China Watchers, Others Provide More Info on Phase 1 Deal

Posted on 12/19/2019 6:43 AM

House votes to impeach Trump | House to ratify USMCA | RFS details today or Friday

 

In today's updates:

 

* China will not mention dollar, other details of Phase 1 until signing of accord
* China in 2019 purchased $124 billion of ag products worldwide
* China beef imports to date tally $6 billion
* China dramatically increased cold storage supplies of pork following ASF outbreak
* China expected to accelerate pork imports once cold storage stocks dwindle
* Why China mentioned corn, wheat and rice imports as part of Phase 1 with U.S.
* U.S. tobacco could be big China focus in Phase 1 buys
*
China to sell additional pork from state reserves
* House today to ratify USMCA in expected bipartisan vote
*
NPPC details trade and other priorities for 2020
* House of Representatives on Wednesday impeached President Trump
* Timing of Senate impeachment trial is in limbo as Pelosi signals a leverage hold
* Rep. Mark Meadows (R-N.C.) says he won’t run for re-election
* ObamaCare insurance mandate is struck down by federal appeals court
* Senate will vote today on the House-passed $1.4 trillion spending deal
* Lawyer whose client won a $289 mil. Roundup lawsuit arrested on extortion charges
*
Trump asked advisers for a plan to help ease student loan debt for Americans

 

Markets: Wall Street analysts are unconvinced that Beyond Meat, the maker of “plant-based meat,” can repeat its stock performance from 2019. Link to Bloomberg item.

 

Australia records hottest day. A national heat wave pushed high temperatures across the country on Tuesday to an average of 105.6 degrees, breaking the record of 104.5 set on Jan. 7, 2013. Even more heat is in the forecast. Nine of Australia’s 10 warmest years on record have occurred since 2005, with last year the third hottest.

 

 

— U.S./China trade policy update:

  • China watchers say the Phase 1 agreement was a lengthy intra-country battle between reformists who have long wanted some of the structural reforms embodied in the forthcoming details of the initial accord, versus those in the country who want the status quo.
  • China is signaling the details of the Phase 1 trade agreement will not be made public until the deal is signed, according to Ministry of Commerce spokesman Gao Feng. The two sides are in close communication, but said there was no specific information he could provide on the deal. "After the official signing of the deal, the content of the agreement will be made public," Gao said.
  • China today unveiled a list of import tariff exemptions for six chemical and oil products from the U.S., with the exemptions valid for one year from Dec. 26, according to the Finance Ministry.
  • A look at China’s recent history of ag-related purchases worldwide may temper the bevy of private analysts who are skeptical that China will purchase the additional amount of U.S. farm products specified in the agreement. Last year, data shows China purchased a total of $124 billion of farm products from around the world. Included in that total is $5 billion of world beef purchases, with year-to-date beef purchases totaling $6 billion.
    China goals
  • Grassley comments on Phase 1 accord. Sen. Chuck Grassley (R-Iowa) said he’s still only had “very general conversations” with USTR Lighthizer on the specifics of the “phase one” trade deal with China. “The reason why he wouldn’t want to be very specific to us is these texts are still being translated and we’ve got to know that they say what was agreed to before we talk,” Grassley told reporters on Wednesday. He said the only detail he’s gotten on the benefit for agriculture is the U.S. claim that China has agreed to purchase between $40 billion and $50 billion worth of U.S. farm goods next year.
  • U.S. gov’t trade advisory panel members inform that the pending Phase 1 accord is far more detailed than what they thought, with specific and varying dates on China’s fulfilling the terms of what some said were 27 pages of ag-specific language in the 86-page document — USTR Bob Lighthizer previously said that ag provisions were the largest section in the Phase 1 accord. The sources also said that while China committed to purchase additional U.S. farm products over a two-year timeframe ($16 billion annually above a base of $24 billion for a total of $40 billion annually and $80 billion over two years), those purchases may not be equally spread out, with more products likely being bought the second year versus the initial year of the accord.
  • U.S. pork purchases by China are expected to pick up after China’s cold storage pork runs a lot lower, industry sources advise. China in part confronted the devasting African swine fever (ASF) by killing off entire hog operations, resulting in a reduction of 40% to 50% of their hog population. The country has added cold storage facilities, but when those stocks are significantly reduced sometime during 2020, China is expected to accelerate pork imports.
  • Another clear winner in the coming Chinese purchase list is U.S. poultry. Industry sources say China will become a $2 billion market for U.S. poultry, with nearly $850 million of that being chicken paws.
  • There was a reason China mentioned corn, wheat and rice in their purchase list, sources advise. Those are the crops embodied in a U.S. challenge of China at the World Trade Organization (WTO).
  • Another clear winner in the coming Chinese purchases is ethanol and its byproducts, export contacts inform.  
  • Watch U.S. tobacco sales to China. Sources say that what has not been given much focus is how prior U.S. tobacco sales to China were virtually shut off during the lengthy trade war.
  • Escape valve for purchases. In the coming Phase 1 details, there will be specified reasons that will provide China the ability to temper its committed purchases, including drought and other factors, sources advise.
  • Initial test of Chinese intentions: upcoming Chinese quotas. For 2019, China released tariff rate quotas (TRQs) for grains including 7.2 million tonnes of corn, 9.636 million tonnes of wheat, 2.660 million tonnes of long grain rice and 2.660 million tonnes of medium-short grain rice. Those levels were unchanged from 2018. They have announced a TRQ for cotton in 2020 of 894,400 tonnes, opening application for the quota in late October.
  • The word “snapback” is not liked by Trump administration officials relative to an enforcement situation where China is found not be following through with prior commitments specified in the Phase 1 document. U.S. officials like the phrase “measured” response commensurate with the infraction.
  • One of the best signals of when China will buy U.S. soybeans: Sources say to closely monitor Brazilian soybean prices. When they hit or are near a peak, China likes to switch to U.S. soybeans, resulting in a usual decline in Brazilian prices. “Of course, they always play one country off against the other,” one source said.
     
