USDA Supply/Demand Reports Today | Trump Makes 'Goodwill Gesture' to China

Posted on 09/12/2019 6:18 AM

Deadlines for RFS proposals | Taiwan to buy $3.6 billion of U.S. ag products | WHIP+ details

In today's updates:

* Trump makes 'goodwill gesture' to China as officials prepare to meet next month
* China making price inquiries for U.S. ag goods, including soybeans and pork
* White House gives deadlines for providing ideas on a possible RFS compromise
* Link to WHIP+ details coming in Federal Register
* Trump plans to ban most vaping flavors, citing health risks
* Ten Democratic presidential candidates debate tonight in Houston
* Cook Political Report analyst Wasserman's analysis of N.C. special election
* EPA calls for significantly reducing animal testing
* President Trump scored a major Supreme Court legal victory on immigration
* Trump rules out capital gains tax cut
* How to get rid of carbon emissions: Pay farmers to bury them

Markets: The Dow has risen for six straight days, and a gain today would give it its longest win streak since May 2018. Meanwhile, Germany's Angela Merkel rejected growing calls at home and abroad to fend off a crisis with increased spending, saying the problem wasn’t a shortage of money for investment. This comes a day after Finance Minister Olaf Scholz said Germany would stick to a balanced budget but was ready to act in a crisis.

The great floods of 2019. Flooding this year across the Midwest and the South affected nearly 14 million people. To visualize the extent of the disaster, the New York Times created a composite map (link) showing areas that were inundated at some point from January through June.


— USDA today issues its monthly supply/demand updates. While many industry contacts see a small decrease in both U.S. corn and soybean production, some farmers are still upset about what they term unrealistic acreage estimates from USDA.

U.S./China trade policy update:

  • President Donald Trump announced he will delay for two weeks a tariff rate increase on $250 billion worth of Chinese goods ahead of upcoming trade negotiations. “At the request of the Vice Premier of China, Liu He, and due to the fact that the People's Republic of China will be celebrating their 70th Anniversary.... on October 1st, we have agreed, as a gesture of good will, to move the increased Tariffs on 250 Billion Dollars worth of goods (25% to 30%), from October 1st to October 15th,” Trump said in a pair of tweets. Earlier Wednesday, China’s State Council released two lists of U.S. products that will be exempt from higher tariffs starting Sept. 17.
  • China making price inquiries for U.S. ag goods, including soybeans and pork. China’s Commerce Ministry today welcomed the postponement and said Chinese companies had started making price inquiries for U.S. agricultural goods including soybeans and pork, although there were no details on the timing or size of any intended purchases. Beijing suspended purchases of the U.S. products in August. Ministry spokesman Gao Feng said that the possible resumption of agricultural products isn’t a bargaining chip in trade talks. Mid-level teams will meet soon to prepare for higher level talks, he said, reiterating that both sides are communicating without giving a date for the meeting between the top negotiators. “We hope that China and the U.S. can continue to meet each other half way and take practical steps to create a good environment for talks,” said Gao. At a Senate hearing Tuesday, Treasury Secretary Steven Mnuchin said the two countries were discussing soybean purchases, but pushed back on suggestions that the U.S. would be easily bought off. “I’ve been accused at times of just wanting to sell soybeans. That’s not what we’re trying to do,” Mnuchin told lawmakers in the hearing. “We want to make sure that China treats our farmers fairly and doesn’t retaliate against the farmers in an unfair way.” “As part of any discussion, we are talking about ag purchases,” he told reporters after the hearing. “That’s very important to us, defending our farmers.”
  • U.S./China talks between key trade officials are widely expected to take place before Oct. 15, leaving room for a further postponement or even a cancelling of some of the tariffs.
  • Bottom line: Relations appear to be thawing ahead of deputy-level trade talks later this month, where agriculture will be a focus, according to Treasury Secretary Steve Mnuchin. China watchers say Beijing is looking to narrow the scope of its negotiations with the U.S. to only trade matter, putting more contentious national-security issues on a separate track.
  • Taiwan will sign a letter of intent to buy $3.6 billion of U.S. grain and meat in Washington next week, the South China Morning Post reports, citing the island’s Deputy Minister of Agriculture Chen Junne-jih. The farm products include soybeans, corn, wheat and meat products.
  • Forecasting firm Moody’s Analytics estimates that Trump’s trade war with China has already reduced U.S. employment by 300,000 jobs, compared with likely employment levels absent the trade war. That’s a combination of jobs eliminated by firms struggling with tariffs and other elements of the trade war, and jobs that would have been created but haven’t because of reduced economic activity. The firm’s chief economist, Mark Zandi,said that the job toll from the trade war will hit about 450,000 by the end of the year, if there’s no change in policy. By the end of 2020, the trade war will have killed 900,000 jobs, on its current course. The hardest-hit sectors are manufacturing, warehousing, distribution and retail.
  • The U.S. Pentagon is compiling a list of companies with ties to the Chinese military as part of a stepped-up Trump administration effort to stop Beijing from obtaining sensitive technologies and protect U.S. defense supply chains. The Financial Times first reported on the topic.

