Biofuel use package may take longer to unveil | Pelosi talks USMCA
In today's updates:
* Hong Kong leader announces withdrawal of controversial extradition bill
The National Hurricane Center warned that the entire southeastern coast, from Florida to North Carolina, may be affected by “life-threatening surf and rip” conditions within the next 36 hours. Five states have declared a state of emergency. Dorian was downgraded to a Category 2 storm yesterday, after it pummeled the Bahamas. The National Hurricane Center projected Dorian will “move dangerously close to the Florida east coast and the Georgia coast tonight. The center of Dorian is forecast to move near or over the coast of South Carolina and North Carolina Thursday through Friday morning. North Carolina’s agriculture department is warning producers that Dorian could cause heavy losses of livestock and crops ready to be harvested. The state temporarily suspended trucking limits for transporting ag products.
— U.S./China trade policy update:
- Hong Kong to withdraw China extradition bill. Hong Kong Chief Executive Carrie Lam said she would withdraw the China extradition bill that sparked months of at times violent street demonstrations and set up a committee to solve social unrest. Meanwhile, the chairman of Cathay Pacific stepped down amid controversy over the airline’s handling of the protests, the second executive from the carrier to do so amid the Hong Kong protests.
- President Trump suggested negotiations will become trickier if he wins a second term. “Think what happens to China when I win,” Trump said in a tweet on Tuesday. “Deal would get MUCH TOUGHER!” Trump also said that the U.S. is “doing very well in our negotiations with China,” without offering any details.
- President Trump declared Tuesday that Chinese manufacturing will “crumble” as his trade fight drags on. But new data suggests it’s also hurting the U.S. The manufacturing sector contracted last month, according to a survey by the Institute for Supply Management.
- Economists lower China GDP growth forecast. Due to escalating tariff war risks, Oxford Economics, Bank of America Merrill Lynch, and Bloomberg Economics have all cut their forecasts for Chinese GDP growth in 2020 to below 6%. Meanwhile, Bank of America and others are warning that the government's current approach to stimulus is proving insufficient. "The key reason for delayed policy response is policy agencies are waiting for the instruction from top decision makers to shift policy stance towards easing," BofA's Helen Qiaoshe wrote in a note.
- The trade war between the U.S. and China is reviving apparel supply chains in a country that had lost business because of poor workplace standards. Some fashion brands looking to move production from China are turning to Bangladesh, the Wall Street Journal reports (link), where safety issues persist years after two workplace accidents killed more than 1,000 workers. “Companies have been bulking up sourcing in the country amid efforts to improve safety conditions there, and the shift has accelerated as the trade dispute has heated up. Apparel exports from Bangladesh to the U.S. are rising rapidly, and manufacturers say they are being inundated with queries from Western companies looking for factory capacity. One watchdog group says the effort to avert tariffs carries its own cost, however, with child labor still part of Bangladeshi supply chains and factory conditions across South Asia far behind the rest of the world.”
— Democrats still waiting on Trump administration response to USMCA proposals: Neal. House Ways and Means Committee Chairman Richard Neal (D-Mass.) said Democrats want to see specific changes in the U.S.-Mexico-Canada Agreement (USMCA) and are waiting for a full response to their proposals from the Trump administration. “Democrats are committed to a renegotiated deal with strong enforcement mechanisms that helps working families, protects the environment, and preserves access to affordable medicines now and in the future,” Neal said.
House Speaker Nancy Pelosi (D-Calif.) had a conference call with Democrats Tuesday to give an update on the status of USMCA.
Pelosi and Canadian Prime Minister Justin Trudeau spoke briefly by phone Tuesday on Democratic lawmakers’ concerns about USMCA. Pelosi reiterated Democrats’ concerns about labor standards, prescription drug prices, environmental protections and enforcement mechanisms and stressed that Democrats are concerned with enforcement of the agreement and Mexico continuing to implement labor standards and other commitments.
