Mnuchin notes some agenda items for U.S./China talks | NFU punts on USMCA
In today's updates:
* Mnuchin notes 'conceptual' trade enforcement language accord with China
Markets: China removed limits for overseas investment in the country’s stocks and bonds.
— U.S./China trade policy update:
- 'Conceptual' trade enforcement agreement: Mnuchin. “I think the enforcement area we at least have a conceptual, an agreement on,” U.S. Treasury Secretary Steven Mnuchin told Fox Business Network. But he added that President Donald Trump has no problem keeping heavy tariffs on Beijing if a deal can’t be reached.
- Mnuchin: Currency a focus of next round of China talks. “I expect the governor of the People’s Bank of China to come over for these talks,” Mnuchin told reporters Monday. “So part of the conversations we will be having with them is around currency and currency manipulation.”
- Chinese vice premier urges main hog production areas to ensure pork supply. Chinese Vice Premier Hu Chunhua urged the country's main hog production areas to step up efforts in stabilizing and recovering production. Ensuring stable pork supply is one of the most urgent tasks for the country's work on agriculture, rural areas and farmers, Hu said in remarks on Friday after an inspection to northeast China's Heilongjiang Province, one of the country's main hog production areas. All main hog production areas should develop hog production and pork supply plans and fulfill related targets, Hu said.
- China's Guangdong to release another 3,150 tonnes of pork from reserves to secure supplies. Local authorities are also promoting modern and large scale pig farms, to secure pork supplies in the region in the long run, according to reports. China’s state planner said on Monday it will issue subsidies of up to 5 million yuan ($700,000) to support the construction of large-scale pig farms.
- The value of pork imports grew more than 150% year-on-year in August to Rmb2.5bn ($350 million), according to Financial Times calculations based on figures published by China’s state media on Sunday, which showed that pork imports by value jumped 66% year-on-year in the first eight months of the year. Beijing has imposed a 72% tariff on U.S. pork, so China has turned to Europe and Latin America to step up their supplies. Analysts project that China will import more than 2 million tonnes of the meat this year. While imports accounted for 3% of China’s pork consumption last year, they could account for 10% over the next few years, said Jim Huang of consultancy China-America Commodity Data Analytics.
- China grants licenses to 25 Brazilian meat plants to export product to China. China has granted export licenses to 25 Brazilian meat plants — 17 for beef exports, six for chicken, one for pork and one for donkey — which will allow them to export product to China, according to Brazil’s Ag Ministry. The agency said the action means they “can already export immediately” in terms of moving product to China. China has sought to broaden its sourcing of meat from the global market in the wake of African swine fever (ASF) and the trade war with the U.S. which has effectively shut many U.S. products out of the Chinese market. The Brazilian government would welcome additional plants being cleared, Brazilian Ag Ministry Trade and Foreign Relations Secretary Orlando Ribeiro said at a Sao Paulo event. That is an indication the Brazilian government could be able to streamline the evaluation process for additional plants via “pre-listing” some of the plants for export, but that move would require approval by China. Pre-listing would set up a system where Brazil could establish a list of potential suppliers to China and audit those plants and those plants could become pre-approved if they meet China’s sanitary and quality standards, he noted. Brazil has already seen China become its largest export market for beef, chicken and pork in the wake of the ASF situation.
- China keeps up push on bolstering new hog operations. Large-scale pig farms should make up 58 percent of total hog operations in China by 2022, according to China’s state council, with some reports indicating the goal is for those operations to account for 65% of the total by 2025. The document did not define what a large operation is but it marked the latest in a series of announcements by China this week aimed at bolstering hog production and increase supplies of pork for the country.
- Trump officials not pleased China still buying Iranian oil. The Trump administration continues to express their displeasure at the fact that China continues to buy oil from Iran even as the U.S. has put sanctions in place on Iran, with the U.S. “very concerned.” U.S. Deputy Secretary of Energy Dan Brouillette noted concern Monday about the purchases that the Chinese people have made, “the government in particular,” Brouillette told reporters in the United Arab Emirates. The U.S. plans to raise the issue with Chinese but did not give any indications of what actions could result if China does not halt its purchases. From China, Chinese Foreign Ministry spokesperson Hua Chunying said the U.S. action of trying to exert "maximum pressure" on Iran is not going to produce the results the U.S. wants. "The U.S. should abandon wrong practices, such as unilateral sanctions and maximum pressure on Iran," Hua said.
