Some Analysts, Others Can't Wait to Scoff at USDA Reports

Posted on 08/12/2019 4:18 AM

Pillsbury comments on U.S./China trade war | Fire at Tyson plant in Holcomb, Kansas

In today's updates:

* USDA supply/demand today: How many seconds before naysayers sprout?
* RFS waivers were unveiled by EPA, and biofuel proponents railed at the results
* Noted Trump China adviser Michael Pillsbury reveals some inside China analysis
* Navarro recession? WSJ editorial: trade/currency mistakes eroding econ. growth
* Investors, advisors prepare for lingering U.S./China trade war
* Hong Kong airport cancels all remaining flights Monday due to protest
* A fire at the Tyson plant in Holcomb, Kansas, has shuttered the plant indefinitely
* Markets: Last week, the Dow dropped 197.57 points, 0.7%, while the S&P 500
declined 0.5%, and the Nasdaq fell 0.6%


More the merrier? Pre-report forecasts of what USDA will say today regarding plantings and crop production estimates and demand projections are starting to include more than one forecast because of the doubts expressed by many regarding what USDA may report. Pre-report tables now cover the following:

  • What USDA will say today;
  • What USDA should say at this juncture (Aug. 12) because crop/weather conditions “have likely deteriorated” since the NASS surveys, many say.
  • Still others privately have a third estimate of the “final USDA forecast.”

This is why there is the usual dose of carping whenever USDA releases its estimates and forecasts... a no-win scenario for them because of the luxury that private “forecasters” have to issue such projections whenever they want. A veteran market source says, “Those analysts who are wrong about the report will just say it's worthless... their standard response.”

As for market impacts, the potential bullish outlook for corn is reflected in a Barron's story: “The combination of a weather-related planting delay, lower-than-forecast crop yields, and the probability of fall frost could conspire to produce double-digit gains in futures prices. “I think we could see a rally to new highs by the end of the year,” says Shawn Hackett, president of Boca Raton, Fla.–based Hackett Financial Advisors. “With a legitimate frost, which would really clip the crop, we’d have to be looking at corn in the sixes,” he says, meaning greater than $6 a bushel. Link for details of “Corn Crop Problems Could Lead to Higher Prices.”

EPA announced a hefty list/volume of RFS waivers late Friday. And it didn't take naysayers long to pounce on the move. Link to special report on the topic.

Impacts of the waivers have ethanol proponents crying a demand trip-up. The total exemptions issued cover more than 4 billion gallons of biofuels, according to EPA data. The latest announcement exempts an estimated 1.43 billion gallons of renewable fuel, second only to the 1.8 billion gallons exempted in 2017 according to EPA’s SRE dashboard. One corn industry analyst said, “This is like adding 5-6 bu./acre to the crop size on today’s USDA report. If Trump was trying to see what it would take to lose his support with producers, this should be a good test.” Iowa Renewable Fuels Association Executive Director Monte Shaw called the EPA’s decision “devastating” and said with this action, “President Trump has destroyed over a billion gallons of biofuel demand and broken his promise to Iowa voters to protect the RFS.”

EPA also said it would review easing regulatory burdens impacting the growth of natural gas, flex-fuel vehicles, and E85 blends of fuel.

EPA noted the possibility of an expedited registration of atrazine and said in a letter to the National Corn Growers Association and state affiliates that an update on that topic can be expected in the next two to three weeks.

U.S./China trade policy update:

  • Trump China adviser Michael Pillsbury: Good chance no trade accord until after 2020 elections. Pillsbury, a China expert, was interviewed Saturday on the WSJ Editorial Report television program. Pillsbury said he checked with the Chinese press and individuals who advise the government and they said China believes former Vice President Joe Biden will win the U.S. election, saying they have “polls and their own assessment.” He said China believes the Democrats are much softer than Trump regarding trading with China, especially when it comes to enforcement. Back in 2016, Pillsbury acknowledged, China accurately predicted to him that Trump would win and accurately predicted that Trump would win the states of Wisconsin, Pennsylvania and Michigan, something Pillsbury did not agree with at the time, telling the Chinese that Democratic presidential candidate Hillary Clinton would win. “They were right and now their current assessment explains why comments that the Chinese want to wait until after 2020 elections are probably accurate.” Asked if he thought China was trying to make Trump's re-election as difficult as possible, Pillsbury said, “I don't think so. They've got their own fear of instability of their economy slowing down; of demonstrations breaking out — not just in Hong Kong, but if this spread to mainland cities, it would mean the survival of their regime. So there is a pretty good incentive for the Chinese to make a deal. Pillsbury pointed out that not only has President Trump's book, Art of the Deal, been translated into Chinese, “it's a best seller,” so we have two “master negotiators in (Chinese leader) Xi Jinping and Donald Trump. Which one will outsmart the other is still open. My money is on Donald Trump because for the time being, our economy is bigger... they are closing in on us. But Xi Jinping is no pussy cat!”
  • Pillsbury says there is a “chance for progress” in any future U.S./China talks, especially when it comes to enforcement language in any final agreement. While the talks between the two countries are secret, Pillsbury noted that last May the Trump administration revealed there was a 150-page agreement. “It had really strong enforcement provisions in which there could be suits in Chinese courts, there could be new tariffs put on, and a three-layer appeals process. But when the Chinese apparently studied it more closely, they realized how binding the agreement was... it was not just a make-good effort or 'We will do the best we can.' If they signed, it meant they could be punished if they violated, so President Trump is the first president to put this kind of really tough enforcement language regime in place. Now there may be some ways to have just some issues covered and have Phase One and then a Phase Two. That could make everybody happy. But the Chinese have really balked since May 1, and not just the whole agreement, but especially the enforcement provisions. That is where the chance for progress may be.” Pillsbury further revealed that the “full translation” of the 150-page document had not been made until sometime in April and a couple other (Chinese) players got involved who don't know English. They realized just how binding (the document) is. And now they are trying to take it back. But the president (Trump) would have none of that and slapped (threatened) tariffs back on them within 24 hours of their reneging.”
  • How Pillsbury says China sizes up some of Trump's trade policy advisors. “There is a political debate going on both in Beijing and Washington. The Chinese like to play up splits in the White House. They always talk about (Trump trade advisor Peter) Navarro, who they say is crazy. They say (U.S. Trade Representative Robert) Lighthizer is too tough. Then they have their softer Americans. We have the view … I have a personal view … that the Chinese political system also has hawks and doves. So these two debates are interacting with each other. I am still mildly optimistic. I like the president's (Trump's) way of saying, 'Let's wait and see.' But he has put enormous pressure on the Chinese in a variety of ways. He has also shown them how he could be friendly... calling the Hong Kong demonstrations a riot, which is one of the areas the students are demonstrating against... they want the word 'riot' removed. He (Trump) is showing Xi that he can be friendly, too.”
  • One industry analyst comments on Pillsbury: “This guy is all in on Trump and no way to fact check his comments which are designed to promote Trump strategies.”
  • President Trump’s “willy-nilly trade offensive could be the mistake that turns a slowdown into the Navarro recession," says the usual Trump-supporting WSJ Editorial Board. Peter Navarro is reportedly the only adviser who supported President Trump's new tariffs on China. Link to editorial.
  • All flights out of Hong Kong airport cancelled after protest sit-in. Airport chiefs have ordered all carriers to cancel flights out of Hong Kong airport, reports note, after thousands of protesters descended on the hub. Cathay Pacific airline agreed to bar employees who support or join protests from working on flights to mainland China.
  • On Wednesday, China’s central bank will sell 30 billion yuan of bills in Hong Kong, a move seen as a signal that China would like to limit weakness in its currency amid accusations from the U.S. that it is using the yuan as tool in the trade war.
  • China has a strategy re: trade war with U.S.: lower tariffs for U.S. competitors. While the average tariff Beijing imposes on U.S. goods has risen by 12.4 percentage points since May last year, the average tariff it applies to Europe, Japan and elsewhere has decreased, according to research by Chad Brown, Eujin Jung and Eva Zhang at the Peterson Institute. “While Trump shows other countries nothing but his tariff stick, China has been offering carrots,” the U.S. think-tank said. “Beijing has repeatedly cut its duties on imports from America’s commercial rivals, including Canada, Japan and Germany.”
  • Investors and advisors are getting ready for a lengthy trade war. Portfolio managers and strategists are re-evaluating their portfolios — not to exit the market completely but to focus on investments that can withstand a longer and costlier phase in the trade war. One favorite area investors are flocking to: cybersecurity firms.