    • China news

     

    — China to sell additional pork from state reserves. China will sell 40,000 tonnes of frozen pork from state reserves Dec. 23, the China Merchandise Reserve Management Center said in a notice. China has previously auctioned supplies from state reserves as it seeks to assure domestic pork supplies with the most-recent sales aimed at making sure pork supplies are enough for the January Lunar New Year holiday.

     

    — USMCA will be ratified today by the U.S. House of Representatives, likely by a wide bipartisan margin. The AFL-CIO sent out a legislative alert (link) urging House members to vote for the trade accord.

     

         Next steps: The U.S. Senate will vote early in 2020 on USMCA ratification, with wide expectations the chamber will follow the House in okaying the trade pact. Mexico has already ratified USMCA; Canada is expected to do so in January 2020.

     

    — EPA’s RFS renewable volume obligations (RVOs) could be unveiled as soon as today or on Friday. The key in the coming announcement is whether the corn-based ethanol blending mandate for 2020 translates to at or above 15 billion gallons, factoring in whatever calculation EPA uses for waivers, and whether corn and biofuel industry believe any 15 billion gallon mandate will be accomplished.

     

         White House comments. "The administration is moving forward to finalize the 2020 in line with the agreement that the president made this fall," White House spokesman Judd Deere said Wednesday. He confirmed the proposal unveiled by EPA in October, including a supplemental rule to account for small refinery exemptions (SREs), was what would be the final result.

     

         A post-EPA announcement reaction from Sen. Chuck Grassley (R-Iowa) will be closely watched by Trump administration officials and the president himself.  Over the past several weeks, Grassley has insisted that Trump and others in the administration have promised EPA will announce 15 billion gallons for conventional ethanol.

     

         Election-year impacts. If the final EPA plan is released and biofuel backers are not convinced that it equates to 15 billion gallons for conventional ethanol, it will continue to be an issue for the Trump and administration and could well cost Trump support in states like Iowa, the country’s largest ethanol producing state. Corn and biofuel stakeholders will also see if USDA Secretary Sonny Perdue’s prior comments on this topic will accurately define the EPA announcement. "Once you understand the EPA proposal... you'll be fine,” Perdue said earlier this year.

     

    — NPPC details trade and other priorities for 2020. Ag labor, ASF prevention, gene-editing regulation, the U.S./China deal, USMCA ratification and other trade policy issues and fighting California’s Prop 12 are priorities of the National Pork Producers Council (NPPC) in 2020, the group said in a Wednesday briefing.

     

         Preventing African swine fever (ASF) from spreading to the U.S. is a major topic.

     

         Several NPPC policy priorities saw progress in 2019 in “a year full of challenges,” NPPC President David Herring said. On 2019 policy wins, Herring emphasized the removal of Mexican retaliatory tariffs on U.S. pork in May, discussions between USDA and the Food and Drug Administration (FDA) about jurisdiction over the regulation of gene-edited livestock and the introduction of legislation to boost ASF prevention measures at U.S. ports.

