Hey Big Spender: Biden Urges Lawmakers Approve ‘Blue-Collar Blueprint to Build America’

Posted on 04/29/2021 8:11 AM

Farm sector worried about proposed loss of 1031 exchanges, cap gains tax language

 


In Today’s Digital Newspaper


 

Market Focus:
• Biden details $6 trillion in spending in address to nation
• Biden speech mentioned China more than many thought he would
• Biden: ‘America is ready for a takeoff
• Biden: ‘Doing nothing is not an option’
• U.S. GDP rose 6.4% in first quarter, vs 6.5% increase expected
• Jobless claims fell again to the lowest level since the pandemic took hold

• Farm sector’s latest worry: Proposed loss of 1031 exchanges
• AFBF: ‘Any reduction in tax break could result in massive tax burden on ag sector’
• Federal Reserve held its key interest rate near zero
• Fed’s Powell continues to day uptick in inflation is ‘transitory’
• U.S. remained a net energy exporter in 2020
• Ag demand update
• CME Group announced another hike to margins on corn and wheat futures
• Grain and oilseeds trying to work higher after soft open

Dredging of Argentina’s Parana river will continue another 90 days
• Ukraine grain traders union calling for substantial jump in 2021 wheat production
• European Commission cuts forecast for common wheat crop production in 2021-22
• Indian protests continue alongside harvest of record wheat crop
• More cash cattle trade at softer prices
• Prices for pork and cash hogs slide

Policy Focus:
• Highlights of President Biden’s 67-minute address to a joint session of Congress
• USDA issues brief analysis of Biden tax proposals
• Sen. Scott GOP rebuttal: ‘America is not a racist country’

 

China Update:
• New-crop bean sales, sizable old-crop sorghum sales to China
• China announces new ASF outbreak in Inner Mongolia
• China's population grew last year: statistics bureau

 

Trade Policy:
• Mexico Supreme Court rules unanimously in favor of U.S. potato growers
• USTR Tai lays out more of Biden’s trade agenda
• Blinken: U.S. eager to wrap up U.S./Kenya trade deal

 

Energy & Climate Change:

• Resolution reversing Trump methane rule clears Senate


Coronavirus Update:
• U.S. Covid cases are sliding again
• Covid-19 outbreak in New Delhi and Mumbai spreading to states across India
• Moderna to boost its Covid-19 vaccine production

 

Other Items of Note:
• New autobiography by former USDA Secretary Dan Glickman

 


MARKET FOCUS


 

Equities today: Global stock markets were mostly up overnight. U.S. stock indexes are pointed toward higher openings and new record highs. Today is the busiest day of the earnings season, with roughly 11% of the S&P 500 set to report Q1 results. Asian equities finished with gains in the wake of the US Fed meeting. Hong Kong’s Hang Seng was up 231.92 points, 0.80%, at 29,303.26. China’s Shanghai Composite rose 17.83 points, 0.52%, at 3,474.90. Japanese markets were closed for a holiday. European equities are mixed in early action. The Stoxx 600 was up 0.3% with most regional markets seeing gains of 0.2% to 0.6%. Swiss and German markets, however, were lower.

 

     U.S. equities yesterday: The Dow ended down 164.55 points, 0.48%, at 33,820.38. The Nasdaq was down 39.19 points, 0.28%, at 14,051.03. The S&P 500 declined 3.54 points, 0.08%, at 4,183.18.

 

On tap today:

 

