How USDA will incorporate Phase 1 accord in upcoming forecasts | Employment report
In today's updates:
* Trump, Xi reaffirm commitment to Phase 1 implementation
Markets: Asian stocks retreated after their biggest daily jump since June and U.S. futures slipped after they reached fresh record highs on Thursday. Big news today is January's jobs report, which will likely show a net increase of 160,000 jobs and for the unemployment rate to stay flat at 3.5%. Wage data will also be closely watched. For longer-term context, keep an eye on revisions to employment in the 12 months through March 2019, when the trade war with China was in full force.
Market offers soft red winter buying opportunity. Claire Hutchins, U.S. Wheat Associates market analyst, writes that “soft red winter (SRW) export prices had been climbing steadily since the end of the 2019 harvest on reduced production, tight ending stocks and stable domestic and overseas demand. Then after Jan. 24, 2020, export basis and FOB prices dipped, offering an opportunity for SRW importers to lock in a lower price through the end of marketing year 2019/20.” Link to full article.
Snow is piling up in Fargo, N.D. But not necessarily because it snowed. Link to WSJ article.
— U.S./China trade policy update:
- Trump, Xi reaffirm commitment to Phase 1 implementation. President Donald Trump and China’s President Xi Jinping “agreed to continue extensive communication and cooperation between both sides,” the White House said in a readout of the leaders’ call. “They also noted the great achievement of the recent U.S./China Phase 1 trade deal and reaffirmed their commitment to its implementation,” the White House said. Trump expressed “confidence in China’s strength and resilience in confronting the challenge of the 2019 novel coronavirus outbreak.”
- USDA as expected releases report on China trade deal impact on U.S. trade forecasts. The Office of the Chief Economist released a report, “Agricultural Provisions of The U.S./China Economic and Trade Agreement and USDA Trade Forecasts,” outlining how the accord will — and will not — affect USDA trade forecasts for the monthly WASDE and other monthly, quarterly and annual reports. The report confirms that the agreement document does not include “commodity-specific commitments” and are “therefore not considered in the published forecasts,” the report also states, “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.” Regarding the forecasts released at USDA’s Outlook Forum near Washington, DC, Feb. 20-21, and the first official 2020-21 forecasts in the May WASDE, the report states, “Both the initial forecasts released in February and the official May WASDE 2020/21 forecasts will incorporate the Agreement into the underlying analysis, along with all other relevant market and policy variables.” The report adds, “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 will be incorporating the available information in their forecasts starting with the Feb. 11 WASDE report. Link to USDA report.
- Mnuchin talks China trade pact, other issues. Treasury Sec. Steven Mnuchin told Fox Business that based on current information, he doesn’t see an issue with China fulfilling its commitments under the Phase 1 trade deal with the U.S., but he did not talk about potential delays in purchases.
* There should be more visibility in about two weeks on the impact of the coronavirus on supply chains and world economy, he added.
* On when Phase 2 of trade talks with China may start, Mnuchin said President Trump wants the right kind of agreement and it’s possible that may not happen until after the U.S. presidential election in November, repeating the timeline previously signaled.
* Mnuchin said infrastructure legislation would be a top goal for the Trump admin. after the election if it is not done earlier in the year.
* When pressed on Trump’s top trade deal goal outside of China, Mnuchin said the president is focused on U.K., EU and India.
* He said China cutting tariffs in some $75 billion of imports from the U.S. was part of initial trade pact.
- China today unexpectedly delayed the release of its January trade data. An explanation posted on the custom administration’s website said that January and February data would in the future be published together, as is already the case for many other official data series. Statistics for the months tend to be skewed by the Lunar New Year holiday, which could fall in either month. “China will need a lot more medical goods than expected this year, which might help offset lower purchases of some other products,” the Wall Street Journal noted. “Given the likely hit to China’s economy in the first half of 2020, growth in overall imports will almost certainly slow sharply, at least for a while.” The epidemic has also led to growth forecasts being cut, with S&P Global Ratings revising its estimation of China's GDP growth for 2020 from 5.7% before the outbreak to 5%. "Coronavirus will have a larger negative effect on the global economy than the SARS outbreak," added IHS Markit, explaining that China accounted for 4.2% of the global economy in 2003 vs. 16.3% of the world's GDP today.
- New York Times says China's coming cuts to tariffs “was the easy part... now it must make big purchases of American products while dealing with the coronavirus outbreak.” Link to article.
— Coronavirus update:
- China reported 73 new deaths from coronavirus and 3,143 new cases on Thursday, a second consecutive daily drop, bringing the total to 31,161 cases in the country, according to data released this morning by China’s National Health Commission (NHC). Hubei province reported 69 new deaths and confirmed new cases of 2,447.
The cumulative number of new cases outside of China keeps rising — this latest increase was the result of the new cases aboard the Diamond Princess cruise ship off Japan, which reported 41 new virus infections on cruise liner. The largest known cluster of infection outside China is providing clues to how easily the virus spreads in confined conditions.
Have we reached "peak coronavirus" in terms of new cases? Is there another wave coming?
- Chinese doctor who was reprimanded after warning in December about the then-unidentified virus died of it. Li Wenliang, a 34-year-old ophthalmologist in Wuhan, warned medical school classmates about evidence of a new virus in an online forum on Dec. 30, and the authorities later forced him to declare that he had spread an unfounded rumor. His death has prompted a rare online revolt in China. Chinese authorities pledged “thorough investigations” into the death, as public anger built across the country over the government’s handling of the epidemic. Link for NYT article.
- This grid from Capital Economics shows China's manufacturing inputs as a percent of global value-add. It signals which advanced economies' supply chains have the most exposure to China.
