Tax increases | No wave goodbye to RFS waivers | U.S. port congestion | Impeachment 2.0
In Today’s Updates
• Equities unfazed regarding impeachment developments
• Biden to unveil first of two Covid aid/stimulus packages
• U.S. federal budget gap rose 61% in first three months of fiscal year
• Fed update signals consumer slowdown late in 2020
• China ended ‘Year of Covid’ in many ways stronger than it started: WSJ
• Talk of up to $20 soybeans usually means a blowoff top, but …
• U.S. port backlog of container ships coming in
• Railroad info: Ag loads only major category to grow last year from year before
• CME raises margins on corn and wheat futures
• Argentine farmers’ strike ends a bit early after gov’t scraps daily corn export limit
• Asian bird flu outbreak worst since early 2000s
• Softer cash cattle picks up
• Weekly pork export sales a focal point
• Biden today to unveil first of two Covid aid/stimulus packages
• Wyden details agenda for the year, focusing on tax increases, clean energy
• Soybeans, cotton and corn main China purchases in latest weekly USDA update
• Trump admin. bans imports of cotton and tomatoes from China’s Xinjiang region
• China delegation could visit Washington in early days of Biden admin.
• Americans won’t be banned from investing in Alibaba, Tencent and Baidu
• China imported record amounts of soybeans and meat in 2020
Energy & Climate Change:
• EPA to grant ‘majority’ of 2019 RFS waivers: Reuters
Food & Beverage Industry Update:
• Legalizing marijuana boosts junk-food sales
• Bugs on menu in Europe
• Rocky start for WHO trip to China re: Covid investigation
• J&J shares climb on reports experimental one-shot vaccine is safe
• Dollar General will pay workers to get Covid-19 vaccines
• CDC may ease travel curbs on the EU and Brazil
• Study: prior bout of Covid-19 provides reinfection protection of at least five months
Politics & Elections:
• House voted to impeach Donald Trump again
Other Items of Note:
• Iran already setting up test for President-elect Biden
• Biofuel users aren’t the only ones seeking waivers
• OMB reviewing USDA notice on using RFID tags for cattle, bison
• Virginia Cattlemen’s Association taps Brandon Reeves for executive director
Equities today: Global stock markets were mixed overnight. The Nikkei rose 241.67 points, 0.85%, at 28,698.26. The Hang Seng Index moved up 261.26 points, 0.93%, at 28,496.86. European markets are narrowly mixed. U.S. stock indexes are pointed toward higher openings ahead of President-elect Joe Biden today detailing the first of two Covid aid/stimulus packages. Meanwhile, equity markets appear unfazed about the impeachment process unfolding in Washington. According to market data from Dow Jones, the past two impeachments where market reaction can be tracked, including Trump's own, haven't resulted in major moves in equity prices.
U.S. equities yesterday: The Dow finished down 8.22 points, 0.03%, at 31,060.47. The Nasdaq was up 56.52 points, 0.43%, at 13,128.95. The S&P 500 advanced 8.65 points, 0.23%, at 3,809.84.
On tap today:
• European Central Bank releases minutes from its Dec. 9-10 meeting at 7:30 a.m. ET.
• U.S. jobless claims are expected to rise to 800,000 in the week ended Jan. 9 from 787,000 a week earlier. Follow our coverage here. (8:30 a.m. ET) Update: U.S. jobless claims surged to 965,000 last week, indicating rising layoffs amid a surge in Covid-19 cases.
• U.S. import prices for December are expected to increase 0.7% from a month earlier. (8:30 a.m. ET)
• USDA Weekly Export Sales report, 8:30 a.m. ET.
• Federal Reserve Chairman Jerome Powell speaks at 12:30 p.m. ET. Also on the calendar from the Fed: Boston’s Eric Rosengren on economic issues at 9 a.m. ET, Atlanta’s Raphael Bostic on small businesses at 11 a.m. ET, and Dallas’s Robert Kaplan to the University of Texas at Austin at 1 p.m. ET.