     • U.S. gross domestic product for the first quarter is expected to advance at a 6.5% annual pace from the previous quarter. (8:30 a.m. ET) Update: U.S. GDP rose 6.4% in the first quarter, vs 6.5% increase expected. For all of last year, the economy shrank by 2.4% when comparing fourth-quarter output to a year earlier — the first contraction since the 2007-09 recession.
     • U.S. jobless claims are expected to fall to 528,000 in the week ending April 24 from 547,000 a week earlier. (8:30 a.m. ET) Update: Jobless claims fell again to the lowest level since the pandemic took hold more than a year ago. Initial unemployment claims, a proxy for layoffs, fell by 13,000 last week to a seasonally adjusted 553,000, the Labor Department said. The previous week’s figure was revised up to 566,000. The latest reading marked the third straight week jobless claims were below 600,000, their lowest levels since early 2020. The four-week moving average, which smooths out volatility in the weekly figures, was 611,750, also a pandemic low.
     • USDA Weekly Export Sales, 8:30 a.m. ET.
     • U.S. pending home sales for March are expected to increase 5.4% from a month earlier. (10 a.m. ET)
     • Federal Reserve Vice Chairman Randal Quarles speaks on financial regulation at 11 a.m. ET and New York Fed President John Williams moderates an Economic Club of New York webinar at 2 p.m. ET.
     • China's official manufacturing index is expected to tick down to 51.6 in April from 51.9 a month earlier. (9 p.m. ET)

 

Federal Reserve held its key interest rate near zero and said it plans to continue supporting the economic recovery. Fed officials voted unanimously Wednesday to maintain the central bank’s policies, aimed at holding down borrowing costs, until the economy heals further from the effects of the Covid-19 pandemic. Chairman Jerome Powell said the recovery has advanced “more quickly than generally expected,” while adding that it “remains uneven and far from complete.” Powell addressed the topic of financial stability. "You are seeing things in the capital markets that are a bit frothy. That's a fact. I won't say it has nothing to do with monetary policy, but it also has a tremendous amount to do with vaccination and reopening of the economy." Powell continued to say the recent uptick in inflation was “transitory.”

 

     Fed rates

 

U.S. remained a net energy exporter in 2020. The U.S. exported 3.4 quadrillion British thermal units more energy than it imported in 2020, marking its second consecutive year as a net energy exporter, according to the Energy Information Administration (EIA). Energy exports totaled 23.4 quads, while imports declined 13% to a nearly three-decade low of 20 quads, the EIA reported.

 

     Energy trade

     Energy trade_2

 

Market perspectives:

 

     • Outside markets: The U.S. dollar index is slightly firmer. Nymex crude oil prices are higher, hitting a six-week high overnight and trading around $64.75 a barrel. The yield on the benchmark 10-year U.S. Treasury note is presently fetching around 1.649%. Gold and silver futures were slightly higher ahead of the US GDP update. Gold was trading around $1,775 per troy ounce and silver around $26.40 per troy ounce.


     • Crude oil futures have advanced ahead of U.S. trading, building on gains in Wednesday trade. U.S. crude is trading around $64.80 per barrel while Brent is around $67.80 per barrel. Crude prices were firmer in Asian action, with US crude up 19 cents at $64.05 per barrel and Brent crude up 23 cents at $67.01 per barrel.

 

     • CME Group announced another hike to margins on corn and wheat futures. The new rates will take effect after the close of business today.
 

        — Corn: Maintenance margins to rise $200 to $1,900 per contract for May 2021.
        — Wheat: Maintenance margins will climb $200 to $2,300 per contract for May 2021.

 

        Initial margin rates are 110% of these rates. This comes just days after the exchange last raised margins.

 

     • Ag demand: Algeria bought between 200,000 MT and 360,000 MT of optional origins milling wheat in an international tender, with the bulk of the grain expected to be shipped from Germany, Poland and the Baltic States. South Korea’s Korea Feed Association (KFA) Incheon section bought around 133,000 MT of corn to be sourced from optional origins. KFA’s Busan section bought 63,000 MT of corn in a separate tender from optional origins. South Korea’s Major Feedmill Group bought around 203,000 MT of corn to be sourced from South America, South Africa and optional origins. South Korea’s Nonghyup Feed Inc. bought around 69,000 MT of animal feed corn in an international tender. The Philippines tendered to buy up to 185,000 MT of milling or animal feed wheat. The feed wheat can be sourced from either Russia, Ukraine, Romania, Bulgaria, Brazil, Australia, the United States or Canada. The milling wheat can be sourced from Russia, Ukraine or Australia. Egypt’s state grains buyer purchased 30,000 MT of soyoil in an international tender.
 

