Trump/refining-state senators to meet | China negotiator may visit Midwest next week
In today's updates:
* President Trump to meet with oil state senators today to discuss changes to the RFS
Markets: The Federal Reserve again cut interest rates by 0.25 percentage points, to a target range of 1.75-2%. Officials were split over the decision and the outlook for further reductions.
— House Dems back off on major CCC funding constraints; but not full replenishment. House Democrats unveiled a stopgap spending bill late Wednesday that runs through Nov. 21 after working out last-minute disagreements about payments to farmers via the Commodity Credit Corporation (CCC). The measure would reimburse the CCC for trade relief and other payments as of Sept. 17, so the agency doesn't breach its $30 billion borrowing cap as it continues to send checks to farmers and ranchers.
Some House Democrats, including Appropriations Chairwoman Nita Lowey (D-N.Y.) and Rep. Rosa DeLauro (D-Ct.), initially insisted the stopgap legislation include accountability and transparency parameters for the CCC. DeLauro said she is not opposed to the program but wanted information on who was receiving the funds. “Farmers deserve the aid, not big agribusiness,” she said.
To address Democrats' concerns about the distribution of payments, the final language would require USDA Secretary Sonny Perdue, by Oct. 31, to submit a report to lawmakers itemizing payments made under the program since it started up last year, and projections for next year. The report is to include information on payments broken out by commodity and specialty crop. State-by-state information would be required as well. Lawmakers also want information about any foreign-owned companies or their subsidiaries that benefited from the trade mitigation package.
USDA Secretary Sonny Perdue on Wednesday told reporters that his department is willing to provide lawmakers with any information about how trade aid is being spent. “I think again the House members know CCC has to be replaced as it always has been. And I think while we’re perfectly willing to be transparent about how these funds are being used with any kind of information the appropriators need, I think that they don’t want to be seen as denying farmers the access to the ARC and PLC payments that are needed … as well as the Market Facilitation Program,” Perdue said in Washington Wednesday. “We’re happy to work with them and give them any information,” adding the agency is not holding anything “behind the curtain.”
Details. The provision would provide the CCC with around $20.5 billion to make more payments under the Market Facilitation program, shy of the $30 billion sought by the White House. The replenishment would avoid cuts to farm aid programs covered by the fund well into the next fiscal year. Meanwhile, specialty crop producers would also benefit from a waiver of certain matching fund requirements for research grants in a new section added to the bill. Sugar beet processors would get some help as well, as would hemp growers, a favorite of Senate Majority Leader Mitch McConnell (R-Ky.) — the CR includes $16.4 million for USDA’s Agricultural Marketing Service to implement a new hemp production program required by the 2018 Farm Bill.
Language regarding the report: The legislation would “reimburse the Commodity Credit Corporation for net realized losses sustained, but not previously reimbursed, as of September 17, 2019: Provided, That the Secretary of Agriculture shall submit a report, no later than October 31, 2019, to the Committees on Appropriations and Agriculture of both Houses of Congress, including estimates for all Market Facilitation Program payments, in calendar year 2018 and 2019 and projected payments in calendar year 2020 resulting from the calendar year 2019 program that include state-by-state, commodity-by-commodity, including specialty crops, analysis of the trade damage caused by retaliatory tariffs and separately by non-tariff trade barriers, including dumping, on U.S. agricultural producers, and an accounting of any commodity purchases made from substantially foreign owned companies or their subsidiaries.”
The House Rules Committee this morning will consider parameters for floor debate, with a vote scheduled for later in the day.
Lawmakers also continued authority through the length of the stopgap for the National Flood Insurance Program, Export-Import Bank, Temporary Assistance for Needy Families and higher education programs.
Perspective: The initial headline on this item said, “partial reimbursement.” A veteran Washington source informs: “It replenishes the CCC up to what it has as of September 17, but which has not yet reimbursed. So, the language replenishes the $20 some billion. The balance is not yet spent but combined they total 30 billion. So, if you have a credit card with a spending limit and you spend 5, you only need to pay 5 to get back to the full 10. At least that is how I understand it.”
