Parlor game begins again on possible Chinese purchases of U.S. farm products
— Bloomberg: China to buy soybeans, corn and pork as goodwill gesture. China will engage in some goodwill buying of soybeans, corn and pork as trade talks between Beijing and Washington resume, according to Bloomberg, citing unnamed sources. While total volume of farm product purchases will depend on how talks will go, amounts reportedly will probably be smaller than the 20 MMT China committed to during the last trade war truce. Those sources say the plan has not been discussed with their American counterparts and are not part of the current truce agreement.
Perspective: Several past reports of “major Chinese purchases” were not realized, and this is why traders will likely be cautious about the most recent reporting/conjecture on this topic. Meanwhile, some sources signal a list that Trump's team will provide China will include commodities besides the obvious (soybeans, corn and pork) such as wine, nuts (walnuts, pistachios, pears and almonds), dairy, poultry, ethanol, cotton, wheat, rice, sorghum and other commodities. Besides which commodities will be on the list, other unknowns include the quantities and timeframe for such purchases, and whether or not China has flexibility regarding any purchase commitments. Some of any confirmed Chinese purchase commitments will likely be targeted to refill the country's strategic reserves.
— China is undertaking its most ambitious maritime project yet in combining its two biggest shipbuilders into a single behemoth. The merger of China Shipbuilding Industry Corp. and China State Shipbuilding Corp. would create the world’s second-largest shipbuilder, the Wall Street Journal reports (link), in the latest move by Beijing to supersize state-run businesses for global competition. The companies last year had combined orders by tonnage accounting for roughly 13% of the global total, but both are contending with broader forces in the shipping industry.
“Consolidation driven by tough industry economics is underway, including the pending merger of Korean shipbuilders Hyundai Heavy Industries and Daewoo Shipbuilding and Marine Engineering Co. And China still lags behind other shipbuilders in shipping technology, which Beijing lists as one of the 10 high-tech sectors where it wants to upgrade industrial production,” the article notes.
— FAO sees sharp cut in North Korea pork production due to ASF; sees 10% trim in China. Chinese pork production is expected to decline at least 10% compared to year-ago marks to 49.1 million tons in 2019 due to African swine fever (ASF), according to the UN Food and Agriculture Organization. In an update Tuesday via their Global Information and Early Warning System on Food and Agriculture, the FAO said it expected "sizable production decreases” in North Korea and other countries affected by ASF. However, they the overall impact on Asian pork production is not clear. "The disease poses a serious threat to the livelihood and food security of large numbers of people relying on the production and processing of pigs," it said.
— Grassley says progress being made on getting USMCA through Congress. Democratic congressional leaders and the Trump administration officials are moving towards an agreement on the U.S.-Mexico-Canada Agreement (USMCA) on trade, a GOP leader said Tuesday. Senate Finance Committee Chairman Chuck Grassley (R-Iowa) said while progress is slow, Democrats are warming to the idea of adding side agreements to the trade deal, something they had resisted earlier.
"You cannot open it up for going back to the negotiating table with the governments of Canada and Mexico, but you could do what we have done with a lot of free trade agreements. We do what we call 'side letters' and 'annexes' that kind of state the position of the U.S., how we expect the agreement to be carried out. We could do that. Pelosi and her party are really interested in doing some of those things, along the lines of environment, labor and enforcement," Grassley told reporters.
Asked about House Speaker Nancy Pelosi's (D-Calif.) views and strategy on USMCA, Grassley said, “"I think she is committed to getting to yes, but she has so many new members she has to make them comfortable with it.” Grassley added that U.S. Trade Representative Robert Lighthizer is working with Democrats to find a way to thread this needle. "He thinks he can make arrangements to satisfy they them," the senator said.
Meanwhile, Canada's Parliament is in recess, but Grassley said he had been assured by Prime Minister Justin Trudeau's government that they had the necessary votes to pass the agreement. Canada has signaled that while renegotiations were out of the question, they were open to something short of that that would alter USMCA. "We recognize, however, that the U.S. is going through its process and we remain alert to potential challenges and opportunities that may come through that process," Trudeau told reporters late last month.
— Grassley: President Trump should curb federal gov't waivers allowing oil refineries to bypass biofuel-blending mandates, despite pressure from some Senate Republicans to continue broadly exempting facilities. Trump has promised he will uphold the integrity of the Renewable Fuel Standard (RFS), “and I am confident he will continue to keep his promises,” Sen. Chuck Grassley (R-Iowa) told reporters on a conference call Tuesday.
Grassley’s comments follow an appeal by some Republican senators asking Trump to prevent USDA Sec. Sonny Perdue from intervening in EPA decisions on those small refinery waivers.
Federal law authorizes the EPA to exempt small refineries facing a “disproportionate economic hardship” from blending quotas, but ethanol and biodiesel producers say former EPA chief Scott Pruitt granted them too liberally. “We’re counting on the president and a turnaround of Pruitt’s principle of hardship,” Grassley said.
— The U.S. Commerce Dept will propose to wipe away most countervailing duties on biodiesel from Argentina, while recommending no changes to antidumping duties on the imported fuel, Bloomberg reported, citing a person familiar with the matter. The preliminary determination follows a Commerce Dept. review of U.S. duties that were set in 2017, amid criticism that U.S. biodiesel producers were hurt by cheap foreign biodiesel sold at prices below production costs. The National Biodiesel Board (NBB), the American Soybean Association and the National Renderers Association had argued against any move to lift the duties, saying it would “distort U.S. markets and undercut crop prices” amid ongoing trade disruptions. Commerce is expected to issue its final finding in September.