Items in Pro Farmer's First Thing Today include:

     • Grain and oilseeds trying to work higher after soft open
     • 
Dredging of Argentina’s Parana river will continue another 90 days
     • Ukraine grain traders union calling for substantial jump in 2021 wheat production
     • European Commission cuts forecast for common wheat crop production in 2021-22
     • Indian protests continue alongside harvest of record wheat crop
     • More cash cattle trade at softer prices
     • Prices for pork and cash hogs slide

 


POLICY FOCUS


 

— USDA released an analysis (link) of Biden’s plan that said it would defer any tax liability on family farms “as long as the farm remains family-owned and operated." USDA also said assets subject to the $1 million-per-person exemption would continue to receive a step-up in basis when sold. Only 2% of farms would owe any tax, and that would be on non-farm assets, USDA detailed.

 

  • “No capital gains taxes at death for family farms. This plan includes a special protection for family-owned farms and businesses. It defers any tax liability on family farms as long as the farm remains family-owned and operated. No tax is due if the farm stays in the family. No one should have to sell a family farm they inherit to pay taxes and the President’s tax reform guarantees that.”
  • “$2 million exclusion from increased capital gains for all married couples. This plan also excludes the first $2 million of gains per couple ($2.5 million if the farm also includes the family home) from capital gains tax and heirs continue to get step up in basis on those first $2 million in gains. If an heir decides to sell the family farm, the first $2 million in gains is tax free.”

     Farm Bureau has impact assessment. One-third of U.S. farms — the roughly 659,000 farms that operate 91% of farmland — have assets that could trigger the “new capital gains tax imposed at death,” said Pat Wolff, an American Farm Bureau Federation lobbyist. The White House painted its proposal in broad strokes. “We have no information about what that would be,” said Wolff, referring to the proposed shield for families who stay in farming. Previous proposals in this area quickly became so complex that they discouraged farmer participation, she said. “We believe farmers and ranchers are middle-income families,” said Wolff, not the investor class that Biden targeted. “Running a farm is work,” often with long days and uncertain returns. Farmers own assets that can be worth a lot, she said, but “that doesn’t make them wealthy.” Farm Bureau wants to keep stepped-up basis as it is. Any reduction in the tax break, it said, “could result in a massive tax burden on the agricultural sector.”

 

     Comments: Family-owned and operated. That could be a key line. What about those that do not operate the farm but keep it in the family?

 

— Highlights of President Biden’s 67-minute address to a joint session of Congress. President Biden declared “America is ready for a takeoff” and said “Doing nothing is not an option. Look, we can’t be so busy competing with one another that we forget the competition that we have with the rest of the world.” Biden detailed the following in his remarks:

  • Biden urged massive spending (investment) on infrastructure, education, technological initiatives and social services that he said will ensure the country emerges from the coronavirus crisis in a stronger position than before. Biden has proposed or spent $6 trillion in spending in an effort to convince such voters that activist government can materially improve their lives ($4 trillion in new spending, split into two bills, on top of the $1.9 billion in economic aid already passed earlier in his term). His plans include free community college for all, universal pre-kindergarten, an expansion of the Affordable Care Act and 12 weeks of guaranteed paid family leave for all Americans. He promised his infrastructure blueprint would generate millions of jobs upgrading such things as transportation networks and water systems and transitioning the nation to green energy. (The following spending charts comes from the New York Times.)

    Spending

     
  • Transportation and infrastructure: He described his proposal to spend some $2.3 trillion over the next eight years to improve the nation’s infrastructure as “a blue-collar blueprint to build America.” “Throughout our history, public investments and infrastructure have transformed America,” he said, citing the transcontinental railroad and interstate highways, the space race and scientific research that led to the internet and vaccines. “These are the investments we made together, as one country — investments that only government was in position to make.” “We the people are the government.... It’s us,” he said.
     
  • China: Biden declared the United States “in competition with China and other countries to win the 21st century.” When he called for wind turbines to be built “in Pittsburgh instead of Beijing,” he received a bipartisan ovation. China, “closing in fast,” was also used as a reason to increase funding for domestic research and development.

