Some misreading what USDA said re: Phase 1 agreement w/China and Feb. 11 WASDE
In today's updates:
* Trump FY 2021 budget proposes big cuts in mandatory ag programs
Markets: Global markets are treading cautiously after 97 people died from the coronavirus in China on Sunday. Japan's Nikkei and Hong Kong's Hang Seng Index both fell 0.6%, while the Shanghai Composite Index rose 0.5% after some companies received government approval to resume some production at select locations. Meanwhile, European stocks are slightly lower. U.S. stock futures are flat heading into the new week.
Emergency meeting of OPEC+ ministers may not occur. A session was going to respond to the ongoing virus-spurred drop in demand from China. But Russia has been resisting Saudi Arabian efforts to reduce production and seems to have rejected a proposal from OPEC technocrats to cut output by 600,000 barrels a day.
— Trump budget proposes savings in agriculture mandatory programs (in millions of dollars):
Item 2021-2025 2021-2030
Tighten farm payment eligibility rules -1,255 -2,654
Reduce Crop Insurance subsidies -9,999 -24,985
Eliminate redundant Farm Bill programs -3,151 -6,417
Streamline conservation programs -3,300 -9,145
Eliminate in-kind international food aid -830 -1,660
Establish new user fees for food inspection
and mineral extraction -2,685 -5,985
Reform commodity purchases under Section 32 -2,289 -5,141
Improve Child Nutrition program integrity -679 -1,714
TOTAL, AGRICULTURE -24,188 -57,701
— Coronavirus update:
- Global death toll from the coronavirus outbreak reached at least 910, almost all in mainland China, according to a statement from National Health Commission. Some 871 of those deaths have occurred in Hubei province, the province at the epicenter of the outbreak and posted the most fatalities for one day. That has surpassed the 774 fatalities from the 2002-2003 outbreak of severe acute respiratory syndrome, or SARS, over eight months, according to the World Health Organization. The number of confirmed coronavirus cases in mainland China rose by 3,062, bringing the total count to 40,171 — total number of cases across the world is 40,561. In the first 17,000 or so cases, about 82% are mild, 15% severe and 3% critical, the WHO said Friday. Of 138 patients admitted to Zhongnan Hospital of Wuhan University in the first four weeks of January, 26% were placed in intensive care and 4.3% died, a study in the Journal of the American Medical Association published Friday found.
- China has spent 31.6 billion yuan ($4.5 billion) to control the outbreak of the new coronavirus, Finance Minister Liu Kun said. About 71.9 billion yuan of fiscal funds have been allocated to the epidemic, including ensuring medical care and outbreak control measures are in place, Liu said on Sunday. Premier Li Keqiang said drugs and vaccines are needed to fight the illness, according to China’s CCTV.
- China will spend at least $10 billion to control the outbreak as it reaches out for medical supplies from other nations. The central bank today will provide the first re-lending funds to combat the illness and offer the facility weekly to banks this month.
- Chinese factories want to reopen as virus death toll climbs. Despite widespread closures intended to contain the coronavirus, many businesses are scheduled to resume operations Monday, though it's unclear how many can.
- Capital Economics estimates the coronavirus will cost the world economy $280 billion in Q1 and send global GDP in reverse (quarter over quarter) for the first time since 2009. But the longer-term view from analysts isn't so bearish. "We assume the virus will be contained soon, and that lost output is made up in subsequent quarters so that world GDP reaches the level it would have done had there been no outbreak by the middle of 2021," notes Capital Economics.
- China’s consumer inflation rose to its highest level in more than eight years in January. China’s consumer-price index climbed 5.4% from a year earlier, the National Bureau of Statistics said today. The rise was driven by the Lunar New Year, which normally boosts demand for consumer goods, and by the coronavirus, said Dong Lijuan, an analyst with the statistics bureau. In Hubei province, which has been hit hardest by the illness, local residents have been feeling more sticker shock than even official data suggest and panic buying began in Wuhan, the epicenter of the outbreak.
