FSA certified acreage data to be released in tandem with Aug. 12 crop update
— U.S./China trade policy update:
- China’s central bank further weakened the yuan by setting a daily anchor for trading in the currency at its weakest level (7.0039 yuan per dollar) since April 21 2008, breaking through the 7-per-dollar level it was allowed to breach earlier this week. Investors are watching the currency closely after it went above the 7-yuan-per-dollar level on Monday. That prompted the U.S. Treasury Department to label Beijing a currency manipulator. The latest move signals an even weaker yuan, which could offset some of the impact of higher U.S. tariffs, especially if the currency slides to 7.5 or 8 to the dollar. And this, in turn, provides support for the U.S. dollar. Trade policy is contributing to exchange-rate instability and a rising dollar. The U.S. tariffs on China reduces the demand for Chinese yuan and encourages capital flight to safe havens like the dollar, which encourages more capital into dollar instruments. The latest reference rate move indicates China is seeking a “controlled depreciation” and “does not want to embed expectations of a weaker renminbi,” said Tianjun Wu, deputy economist at The Economist Intelligence Unit in a note.
- China's trade war strategy. China’s latest retaliatory measures, including suspension of U.S. agricultural product purchases and deploying the yuan as a weapon, have convinced global investors that Beijing may go further than many expect to win the trade war. “Many investors have expressed the view that China is prepared to accept an economic downturn (and a global economic downturn) to prevent President Trump’s reelection,” Naka Matsuzawa, Nomura’s chief rates strategist in Tokyo, said in a note following meetings with Asian clients.
- The Trump administration is finalizing a list of $300 billion in Chinese imports that will fall under the purview of threatened new tariffs as of Sept. 1. USTR is planning to publish the final list this week or early next, sources note.
- Chinese exports climbed more than expected in July; imports slump. China’s exports rose 3.3% from a year earlier last month, reversing a 1.3% decline in June, data from the General Administration of Customs showed. China’s exports to the U.S. fell 6.5% in July from a year earlier, versus a 7.8% decline in June, customs data show. Imports from the U.S. fell 19.1% from a year earlier, compared with a 31% drop the previous month. China’s trade surplus with the U.S. also narrowed, totaling $27.97 billion in July compared with $29.92 billion in June. As for imports, overall imports continued to slump in July, sliding 5.6% from a year earlier.
- Report: China drawing up new plans to boost trade. China is working on new efforts to stabilize foreign trade, including revising specifications on what technology should be imported, expanding cross-border e-commerce and putting together new import trade demonstration zones, according to a report in the state-controlled China Securities Journal. Imports of new high-end technologies would help “upgrade” the Chinese economy and boost “internationalization.” The report said several government departments were drafting the new policies.
- China imported Iranian crude oil in July for the second month since a U.S. sanctions waiver ended, according to research from three data firms. The flow is hampering Trump's efforts to choke off oil exports vital to Iran through sanctions, just as tensions rise in the festering China trade dispute.
- U.S. releases rule on Huawei. The U.S. released a long-anticipated rule that restricts government agencies from doing business with Huawei. The prohibition was mandated by Congress as part of a broader defense bill signed into law last year. It covers direct purchases of telecom gear and video surveillance equipment and services. And it extends to other Chinese companies that, like Huawei, have raised security concerns inside the American government. Huawei said the White House move was “not unexpected” since it was required by the defense bill. The Chinese company said it would continue to challenge the ban in court and called it a “trade barrier based on country of origin, invoking punitive action without any evidence of wrongdoing.”
- Warehouses on America’s West Coast are bursting with imports that companies have stored to beat tariffs, according to Bloomberg News (link). Spare room is down to an unprecedentedly low level of about 1%-2%.
