Some SBA Loan Programs Begin Today Amid Confusion; Interim Final Rule Released

Posted on 04/03/2020 7:08 AM

Trump today meets with oil execs | Perdue asked to reopen dairy program

 


In Today’s Updates


 

* Oil prices hinge on any Saudi/Russia agreement to end price/production war
* Some SBA loans begin today along with 349 billion questions
* Farm Bureau analysis of the SBA loans is a downer
* Jobs report today first of several ahead to show U.S. economic collapse
* Forecasting firm IHS Markit projects 14 million jobs will be lost by December
* Oxford Economics: by May, U.S. to lose 27.9 million jobs, 16% unemployment rate
* Mexico stops brewing Corona
* Economist: 'Lockdowns buy time, an invaluable commodity'
* Perdue asked to cave and allow dairy producers to come into Dairy Margin Coverage
* U.S. set to recommend cloth masks for hot spots
* New test of Trump returned a negative result in 15 minutes
* Google will start releasing user location data in 131 countries
* China’s new coronavirus policies are roiling U.S. air cargo operations: WSJ
* Trump blasts 3M after hearing Fox News report many masks going outside U.S.
* U.S. trade deficit fell sharply in February
* U.S. Feb. ag exports edged lower while imports registered a sharper decline
* Trump opens oil reserve (SPR) to drillers seeking a home for barrels
* EPA giving extra month for comments to proposed rule
* Pesticide residues in 91,015 food samples analyzed
* New York State making it easier to start renewable energy projects
* Democratic convention postponed until a week before GOP's

 


MARKET FOCUS


 

Equities: Global stocks dropped along with U.S. equity futures — U.S. stock futures are off around 1% as concerns mount over a V-shaped economic recovery and economists warn that the government and Fed will need to provide additional stimulus. The dollar strengthened.

 

Oil prices fluctuated before turning higher following the biggest jump on record a day earlier after Saudi officials said the kingdom would consider substantial output cuts as long as others in the G20 group of nations were willing to join the effort — U.S. crude: $26.35 per barrel. Brent $32.37. On Thursday, U.S. crude oil closed up $5.01, 25%, at $25.32 a barrel, the sharpest percentage gain on record. Brent crude, the global benchmark, rose $5.20, 21%, to $29.94, also its best day in data going back to 1988. Meanwhile, President Trump is set to meet today with the heads of some of the largest U.S. oil companies to discuss measures to help the industry. The chief executives of Exxon and Chevron are expected to attend. The OPEC+ coalition will have a virtual meeting Monday with its members — and possibly other oil producing nations — after Trump called for a coordinated production cut. The White House has considered tariffs on foreign oil imports to protect U.S. producers, though the idea is opposed by some top Trump advisers led by Larry Kudlow, the director of the National Economic Council. Meanwhile, Goldman Sachs analysts kept their second-quarter forecast of $20 per barrel even after Trump’s tweet that Saudi Arabia and Russia were preparing to cut output by as much as 15 million barrels per day, ending a price war between the two countries, implying a full reversal of yesterday’s rally.

 

     Perspective: Oil demand has dropped by as much as 30 million barrels per day, roughly equivalent to the combined output of the Saudis, Russia and the United States.

 

     Oil price rally

Jobs report first of several ahead to show U.S. economic collapse. The March jobs report this morning is expected to show the start of a labor-market collapse that observers say could eventually shed all the U.S. jobs added by employers in the past decade and push the unemployment rate to record highs. Economists forecast employers cut 10,000 workers from payrolls and the unemployment rate for March ticked up to 3.7% from 3.5% (the range of forecasts ranges from losses of more than 1 million to a gain of 100,000). Recent average economic report forecasts have been missing the actual results by a wide margin.

 

     Forecasting firm IHS Markit projects 14 million jobs will be lost by December, based on the expectation that employment will fall sharply this spring and edge lower for the remainder of the year. The firm expects the unemployment rate to peak near 10%, or close to previous records. Joel Prakken, IHS Markit chief U.S. economist, said the firm’s forecast assumes a pickup in hiring among other businesses. “I think there will be more of an offset than some realize,” he said, pointing to hiring announcements by grocery stores, online retailers, warehouses and pharmacies. Prakken projects employment will return to early 2020 levels by fall 2022. Next year, he said, it won’t be unusual for monthly jobs reports to show 700,000 or more jobs added. “The recovery will be much faster than from past downturns,” he said.