— U.S./China trade policy update:
- U.S. and Chinese deputy trade negotiators begin two days of meetings today to help set the agenda for higher-level meetings in early October. China's delegation is being led by vice finance minister Liao Min. In October, key trade negotiators from China, including Vice-Premier Liu He, will meet with U.S. Trade Representative Bob Lighthizer and Treasury Secretary Steven Mnuchin. Reuters said two negotiating sessions during the Thursday and Friday talks will cover agriculture, with only one scheduled on intellectual property protections and the end of forced technology transfers by China.
- South China Morning Post: China, U.S. close to agreeing interim trade war deal, Beijing expert predicts. China and the U.S. are expected to reach an interim trade deal in Washington next month, with Beijing agreeing to buy more American farm products and the Trump administration postponing further tariff increases and easing restrictions on Chinese telecommunications company Huawei, a researcher affiliated with the Chinese government said, according to the SCMP. China’s interest in buying U.S. agricultural products will be supported by a personal visit by a member of China’s negotiating team to Midwestern farm states next week, the newspaper reported. The senior official from China’s Ministry of Agriculture will visit U.S. farmers in Nebraska and Montana, a source with knowledge of the trip told the SCMP, without naming the official. It is unknown whether the trip is intended to finalize the details of Chinese purchases of U.S. farm products.
- China to release additional meat supplies from reserves to assure supply. China this week released 10,000 tonnes of pork, 2,400 tonnes of beef and 1,900 tonnes of mutton from state reserves to secure meat supplies during a national holiday, according to China’s Ministry of Commerce. The agency also said it would coordinate with other government departments to release meats from state reserves to make sure that supplies remain adequate.
- Echoes of the U.S.-China trade war may start reaching U.S. warehouses. A new report forecasts that occupancy rates for industrial space will pull back over the next two years, the Wall Street Journal reports (link), as a slowing economy and trade tensions take a toll. Trade group NAIOP expects the difference between new space being occupied and old space being vacated will drop to 37 million square feet per quarter over the next two years, down from 60 million over the past two years. That suggests the yearslong boom in industrial real estate driven by e-commerce demand may be winding down. Recent reports from real-estate groups back up that view, with signs that the market is moving into balance between supply and demand. The report’s authors say the downshift isn’t being felt equally in warehousing markets, with demand for last-mile distribution sites still strong.
- Pelosi takes issue with Trump's China approach. In an interview with CNBC earlier this week, House Speaker Nancy Pelosi (D-Calif.) acknowledged that Trump “had to do something” about trade relations with China and the U.S.’s growing trade deficit but took issue with his approach. “I think we should have done it multilaterally with the EU and the rest,” she told CNBC’s Jim Cramer. Her chief complaint centered on how the White House’s approach empowered Beijing, in her view, to hurt U.S. farmers and consumers. “Why should our farmers have uncertainty because of the tactic that the president used, rather than the president having an approach that shows our strength, uses our leverage, but doesn't make our farmers pay the price?” she said.
- Perspective: Talk about a possible interim agreement has in the past met with mostly pushback from Trump administration officials, with some suggesting this is media doing the wishes of China. President Trump and USTR Lighthizer have always said their number one goal is to have a “comprehensive, enforceable agreement.” China appears to be trying to coax Trump with purchases and promises of more of U.S. farm products, and perhaps even a trip next week to the Midwest. It will be interesting to see what Trump and Lighthizer say about any such interim development. Bottom line: There appears to be some potential progress on some topics, but the most significant hurdles remain relative to enforcement.
— Reuters: China customs approves some Argentine meat plants to ship to China. Some Argentine meat processing plants have been approved for exporting product to China, the country’s General Customs Office told Reuters via email. The agency also said it had made checks on some meat exporters that were recommended by the Argentine government but provided no other details.
— Trump to meet at White House today with refining-state senators to discuss possible changes to the Renewable Fuel Standard (RFS). The meeting is another effort by refining-state senators to convince Trump to alter or abandon a deal drafted with their counterparts from the Corn Belt. Several Senate Republican have warned Trump not to boost annual biofuel blending quotas or to make policy changes they claim would hurt consumers, refiners, and blue-collar workers.
Refiners want Trump to take steps to constrain the cost of Renewable Identification Numbers (RINs), the tradable credits used by refiners to prove they have fulfilled blending quotas. They have proposed allowing EPA to sell its own compliance credits if RIN prices surge, especially following any RFS changes. They are expected to urge the administration to put a cap on the cost of compliance credits.