    “We’re at a great inflection point in history,” Biden noted. “We have to compete more strenuously .... I spent a lot of time with President Xi ... He's deadly earnest on becoming the most significant, consequential nation in the world. He and others ... think that democracy can’t compete in the 21st century with autocracies, because it takes too long to get consensus. “

    "Autocrats will not win the future," Biden said. "America will. And the future belongs to America."

     
  • He framed his initiatives as part of a broader struggle between democracies and autocracies, saying the investments are needed to prevent Beijing from supplanting Washington in a position of international leadership. “We have to prove them wrong,” Biden said. “We have to prove that democracy still works, that our government still works and we can deliver for our people.”
     
  • Russia: Biden said he would not “seek escalation” with President Vladimir Putin but would respond proportionately to any transgressions. By not mentioning jailed dissident Alexei Navalny or the recent build-up near Ukraine, Biden may have sought to keep relations smooth ahead of a planned bilateral summit.
     
  • Although Biden did not mention Trump by name, he portrayed his predecessor’s tenure as a dark moment in American history, saying, “We stared into the abyss of insurrection and autocracy.”
     
  • He outlined what he calls the “American Families Plan,” a $1.8-trillion, 10-year proposal that would increase taxes on the wealthy to expand educational opportunities, provide paid family leave and offer tax credits to reduce the cost of child care. Low- and middle-income families would be eligible for two years of preschool and two years of community college at no cost.
     
  • To pay for the proposals, Biden wants to end the favorable tax rate on capital gains from stocks and other assets for people earning at least $1 million per year and to undo Trump’s reduction in the top income tax rate for wealthy Americans, restoring it to 39.6% from 37%. “I’m not out to punish anyone,” he said. “But I will not add to the tax burden of the middle class of this country.” He made the case that there is more than enough in unpaid taxes if the IRS were only empowered to go after it. Referring to a recent study finding that tax evasion was rife among the 1%, Biden said he would expand reporting on financial accounts and invest $80 billion to increase the Internal Revenue Service’s enforcement capabilities, an infusion the White House says would yield $700 billion in otherwise dodged taxes over 10 years.

    Stepped-up basis: Biden’s proposal calls for reining in a provision that allows heirs to avoid paying taxes on inherited assets, known as stepped-up basis. Last night, USDA emphasized that the plan “defers any tax liability on family farms as long as the farm remains family-owned and operated.” The release (link) goes into more details on various scenarios, noting: “If an heir decides to sell the family farm, the first $2 million in gains is tax free.”

    This will get the farm real estate market’s attention: President Biden’s new economic plan would eliminate a tax break for many real-estate owners that has enabled them to defer paying capital gains on property sales. Closing that tax loophole, which has existed since 1921, is part of his $1.9 trillion spending package for new social programs. The current law allows investors to defer paying tax on real-estate gains if they reinvest the proceeds in other properties within six months of the sale. The deals are known as 1031 exchanges, named for the section in the U.S. tax code. The Biden proposal would abolish 1031 exchanges on real-estate profits of more than $500,000. A U.S. congressional tax committee estimated that the 1031 tax break would save property investors more than $41 billion between 2020 and 2024. The Biden proposal would continue to allow 1031 exchanges of less than $500,000, meaning many homeowners and smaller investors could still take advantage.

     
  • He vowed that 90% of the jobs created by his proposals wouldn’t require a college degree.
     
  • He described how the pandemic exacerbated the country’s economic inequality, noting that 20 million workers lost their jobs while billionaires saw their net worth increase collectively by more than $1 trillion. “Trickle-down economics has never worked,” he declared. “It’s time to grow the economy from the bottom up and middle out.”
     
  • Immigration plea: Biden called for an end to “our exhausting war over immigration.” He demanded Congress pass a bill that both secures the border and creates a pathway to citizenship. Biden highlighted the role Harris will play in the effort, focused on addressing the corruption, violence and hunger in Central America pushing residents to leave. Biden called for Congress to pass protection for “Dreamers,” as well as immigrants temporarily seeking refuge from natural disasters and violence at home. He demanded a “pathway to citizenship for farmworkers who put food on our tables.”
     
  • Climate change: Biden touted “farmers planting cover crops so they can reduce the amount of carbon dioxide in the air and get paid for doing it.”