- USDA official calls Xi a 'communist zealot.' USDA's top trade official called Chinese President Xi Jinping a “communist zealot,” as he warned farmers the Asian leader is a tough adversary in negotiations. Ted McKinney, the department’s undersecretary for trade, offered the characterization of the Chinese leader yesterday.
- A state-run China paper took aim at Trump adviser Peter Navarro for his hawkish stance on the issue. Navarro, an adviser to U.S. President Donald Trump, repeated accusations he’s previously termed China’s “seven deadly sins” during a Sunday interview with Yahoo Finance —including alleged cyberattacks, forced technology transfers and currency manipulation. He also said China is taking on the “full burden” of U.S. tariffs on its products. “All these preposterous comments are not constructive at all, and go against the larger direction of the two sides taking real action to create favorable conditions for the negotiations,” Beijing’s state-run People’s Daily wrote in a commentary today. Navarro intended to “throw cold water on international markets,” it said. Those “irresponsible” comments should stop, and the U.S. should show “sincerity” and “action” to create condition for the negotiations, the paper said.
— NFU punts on backing USMCA. The National Farmers Union has never supported a multilateral trade agreement that passed Congress. And its streak continues, at least for now. The Democratic-tilted group wants the Trump administration to alter several items in the pending U.S.-Mexico-Canada Agreement (USMCA). A resolution adopted by NFU’s board and released Monday says that country-of-origin labeling (COOL) should be added to the agreement, and that the trade pact should also address concerns Democrats have raised about labor standards and drug pricing.
COOL language will not be part of any final USMCA voted on by Congress, congressional and administration sources stress, but discussions continue on some of NFU's other shortcomings in the environmental, labor and drug pricing areas.
House Democrats await written responses from the U.S. Trade Representative on various USMCA concerns.
— USDA's FSA needs to whip WHIP+ into shape. Signup will open Sept. 11 for the $3.1 billion in disaster assistance, with USDA providing the aid via the Wildfire and Hurricane Indemnity Program Plus (WHIP+). As usual, farmers and farm groups have more questions than answers on Monday-released details of the latest disaster aid provisions. The most important features alerted on profarmer.com (link) were confirmed by USDA. However, there are several still-to-be determined items.
- With $3.1 billion to spend, payments for 2019 losses will be limited to 50% of eligible coverage, versus 100% for 2018 losses, with an opportunity to receive up to the remaining 50% after Jan. 1, 2020, if sufficient funding remains. The WHIP+ program expanded coverage of the 2017 WHIP to include losses from Tropical Storm Cindy, and peach and blueberry crop losses that resulted from extreme cold. The limiting funded is also in large part why USDA altered the payment limit details for the program. Question: Will more funding be authorized by Congress? Look for farm-state lawmakers to address this topic in the days and weeks ahead.
- Payments will be made for grain lost to flooded bins in Nebraska, Iowa, and the Dakotas earlier this year. “Producers who suffered losses of harvested commodities, including hay, stored in on-farm structures in 2018 and 2019 will receive assistance through the On-Farm Storage Loss Program,” USDA said. Farm Service Agency (FSA) Administrator Richard Fordyce said stored-grain payments will be based on 75% of the crop’s 2018 value, assuming the grain was harvested last year. While USDA views the flooding as a 2019 loss, it is murky as to whether producers will receive 50% or 100% of that 75% payment.
- Prevent-plant payments: USDA will provide a 10% bonus payment and an additional 5% for producers who purchased the harvest price option. PP details will be formally announced potentially in the next “week or two,” Fordyce said. As under 2017 WHIP, WHIP+ will provide prevented planting assistance to uninsured producers, NAP producers and producers who may have been prevented from planting an insured crop in the 2018 crop year and those 2019 crops that had a final planting date prior to Jan. 1, 2019, USDA said.