- North Korea deepens isolation amid virus threat. Kim Jong Un's regime has blocked foreign tourists, cut trade with China — its main economic benefactor and ally — and limited diplomatic travel.
- WHO will hold a global forum Tuesday and Wednesday in Geneva to accelerate research into the coronavirus outbreak, WHO Director-General Tedros Adhanom Ghebreyesus said in a tweet. China’s ambassador to the U.S., Cui Tiankai, endorsed WHO’s involvement on CBS’s Face the Nation. “We are coordinating with the World Health Organization because a lot of things are done under the auspices of the World Health Organization,” he said. “All of us respect the WHO as the most professional intergovernmental body in the world.” Cui also said he expects medical experts from the U.S. Centers for Disease Control and Prevention to be part of the global health team of the World Health Organization traveling to China this week. “We welcome the American experts to participate in our efforts,” Cui said, dismissing suggestions the Beijing government was refusing U.S. offers of assistance.
- Cui Tiankai dismissed suggestions the coronavirus originated from a military laboratory or was part of biological warfare research and warned against such speculation.
- Study: Wuhan cases may be close to peak. Trends in reported cases in Wuhan so far broadly support the mathematical modeling the London School of Hygiene & Tropical Medicine is using to predict the epidemic’s transmission dynamics. “Assuming current trends continue, we’re still projecting a mid-to-late-February peak” in Wuhan, said Adam Kucharski, an associate professor of infectious disease epidemiology, in an email Sunday to Bloomberg News. “There’s a lot of uncertainty, so I’m cautious about picking out a single value for the peak, but it’s possible based on current data we might see a peak prevalence over 5%.” A prevalence of 5% equates to about 500,000 cumulative infections. That’s many times more than the 14,982 cases provincial health authorities had counted in Wuhan as of 8 p.m. Saturday. The number of cases reported in Wuhan and across Hubei province has been tracking downward over the past several days.
- The CDC will update on the coronavirus outbreak Tuesday at the National Press Club.
- The Trump administration issued an interim final rule that will require airlines to collect phone numbers from passengers and crew of any flight arriving in the U.S. from abroad and provide the information to the Centers for Disease Control and Prevention, to help track people who may have been exposed to coronavirus.
- Apple may postpone the launch of a cheaper iPhone due to the coronavirus, according to reports in China.
— U.S./China trade policy update:
- U.S./China trade war reshaped global commerce. The two-year trade war between the U.S. and China upended commerce world-wide, slamming the brakes on global trade growth — but also delivering modest benefits to a handful of industries and countries that saw gains as the giants tussled, the Wall Street Journal found (link). Growth in global trade sank to a meager 1% last year, down from 4% in 2018 and 6% in 2017. It was the fourth worst showing in 40 years, and the worst ever outside a period of recession, according to International Monetary Fund data.
- Some traders, analysts continue to misread what USDA's report said about Phase 1 agreement with China. Some traders and analysts are not reading far enough into the report (link) delivered by the Office of the Chief Economist last week on how the Phase 1 agreement will impact USDA forecasts ahead. Most are stopping at the phrase that “commodity-specific commitments are not publicly available and are therefore not considered in the published forecasts.” What those analysts touting that appear to have done is not keep reading. The report made clear that USDA will incorporate the Phase 1 agreement in several of their forecasts ahead. “Beginning in February 2020, USDA trade projections for 2019-20 (and fiscal year 2020) will fully consider all publicly available information on the Agreement, as well as any new market or policy developments that would affect those forecasts.”
The forecasts to be released at the Outlook Forum and the first official 2020-21 forecasts in the May WASDE “will incorporate the Agreement into the underlying analysis, along with all other relevant market and policy variables.” Plus, the USDA update made clear that, “As more information and data become available regarding the timing, volume and content of China’s commodity purchases, USDA commodity forecasts will be updated to reflect that new information.”
USDA, however, could have made things clearer for traders and analysts by better wording of their statement that since the commodity-specific commitments are not public, they will not be considered in forecasts. One long-time USDA watcher noted that appears to be a signal that USDA analysts are not going to be given any more information than the public has on those commodity purchase commitments by China. Plus, the timing of how China typically purchases U.S. commodities will mean that for things like soybeans, those buys will come later in the process rather than sooner. Plus, the purchase commitments are a two-year average with the additional purchases above the 2017 baseline more weighted toward the second year (2021) of the agreement.