Update on RFS meeting at White House with biofuel proponents and second meeting with refiners. President Donald Trump on Aug. 29 promised he would soon unveil a “giant package” of biofuel changes that would make farmers “so happy.” Coming up with that package and making sure it makes farmers happy has been harder than White House officials thought.

Before Wednesday's session at the White House, Sen. Chuck Grassley (R-Iowa), a top ethanol supporter, attacked the EPA, saying it is siding with oil refiners over agriculture more than it did under President Barack Obama. "It wasn't a problem for Obama to decide he didn't need to give 30 waivers [to refiners]," Grassley told reporters, adding that former Administrator Scott Pruitt "got into the head of the EPA, and the big oil had a big arm running EPA."

Background. Small refineries — which produce less than 75,000 barrels of oil a day — typically don't blend ethanol into gasoline themselves. Instead, they buy a type of credit, referred to as renewable identification numbers (RINs), from large refineries that do. The RIN market has become opaque and lucrative, with hundreds of millions of dollars changing hands. The 31 waivers the EPA recently granted allow these small refiners to forego purchasing the credits.

While it was President Trump who personally intervened to approve the 31 recent waivers, Grassley again avoided blaming Trump himself, pointing the finger instead at White House advisers whom he called "a tool for big oil and the refineries."

What's up: Administration officials have agreed they will not seek to rescind the recent waivers exempting oil refineries from 2018 biofuel-blending mandates. However, they tentatively decided to begin accounting for them in 2021 blending quotas — a move that would effectively force non-exempted refineries to satisfy targets expected to be waived for other facilities. Administration officials also are considering giving a 5% boost to U.S. renewable fuel-blending quotas in 2020.

But biofuel advocates — trade and farm commodity groups, ethanol producers and Midwest lawmakers — have been cool to the plan, saying the reallocation of waived quotas should happen at least a year earlier, in 2020. That forced another White House look at the matter. Meeting at the White House on Wednesday included executives from Louis Dreyfus Co., Renewable Biofuels Inc., Ag Processing Inc., Renewable Energy Group Inc., Archer-Daniels-Midland Co., Green Plains Inc. and POET LLC.

The administration met separately Wednesday afternoon with oil refiners, including representatives of Valero Energy Corp., PBF Energy Inc., Monroe Energy LLC, HollyFrontier Corp., Marathon Petroleum Corp. and Phillips 66.

What happened Wednesday: In a meeting at the White House, some sources note President Donald Trump’s economic advisers gave biofuel producers a Friday deadline for providing ideas on a possible compromise, but Reuters is saying in the afternoon meeting that the oil industry was told the administration wanted a reaction within the next day, signaling a deadline of today. Representatives of the National Economic Council led the discussion. Renewable fuel advocates pushed back on a draft administration plan, arguing it would do too little too late to help the industry and offset exemptions allowing oil refineries to dodge annual biofuel-blending quotas.