     

         In 2020, NPPC will continue its fight against California’s Proposition 12 animal welfare rules in the courts and push for the reauthorization of the Livestock Mandatory Reporting Act, Herring noted.

     

         Besides the lifting of Mexican tariffs on pork, Herring said the “subsequent movement” of USMCA was another “cause for celebration,” and called the initial U.S./Japan trade pact “another tremendous win.” The agreement “puts U.S. pork producers back on a level playing field with international competitors” covered under the Japan-European Union (EU) Economic Partnership Agreement (Japan-EU EPA) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Herring said. The deal could allow U.S. pork producers to grow exports to Japan by 40% over the next 15 years, he added, citing analysis by economists.

     

         Ratification of USMCA will keep the “doors open” for pork exports to Canada and Mexico, which account for around 40% of all US pork exports, Herring added.

     

         Herring characterized the U.S. and pork producers as “playing defense” on trade issues in 2019 and voiced hope 2020 would be “a year of progress” with “a strong offensive performance.”

     

         One area of opportunity is the negotiation of a U.S./U.K. trade deal after Brexit, noted NPPC Vice President and Counsel for Global Government Affairs Nick Giordano. “We really ship very little [pork to] ‘fortress Europe,’ both because of tariffs and non-tariff measures,” he noted, saying an opportunity to reach a trade deal with at least the U.K. would be a positive development.

     

         The announcement of a U.S./China Phase 1 trade deal last week is also welcome news, Herring noted. “China represents an unparalleled opportunity for U.S. pork producers to provide the highest quality and most affordable pork in the world,” he said. “It's no secret that China needs reliable affordable sources of pork. No source is better positioned to meet this need than American hog farmers,” he added.

     

         Gaining unrestricted access to the Chinese market for U.S. pork exports “would reduce the overall trade deficit with China by nearly 6%, generate 184,000 new U.S. jobs and produce $24.5 billion in new sales all in the next decade,” Herring said, citing an analysis by Iowa State University Economist Dermot Hayes. He stressed the opportunity for U.S. pork exports to China given the ongoing ASF outbreak there which has decimated domestic production. “If the Chinese come in and lift the tariffs — and we're asking not just for the punitive of tariffs to come off, but for the (12%) WTO [Most Favored Nation (MFN) tariffs] to be temporarily suspended for at least five years — we're going to sell so much U.S. pork,” Giordano remarked.

     

         Besides China, NPPC is also focused on expanding exports to Southeast Asia where countries are also reeling from the impact of ASF outbreaks. “Vietnam, which also has African swine fever, is a huge pork-consuming nation, the Philippines — there's a whole list [of countries]” where the U.S. could build exports, Giordano observed.

     

         Keeping ASF from spreading to the U.S. is a major priority, Herring said. “The issue that keeps me awake at night is a foreign animal disease, it’s probably the one issue that I have the least control of on my farm,” he observed.

     

         NPPC has been working closely with USDA on ASF prevention efforts, noted NPPC Chief Veterinarian Liz Wagstrom. “We have worked with them to increase our surveillance in the United States for ASF and increase our capacity to be able to detect it quickly,” she said. The group continues to push for approval of a Senate bill that would give U.S. Customs and Border Protection (CBP) funds to hire 240 agricultural specialists and 200 agricultural technicians each year until the current shortfall — numbering some 600 for inspectors — is filled. The Fiscal Year (FY) 2020 spending plan approved by the House Tuesday inclusion of $19.6 million in funding for additional ag inspectors is one positive development, Herring observed.

     

         Wagstrom poured cold water on recent reports that USDA was closing in on a vaccine for ASF. She called recent USDA-led developments on ASF neutralizing antibodies “encouraging news” but said that in practice it does not imply a vaccine will be found “in the near future,” as many other hurdles remain.

     

         Putting USDA in the lead on regulating gene-edited livestock — not FDA — is another 2020 focus for NPPC, Herring said. FDA’s “impractical regulatory approach” puts the US is at risk of falling behind global competitors, he argued. “USDA’s Animal and Plant Health Inspection Service (APHIS) is the agency best prepared to regulate gene editing and realize and realize its enormous promise. We're hopeful for positive resolution by early next year,” Herring said.