 

     Jobs report

 

Initial unemployment claims as expected hit a new weekly record when results were released Thursday, bringing the total filings over the past two weeks close to ten million. The number of Americans applying for unemployment benefits soared to a record 6.65 million last week.

 

     Jobless

 

     Jobless map

     Watch this

 

Forecasting firm Oxford Economics projects that by May, the U.S. will have lost 27.9 million jobs and have a 16% unemployment rate, erasing all the jobs added during the record-setting 113-month stretch of employment gains through February. That job loss would far outstrip the 8.7 million positions cut from payrolls during the 2007-2009 recession and its aftermath. And those jobs were lost over 25 months.

 

     Oxford Economists

 

Mexico stops brewing Corona. Since the start of the Covid-19 crisis, Corona has been the punchline of jokes and memes. Now, Grupo Modelo, which is part of brewing giant AB InBev, has stopped producing Corona beer. The move is not associated with the drink's name, but the business was rather deemed non-essential under a Mexican government order. In the U.S., Grupo Modelo is distributed by Constellation Brands.

 

"Lockdowns buy time, an invaluable commodity," the Economist writes in its lead editorial (link): “When they are lifted, Covid-19 will spread again among people who are still susceptible. But societies can prepare in a way that they never did for the first wave, by equipping health systems with more beds, ventilators and staff. … Perhaps, though, no new treatments will be found ... People will have endured months indoors, hurting both social cohesion and their mental health. Year-long lockdowns would cost America and the euro zone a third or so of GDP. ... The capacity of the economy would wither as innovation stalled and skills decayed.” Translation: The Economist writers need to sing the Annie song, Tomorrow (link), or have a good laugh at this going around the Internet:

 

     Debbie

 


POLICY FOCUS


 

Any $349 billion program is bound to have some initial glitches, especially when it's a gov't program, and that is the case with the SBA loans, some of which take effect today. Problems are complicated further when some state SBA offices say farmers do not qualify when they do when it comes to the Payment Protection Program Loans (PPPL). Business owners can begin applying today for the loans, which are forgivable if businesses keep their workforce largely intact and use the loans for eligible expenses such as rent and utilities. (The loans are for two-year terms at a 1% fixed rate of interest, require no collateral and come with debt forgiveness options for eligible expenses.)

 

     The 30 million small businesses in the U.S. employ half of the private workforce. By one estimate, small businesses may need more than $1 trillion to replace lost revenue over the next three months.

 

     SBA on Thursday evening released its interim final rule (link), so after pouring through the government-type language, experts should have more solid information about the programs. For example, the rule does not exclude farmers from the PPPL.

 

     There’s one problem: No one is ready to dole out the cash, according to a New York Times article (link). JPMorgan Chase told customers that it won’t start accepting loan applications today, while Bank of America reportedly plans to limit loans to existing customers, the WSJ reports (link).

 

     Another program, the Economic Injury Disaster Loans (EIDL) does exclude farms but many House members and a coalition of farm groups are pushing SBA and the Treasury Department to allow farms to participate. While a form for EIDL excludes farms, letters from lawmakers and farm groups stress Congress intended to make the 3% loans available to farmers.

 

     A Farm Bureau analysis (link) of the SBA loans is a downer, concluding: “Intended to keep small business employees on the payroll, the Paycheck Protection Program Loans will likely be an important lifeline for many, including independent contractors and the self-employed who will benefit from the program’s expanded eligibility. However, if the SBA interpretation of the CARES Act is that the industry-specific number of employees and annual receipts, without any expansion, are both applicable in determining eligibility, most of production agriculture will be on the outside looking in on the benefits of this particular program.

 

     On Thursday, Treasury Secretary Steven Mnuchin said the interest rate would be increased to 1%, from 0.5%, at the request of community banks.

 

     The interplay between PPPL and EIDL. Applicants cannot use funds from both programs to cover the same expenses. For instance, employers may not pay payroll expenses out of both PPP funds and EIDL funds. EIDL loans may, however, be refinanced by a PPPL.

 

     Bottom line: Changes could and likely will come in the form of amendments or a supplemental bill, perhaps as part of a Phase 4 package, whose price tag and list of items are rapidly escalating, a likely signal it will get bogged down among political and other competing interests.

 

USDA Secretary Sonny Perdue is being asked to allow dairy producers to come into the Dairy Margin Coverage (DMC) program, even after they were given ample opportunity to enter the program. But that was when dairy prices were considerably higher. Now that prices have tanked, Perdue is being asked to take the “moral hazard” move to allow the errant producers into the program which at the time of sign up House Ag Committee Chairman Collin Peterson (D-Minn.) labeled a “no-brainer” decision to enroll and told producers if they did not sign up, they shouldn't complain to him.