We remain hopeful that President Trump will move swiftly to protect farmers and biofuel workers, but efforts to reverse the damage will be meaningless unless the agency acts now to stop the bleeding and accurately account for lost gallons from this point forward, beginning in the 2020 biofuel targets,” biofuel groups said in a joint statement Wednesday. “Rural communities across America are counting on this administration to uphold the president’s commitment to biofuels and restore integrity to the RFS.”

Biodiesel executives also stressed that the oil refinery exemptions disproportionately affect producers and distributors of that soy-based fuel. Any Trump administration plan to offset the waivers needs to meaningfully help biodiesel because it has been hurt the most, they argued. Lower credit prices have reduced the margin blenders can recover at the pump, hurting biodiesel demand, industry leaders told the administration.

Refinery workers and labor groups are set to hold a rally today over the issue in Ohio, emphasizing that Trump’s decisions on biofuel could cost him votes in the Rust Belt — not just the heartland. The Wednesday afternoon meeting at the White House included representatives of Valero Energy Corp., PBF Energy Inc., Monroe Energy, HollyFrontier Corp., Marathon Petroleum Corp. and Phillips 66.

USMCA update. “I don’t know when it’s going to come up but I feel very positive about it,” Senate Finance Chairman Chuck Grassley (R-Iowa) told the Financial Times. “It ought to have broad bipartisan support.” The timing of when the U.S.-Mexico-Canada Agreement (USMCA) will come to a vote mostly depends on House Speaker Nancy Pelosi (D-Calif.) Grassley said: “She’d have to be asking this question: would Democrats want to deny their constituents a better deal just to hurt Trump?”

U.S. Trade Representative Bob Lighthizer continues to discuss Democratic concerns about the USMCA relative to the deal’s provisions on labor and environmental standards, drug prices and enforcement. “We all believe NAFTA must be replaced, but USMCA is not there yet. We need trade deals that help hardworking men and women. Rushing a trade deal through will not level the playing field,” Rep. Debbie Dingell (D-Mich.) warned on Twitter on Tuesday.

On Wednesday Lighthizer sent a letter to Democratic lawmakers in response to their requests, but the contents were not disclosed. A spokeswoman for House Ways and Means Chairman Richard Neal (D-Mass.) said they were reviewing the counterproposal. Neal said yesterday there has been significant progress on two of four issues that Democrats sought to change. “I don’t think anybody is quite ready yet to show their final hand, but the discussions continue to go forward,” he said. “The one that still appears stubborn is labor enforcement.”

Ambassador Lighthizer is working very closely with the House. I’ve spoken to the Speaker [Nancy Pelosi] about this several times. And we look forward to working with her this month, hopefully to get to the point where they are comfortable in bringing this to the floor because I think if they do bring it to the floor it has the votes to pass,” Treasury Secretary Steven Mnuchin told Fox Business Network.

Other items of note:

  • President Trump scored a major legal victory on immigration on Wednesday as the Supreme Court gave him the go-ahead to proceed with a new policy barring asylum for migrants who pass through another country en route to the U.S. The high court order allows the policy, which is expected to drastically reduce asylum granted to Central American migrants, to be implemented across the U.S.-Mexico border as court challenges over its legality play out. Most asylum seekers who have tried to enter the U.S. this year are migrants from El Salvador, Guatemala and Honduras. The case is expected to return to the Supreme Court, but not for months.
  • President Trump gives a speech tonight to House Republicans at the party's retreat in Baltimore.
  • Trump rules out capital gains tax cut. President Trump has decided against making an end-run around Congress to cut the tax on capital gains by indexing gains to inflation, the White House said last night. The decision was announced after a meeting earlier in the day between Trump and his economic advisers, where they discussed whether to move ahead with the tax break. “President Trump was thoroughly briefed on the complex economic, legal and regulatory issues, and concluded that at this time he does not feel enough of the benefits will go to the middle class,” White House spokesman Judd Deere said in a statement.
  • Election countdowns: 31 days until the Louisiana gubernatorial primary election. 54 days until Election Day 2019. 55 days until the Kentucky, Mississippi, New Jersey and Virginia general elections. 144 days until the 2020 Iowa caucuses. 418 days until Election Day 2020.
  • Analysis from the Cook Political Report's Dave Wasserman on North Carolina's ninth congressional district election: Republicans should feel relieved they avoided a loss, but here's why Bishop's 2% win isn't encouraging: “there are 35 GOP-held House seats less Republican than #NC09, per the Cook Political Report's Partisan Voting Index." Wasserman detailed that Bishop lost the Charlotte suburbs Trump had carried in 2016, “even though Bishop hails from those very suburbs and carried them on his way to re-election to the state senate as recently as last fall.” He added, “If Trump were to replicate Bishop's performance all over the state next November, he'd clearly lose North Carolina — a state critical to his re-election path.” Bishop's win, along with GOP state Rep. Greg Murphy's expected win in North Carolina's 3rd CD, brings the House count to 235 Democrats, 199 Republicans and one Independent — Rep. Justin Amash in Michigan's 3rd CD. Wasserman says that means Republicans will need to gain 19 seats to win the House back next fall — “a task made more difficult by GOP retirements that have enhanced Democratic pickup opportunities, especially in Texas.” Wasserman concluded that the North Carolina election suggests that 2020 is likely to continue the metro/rural divide: “To beat Trump, Democrats will need to nominate a candidate who can capitalize on the president's increasingly toxic standing in prosperous suburbs without losing too many small town and rural voters, like those in Robeson County.”
  • T. Boone Pickens, the Texas oil-and-gas entrepreneur, who threatened takeovers of big energy companies and cast himself as a defender of shareholder rights, died on Wednesday at 91. In late 2017, he put his sprawling Mesa Vista Ranch in the Texas Panhandle on the market for $250 million, and a few months later, he closed his energy hedge fund, BP Capital, to outside investors.
  • EPA calls for significantly reducing animal testing. The Environmental Protection Agency (EPA) earlier this week announced a directive to reduce animal testing, decreasing requests and funding of mammal studies by the agency by 30% by 2025 and after 2035, requiring that such tests get the administrator’s approval. The agency also said it would pledge $4.25 million in grants to five universities that will develop alternative experiments in the effort to reduce and ultimately eliminate animal testing. While the reaction was mostly favorable, the Natural Resources Defense Council called the move an “irresponsible plan” that will depend on testing methods that “may not be sufficient for testing all chemicals.” EPA Administration Andrew Wheeler said the issue has personal signification for him because in 1987, he wrote a column for his college newspaper calling for the reduction of animal testing. Wheeler also announced $4.25 million will go to five universities to research alternative strategies to reduce and replace animal testing.
  • Trump plans to ban most vaping flavors, citing health risks. President Trump said the U.S. plans to pull most vaping products from the market, citing growing concerns about health hazards and rising use by teenagers. The FDA is finalizing guidance to remove all non-tobacco flavors of e-cigarettes, including mint and menthol, from the market within 30 days.
  • Trump administration to repeal WOTUS. The Trump administration will ditch expanded federal oversight of U.S. waterways, returning the nation to 1986 water-pollution standards, dubbed the Waters of the U.S. (WOTUS). Today, the administration will finalize its repeal of the 2015 Clean Water Rule, which gave the federal government authority over 60% of the nation’s water bodies. Trump officials say the rollback will provide more certainty for farmers, home builders and other businesses and hand more power over water-quality decisions to individual states. Critics say the move will result in the loss of wetlands and leave critical pieces of the nation’s waterways unprotected.
  • How to get rid of carbon emissions: Pay farmers to bury them. What if there was a way to combat climate change that didn’t require technological breakthroughs, carbon taxes or eliminating all fossil fuels? Look to Iowa for the answer, according to a Wall Street Journal item on the topic (link).
  • Walmart said today it will be expanding a new "unlimited" grocery delivery service, which costs users $98 annually, to 1,400 stores this fall. As part of the nationwide roll-out, it said the service will be available in 200 metro areas where it already has regular grocery delivery, reaching more than 50% of the U.S. population, by the end of the year.
  • Democratic presidential candidate debate will be held in Houston this evening from 7 to 10 p.m. Central time, and will be broadcast on ABC and Univision. Moderators will be George Stephanopoulos, David Muir, Linsey Davis and Jorge Ramos. The rules, per ABC News: "Each candidate will have one minute and 15 seconds to directly respond to questions from moderators and 45 seconds to respond to follow-up questions and rebuttals." Candidates will give opening statements, but no closing statements.