U.S. federal budget gap rose 61% in the first three months of the fiscal year. The U.S. Treasury Department said the deficit from October through December totaled a record $573 billion as federal outlays surged, driven primarily by automatic safety-net spending such as jobless benefits, nutrition assistance and health care. For the 12 months that ended in December, the government ran a $3.3 trillion deficit, roughly 15.8% of U.S. gross domestic product.
Fed update signals consumer slowdown late in 2020. The Fed’s Beige Book noted what economic data has been signaling — consumers mostly pulled back in late 2020 in their spending. Several of the recaps from the 12 district banks noted the downturn in consumer spending, with some also noting that there had been a rise in online shopping as Covid restrictions started to rachet up late in 2020. The report indicated that the U.S. economy continued to advance in December, though at least two Fed districts indicated that economic activity had declined from when the last update was prepared ahead of the December Federal Open Market Committee (FOMC) meeting. Few changes are expected at the Jan. 26-27 FOMC session and comments today by Fed Chairman Jerome Powell will be some of the last from Fed officials ahead of that meeting.
China ended the ‘Year of Covid’ in many ways stronger than it started, says a Wall Street Journal analysis (link), accelerating its movement toward the center of a global economy long dominated by the U.S. China is the only major economy expected to report growth for 2020. The country is scheduled to report fourth-quarter and annual growth on Jan. 18, The article notes that China has expanded its role in global trade and shored up its position as the world’s factory floor, despite years of U.S. efforts to persuade companies to invest elsewhere. China’s consumer market — lifted by its quick recovery from Covid-19 — keeps gaining momentum, making it a bigger driver of global companies’ earnings. And the country has solidified its standing as a force in global financial markets, with a record share of initial public offerings and secondary listings in 2020, large capital inflows into stocks and bonds, and indexes that far outperformed even the U.S.’s strong showing. The upshot, according to the WSJ: “a world more reliant on China for growth than ever before.”
For 2020, China’s economy is expected to account for 16.8% of global gross domestic product, adjusted for inflation, according to forecasts by Moody’s Analytics. That’s up from 14.2% in 2016, before the U.S. and China entered a trade war. The U.S. is expected to make up 22.2%, virtually unchanged from 22.3% in 2016.
Chinese exports rose to a record $2.6 trillion last year, China’s General Administration of Customs said today. The strong export momentum, together with the industrial recovery that underpinned it, became a central pillar of the country’s economic rebound in 2020.
• Outside markets: The U.S. dollar index slightly lower. Nymex crude oil futures prices are slightly lower and are trading around $52.75 a barrel. The yield on the benchmark 10-year U.S. Treasury note stands at 1.114%.
• Crude futures continued under pressure ahead of the U.S. trading start in part from the rise in crude inventories in the US government data released Wednesday morning. U.S. crude was recently trading around $52.65 per barrel and Brent around $55.70 per barrel. Crude oil was under light pressure in Asian action, with U.S. crude down eight cents at $52.83 per barrel and Brent down 10 cents at $55.96 per barrel.
• Talk of up to $20 soybeans usually means a blowoff top, but U.S. grain prices are soaring as stockpiles are dwindling. Futures prices for corn, soybeans and wheat all have jumped to multiyear highs, fueled by USDA reports that again surprised analysts. Add in supply disruptions for several major exporting nations, and increased demand from China. Meanwhile, DDG prices are on the rise as feeders look for cheaper feed.
• U.S. port backlog of container ships coming in rivaling historic lines at Brazilian soybean export ports. More than 40 cargo ships with tens of thousands of containers aboard were lined up waiting to get into the ports of Los Angeles and Long Beach this week in a new sign of backlogs that are hampering U.S. importers at the country’s main trade gateways. A surge in shipping volumes that began in late summer and rose during the holiday season has continued into the New Year as retailers and manufacturers try to rebuild inventories that were depleted at the onset of the Covid-19 pandemic. The backlogs have left many retailers waiting weeks for goods stuck on ships at sea or at the port.
• Agriculture loads were the only major category to grow last year from the year before, according to the Association of American Railroads. Grain carloads rose 25.6% in the fourth quarter, the biggest quarterly gain on record, and the shipments grew 27.9% in December.