The biofuels industry and its proponents hope the White House maintains a package that has surfaced regarding boosting biofuel blending requirements and limit the number of refineries that receive exemptions from the program, among other items. Link for details.
Sen. Chuck Grassley (R-Iowa) said, "I shouldn't have to go back to the president and say anything more. If the president and the people advising him say we have a deal, we have a deal."
— USMCA update:
- Lighthizer to meet House Dems today. The USTR will meet with a working group that’s negotiating House Democratic concerns with the U.S.-Mexico-Canada Agreement (USMCA).
- “There’s a sense that there’s a ways to go, but we’ve made some progress,” House Ways and Means Chairman Richard Neal (D-Mass.) told reporters Wednesday after a meeting of the working group.
- Former USDA secretaries to announce support for approving USMCA; the group will have a session for the press at USDA headquarters today. Link to letter.
- Pelosi says Dems are on ‘a path to yes’ on USMCA. “Democrats hope to approve a replacement of the North American Free Trade Agreement, but still have concerns about enforcing the deal, House Speaker Nancy Pelosi (D-Calif.) said earlier this week.
- House Minority Leader Kevin McCarthy (R-Calif.) says 60/40 Pelosi will bring up USMCA for a vote this year. “And if she does, it will pass,” he told the Fox Business Network this morning.
— Farm Bureau map on Whip+ Eligible Counties for 2018 and 2019:
— Other items of note:
- President Trump said his administration is nearing an initial trade accord with Japan covering tariffs and digital trade. Japanese Prime Minister Shinzo Abe is holding out for a pledge that Trump won’t slap new levies on Japanese automobiles. Any confirmation could Sept. 25 in New York, when the two leaders are set to meet.
- Canadian leader Justin Trudeau's campaign moved to contain a growing scandal today, following the publication of a yearbook photo showing him in brownface makeup at a 2001 costume party, according to the Associated Press. The prime minister, who launched his reelection campaign a week ago, apologized and begged Canadians to forgive him. Link for details.
- The U.S accused Iran of an “act of war.” Secretary of State Mike Pompeo said evidence presented by Saudi Arabia proved Tehran “unquestionably sponsored” last week’s attacks on Saudi oil facilities. But President Trump said there were “many options” short of war.
- National Cattlemen’s Beef Association named Colin Woodall as chief executive officer. Ethan Lane, executive director of the Public Lands Council, will replace Woodall as vice president of government affairs.
— Markets. The Dow on Wednesday rose 36.28 points, 0.13%, at 27,147.08. The Nasdaq fell 8.62 points, 0.11%, at 8,177.39. The S&P 500 edged up 1.03 point, 0.03%, at 3,006.73.
Fed Chairman Jerome Powell pledged that the central bank would engage in a "sequence" of interest rate cuts if conditions warrant, but he doesn't see that as necessary now. Speaking after the Fed lowered its benchmark interest rate by 25 basis points, Powell said data will dictate future moves. The Federal Reserve’s 25 basis-point interest rate cut yesterday was accompanied by forecasts that showed officials were split over the need for further easing. In the post-decision press conference, Powell gave no solid signals where he thinks rates should go for the rest of 2019, with markets pricing in about a 65% chance of another move lower by the end of the year.
Dissent is growing within the Fed. Three governors voted against yesterday’s reduction, though for different reasons: The presidents of the Boston and Kansas City Feds wanted no change, while the head of the St. Louis Fed wanted a bigger cut. The split was the biggest among Fed policymakers since 2016.
President Donald Trump said the Federal Reserve and its chairman, Jerome Powell, have "no 'guts,' no sense, no vision!" The president's comments followed the Fed's vote to cut interest rates by a quarter point to a target range of 1.75% to 2%, along with a 30-basis-point cut to the interest paid on so-called excess reserves.
Saudi Arabia looks to import oil. Following the attacks, the kingdom is reaching out to foreign producers for crude and other petroleum products. Link to WSJ article.
The OECD cut economic forecasts, projecting global growth of 2.9% this year — a drop from its 3.2% outlook from four months ago, and the slowest pace in a decade. The Paris-based institution also warned that a no-deal Brexit would push the U.K. economy into recession.