    The candidates are:
    — Former Vice President Joseph R. Biden Jr.
    — Senator Cory Booker of New Jersey
    — Mayor Pete Buttigieg of South Bend, Ind.
    — Julián Castro, the former housing secretary
    — Senator Kamala Harris of California
    — Senator Amy Klobuchar of Minnesota
    — Former Representative Beto O’Rourke of Texas
    — Senator Bernie Sanders of Vermont
    — Senator Elizabeth Warren of Massachusetts
    — Andrew Yang, a tech entrepreneur

Markets. The Dow on Wednesday climbed 227.61 points, 0.8%, to 27,137.04, posting its longest streak of gains since June. The S&P 500 jumped 21.54 points, 0.7%, to 3,000.93 and the Nasdaq advanced 85.52 points, 1.1%, to 8,169.68.

The European Central Bank’s governing council meets today as the focus is on its outgoing president Mario Draghi at the end of his eight-year tenure. Expectations are still that the ECB will ease interest rates and potentially launch another round of bond buying or quantitative easing. But that set of actions could be fraught with peril, particularly if President Donald Trump attacks such a move as a currency action which would lower the value of the euro that has been steadily rising against the U.S. dollar for the past 18 months — the Wall Street Journal notes that many suspect the ECB's primary aim is to weaken the euro, which would risk enraging President Trump and harming trade relations. And there have been divisions emerging on the ECB in that some question the need for additional actions right now to ease monetary policy. That could make the final meeting with Mario Draghi at the helm of the ECB far more uncertain than it typically is.

Rising food and fuel prices, and a disruption of cross-border financial services, are among the possible consequences of a no-deal Brexit, according to a secret file the U.K. government was forced to publish on Wednesday evening. The content of the five-page document, code-named Operation Yellowhammer, is similar to the plan leaked last month to the Sunday Times but was dismissed by the government as out of date. Where that paper was described as a "base case," the new file claims to be a "worst-case scenario."

EIA issued its report on U.S. crude stockpiles Wednesday and data showed U.S. crude stockpiles fell 6.9 million barrels to a mark of 416.1 million barrels for the week ended September 6. At 416.1 million barrels, U.S. crude oil inventories are about 2% below the five-year average for this time of year. Today, the International Energy Agency releases its monthly analysis of global crude demand, which comes the same day that OPEC and Russian officials will gather in Abu Dhabi.

Global gas and LNG outlook to 2035 was the topic of a recent McKinsey and Company research report. The past year saw the natural-gas market grow at its fastest rate in almost a decade, supported by booming domestic markets in China and the United States and an expanding global gas trade to serve Asian markets. While the pace of growth is set to slow, gas remains the fastest-growing fossil fuel and the only fossil fuel expected to grow beyond 2035. Five key findings from the report:
LNG outlook


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