— Trump says details of biofuel use boost package in next two weeks. President Trump promised the package of changes would be “submitted and approved within two weeks” in a tweet Sunday: “Making great progress for our Farmers. Approved E15, year-round. Big additional list to be submitted & approved within two weeks. Will be even better for Ethanol, and we save our small refineries!” An announcement was previously expected to take place in the Midwest this week.
Biofuel proponents are pushing for boosts in 2020 blending requirements to offset exemptions waiving some refineries from the mandates; refining advocates are arguing against increases.
Trump has promised a “giant package” of changes, claiming that “the farmers are going to be so happy when they see what we are doing for ethanol.” USDA Secretary Sonny Perdue, EPA Administrator Andrew Wheeler and White House aides are negotiating details of the package designed to boost both corn ethanol and soy-based biodiesel. The plan under consideration reportedly would add about 875 million gallons to refiners’ obligations, but that accounts for just a third of the volume affected by the EPA waivers.
The National Corn Growers Association said Trump’s ethanol moves have cost 2,700 rural jobs and affected demand for 300 million bushels of corn due to lower ethanol production and plant closures. “NCGA has no confidence in the volumes EPA proposes for 2020,” Lynn Chrisp, the group’s president, wrote in comments submitted to the EPA. “These refinery waivers have significantly outpaced annual increases in [Renewable Fuel Standard] volume requirements, taking RFS volume requirements backward.”
Barrasso warns Trump against RFS reforms. Senate Environment and Public Works Committee Chairman John Barrasso (R-Wyo.) warned President Trump on Tuesday not to move forward with proposed fixes to the Renewable Fuel Standard (RFS), saying that the changes would constitute favoritism and “risk closing refineries and killing thousands of jobs.”
American Petroleum Institute vice president Frank Macchiarola told reporters on a conference call Tuesday the reported biofuel package would continue a trend of the administration “consistently caving to pressure from the ethanol industry” that risks hurting refiners and consumers nationwide.
— U.S. biofuel groups give measured support on a deal for U.S. ethanol exports to Brazil. “We appreciate the U.S. government’s efforts to raise the TRQ, however we are disappointed that Brazil did not remove their tariff completely to allow a fully open market,” Emily Skor, CEO of Growth Energy said. “Brazilian ethanol continues to have virtual tariff-free access to the U.S. and puts U.S. ethanol producers at a disadvantage at a time when they need it most,” she said.
“Brazil’s decision to maintain its protectionist trade barrier against U.S. ethanol is extremely disappointing and represents a major setback in our relationship with the Brazilian sugar and ethanol industry,” said Geoff Cooper, president and CEO of the Renewable Fuels Association.
Brazil’s system for tariffs “inhibits trade between our countries and hinders the development of a robust global ethanol marketplace,” said Ryan LeGrand, president and CEO of the U.S. Grains Council.
Background. Brazil previously had a 20% tariff on U.S. ethanol imports exceeding 600-million liters in a year. On Sunday, Brazil raised the limit to 750 million liters, or about 198 million gallons.
— RMA announces whole farm revenue policy changes tied to 2018 Farm Bill; updates affect indemnity payments, revenue smoothing. Changes to the Whole-Farm Revenue Protection (WFRP) crop insurance policies set to take effect for the 2020 crop year were announced by USDA's Risk Management Agency (RMA), as it continues work to implement the 2018 Farm Bill. WFRP is popular among specialty crop and organic growers that are unable to utilize other crop insurance options.
The changes, triggered by the new farm bill, clarify how WFRP policies affect participation in disaster assistance programs and implement new historical revenue smoothing options, RMA said. WFRP allows coverage of all revenue for commodities produced on a farm up to a total insured revenue of $8.5 million.
Under previous rules, producers who carried both WFRP and Noninsured Crop Disaster Assistance Program (NAP) policies were required to choose which indemnity they would receive if a loss occurred. The changes announced by RMA will allow producers to collect indemnity payments under both policies as of the 2020 crop year.