• CME raises margins on corn and wheat futures. CME Group raised maintenance margins on corn futures from $1,100 to $1,300 for March 2021. The exchange will raise maintenance margins on wheat futures from $1,650 to $1,800 per contract for March 2021. The changes take effect after the close of business today. Initial margins rates are 110% of these levels.
Items in Pro Farmer's First Thing Today include (Link to subscribe to FTT):
• Argentine farmers’ strike ends a bit early after gov’t scraps daily corn export limit
• Asian bird flu outbreak worst since early 2000s
• Softer cash cattle picks up
• Weekly pork export sales a focal point
— Biden today to unveil first of two Covid aid/stimulus packages. Transition officials developed a proposal with Democratic lawmakers and their staff that’s anticipated to total at least the $900 billion of December’s bill, with incoming Senate Majority Leader Chuck Schumer (D-N.Y.) pressing for more than $1.3 trillion. The price tag is murky. President-elect Joe Biden last week put the “entire package” at “trillions of dollars,” and some reports signal as much as $2 trillion, while others expect the coronavirus-only portion will fall closer to $900 billion. Many elements of the package are expected to be drawn from the House Democrats' Heroes Act, which passed in May, but was blocked by the GOP-controlled Senate. Today’s plan will be the first of two bills which will total trillions of dollars.
Timing for Congress to debate and vote on Biden’s legislation is unclear, as the Senate may be consumed by Trump’s impeachment trial when his presidency begins, with many signaling a mid-March deadline since that’s when $300 weekly federal unemployment insurance increases that were part of the omnibus enacted last month expire.
More info about the forthcoming aid package came from incoming Senate Finance Chairman Ron Wyden (D-Ore.) who said his first order of business will be coronavirus relief legislation boosting rebate checks to $2,000 and a “trigger” for enhanced unemployment benefits, before turning to priorities like health care, climate change, infrastructure and a tax code that takes a bigger slice from the wealthy. The coming plan is “going to be important to extend the weekly boost, make sure there are additional weeks of benefits and programs for the self-employed and gig workers,” Wyden said Wednesday in a call with reporters. “And I want everyone to know that I’m going to push with every bit of my energy to make sure there are triggers to tie benefits to economic conditions so that the Senate doesn’t need to come back and revisit these issues every few months.”
“We need an immediate rescue package that finishes the work that Congress took an important step on in December, but left a lot of work undone,” Brian Deese, who will lead Biden’s National Economic Council, said at an event hosted by Reuters on Wednesday. “We need to focus immediately again on underwriting the investments necessary to make a nationwide vaccination program work.”
Bottom line: The plan (first of two coming) will likely add $1,400 to the $600 direct payments made under last month’s aid package, but Democrats will have to gauge what parts will draw enough Republican votes to overcome a filibuster and what will be reserved for the complex budget-reconciliation process, which allows passage with the bare majority the Democrats hold. The package is expected to offer $3,600 a year to families with one young child and $3,000 for those with older children. The second package The second, which the administration will seek to advance later this year, will focus on “recovery” items, meaning longer-term investments in healthcare and infrastructure aimed at Biden’s campaign pledge to “build back better.”
— Wyden details agenda for the year, focusing on tax increases, clean energy. Laying out his broader agenda for the year, incoming Senate Finance Chairman Ron Wyden said he will “shortly” unveil a framework for taxes on U.S. and multinational corporations, to roll back some of the “Republican tax giveaways” from the 2017 tax overhaul which cut the corporate tax rate from 35% to 21%. Other priorities he listed include his hopes to boost capital gains rates and to make it harder for the wealthy to defer taxes; expand health insurance access and cut prescription drug prices; put together a package of clean energy tax breaks and reach a deal with Republicans on how to address the debt ceiling.
The coming tax package is expected to be part of budget reconciliation in which certain tax and spending legislation can pass the Senate with a simple majority rather than having to clear the 60-vote filibuster threshold. Democratic leadership is working “to sort through the various issues as it relates to reconciliation,” Wyden said.