 

     The National Milk Producers Federation is urging USDA to purchase dairy products and to reopen DMC enrollment. A purchase program is widely expected.

 

     Perspective: There was a one-week extension for DMC enrollment... Annual election period for coverage opened Oct. 7 and initially ran through Dec. 13. It was extended through December 20.
 

Coronavirus update:

  • Summary: Global Covid-19 cases are at 1,026,974 with deaths at 53,975 based on data from the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU). In the U.S., more than 245,573 confirmed cases and 6,058 deaths, according to Johns Hopkins. The world added 80,600 more confirmed cases of the coronavirus Thursday — the biggest daily number of new cases to date. Italy, though, while still suffering the world's highest death toll — over 13,000 — is seeing its daily number of new infections trend down.
     
  • U.S. set to recommend cloth masks for hot spots. The recommendation from the Centers for Disease Control and Prevention would aim to reduce the risk that people who are infected but asymptomatic will spread the virus. Link to Associated Press report. The U.S. government had been discouraging use of masks by people who aren't medical professionals. Surgeon General Jerome Adams tweeted Feb. 29: "Seriously people- STOP BUYING MASKS! They are NOT effective in preventing general public from catching #Coronavirus." But President Trump said earlier this week: "It's not a bad idea, at least for a period of time."
     
  • The White House said a new test of Trump returned a negative result in 15 minutes, and said the president is "healthy and without symptoms." Trump talked about the quick test/results during a Thursday briefing.
     
  • Google will start releasing user location data in 131 countries. Governments can use the information to assess the effectiveness of social distancing rules. The tech giant said the data will be “aggregated, anonymized,” but there are concerns about the privacy implications. The "mobility reports" go down to the county level to see if locals are abiding by social distancing measures, but will use anonymized historical data, with a lag of two or three days. Google is also reportedly exploring individual location tracking with a White House task force, as well as running a handful of testing sites in Northern California in a private-public partnership with the government.
     
  • China’s new coronavirus policies are roiling U.S. air cargo operations. More stringent Chinese coronavirus testing procedures — including nasal swabs — and quarantine threats have rattled flight crews at FedEx and United Parcel Service, disrupted cargo shipments and prompted appeals from the carriers to the White House to stave off supply-chain disturbances, the Wall Street Journal reports (link).
     
  • Trump: “We hit 3M hard today after seeing what they were doing with their Masks. P Act all the way. Big surprise to many in government as to what they were doing - will have a big price to pay!” President Trump was apparently referring to a Fox News report featuring the head of Florida's Division of Emergency Management accusing 3M of shipping N95 respirators to foreign countries who outbid U.S. buyers. Trump earlier announced he was invoking the Defense Production Act for masks and ventilator manufacturing.
     
  • Speaking of masks, American manufacturers are trying to ramp up production of medical gear against overwhelming demand. 3M Co. and a half-dozen smaller competitors are making about 50 million of the high-quality N95 masks in the U.S., the Wall Street Journal reports (link), “but they are far from meeting demand that may exceed 300 million of the protective devices each month.” The effort is part of a rush to get the country’s manufacturing supply chains turned toward the ventilators, masks and other equipment needed under the spreading coronavirus pandemic. Stocks are depleted for a range of gear, and U.S. hospitals have been pressed for equipment since many countries that had supplied medical devices blocked exports to fight the virus within their own borders. U.S. ventilator stockpiles are running dangerously low and President Trump triggered a federal emergency law to help domestic manufacturers get the parts they need to make those devices.

    Masks

U.S. trade deficit fell sharply in February. The U.S. trade deficit fell to $39.9 billion in February. U.S. exports fell 0.4% in February to $207.5 billion while imports declined by 2.5% to $247.5 billion, leaving a deficit of $39.9 billion. That marked an improvement from the $45.5 billion trade deficit registered in January. The U.S. trade deficit with China was down to $10 billion in February after a $16 billion deficit in January. The narrowing trade gap was driven in part by a sharp decline in the goods deficit with China, where the Covid-19 virus originated and caused factories to shut there in February.
 