An indemnity paid under NAP "will not be counted as revenue-to-count under the WFRP program up to the deductible of the WFRP policy," RMA detailed. Also, state and federal disaster program payments will be excluded from revenue-to-count and allowable revenue determinations, the agency said.
Meanwhile, producers carrying NAP will no longer be able to receive a payment discount under WFRP, RMA said.
Another change raises the WFRP expected revenue limit to $2 million for livestock and nurseries, compared with a $1 million limit previously. Operations with over $2 million in expected revenue from livestock and nurseries can still purchase WFRP and "any revenue earned from commodities produced on the farm or purchased for resale above $2 million will be counted as revenue-to-count," RMA informed.
"There has been some confusion about how WFRP interplays with other federal disaster programs and indemnity payments, and we’ve added new provisions to address these concerns,” said RMA Administrator Martin Barbre. “The WFRP policy is an important product for producers of any crop, but particularly for growers of less traditional crops. We’re excited to offer these improvements."
New historical revenue smoothing provisions for WFRP will also be rolled out for the 2020 crop year. The measures will be available as options to producers meant to prevent large drops in approved revenue from year to year and smooth the historical values, RMA said. There will be an additional premium attached to the new options.
The first option is a 60% revenue plug based on the 5-year simple average or simple indexed average revenue. Years with below average revenue may be replaced by 60% of the average to calculate approved revenue.
A second option allows producers to drop the year with the lowest revenue from the history and calculate the average revenue based on the four remaining years.
A third option allows approved revenue to be cupped at no less than 90% of the previous year's approved revenue.
— Other items of note:
Iran gives Europe two more months to save nuclear deal. Iran's President Hassan Rouhani gave European powers another two months to save a 2015 nuclear deal but warned that Tehran was still preparing for further significant breaches of the pact that would have "extraordinary effects.” France offered Iran a $15 billion credit line in exchange for Iran’s return to the terms of a nuclear-program freeze agreed in 2015. Meanwhile, the U.S. State Department imposed sanctions on Iran’s space agency after a failed rocket launch that the U.S. suspects was a ballistic missile test.
Border wall funding: The Pentagon said it would delay or suspend 127 military construction projects and divert $3.6 billion to shore up President Trump’s border wall.
National Farmers Union next week will fly in 380 farmers to Washington to meet with lawmakers and USDA officials. Their agenda will include the farm safety net, biofuels, conservation and trade issues, the group announced (link).
West Virginia Democratic Sen. Joe Manchin announced he isn’t running for governor, a job he’s held before. “I am going to push the Senate to take up and pass energy technology bills that invest in all-of-the-above energy that will keep our country as the world economic leader,” Manchin said in a statement.
USDA reportedly will announce the latest disaster program details on or around Sept. 10.
— Markets. The Dow on Tuesday fell 285.26 points, 1.1%, to 26,118.02. The S&P 500 dropped 20.19 points, 0.7%, to 2,906.27. The Nasdaq Composite fell 88.72 points, 1.1%, to 7,874.16.
U.K. parliament moves to delay Brexit. Lawmakers voted 328 to 301 to take a major first step toward forcing British Prime Minister Boris Johnson to delay Brexit until Jan. 31 in an effort to stop a no-deal split. Earlier in the day, Johnson lost his ruling majority when a member of his party defected. Johnson said delaying Brexit would undermine his negotiating hand and that he’d rather collapse the government and hold a fresh election. Johnson called for a new general election in mid-October, hoping to gain enough seats in Parliament to overturn the legislation. But officials in the opposition Labour Party suggested they wouldn’t support an election unless they felt assured that Britain would not leave the EU by Oct. 31 without a deal. Investors are attempting to figure out how to play the latest developments, watching sectors including banks, exporters, utilities and homebuilders.