Biden has proposed subjecting capital gains and ordinary income to the same top rate of 39.6% for households earning over $1 million, while triggering capital gains tax upon the transfer of assets at death. That’s a big change from current law, where assets passed to heirs are “stepped up” to their fair market value at death, wiping out any capital gains liability built up during the deceased’s lifetime. Wyden supports a “mark to market” system which would tax the wealthiest households on any asset appreciation each year, also a major shift from current law in which capital gains tax isn’t due until assets are sold. He’s said his plan might let taxpayers defer tax on illiquid assets, like real estate and privately held businesses, until sold — but then they’d need to pay a “lookback” charge to make up for the deferred tax.
On climate change, Wyden says he will pursue legislation “with the goal of achieving a carbon-free power sector by 2035.” He expects to start with a 132-page collection of tax deductions and credits he introduced in 2019 aimed at providing incentives for clean energy and fuel production, and energy efficiency.
— Soybeans, cotton and corn among main China purchases in latest weekly update from USDA. Sales of US ag commodities to China during the week ended January for 2020-21 included 88,530 tonnes of corn, 70,912 tonnes of sorghum, 758,267 tonnes of soybeans, and 151,197 running bales of upland cotton. There were cancellations of 1,600 tonnes of wheat.
For 2021-22, sales of 66,000 tonnes of soybeans were reported.
For 2021, sales of 2,799 tonnes of beef and 1,565 tonnes of pork were reported.
— Trump administration bans imports of cotton and tomatoes from China’s Xinjiang region, citing forced labor. The move is the latest effort to punish China over the country’s alleged campaign of repression against the Muslim Uighur population of Xinjiang, which has included the population’s mass detention in camps. The ban includes textiles, tomato seeds, tomato sauce and other goods made with cotton and tomatoes. It will impact a lot of U.S. importers. U.S. Customs and Border Protection said agents have been instructed to detain shipments containing these products, including those routed through or assembled in third countries in products such as apparel or tomato sauce.
Facts and figures. Xinjiang accounts for almost a fifth of global cotton production. Xinjiang produced 5 million metric tons of cotton in 2019, or about 85% of China’s total production, according to the National Bureau of Statistics of China. The U.S. imported approximately $9 billion in cotton products from China and $10 million in tomato products in the past year, according to Brenda Smith, executive assistant commissioner at the Customs agency’s Office of Trade.
The latest measure follows a more targeted ban the Trump administration issued in December against cotton products made by the Xinjiang Production and Construction Corps. In September, the U.S. banned the import of certain apparel and computer parts from China, saying they were made by forced laborers from Xinjiang.
China responds. China’s embassy in Washington called the allegation of forced labor “a political lie concocted by some U.S. politicians… The U.S. side resorts to pressure, sanctions and other means to suppress Xinjiang enterprises and undercut Xinjiang’s stability, development and prosperity,” the embassy said. “China will continue taking necessary measures to safeguard the lawful rights and interests of relevant parties and companies.”
— China delegation reportedly could visit Washington in early days of Biden administration. A high-level Chinese delegation led by former Foreign Minister Yang Jiechi could visit Washington early in the Biden administration to explore areas of possible cooperation with the United States. “We hope that happens,” Myron Brilliant, executive vice president at the U.S. Chamber of Commerce, said on a phone call with reporters to discuss the business group’s 2021 trade priorities. Brilliant said he had spoken to both Chinese and Biden transition officials and there was “every indication” that they were preparing for a high-level visit to the United States. "I think… they recognize that the path we're on is [contrary to] what we all want, which is to find some common ground between China and the United States on some of the really tricky global issues, particularly dealing with pandemic relief and climate. And to do that, you've got to have a dialogue, and you got to have engagement," Brilliant said.
— Americans won’t be banned from investing in Alibaba, Tencent and Baidu, after the U.S. government weighed the companies’ alleged ties to China’s military against the economic impact of a ban.