NBB comments. Kurt Kovarik, NBB's Vice President of Federal Affairs, stated, "NBB and the Fair Trade Coalition strongly disagree with Commerce's proposal to virtually eliminate countervailing duty rates on Argentine biodiesel. This appears to be an unprecedented and unjustified accommodation to Argentinian producers that threatens to harm U.S. biodiesel producers and soybean farmers. Throughout this review, NBB has made the case that Argentina continues to massively subsidize its domestic biodiesel producers. Commerce's proposal to eliminate trade protections for U.S. biodiesel producers and soybean farmers is difficult to understand at a time when the Trump administration is asking them to bear huge economic costs from trade disruptions."
Kovarik added: "The trade enforcement and protection had been a bright spot this year for U.S. biodiesel producers and soybean farmers who were negatively impacted by other trade disruptions. Despite the uncertainty created when Commerce launched this review last November, U.S. producers have stepped up to the plate and increased production nearly every month since mid-2017. We are struggling to understand why Commerce is reopening the door for subsidized biodiesel imports from Argentina."
— Other items of note:
The U.S. Census won’t ask about citizenship. The Trump administration retreated from a controversial effort to reinstate the question in the 2020 Census following a Supreme Court ruling that found there was not sufficient justification to include it. Data from the U.S. Census is used not only to apportion representation in the House of Representatives but also to allocate federal funding. Businesses use Census data as they decide where to open stores and how to target advertising. The 2020 Census is due to start in January in Alaska, with the Census Bureau previously stating it needed to begin printing forms this month in order to begin the count on time.
Judge signals he will cut punitive damages in Roundup cancer case. The $75 million punitive damages award against Bayer in a suit brought by a California man who claimed his cancer on the herbicide Roundup will be reduced, according to a U.S. District Court judge. The jury awarded $5 million in compensatory damages and $75 million in punitive damages in the case, but U.S. District Judge Vince Chhabria said he would cut the level. "It's quite clear that under the Constitution I'm required to reduce the punitive damages award and it's just a question of how much," Chhabria said. The U.S. Supreme Court has limited the ratio of punitive to compensatory damages to nine-to-one. Chhabria said the compensatory damages could also be reduced as the plaintiff in the suit is now in full remission from his non-Hodgkins lymphoma and was not likely to suffer as he had in the past. The judge signaled he would issue a decision by the end of next week.
Is agriculture contaminating the Mississippi River? A Wall Street Journal (link) article says the world’s appetite is threatening the Mississippi River. Flowing 2,300 miles from Minnesota to the Gulf of Mexico, the Mississippi River provides drinking water, food and jobs for millions of people. “A journey downriver reveals how the agricultural industry is contributing to one of the nation’s biggest ecological disasters,” the article notes.
2020 fund-raising. President Trump’s re-election campaign and the Republican National Committee said that they had raised $105 million in the second quarter of this year, dwarfing what President Barack Obama raised in the equivalent period of 2011. Link for details from the New York Times.
Famed auto executive Lee Iacocca dies. “Father of the Mustang, midwife to the minivan, rescuer of Chrysler Corp., restorer of the Statue of Liberty," former Chrysler Chairman and Ford President Lee Iacocca died yesterday at 94, writes the Detroit Free Press (link). "He was one of those unique personalities that America’s auto industry sometimes produces — a larger-than-life presence who changed the course of automotive history."
— Markets. The Dow on Tuesday closed up 69.25 points, 0.26%, at 26,786.68. The Nasdaq gained 17.93 points, 17.93%, at 8,109.09. The S&P 500 moved up 8.68 points, 0.29%, at 2,973.01.
Trump officially announced his Federal Reserve nominees. Judy Shelton, an economic adviser on his 2016 election campaign, and Christopher Waller, the executive vice president of the Federal Reserve Bank of St. Louis, will fill two vacancies on the board. Shelton supports Trump’s calls for lower interest rates.
The European Parliament chooses its president. The vote comes after EU leaders finally broke a deadlock over top jobs by nominating two women — the IMF’s Christine Lagarde and German Defense Minister Ursula von der Leyen — to head up the European Central Bank and the European Commission. Von der Leyen would be the first female Commission chief but faces resistance in parliament. She would replace Jean-Claude Juncker as the bloc’s most prominent official, attending Group of 20 meetings and representing the EU in global negotiations. Lagarde's nomination must be formally approved before she takes over from Mario Draghi, whose term ends on October 31. Lagarde paves the way for a continuation of easy-money policies.
South Korea today cut this year’s growth forecast to a seven-year low as the prolonged trade war between the U.S. and China takes a toll on Asia’s fourth-largest economy. The finance ministry now expects growth of between 2.4% and 2.5% this year, 0.2 percentage points lower than its previous forecast made in December. Many private economists’ estimates are lower. “We’ve lowered the forecast as uncertainties over the trade war remain high amid the slowing global economy while a recovery in the semiconductor sector that accounts for 20% of total exports is being delayed,” Lee Eog-won, director-general of the ministry’s economic policy bureau, told a briefing. The new growth target would be the lowest since a 2.4% expansion in 2012.
China services sector reading hits four-month low. The June China Caixin services PMI fell to 52.0, the lowest since February and down from 52.7 in May. New export orders fell into contraction for the first time in nine months. This represents another signal that the Chinese economy is struggling as the trade war with the U.S. continues.