 

         Biden spending

 

— Sen. Tim Scott of South Carolina, the Senate's only Black Republican, delivered his party's response to Biden. “Today, kids again are being taught that the color of their skin defines them — and if they look a certain way, they’re an oppressor. From colleges to corporations to our culture, people are making money and gaining power by pretending we haven’t made any progress. ...Hear me clearly: America is not a racist country. It’s backwards to fight discrimination with different discrimination. And it’s wrong to try to use our painful past to dishonestly shut down debates in the present.” Link to text of Scott’s response.

 

     Scott argued that Biden — a "good man" whose speech was "full of good words "— had failed to deliver on his promise to unite the country after his victory in the 2020 election. "The Biden administration has pushed us apart," he said, praising the bipartisan Covid-19 relief legislation passed under former president Donald Trump and the success of Operation Warp Speed. The radical policies Democrats have proposed, he argued, were not intended to find "common ground."

 

     Scott spoke of his experience as a black man in America and his struggle to be taken seriously by Democrats and their supporters. "I get called ‘Uncle Tom' and the N-word by progressives, by liberals," said Scott, who also called out the Washington Post for publishing a widely condemned fact check suggesting "my family's poverty was actually privilege."
 


CHINA UPDATE


 

— New-crop bean sales, sizable old-crop sorghum sales to China. Data of U.S. export sales activity for the week ended April 22 showed export sales for 2021 of 24,632 tonnes of corn, 243,173 tonnes of sorghum, 62,500 tonnes of soybeans, and 15,291 running bales of Upland Cotton. There were net reductions of 476 tonnes of wheat also reported.
 

     For 2021-22, the only sales activity reported was 198,000 tonnes of soybeans.
 

     Sales for 2021 of 1,942 tonnes of beef and 2,207 tonnes of pork were also reported.
 

     Overall, sales were mostly in line with expectations with net sales for 2020-21 soybeans above trade expectations.

— 
China announces new ASF outbreak in Inner Mongolia. China reported an outbreak of African swine fever (ASF) at a farm in its northern Mongolia region that had 432 pigs, 343 of which had died. This marks China’s 10th official outbreak report of the year, though private estimates say as much as 30% of northern China’s hog herd may have been wiped out by a resurgence of the virus. “The epidemic is occurring in spots and no regional outbreaks have occurred," the ag ministry said in a statement on its website. The country will divide itself into five zones on May 1 to help contain the disease, with only breeding pigs and piglets allowed to move between the zones. Fitch ratings recently commented that these restrictions could result in major consumption zones like eastern and southern China seeking more pork imports, as China’s major producing regions are in the northeast and central areas of the country.

 

— China's population grew last year, the statistics bureau said, in an apparent bid to quash reports that it had fallen — but it stopped short of saying from which year numbers had grown. Link to more via Reuters.

 


TRADE POLICY


 

— Mexico Supreme Court rules unanimously in favor of U.S. potato growers by overturning a 2017 lower court decision that blocked fresh potato exports. The five Mexican Supreme Court justices voted unanimously in favor of the draft rule allowing U.S. fresh potatoes to be exported beyond the first 16 miles of the border. The decision overturns a 2017 lower court decision that prevents the Mexican government from implementing trade regulations to allow the potato exports. Lawmakers, advocates and potato growers have argued this is a violation of the U.S.-Mexico-Canada Agreement. A rulemaking process will begin to plan the exports, which the National Potato Council doesn’t expect it to take more than a few months. USDA, citing industry representatives, estimates that U.S. potato exports could increase from about $50 million in 2020 to $150 million.
 

— USTR Tai lays out more of Biden’s trade agenda. U.S. Trade Representative (USTR) Katherine Tai faced lawmaker questions Wednesday on trade policy plans by the Biden administration as she testified on the fiscal year (FY) 2022 budget plan for USTR.
 

     Tai touted the four-month pause in tariffs between the U.S., U.K., and European Union (EU) as a significant move and stressed to lawmakers she was committed to ending the dispute that goes back more than 10 years.
 