— FSA certified acreage data to be released in tandem with August 12 crop update. USDA's Crop Production report is scheduled for release at 11 a.m. (CT) Monday, August 12, and a schedule released by the Farm Service Agency (FSA) indicates they will release the first monthly installment of certified acreage data (data farmers have to provide USDA to participate in farm programs) at 11 a.m. (CT). Releases of the certified acreage data typically have been at 2 p.m. (CT) and that is listed as the schedule for the release of the information in September, October, November and December.
Meanwhile, some FSA state offices are giving out prevent-plant information if you simply call them while others say the information will be released Aug. 12.
— Perdue gets pushback from farmers in Minnesota on trade policies. USDA Secretary Sonny Perdue appeared with House Ag Committee Chairman Collin Peterson (D-Minn.) at Farmfest in Redwood Falls, Minnesota, Wednesday along with several House members for a listening session at the annual farmer gathering. China trade, not surprisingly, was a key topic.
Several farmers raised concerns about the Trump administration’s trade policies, with Minnesota Farmers Union President Gary Wertish declaring, "This is causing long-term, devastating damage to not only farmers, but rural communities.” While welcoming the aid payments from the administration, he warned the “taxpayer is not going to stand for this.” His sentiments were echoed by Minnesota Corn Growers President Brian Thalmann who warned Perdue, “Things are going downhill and downhill very quickly.” Tyler, Minnesota, farmer Joel Schreurs is on the state and national boards for soybean growers, and said he did not expect China will give in soon. "How are you going to keep the farmers farming?" Schreurs said. "The exports just aren't going to be there. We've worked a long time to develop these markets, and we're going to lose this market share. It's just not going to come back in a day or two. So how do we make this work?"
Perdue countered that he thought the markets would return. "The markets are fungible. China is going to buy from where they see the best value,” Perdue stated, noting that the U.S. is trying to develop other markets for U.S. products, including those in India, Thailand, Indonesia and Malaysia. Sounding a refrain he has used before, he said he thought the U.S. soybean industry was “too dependent” on China as a market. “I think we'll gain the market back,” Perdue commented. “But it's got to be a fair, reciprocal and free trade environment, not allowing China to cheat.”
Referencing a two-week gathering of Chinese leaders at a coastal resort of Beidaihe, Perdue said, "Hope they get sorted out and decide to come to the table and be reasonable, reciprocal and fair free traders."
As for additional aid for farmers in 2020 that was signaled by President Donald Trump and National Economic Council Director Larry Kudlow this week, Perdue said, "It needs to end when it's resolved."
Perspective: Amid speculation that Trump’s trade policy may tarnish his image among farmers and ranchers, a recent poll showed that the numbers contradict this notion. The Purdue Center for Commercial Agriculture’s latest producer survey, which was conducted last month and released Tuesday, showed a record-high 78% of farmers said they believe the trade war will ultimately benefit U.S. agriculture.
— World’s food supply is at risk: U.N. Global land and water resources are being exploited at “unprecedented rates,” a new United Nations (U.N.) report warns, threatening the ability of humanity to feed itself. The report, prepared by more than 100 experts from 52 countries, was released in summary form today. It warns that climate change will exacerbate the dangers, as extreme weather threatens to disrupt and shrink the global food supply. Link to NYT article. Link to report.
Food shortages could also increase a flow of immigration that is already redefining politics in North America, Europe and other regions. From 2010 to 2015, the number of migrants from El Salvador, Guatemala and Honduras who traveled to the U.S. increased fivefold, coinciding with an unusually dry period that left many without enough food.
For solutions, the report suggests a major re-evaluation of land use and agriculture as well as consumer behavior. Proposals include increasing the productivity of land and eating less meat. The research cited says changing the foods people eat and farm may help slow harmful emissions, since growing vegetables releases less greenhouse gases than livestock production.
— U.K. ramps up efforts for a U.S. trade deal. British cabinet ministers met with members of the Trump administration to lay the groundwork for a deal to mitigate the hit to British trade expected from Brexit.
