adequate supply for the domestic market, avoid forfeitures and prevent or correct market disruptions.

Meanwhile, U.S. food and beverage companies want the Commerce Department to lower key “reference” prices in a sugar trade agreement with Mexico and to revisit the definition of what is considered “refined sugar.” The Sweetener Users Association asked for the changes in comments filed with the department. The users group urged Commerce to instead reduce the sugar reference price to the level set in a 2014 agreement and to carefully examine “whether the 2017 provisions may have been detrimental to new entrants in the cane refining industry.”

Propane snafu in the Midwest has Congress' focus now. House Agriculture Chairman Collin Peterson (D-Minn.) and other Midwestern lawmakers are warning energy regulators that the region’s propane supply is running short just as the fuel is needed to dry the annual grain harvest. Peterson and a bipartisan group of 30 other House members sent a letter to Neil Chatterjee, chairman of the Federal Energy Regulatory Commission (FERC), warning of a potential “disastrous situation” if forecasted cold temperatures lead to a spike in residential demand for propane. “Those who are lucky enough to have crops to harvest this year are now struggling to dry a wet corn crop,” Peterson and the others wrote. “There are also reports that grain elevators are having to stop the delivery of corn from farmers and storing corn on the ground because they’re running short of propane as well.”

Chatterjee responded on Twitter, writing that FERC is “monitoring this critical situation closely as we know how important these harvested crops and livestock are for the local economy.” If the situation worsens, FERC could order pipelines in the region to prioritize shipments of propane, as the agency did in 2014 during another propane shortage.

Other items of note:

  • U.S. and South Korea postponed a joint military exercise to help diplomatic efforts aimed at convincing North Korea to abandon its nuclear weapons program. Speaking in Thailand on Sunday, Mark Esper, U.S. Defense secretary, said Washington and Seoul had decided to delay the joint air force exercise that had been scheduled to start today. Meanwhile, North Korea today responded to a tweet by President Donald Trump that hinted at another summit with North Korean leader Kim Jong Un, saying it has no interest in giving Trump further meetings to brag about unless it gets something substantial in return. Link for more from the Associated Press.

  • John Bel Edwards, a Democrat, won a second term as Louisiana’s state governor. He remains the only state-wide elected Democrat in the deeply Republican state.

  • Struggling farmers are key to trump’s hopes in Minnesota. Many of the struggling farmers in southern Minnesota who voted for President Trump in 2016 say they plan to do so again next year, which would be key for him as he hopes to flip a state he narrowly lost in 2016. Link to WSJ article.

  • Iowa’s farm debt reached $18.9 billion in the second quarter of 2019, the highest level in the nation, the Des Moines Register reports (link). “It’s very, very concerning,” said Alejandro Plastina, an ag economist at Iowa State University. “It’s getting harder and harder for farm operations to cash-flow their business.”

  • Boston Globe: "Trump promised Wisconsin's farmers his trade wars would pay off. They're still waiting.” The article notes that, "Trump's promise to restore US trade dominance won him deep support in farm country, which helped him secure his narrow victory in Wisconsin in 2016. As the trade skirmishes Trump has triggered have hurt farmers directly, the president's message has been simple: Trust me, it will all pay off. They are still waiting. But the wave of new and steeper tariffs has yet to fray many farmers' faith in a president who promised to even the playing field." Link to article.

  • Iran's state news agency reported protests across the country after the government announced that it would ration gas and increase the price. The measure is part of an effort to offset the damaging effects of American sanctions. The government says that the extra revenue will go towards subsidies for low-income families. Several people are reported to have died in violent demonstrations. The protests spread across the country; many gas stations have been torched. President Hassan Rouhani warned that “anarchy and rioting” will not be allowed. Iran’s government shut down the internet across most of the country amid growing protests. While gas remains cheaper in Iran than in much of the world, Iran is struggling with an economic crisis amid harsh U.S. sanctions.

  • USDA Sec. Sonny Perdue said Friday that he has “absolutely zero regrets” about moving the headquarters of two research agencies from Washington, D.C., to Kansas City, despite continuing criticism that the move would harm agricultural research and make it less available to federal lawmakers. Link to article by the Lawrence Journal-World.

  • Pete Buttigieg accelerates to lead in Iowa poll. Pete Buttigieg continues his surge in Iowa, moving past Sen. Elizabeth Warren (D-Mass.) and former Vice President Joe Biden to hold a commanding lead among likely Democratic caucusgoers, according to a new poll from The Des Moines Register and CNN. The poll showed Buttigieg, the 37-year-old mayor of South Bend, Ind., was the first choice for 25% of would-be Democratic caucusgoers, a big increase from the 9% he held in September, when The Register last polled the state. The other three top candidates are in a virtual tie for second: Warren at 16% and Biden and Sen. Bernie Sanders (I-Vt.) at 15%. The next-closest candidate in the poll was Sen. Amy Klobuchar (D-Minn.), with 6%. The survey was of 500 likely Democratic caucusgoers and has a margin of error of 4.4 percentage points.