Bottom line: USDA will be reflecting the Phase 1 agreement in their outlooks on several fronts, including WASDE, Outlook Forum forecasts and the Outlook for U.S. Agricultural Trade coming later this month.
— EPA chief comments on impact of recent federal court decision re: blending exemptions. EPA Administrator Andrew Wheeler on Saturday said the recent federal court decision to vacate three biofuel blending exemptions under the Renewable Fuel Standard (RFS) “has the potential of completely changing the small refinery program.” The court struck down waivers for three refineries in Oklahoma, Utah and Wyoming, ruling that the EPA could only extend exemptions for plants that had continuously received waivers from their RFS obligations. The agency is now “taking a close look at the 10th Circuit decision and the ramifications to the program,” Wheeler told AgWired in an interview (link). “We’ll have something on that shortly.”
— Wheeler predicts new WOTUS rule will stand. EPA chief Andrew Wheeler said a legal battle over the administration’s new Waters of the U.S. (WOTUS) rule will likely go all the way to the Supreme Court, but he is confident the justices will uphold the new limits on the jurisdiction of the Clean Water Act. He cautioned, however, that there could be some lower court decisions against the new rule, named the Navigable Waters Protection Rule.
Of note, Wheeler said he is resuming an agricultural advisory committee to garner farmers’ advice on key issues.
— FSA hosting CRP webinar. On Thursday, Feb. 13 at 3 p.m. EST, the Farm Service Agency's Outreach Office will host a webinar to discuss the Conservation Reserve Program (CRP). Participants will hear directly from the CRP national program manager and others. Webinar registration can be done at this link.
Background: In December 2019, USDA opened general signup for the CRP, and the deadline for producers to sign up is February 28, 2020, while signup for continuous CRP is ongoing. Farmers and ranchers who enroll in CRP receive a yearly rental payment for voluntarily establishing long-term, resource-conserving plant species, such as approved grasses or trees (known as "covers") to control soil erosion, improve water quality and develop wildlife habitat on marginally productive agricultural lands. The competitive general signup now will include increased opportunities for enrollment of wildlife habitat through the State Acres for Wildlife Enhancement (SAFE) initiative.
CRP has 22 million acres enrolled, but the 2018 farm law lifted the cap in phases to 27 million acres. This means farmers and ranchers have an opportunity to enroll in CRP for the first time or continue their participation for another term. Land enrolled in CRP under a 15-year contract that expired in September 2017, 2018 or 2019, may be eligible for enrollment if there was no opportunity for re-enrollment and the practice under the expired contract has been maintained.
More information about the new signup, program options and rental rates can be found at this link.
— Other items of note:
- Pete Buttigieg narrowly edged out Bernie Sanders for delegates from last week's Iowa caucuses, according to an announcement late Sunday by the state Democratic Party. Updated results from the party show Buttigieg with 26.2% of state delegate equivalents, compared to 26.1% for Sanders. Elizabeth Warren (18%) was third, and Joe Biden (15.8%) was fourth. Buttigieg is projected to win 14 delegates to the national convention this summer in Milwaukee, while Sanders will get 12 delegates. Warren will receive eight delegates, Joe Biden will get six, and Amy Klobuchar will receive a single delegate. The announcement came after a review by the party of precincts with apparent mistakes in their results. Of the 95 instances flagged by campaigns, the state party said, 55 had small changes, 36 precincts matched what was reported by precinct leaders on caucus night and four were duplicates. The Iowa Democratic Party released revised results for 55 caucus precincts. That accounts for 3% of the total 1,765 precincts. Iowa Democratic caucus results are not actual votes cast. The percentages received by candidates, based on returns of the estimated number of state convention delegates won by each candidate through the caucus process, are known as state delegate equivalents, or SDEs. Iowa sends 41 pledged delegates to the Democratic National Convention. The allocation of those delegates is based proportionally on the SDE results.