     

         Regarding an ag labor bill in Congress, while NPPC appreciated the bipartisan work in the House on the Farm Workforce Modernization Act (FWMA), Giordano said the pork industry’s needs “are way greater than the small quotas” for H-2A foreign guestworker visas authorized under the bill. “We don't think there should be quotas on H2-A visas,” he stated. “We're hopeful on the Senate side that we can get something and we're working to get something that better addresses our needs,” Giordano said.

     

    — Other items of note:

    • The House of Representatives on Wednesday impeached President Trump for abuse of power and obstruction of Congress. The article on abuse of power, which accused rump of corruptly using the levers of government to solicit election assistance from Ukraine in the form of investigations to discredit his Democratic political rivals, passed 230 to 197. Republicans were united in opposition. On the second charge, obstruction of Congress, a third Democrat joined Republicans in opposition. The vote was 229 to 198. Republicans were united in opposition. The only Democratic dissenters from the abuse of power charge were Representatives Collin Peterson of Minnesota and Jeff Van Drew of New Jersey, a freshman who has announced that he will switch parties and become a Republican. Rep. Jared Golden of Maine, another centrist freshman, joined them in opposition to the obstruction of Congress charge. Next step is a trial that is expected to begin early next year in the Senate, which will have the final say. House Speaker Nancy Pelosi (D-Calif.) suggested late Wednesday that she might wait to send the articles to the Senate, holding them out as leverage in a negotiation on the terms of a trial. “So far, we haven’t seen anything that looks fair to us,” Pelosi said in response to questions about the Senate process. “We will make our decision as to when we are going to send it, when we see what they are doing on the Senate side.”

    • Rep. Mark Meadows (R-N.C.) says he won’t run for re-election. Meadows, a top ally of President Trump, made the announcement in a statement Thursday morning, adding that his work with Trump “and his administration is only beginning.” Meadows, a four-term lawmaker who represents part of western North Carolina, said in a statement that he “struggled” with leaving what he has long considered a “temporary job.”

    • Court rules individual insurance mandate is unconstitutional. A federal appeals court rules a central feature of the Affordable Care Act was unconstitutional, but it ordered a trial judge to reconsider a ruling that invalidated the entire 2010 health care law. The three-judge panel sent the case back to a judge in Texas to determine which parts of the nearly decade-old health law could survive without the mandate. If the law were thrown out, about 17 million Americans could lose coverage. Additionally, more than 50 million with pre-existing medical conditions could be denied health insurance, and insurers would no longer have to cover people up to age 26 under their parents’ plans. The issue is unlikely to be resolved before the 2020 election.

    • Senate will vote today on the House-passed $1.4 trillion spending deal, and President Trump plans to sign it, according to a White House official. The legislation would fund USDA, the FDA and other agencies for the rest of fiscal 2020 that began Oct. 1.

    • Lawyer whose client won a $289 million Roundup lawsuit against Bayer has been arrested on extortion charges. The Justice Department said Timothy Litzenburg threatened an unnamed company with legal action over their weedkiller products unless the company paid a $200 million consulting fee to his legal firm. Link to CBS News report for details.

    • President Trump has asked advisers for a plan to help ease student loan debt for Americans, according to senior administration officials. Link to WSJ article.

    — Markets. The Dow on Wednesday lost 27.88 points, 0.10%, at 28,239.28. The Nasdaq moved up 4.38 points, 0.05%, at 8,827.73. The S&P 500 fell 1.38 points, 0.04%, at 3,191.14.

     

         Bank of Japan keeps monetary policies steady. The Bank of Japan (BOJ) left its monetary policy steady at the conclusion of its meeting today, maintaining its positive outlook for the Japanese economy. BOJ Governor Haruhiko Kuroda said the outlook was turning more positive with the preliminary U.S./China trade deal, but also said there were limits on how much the bank could deepen negative interest rates as prolonged negative rates hurt financial institutions. "It is not as if we can deepen negative rates indefinitely," Kuroda said. "If low rates are sustained for a prolonged period, that could hurt financial intermediation. We must make sure the (demerits) do not erode the effect of monetary easing." The bank also downgraded its view on factory output, noting, "Industrial production is falling due mainly to natural disasters.” In October, the BOJ held the view that output was moving sideways. Despite Kuroda saying the BOJ needs to guard against “downside risks” to the Japanese economy, most are concluding the bank will not rush into providing additional economic stimulus at this point.

     


     

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