British Foreign Secretary Dominic Raab, a close ally of Prime Minister Boris Johnson, met with President Trump on Wednesday, while Trade Secretary Liz Truss met with U.S. Trade Representative Bob Lighthizer earlier in the week. After meeting Trump, Raab said the U.K. government is committed to leaving the EU by Oct. 31, and aims to complete a bilateral agreement with the U.S. “as soon as possible after.” Truss called a trade pact a “golden opportunity.”
Meanwhile, Secretary of State Mike Pompeo expressed confidence that the U.K. and EU would “sort this out.” He said the U.S. supports the U.K. “and will be on the doorstep, pen in hand, ready to sign a new free-trade agreement at the earliest possible time.”
The U.S. accounts for 18.4% of all British exports, making America the country’s single largest export market. That is still dwarfed by the more than 40% of British exports sold to the EU’s 27 countries.
— The Impossible Whopper will be available in 7,200 Burger King restaurants across America from today. Impossible Foods, which makes its plant-based patties, says they look, taste and sizzle like meat. Investors are taking a bite as Impossible has raised nearly $700 million in funding, while Beyond Meat, a rival, has seen its share price more than double since going public in May. The nation's second-largest burger chain began testing the plant-based burger from Impossible Foods at locations in St. Louis in April. Those outlets saw traffic outperform national averages by 18.5% that month, according to a report from inMarket.
Global retail sales of meat substitutes rose by 7% to nearly $19 billion last year.
Some sense a fad, including an assessment this week by USDA Secretary Sonny Perdue. Some say that could explain why McDonald’s has embraced mock-beef more slowly.
Others say the meat substitutes appeal to vegetarians and to carnivores worried about their health, the planet and animal welfare. Meanwhile, the U.S. Food and Drug Administration last week said soy leghemoglobin, an additive which makes Impossible Foods’ burgers “bleed” like meat, was safe. That cleared a hurdle for the company to sell its patties uncooked in supermarkets — and so letting them flip from restaurant menus to home dinner tables.
Meanwhile, Subway has also announced plans to test a sub, called the Beyond Meatball Marinara, in 685 restaurants in the U.S. and Canada. The test is set to start in September and will run for a limited time.
— This auto industry development will have long-term implications for corn-based ethanol. One of the world’s biggest car-parts suppliers is turning away from machinery at the heart of the auto industry. Continental AG is cutting investment in conventional internal combustion engine parts, the Wall Street Journal reports (link), as major auto makers shift production more rapidly to electric vehicles. The move by the German supplier of tires, powertrains and other core components shows how tougher environmental regulation is pushing the industry toward electric models and forcing manufacturers to redraw their supply chains. The decision comes as a multiyear boom in car sales has come to a sudden end, just as auto makers and their suppliers are retooling their products with new technology. Consulting firm AlixPartners predicts the share of gasoline and diesel engines in new car sales will fall from 95% in 2018 to 56% by 2030, replaced by battery electric, hybrid and plug-in hybrid vehicles.
— Other items of note:
Immigration raids in Mississippi. Almost 700 migrants were arrested in what Immigration and Customs Enforcement called the largest single-state worksite enforcement action. Officials targeted several food-processing plants, apprehending hundreds of people suspected of being in the country illegally. Some of those detained will be released for "humanitarian reasons" and required to appear in court.
Hong Kong travel warning. The U.S. issued an advisory urging visitors to “exercise increased caution” because of protests in the semiautonomous Chinese territory. Meanwhile, Beijing doesn't think Hong Kong's police are tough enough. Protests were sparked in June by proposed extradition legislation that could have seen suspects sent to mainland China, where protesters say they could face torture.
Is there any evidence that Russian interference may have impacted U.S. election results, particularly in key states? Alan I. Abramowitz, Senior Columnist at Sabato's Crystal Ball, says “analysis suggests that the 2016 results can be explained almost entirely based on the political and demographic characteristics of those states. So from that standpoint, the answer seems to be no.” Link for details.