- Who is eligible? WHIP+ will be available for eligible producers who have suffered eligible losses of certain crops, trees, bushes or vines in counties with a Presidential Emergency Disaster Declaration or a Secretarial Disaster Designation (primary counties only), USDA said. “Disaster losses must have been a result of hurricanes, floods, tornadoes, typhoons, volcanic activity, snowstorms or wildfires that occurred in 2018 or 2019.” USDA will consider the size of loss and level of insurance coverage carried by the producer when it comes to eligibility. “A WHIP+ factor will be determined for each crop based on a producer’s coverage level,” USDA detailed. “Producers who elected higher coverage levels will receive a higher WHIP+ factor.” Those payment factors range from 75% to 95%, depending on the level of crop insurance coverage or NAP coverage that a producer obtained for the crop.. If producers did not insure their 2018 or 2019 crops, USDA said they will receive 70% of the expected value of the crop. Insured crops (either crop insurance or NAP coverage) will receive between 75% and 95% of expected value, USDA said, with those who purchased the highest levels of coverage receiving 95% of the expected value.
- USDA said that those producers not in areas getting a disaster declaration or designation can apply for WHIP+, but will have to provide additional supporting documentation relative to their losses being from a qualified disaster event. However, USDA noted, “Because grazing and livestock losses, other than milk losses, are covered by other disaster recovery programs offered through USDA’s Farm Service Agency (FSA), those losses are not eligible for WHIP+.”
- Are quality losses covered? Production losses are the focus for WHIP+, USDA noted, but “if quality was taken into consideration under federal crop insurance or the Noninsured Crop Disaster Assistance Program (NAP) policy, where production was further adjusted, the adjusted production will be used in calculating assistance under this program.” Crops eligible for WHIP+ are those where federal crop insurance or the NAP coverage is available, except crops intended for grazing.
- WHIP+ benefits will be subject to a payment limitation of either $125,000 or $250,000 per crop year, depending upon their verified average adjusted gross income. As under 2017 WHIP, the payment limitation for WHIP+ factors in the person’s or legal entity’s income from activities related to farming, ranching, or forestry. Specifically, a person or legal entity, other than a joint venture or general partnership, cannot receive more than $125,000 in payments under WHIP+, if their average adjusted gross farm income is less than 75 percent of their average adjusted gross income (AGI) for 2015, 2016, and 2017. The $125,000 payment limitation is single total combined limitation for payments for the 2018, 2019, and 2020 crop years. If at least 75% of average AGI is derived from farming, ranching or forestry-related activities, they are eligible to receive, directly or indirectly, up to $250,000 per crop year in WHIP+ payments, with a total combined limitation for payments for the 2018, 2019, and 2020 crop years of $500,000. The relevant tax years for establishing a producer’s AGI and percentage derived from farming, ranching, or forestry related activities for WHIP+ are 2015, 2016, and 2017. Under a 2017 program, the top limit was $900,000 for producers who derived at least 75% of their income from farming.
- Perspective: USDA county and state FSA offices still do not have various notices and a handbook relative to the WHIP+ program. Those should arrive later this week, hopefully before signup begins. But the lack of similar documents, in part, caused some of the initial glitches in the MFP-2 rollout.
— Other items of note:
North Korea launched two projectiles toward the sea today, hours after the North offered to resume nuclear diplomacy with the U.S. but warned its dealings with Washington may end without new U.S. proposals. It's widely believed to want the U.S. to provide security guarantees and extensive relief from U.S.-led sanctions in return for limited denuclearization.
House and Senate Democratic leaders want Congress to pass a stopgap funding bill to Nov. 21 to give appropriators time to work on the spending bills, a senior Senate aide said. Fiscal year 2020 begins Oct. 1. Republicans’ stopgap strategy will be a topic of conversation when Republican leadership meets late this afternoon with President Donald Trump at the White House. Senate Republican leaders planned to meet last night with Senate Majority Leader Mitch McConnell (R-Ky.) to discuss the next steps.