  • A Washington Post editorial (link) says “a USMCA deal might be near. It’s a wise move for Democrats.” The commentary concludes: “On the merits, Trump’s deal is a tweak to NAFTA, disproving his hyperbole about how bad the old agreement was and how good his new one will be. It does indeed improve e-commerce rules and crack Canadian dairy protectionism. For the most part, though, the USMCA deal is about managed trade, not free trade. Its key provisions would set minimum autoworker wages in Mexico and guarantee higher North American content for cars and trucks made in the three signatory countries, so as to protect U.S. jobs. The realistic alternative, though, is a rupture with Mexico and Canada, which is why Pelosi and the moderates in her caucus are right to work with Trump, and why we hope they will see the USMCA through to House passage, send it to the GOP Senate for likely approval — and then move on to other business, impeachment included.”

  • Another biodiesel plant shut down last week in Indiana, leaving 14 workers unemployed ahead of the holidays — in part due to Congress’ failure to extend a tax credit for biodiesel blenders, Reuters reports (link). The $1-per-gallon subsidy has propped up the industry since 2005, but the credit lapsed at the start of 2018 along with some other temporary tax provisions known as “extenders.” The industry and some farm-state lawmakers led by Sen. Chuck Grassley (R-Iowa) have called on congressional leaders to renew the credit by the end of 2019, as part of a potential year-end appropriations package.

  • Public impeachment inquiry hearings in the U.S. Congress continue this week, with eight current and former administration officials to testify, including special envoy to Ukraine Kurt Volker (Tuesday), Ambassador to the European Union Gordon Sondland (Wednesday), and former Russia advisor Fiona Hill (Thursday). Thursday is also the deadline for Congress to avoid a government shutdown, with lawmakers seeking a delay for a few weeks. Link for more in The Week Ahead.

  • FedEx is punching back after the New York Times published a front-page story on Sunday (link) — entitled How FedEx Cut Its Tax Bill to $0 — and challenged the publisher to a debate in Washington. "Pertinent to this outrageous distortion of the truth is the fact that unlike FedEx, the New York Times paid zero federal income tax in 2017 on earnings of $111 million, and only $30 million in 2018 —18% of their pretax book income," wrote CEO Fred Smith. "Also, in 2018 the New York Times cut their capital investments nearly in half to $57 million, which equates to a rounding error when compared to the $6 billion of capital that FedEx invested in the U.S. economy during that same year."

  • The world’s biggest container shipping line is focusing new investment on land rather than the water. A.P. Moeller-Maersk AS says it won’t buy new ships over the near term and plans to focus on cost-cutting in its main port-to-port services, the Wall Street Journal reports (link), as it responds to sagging global trade demand by accelerating expansion of broader logistics services in Maersk Line operations. “That means stepping back from the arms race over capacity that has seen some competitors order ever-larger ships as they seek to outdo the Danish carrier’s own efforts to bring bigger scale to container shipping,” according to the article. “The company may face even bigger challenges on land since many global logistics operators far outweigh the shipping line’s inland distribution capabilities. But Maersk’s willingness to put more spending behind its strategy suggests the company believes there are bigger long-term trends behind today’s changing trade patterns.”

Markets. The Dow on Friday rose 222.93 points, 0.80%, at 28,004.89 for its first close above the 28,000-point mark. The Nasdaq advanced 61.81 points, 0.78%, at 8,540.83. The S&P 500 moved up 23.83 points, 0.77%, at 3,120.46. All three closed at record highs.

In January 2017, the Dow hit 20,000, right around when President Donald Trump was inaugurated.

For the week, the Dow notched its fourth week of consecutive gains, rising 1.2% in that time. The S&P 500 advanced 0.9% for the week, posting its sixth straight weekly gain. That’s the longest streak for the S&P 500 since 2017, when it climbed for eight straight weeks. The Nasdaq rose for a seventh consecutive week, advancing 0.8%.

The CBOE Volatility Index, or VIX, closed at 12.05 on Friday, its lowest since April. A low VIX is often regarded as a sign of investor complacency

The CME FedWatch site doesn’t put the odds of another rate cut at significantly better than even money through most of 2020, at least not until after next November’s elections.

A report leaked from India’s National Statistical Office revealed a contraction in consumer spending. Economists reckon it to be the first in 40 years; even spending on food staples decreased. Rural Indians were especially hard hit, cutting budgets by 8.8% between 2017 to June 2018. The government responded by scrapping the study on the grounds of poor “data quality.”

Saudi Arabia has set Aramco's preliminary valuation at $1.6 trillion to $1.71 trillion, below the $2 trillion level previously targeted by Crown Prince Mohammed bin Salman. The state-owned oil giant is seeking to raise between $24 billion and $25.6 billion by selling a 1.5% stake, putting it close to the world's largest IPO - Alibaba's $25 billion deal in 2014.


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