     As for the U.S./China Phase 1 agreement, Tai indicated that she was looking forward to kicking off a top-to-bottom review of the agreement and China’s compliance. “The picture is more nuanced than you might think, by just looking at the trade data,” Tai told lawmakers. A top-level review meeting between the U.S. and China has not yet been scheduled, but Tai said such a session would be scheduled “soon.”
 

     Tai also pledged to use the enforcement mechanisms in the U.S.-Mexico-Canada Agreement (USMCA), noting she has raised compliance issues with her Mexican counterpart and the U.S. has already launched dispute settlement mechanisms on dairy with Canada.
 

     On matters regarding Mexican bans on imports of glyphosate and GMO corn and other ag-trade barriers, Tai said USTR is “looking at it in terms of what our options are to resolve these issues soon.”
 

— Blinken: U.S. eager to wrap up U.S./Kenya trade deal. The U.S. is “looking forward to continue the ongoing discussions with regard to our FTA (Free Trade Agreement),” U.S. Secretary of State Antony Blinken said Tuesday in a virtual meeting with Kenyan President Uhuru Kenyatta. The U.s. is aiming to move forward in “seizing some of the opportunities that are out there, expanding trade and investment.” This marks somewhat of a shift from a fact sheet issued prior to the negotiations which said the two sides were still evaluating the next steps forward.

 


ENERGY & CLIMATE CHANGE


 

— Resolution reversing Trump methane rule clears Senate. The Senate Wednesday cleared an action under the Congressional Review Act (CRA) that would reverse a Trump administration rule regarding methane emissions.
 

     The Trump-era rule weakened the methane standards and lawmakers are seeking to use the CRA to reverse the action. "This Congressional Review Act is a step in the right direction, and I will continue working with the EPA to invest in reducing emissions through technology and innovation,” Sen. Joe Manchin (D-W.Va.) said. Manchin’s stance assured that all the Democrats in the Senate remained unified in approving the CRA action.
 


CORONAVIRUS UPDATE


 

Summary: Global cases of Covid-19 are at 149,674,319 with 3,152,458 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 32,230,020 with 574,329 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 234,639,414 doses administered, 89,988,424 have been fully vaccinated, or 27.5% of the U.S. population.

     By Tuesday, 37.3% of U.S. adults were fully vaccinated against Covid-19, with about 2.7 million shots each day. Data from Johns Hopkins University shows the seven-day average for new U.S. cases has fallen below the 14-day average for more than a week, which epidemiologists said is a strong signal that cases are starting to slide again.

 

     Cases sliding
 

— Covid-19 outbreak that has overwhelmed hospitals in New Delhi and Mumbai is spreading to states across India, as the world’s fastest-growing Covid-19 surge shows no signs of slowing. The country hit a new global high for the pandemic on Wednesday reporting more than 360,000 new daily cases. It recorded 3,293 deaths, the highest single-day toll for the country.

 

— Moderna to boost its Covid-19 vaccine production. The biotech company aims to triple production of its vaccine next year to as many as three billion doses, as countries seek supplies of its shot.


 


OTHER ITEMS OF NOTE     


 

— New autobiography by former USDA Secretary Dan Glickman. On June 8, the University Press of Kansas will release Laughing at Myself: My Education in Congress, on the Farm, and at the Movies, by Dan Glickman. In the book, Glickman tells his story of a classical family background, religious heritage, and “Midwestern-nice” roots, and how it led to a long and successful career in public office. Glickman writes that the toxicity seen in current political culture and public discourse can be mitigated by the principles that have guided his life — a strong sense of humor and the ability to laugh at himself, respect and civility for those who have different points of view and a belief system founded in values based on the Golden Rule and a steadfast commitment to solve problems rather than create irreconcilable conflicts. Glickman, 78, has recently retired from the Aspen Institute.  He is currently on the board of the Chicago Mercantile Exchange and the World Food Program USA.  He is also a senior fellow at the Bipartisan Policy Center. He served for18 years in the U.S. House of Representatives (Kansas – 4th), as USDA Secretary of Agriculture under President Clinton (1995 – 2001) and as chairman of the Motion Picture Association of America, Inc. (2004-2010). 

 


 

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