Other items of note:

  • Democrats boost Texas offensive. Pundits for years have discussed deep-red Texas turning blue or light blue. After 2018 gains and a some GOP congressional retirements, Democrats see 2020 as their best opportunity in a generation to win at the federal and state levels. Texas has grown by more than three million people since 2010, with the majority of that growth in the Triangle areas of Houston, Dallas, San Antonio and the Austin metropolitan area, according to census data. Link to WSJ article for more on the Dems' strategy.

  • A Friday night fire at the Tyson plant in Holcomb, Kansas, has shuttered the plant indefinitely and is expected to take Tyson out of the cattle market for an unknown time. Analysts predict this will be a major bearish factor in the cattle market, initially on fed cattle prices and then on feeder cattle. The fire is now out and the company expects to brief employees today.

  • In concessions, ERS, NIFA workers given more flexibility. Employees of the Economic Research Service (ERS) and National Institute of Food and Agriculture (NIFA) who agree to move to Kansas City will be allowed to telework until Dec. 30 and will receive incentive payments of one month’s salary, according to an agreement reached between the employees’ union and USDA. The agreement also gives the employees until Sept. 27 to decide whether to move. Link to agreement.

  • Bloomberg News is on the spot after Bayer mediator calls its report of settlement offer ‘pure fiction’. Ken Feinberg, the person overseeing mediation between Bayer and plaintiffs in federal lawsuits in California, dismissed a Bloomberg News report that Bayer had offered to pay $8 billion to settle the claims. “Bayer has not proposed paying $8 billion to settle all the U.S. Roundup cancer claims,” Feinberg said in an article by Reuters. “Such a statement is pure fiction. Compensation has not even been discussed in the global mediation discussions.”

Markets. The Dow on Friday fell 90.75 points, 0.3%, to 26,287.44. The S&P 500 dropped 19.44 points, 0.7%, to 2,918.65, while the Nasdaq Composite fell 80.02 points, 1%, to 7,959.14.

For the week, the Dow dropped 197.57 points, 0.7%, while the S&P 500 declined 0.5%, and the Nasdaq fell 0.6%.

The global bond market is signaling things won’t be able to carry on much longer before a recession strikes, as bonds rallied and yields tumbled around the world. Holders of 30-year U.S. Treasury bonds have earned 8.4% on their money over 10 trading sessions. There is more than $15 trillion in government debt around the world with negative yields — savers holding these bonds are paying the government to store their money. The yield on the U.S. benchmark 10-year Treasury note, which settled Friday at 1.731%, is still well above zero — and above its record low of 1.3%. But observers note that on Friday, the yield on the 10-year Treasury inflation-protected security was yielding around 0.06%, according to Tradeweb. So once adjusted for inflation, the conventional 10-year Treasury note is already yielding close to zero.

Meanwhile, the price of gold, a haven in troubled times, has surged nearly 6% this month, and up 25% in the past 12 months, to trade around $1,500 a troy ounce.

U.S. crude oil gained 3.7% to $54.50 a barrel, rebounding after a big selloff earlier in the week sent oil futures to their lowest settle since January.

More than 44 million people in the U.S. carry student loans for themselves or a family member, according to federal data, with outstanding debt estimated at nearly $1.6 trillion.

A sign of the times: Median employee tenure is less than 5 years for anybody under the age of 45. About one-third — 32% — of U.S. employees say they plan to get a new job this year, according to a recent study carried out by The Harris Poll, commissioned by employment website CareerBuilder. Harris surveyed 1,010 full-time U.S. employees across the private sector. More than one-quarter of surveyed employees — 29% — say they regularly search for new jobs while they’re employed. And 78% say they’re open to trying something new if the opportunity arises, according to the study.

Just 0.28% of the 156 million civilian workers earned the federal minimum last year, according to the Labor Department. Most of those employees were younger than 25 years old. Some 29 states representing about 60% of the workforce have set their minimum wage higher than the national pay floor of $7.25 an hour, which hasn’t been adjusted for a decade, the longest it has ever gone unchanged — 21 states follow the federal minimum wage, while others have set rates as high $12 an hour, including some that will reach $15 an hour in the coming years. Link for more from WSJ article.


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