- Sen. Bernie Sanders’ campaign plans to ask for a “partial recanvass” of the results of last week’s Iowa caucuses. A campaign aide confirmed the plans Sunday night, ahead of a Monday deadline for candidates to ask the Iowa Democratic Party to recanvass the results. A recanvass is not a recount, but a check of the vote count to ensure the results were added correctly.
- New Hampshire primary poll. A poll from CNN and the University of New Hampshire Survey Center released Sunday found that 28% of likely primary voters favor Sanders, while 21% plan to vote for Buttigieg and 12% plan to vote for Biden. Nine percent said they would back Sen. Elizabeth Warren of Massachusetts, 6% said they plan to vote for Sen. Amy Klobuchar of Minnesota, 5% were for Rep. Tulsi Gabbard of Hawaii, 4% backed entrepreneur Andrew Yang and 2% were for billionaire Tom Steyer. The other candidates came in at 1% or less. A CBS News/YouGov poll released Sunday found the race even tighter, with Sanders the choice of 29% of likely voters in New Hampshire's Democratic primary and Buttigieg favored by 25%. That poll found Warren (19%) in third ahead of Biden (12%) and Klobuchar (10%). The polls were conducted from Feb. 5-8. The CBS News poll had a margin of error of plus or minus 4.3 percentage points, while the CNN poll's margin of error was plus or minus 5 percentage points.
- USTR to reallocate unused raw sugar TRQs. Following a series of devastating natural disasters affecting both sugar cane and beet growing regions of the U.S., the U.S. will reallocate unused raw sugar tariff rate quotas from countries that have not shipped their complete allocations to other countries that may be able to deliver. The U.S. Trade Representative is expected to add about 70,000 tons of sugar imports.
- House Democrats won't resurrect earmarks this year, in part due to Senate GOP reluctance to go along. Lawmakers won't get to insert special projects for their districts into spending bills this year after all, following weeks of internal discussions and some momentum among House Democrats. This topic is expected to garner more attention in the new Congress following November elections.
- According to Reuters, Exor, the investment vehicle of Italy’s Agnelli family, is in talks to sell PartnerRe, a reinsurer, to Covea, a French insurer, for around $9 billion. Exor’s portfolio includes Fiat and Ferrari (and the largest single shareholding in The Economist’s parent company). Exor bought PartnerRe in a hostile takeover in 2016 for $6.9 billion.
— Markets. The Dow on Friday closed 277.26 points lower, or nearly 1%, to 29,102.51. The S&P 500 dipped 0.5% to 3,327.71. The Nasdaq Composite also slid 0.5% to close at 9,520.51. Those losses snapped a four-day winning streak for the major average.
For the week, the Dow gained 3%, the S&P rose 3.2% (its best weekly performance since early June), and the Nasdaq advanced 4.0%.
Dollar's surprising surge challenges stock rally. The combination of weak global growth and a strong U.S. currency raises the possibility that earnings this year could be disappointing again.
Two Fed officials have public speaking engagements today, with Fed Governor Michelle Bowman making a morning appearance in Florida and Philadelphia Fed President Patrick Harker speaking this afternoon in Delaware.
Nonfarm payrolls surged 225,000 in January, well above estimates for a 158,000 gain, and boosting the three-month hiring average to 211,000 as mild winter weather fueled payroll growth in industries such as construction and transportation. Wages grew 3.1% from the year-ago period, while the unemployment rate inched up to 3.6% from 3.5% in December, which the Labor Department attributed to more Americans seeking work. The workforce participation rate rose 0.2 percentage point to 63.4%, matching its highest level since June 2013.
Baltic Dry Index (BDI), a global shipping-market indicator, slumped from an average of 1284.2 in December 2019 to 430 on Feb. 5, 2020, its lowest reading since April 1, 2016. Some analysts predict it could fall further. During the previous export downturn, the trough of China’s export growth was -13% year over year in Q1 2016, which corresponded to the trough of the BDI at 361.9 over the same period.