ERS and NIFA dispute rages on. Despite USDA assertions that it has both the legal and budgetary authority to implement its plan to move the Economic Research Service and National Institute of Food and Agriculture from Washington, D.C., to the Kansas City region, lawmakers and an agency cited by the department disputed officials’ rationale. Link to Government Executive article on this and other issues on the matter.
An update on Collin Peterson's re-election drive. David Wasserman of the Cook Political Report on Wednesday issued his August House overview report. Regarding Rep. Collin Peterson's (D-Minn.) re-election race for the 7th district, here's Wasserman's latest: “Lean Democratic. Peterson, the 74 year old chair of the Agriculture Committee, is the only Democrat on the planet who could win this rural seat Trump carried by 30 points. But he's seen his margins fall in three straight elections, and in 2018 he won a 13th term by just four points against underfunded pilot Dave Hughes. Now, Republicans (led by next-door NRCC Chair Rep. Tom Emmer) are actively recruiting former Lt. Gov. Michelle Fishbach, who has served in the state senate since 1996. The combination of a real GOP campaign and Trump atop the ballot could give Peterson trouble.” A SuperPac has been formed by ag industry stakeholders to support Peterson.
Today is the start of the Iowa State Fair, a prerequisite stop every four years during presidential elections. More than 20 Democratic candidates will begin weighing nutritionally questionable food choices and navigating media flocks, “all while trying to seem both presidential and comfortable with the folks in the Midwest,” according to an Associated Press account (link).
— Markets. The Dow on Wednesday fell 22.45 points, 0.09%, at 26,007.98. The Nasdaq rose 29.56 points, 0.38%, at 7,862.83. The S&P 500 added 2.21 points, 0.08%, at 2,883.98.
The yield on the 10-year Treasurys rose to 1.729%, from 1.685% on Wednesday. Bond yields and prices move in opposite directions. The yield curve’s inversion, where yields on longer-term Treasury notes fall below those of shorter-term ones, has widened, usually considered a strong predictor of recession.
Federal Reserve officials would need to consider more stimulus aimed at boosting the economy if growing trade tensions lead to a sharper pullback, a senior Fed bank president said Wednesday.
Crude dropped to a seven-month low as it was hit by the risk-off sentiment in markets and a larger-than-expected expansion in U.S. inventories.
Saudi Arabia has reportedly phoned other oil producers to discuss possible policy responses following crude's 4.7% plunge on Wednesday to seven-month lows. The kingdom, which has already cut production more than required under the OPEC+ agreement, said it won't tolerate a continued slide in prices and is considering all options. The U.S. benchmark crude rose 3.2% to $52.72/bbl after the Saudi efforts were revealed. Planned OPEC+ gatherings are also set for the week starting Sept. 9 in Abu Dhabi.
U.S. consumer credit growth in June slowest in three months. US consumer credit increased $14.6 billion in June, up 4.3 percent on an annualized basis which marked a slowing from the 5.3-percent rate in May. Credit expansion was looked to be up $16 billion ahead of the data. Revolving credit actually declined $0.1 billion in June after a May rise of $7.5 billion. This is the second month so far in 2019 that consumers have actually paid down revolving credit – where credit and store cards are categorized. However, for the second quarter, revolving credit still expanded at an annualized rate of 5.3 percent during the second quarter. Nonrevolving credit rose $14.7 billion, up from $10.3 billion in May. The decline in revolving credit could be a sign that consumers are pulling back on spending, not using credit cards to make major purchases. That could be a troubling sign for consumer activity.
Central banks in India, Thailand and New Zealand unexpectedly cut interest rates yesterday. They were all spurred by worries that the trade war between the U.S. and China will wreak havoc worldwide, according to a NYT account (link). The item notes that more countries could follow suit if Beijing continues to weaken its renminbi, “leading to a damaging currency war that could revive inflation and even further fray the bonds of global trade.”