The Senate Appropriations Committee is expected to consider four more spending bills next week covering programs ranging from housing to agriculture, along with the potentially divisive battle over the White House's plan to divert military base funding to the border wall project.
President Trump urged House GOP leaders to alter caucus rules to allow committee chiefs to hold their gavels for more than six years. "The Dems have unlimited terms. While that has its own problems, it is a better way to go. Fewer people, in the end, will leave!" he tweeted as the chamber returned from its summer recess.
Britain’s lawmakers refused Boris Johnson’s second request to hold an early general election. Parliament was then suspended until Oct. 14.
North Carolina has a special election today in the ninth congressional district. In today's race, Democrat Dan McCready faces GOP Dan Bishop, a state senator. Polls show a close contest. President Trump held a rally for Bishop last night, and the vice-president, Mike Pence, has also visited the district. The special election has the potential to serve as an early referendum on the 2020 race, as Democrats seek to upend a stronghold Republicans have held for decades. The contest appears tight even in an area Trump won easily in 2016 (by 12 points).
Sanderson Farms received a Justice Department subpoena related to the DOJ's investigation into chicken pricing. The probe is examining allegations that poultry producers like Sanderson, Tyson Foods, and Pilgrim's Pride conspired to fix poultry prices.
Mosaic announced a $250 million share buyback plan, and the fertilizer producer also said it would idle its Louisiana phosphates operations to cut production. Increased imports of phosphates have put downward pressure on pricing this year.
Bunge has taken a 1.6% stake in the plant-based food maker Beyond Meat. Link to Reuters item.
A tree disease that has killed 1 million ancient olive trees in Italy has been detected in France, officials say, though only two infected trees have been discovered so far. Xylella fastidiosa, or olive tree leprosy, cannot be cured or prevented—meaning that any trees with the disease must be destroyed. French authorities are conducting more tests.
— Markets. The Dow on Monday rose 38.05 points, 0.14%, at 26,835.51. The Nasdaq lost 15.64 points, 0.19%, at 8,087.44. The S&P 500 eased 0.28 point, 0.01%, at 2,978.43.
More weak Chinese data. Chinese trade data released over the weekend already worsened sentiment and that was compounded overnight by weak factory prices, threatening to add to the deflationary pressures facing the global economy.
China removed limits for overseas investment in the country’s stocks and bonds, the latest push by authorities to attract more foreign capital.
Moody’s cut Ford’s credit rating to junk, citing doubts that the carmaker’s turnaround plan will improve earnings quickly enough. The credit ratings agency slated Ford's financial outlook for the year ahead, citing weak earnings and poor cash generation.
The next IMF chief. The Bulgarian economist Kristalina Georgieva is the only candidate for the International Monetary Fund’s top job, its board announced Monday. If selected, Georgieva will take over at a delicate time as the U.S.-China trade war threatens the global economy and countries like Argentina — which the IMF bailed out last year — remain vulnerable.
Trade war impacting U.S. economy as deficit soars, CBO warns. The U.S. budget deficit is growing faster than expected and President Donald Trump’s trade war is weighing on the economy, according to a new Congressional Budget Office (CBO) forecast. The shortfall is set to widen to $1 trillion by fiscal year 2020, two years earlier than previously estimated, according to the group’s annual budget outlook released Monday in Washington. That’s up from an estimated $960 billion in the 12 months that ends Sept. 30. The CBO said in January saw a gap of $890 billion next year and didn’t see it topping $1 trillion until 2022. It would be the first time the deficit exceeded the $1 trillion mark since 2012. According to the CBO’s numbers, the deficit will be 4.6% of gross domestic product and stay under 5% of GDP through 2026. That’s about half the level it reached during the financial crisis a decade ago. Economic growth will expand at a 2.3% pace in the fourth quarter this year, followed by 2.1% next year, up from the agency’s prior estimate of 1.7%. Growth will slow to about 1.8% through to 2029, CBO said. Link for details.