— China imported record amounts of soybeans and meat in 2020. Chinese customs data shows the country imported a record-setting 100.33 MMT of soybeans in 2020, an 11.82 MMT (13.3%) jump from 2019. China’s efforts to rebuild its hog herd and the Phase 1 trade deal helped fuel the surge. In December, China imported 7.52 MMT of the oilseed, which was down 2.02 MMT from December 2019. Analysts said shipping delays were likely to blame, according to analysts cited by Reuters. A soybean crusher cited by the newswire said, “Imports in the New Year are expected to hit a new record high,” noting that demand remains very strong. China also imported a record-high 9.91 MMT of meat in 2020, a 60.4% surge from last year, with December imports climbing 24.4% from November to 964,000 MT. A Chinese customs spokesman indicated that Chinese imports of U.S. ag products surged 66.9% in 2020 in yuan terms, with bean imports from the States up 56.3%, cotton imports up 121.7%, pork imports up 223.8% and crude oil imports up 88.0%.
— U.S./China Phase 1 tracker: China’s purchases of U.S. goods. Link.
ENERGY & CLIMATE CHANGE
— Here we go again: EPA to grant ‘majority’ of 2019 RFS waivers, according to Reuters. The Trump administration is expected to grant around 22 of the 32 small refinery exemptions (SREs) that have been requested for the 2019 compliance year, according to a report from Reuters quoting biofuel interests. The report pegged the number at 22 based on sources telling them they would be exempting refiners from blending at least 1.1 billion gallons of biofuels into motor fuel.
Cue the expected warning from the Renewable Fuels Association (RFA) that warned in a letter to the EPA that it would challenge any action by the agency on the 32 SRE requests for the 2019 compliance year that are shown as pending by the agency. Their argument centers on the coming Supreme Court review of the 10th Circuit Court decision which invalidated three SREs for the 2016 compliance year. Bloomberg reported that EPA would not grant SRE requests from the 2019 compliance year to the refiners that were directly affected by the 10th Circuit Court decision.
Bloomberg also reported that EPA is considering a formal extension of deadlines for refiners to prove compliance with the RFS for 2019 and 2020 — to Jan. 31, 2022 for 2019 and June 1, 2022 for 2020. Bloomberg also said that EPA officials have downplayed the potential that a flurry of exemptions could be issued, telling some stakeholders not to expect waiver approvals soon.
Meanwhile, the American Coalition for Ethanol sent a letter to EPA’s inspector general seeking assurances that the agency was not about to grant SREs for the 2019 and 2020 compliance years as media outlets have reported.
Comments: Most hope the courts finally will put an end to the typical meanderings on this topic. But that will take time. The twists and turns of the RFS not only have helped consume a lot of corn for biofuels, but the program’s operation has also provided a lot of work for lawyers and lobbyists. Biofuel policy will be an issue clearly confronting the incoming Biden administration with strong views from both biofuel supporters and refiners that create a potential policy quagmire similar to the one that has confronted and confounded the Trump administration. Another perspective that few have mentioned: Consider the corn market price implications of 1.1 billion gallons of biofuels that some say is the impact of exempting refiners from blending into motor fuel. And with corn prices in a bull market, consider the likely coming protests from some in the livestock, poultry sectors and other corn users despite the opportunity they had last summer when corn prices were a lot lower. The one thing the RFS has shown is the consistency of the differences of its proponents and opponents. Mandated programs have a way of causing that.
FOOD & BEVERAGE INDUSTRY
— Legalizing marijuana boosts junk-food sales. "We use retail scanner data on purchases of high calorie food to study the causal relationship between recreational marijuana laws (RMLs) and consumption of high calorie food. To do this we exploit differences in the timing of introduction of recreational marijuana laws among states and find that they are complements. Specifically, in counties located in RML states monthly sales of high calorie food increased by 3.2% when measured by sales and 4.5% when measured by volume," UConn's Michele Baggio and Georgia State's Alberto Chong write in Economics & Human Biology (link).
— Bugs on the menu in Europe. The European Union’s food safety watchdog ruled that the larval form of the mealworm beetle is safe for human consumption, paving the way for the potential inclusion of the insects, either whole or in powdered form, in snacks, protein bars and other foods, Bloomberg News reports (link).
— Summary: Global cases of Covid-19 are at 92,431,105 with 1,980,391 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 23,077,435 with 384,784 deaths.