    Trade deficit
 

     U.S. February agricultural exports edged lower while imports registered a sharper decline (link). U.S. agricultural exports were at $11.31 billion in February, down from $11.44 billion in January, while U.S. ag imports were at $10.60 billion, down from $11.67 billion in January. That resulted in a trade surplus of $711 million after the sector had a deficit of $234 million in January. So far in fiscal year (FY) 2020, U.S. agricultural exports total $59.34 billion against imports of $54.25 billion for a surplus of $5.09 billion. In FY 2019, exports were at $57.72 billion against imports of $53.19 billion and a trade surplus of $4.53 billion. But for all of FY 2019, exports reached $135.54 billion against imports of a record $130.94 billion for a surplus of just $4.6 billion. We are entering into the period when U.S. ag imports typically are the strongest — they typically peak during the March-May period. In FY 2019, agriculture registered a record trade deficit of $871 million in April and a deficit of $255 million in May.
 

Trump opens oil reserve (SPR) to drillers seeking a home for barrels. The Trump administration will rent space in the nation’s emergency oil reserve to domestic producers that are struggling to find places to store excess barrels amid an unprecedented collapse in demand.
 

     The Department of Energy (DOE) issued a solicitation for the storage of 30 million barrels of crude oil in the Strategic Petroleum Reserve (SPR). DOE said the effort is to help the industry “struggling with catastrophic financial losses due to the combined impacts of Covid-19 and the intentional disruption of world oil markets by foreign actors.” After the initial 30-million-barrel solicitation, DOE said it intends to make an additional 47 million barrels of storage capacity available.
 

     The effort comes after the DOE halted its solicitation to purchase crude oil from the market to put into the SPR, pulling the solicitation after Congress did not include funding in the third Covid-19 aid package for the purchases. DOE said it continues to work with lawmakers in an effort to try and find funding to make the purchases.
 

     The solicitation is for an exchange of up to 22.8 million barrels of sweet crude oil produced in the U.S. by U.S. producers to be delivered to Bayou Choctaw, Bryan Mound, and Big Hill SPR sites from May 1, 2020 through June 30, 2020, and of up to 7.2 million barrels of sour crude oil produced in the U.S. by U.S. producers to be delivered to the West Hackberry SPR site from May 1, 2020 through June 30, 2020.
 

     Barrels received into the SPR from May 1-June 30 need to be delivered out of the SPR, less premium owed to the SPR by March 31, 2021. Scheduled return period to the Contractor will be between August 1, 2020 and March 31, 2021 for Bryan Mound, Big Hill, and West Hackberry sites.
 

    Scheduled return oil for Bayou Choctaw will be October 1, 2020 through March 31, 2021.
 

     The premium owned will be in the form of barrels of oil that will be left in storage in the SPR, the solicitation said. The primary factor determining winning bids will be the highest fixed monthly exchange ratio submitted by a conforming bidder. The fixed monthly exchange ratio, DOE said is defined as “the number of barrels that will be retained by the DOE each month divided by the maximum total Exchange Oil barrels awarded, per contract. Examples provided by DOE include the exchange ratio as being either a percentage of the crude offered to store or a flat barrel amount.
 

     Offers are due no later than 11 a.m. (CT) April 9. The minimum quantity to be offered is 500,000 barrels with a maximum contract quantity of 5 million barrels per offer. Multiple offers can be submitted, but awards to an offeror will not exceed 10 million barrels.
 

Other items of note:

  • EPA is giving an extra month for comments to its proposed rule that would bar the agency from using scientific research that isn’t or can’t be made public, marking a change from its decades-old approach to using science in rulemaking. The comment period now closes on May 18, instead of April 17.
     
  • Pesticide residues in 91,015 food samples analyzed by the European Food Safety Authority showed 95.5% complied with legal limits. So dietary exposures to pesticides “are unlikely to pose a concern,” the agency said in a report released yesterday (link).
     
  • New York State is making it easier to start renewable energy projects through changes to siting and transmission rules. The changes are included in the state’s new budget. A coalition of clean energy, real estate and other groups says the new siting process will help the state achieve 70% renewable electricity by 2030 as required by the state’s 2019 climate law.
     
  • Democratic convention postponed until a week before GOP's. The DNC has postponed its national convention because of the coronavirus, moving it from mid-July to mid-August. The convention will still be held in Milwaukee, as planned, the week of Aug. 17, one “week before Republicans plan to gather in Charlotte, N.C., to renominate President Trump. The DNC made the announcement on Thursday just hours after the party’s likely nominee, ex-Vice President Joe Biden, called for rescheduling the convention.

Markets. The Dow on Thursday gained 469.93 points, 2.24%, at 21,413.44. The Nasdaq rose 126.73 points, 1.72%, at 7,487.31. The S&P 500 added 56.40 points, 2.28%, at 2,526.90.

 


 

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