— Rocky start for WHO trip to China re: Covid investigation. To determine how the novel coronavirus first spread to humans, a World Health Organization (WHO) team of biologists, epidemiologists and livestock specialists finally got permission to fly to China after months of negotiation. But two members were barred from entering the country after testing positive for Covid-19 antibodies in their blood. Their swab tests for the virus were negative.
— Johnson & Johnson shares climbed on reports its experimental one-shot vaccine is safe. The company could apply for regulatory approval within weeks. The company, along with Pfizer and AstraZeneca, will provide 270 million doses to African countries.
— Dollar General will pay workers to get Covid-19 vaccines. The retailer said it would give hourly workers who completed the vaccine regimen the equivalent of four hours’ pay. “We do not want our employees to have to choose between receiving a vaccine or coming to work,” the company said.
— CDC said it may ease travel curbs on the EU and Brazil.
— A study of more than 20,000 health-care workers in Britain found that a prior bout of Covid-19 provided 83% protection against reinfection — similar levels to vaccines — for at least five months.
POLITICS & ELECTIONS
— House of Representatives voted to impeach Donald Trump again on Wednesday on a charge of incitement to insurrection. The bill passed with backing from a bipartisan group of lawmakers that included 10 Republicans. The vote was 232-197. It is unclear when the Senate might conduct a trial and it is likely to occur after Trump leaves office on Jan. 20. To convict Trump, 17 of the 50 Republicans in the new Senate would have to join the chamber’s 50 Democrats to meet the necessary two-thirds threshold.
Meanwhile, national guardsmen were temporarily camped within the Capitol to defend it during the impeachment hearing; another 20,000 will be deployed for the inauguration. Worried about further violence, Airbnb cancelled all reservations in Washington, DC, next week.
OTHER ITEMS OF NOTE
— Iran is already setting up a test for President-elect Joe Biden. The Wall Street Journal reports that Iran started work on an assembly line to manufacture a key material at the core of nuclear warheads. By threatening major new steps on uranium metal production and scaling back U.N. inspectors’ access, the WSJ notes, “Tehran could leave President-elect Joe Biden with a difficult choice: a rapid return to a 2015 nuclear deal or a major confrontation with Iran.”
— Biofuel users aren’t the only ones seeking waivers… BNSF Railway is seeking a limited waiver from rules regarding grizzly bear deaths along with approval of a collision prevention plan. Link to details via Progressive Railroading.
— OMB reviewing USDA notice on using RFID tags for cattle, bison. The Office of Management and Budget (OMB) has received a notice from USDA’s Animal and Plant Health Inspection Service (APHIS) on the use of radio frequency identification (RFID) tags as “official identification in cattle and bison.” In July 2020, APHIS published a notice seeking comment on moving to using RFID tags as the sole official eartags used in interstate movement of cattle and bison. Comments were due by Oct. 5, 2020. The agency proposed that starting Jan. 1, 2022, they would no longer approve venders to use the official USDA shield in producing metal eartags or other eartags that do not have RFID components. They also suggested that starting Jan. 1, 2023, RFID tags would be the only identification devises for cattle and bison, but indicate cattle and bison with metal tags in place before that date would be grandfathered in. Presumably the notice under review would finalize APHIS’ plans on this topic.
— The Virginia Cattlemen’s Association (VCA) announced recently that Brandon Reeves has been named as its executive director. The VCA promotes Virginia’s cattle industry. Reeves is a Virginia native who grew up on his family’s beef operation in the Shenandoah Valley. Reeves earned his bachelor’s degree in animal science and political science from Texas Tech and then worked at the R.A. Brown Ranch in Texas before earning his juris doctorate from the Washington and Lee School of Law. For those worried about the up-and-comers in the U.S. ag sector, this writer can attest to the growing skills and likeability of Reeves, who at a young age is already battle tested in a host of policy issues. He worked for the U.S. Beet Sugar Association and at the House Ag Committee during the 2018 Farm Bill. Prior to that, he was a full-time employee at Combest-Sell consulting group, which some say is the equivalent of a college education… and you actually learn something.