— Stabenow releases updated report claiming inequities in USDA's MFP. Senate Agriculture ranking member Debbie Stabenow (D-Mich.) isn't giving up on her complains that USDA's Market Facilitation Program (MFP) has inequities, accusing the department of favoring large and Southern farms on a per-acre basis in its ongoing tariff relief program. “As farmers continue to face tough times, the Trump administration has failed to correct the serious inequities within their flawed trade assistance program,” Stabenow said in a statement. USDA disagrees, noting that overall, Midwestern farmers have received the bulk of the money. Stabenow said the “relaxed payment and eligibility limits” under the program have allowed large farm operations to benefit more than small and beginning farmers. A USDA spokesperson told Politico that “farms with less than 100 acres received an average of $55.90 per acre, while farms with more than 2500 acres received an average $47.51 per acre.” But the USDA spokesperson said, “USDA’s Market Facilitation Program payments are made based on trade damage, not based on region or farm size. “While criticism is easy to come up with, we welcome constructive feedback from any member of Congress with recommendations as to how the program could be better administered.” Link to report.
— Efforts by traditional ag companies to stave off e-commerce incursions may be getting nasty, the Wall Street Journal reports (link). Canada is investigating some of the farming sector’s biggest suppliers over allegations the companies sought to block a tech startup that aims to shift North American agriculture purchasing online. The WSJ writes that the complaint targets heavyweights Bayer AG, Corteva Inc. and BASF, as well as farm-supply wholesalers like Cargill Inc. California-based startup Farmers Business Network Inc.'s (FBN) complaint claims the companies stopped supplying the startup’s newly acquired Canadian business. “Some supplier executives allegedly urged farmers not to do business with FBN. Several of the companies deny the allegations,” the article notes. The dispute comes as established agricultural operators and tech-sector entrants are vying to steer a technology revolution reshaping the farm sector. “It shows how strains are developing as e-commerce startups push into business-to-business markets, disrupting longstanding procurement and distribution structures,” the article concludes.
— Other items of note:
- Iowa’s troubled caucuses show Pete Buttigieg and Bernie Sanders in a dead heat. Bernie Sanders is disputing the tight result while a national committee chairman is demanding a recount — the Iowa Democratic Party said it would conduct an audit if one of the candidates requested it. Pete Buttigieg and Sen. Bernie Sanders have 26.2% and 26.1% in state delegate equivalents. Sen. Elizabeth Warren and Joe Biden remained third and fourth. Democratic National Committee Chairman Tom Perez called for a recanvass of results of the party’s Iowa caucuses while the Associated Press said it was unable to declare a winner.
- The Democratic Party's seven strongest presidential contenders are preparing for what could be a feisty debate tonight as candidates look to survive the gauntlet of contests that lie ahead. Sen. Bernie Sanders, ex-Mayor Pete Buttigieg, former Vice President Joe Biden, Sens. Elizabeth Warren and Amy Klobuchar, and billionaire activist Tom Steyer and New York entrepreneur Andrew Yang take the stage at 8 p.m. ET tonight at St. Anselm College in New Hampshire.
- Trump took a victory lap, lashed out at political foes. President Trump said he “went through hell” during what he deemed a politically driven investigation and called top Democrats “very evil and sick people” for seeking his removal from office.
- As expected, U.S. to seek trade pact with Kenya. The Trump administration said it would launch negotiations toward a possible trade agreement with Kenya in what would be the first such deal with a sub-Saharan African nation. Kenya is the United States’ 98th-largest trading partner in goods, with $1 billion in two-way trade in 2018, according to the Office of the United States Trade Representative. Kenya’s biggest American imports include aircraft, machinery and agricultural goods; the United States buys Kenyan apparel, tree nuts and coffee. U.S. wheat interests see Kenya as a potential $470 million market.
- USTR Lighthizer and USDA Sec. Perdue discuss ag trade topics on coming USDA podcast. Link to listen when available.
- If Trump wins 2nd term and Perdue departs, who could be new USDA chief? Initial conjecture is Rep. Ralph Abraham (R-La.) or retiring Rep. Mike Conaway (R-Texas).
- Commerce maintains Argentine biodiesel anti-dumping duties. The Commerce Department responded to a U.S. Court of International Trade ruling requiring it to further explain how it determined anti-dumping duties on biodiesel on Argentina, saing it made “certain changes” to its calculations, but the anti-dumping duty rates would remain the same for the two Argentine producers and exporters involved in the case. Meanwhile, Commerce said it is still conducting a “changed circumstance review” requested by the government of Argentina that could lead to lower countervailing duties on the biodiesel imports. The U.S. imported about $1.2 billion worth of biodiesel from Argentina in 2016, before duties were imposed in a case brought by the National Biodiesel Board and 15 domestic producers.
- White House mulls additional Russia oil sanctions. Additional sanctions on Russia’s Rosneft are being mulled by the Trump administration as it seeks to further strangle the government of Venezuela’s Nicolas Maduro. “We are letting the Russians and we are letting the company know that their support of the Maduro regime is not a good business decision, but it is also immoral,” White House national security adviser Robert O'Brien said Wednesday. Current estimates are that Venezuela moves some 80% of its oil production via Rosneft which is able to likely shift some of the proceeds back to Venezuela. Reports indicate Venezuela’s state-owned PDVSA has offered crude to Rosneft as payments for loans from Russia to Venezuela. The arrangement is also said to result in shipments of tankers with gasoline to Venezuela.
- New U.K. ambassador to America. The Financial Times reported that Karen Pierce, Britain’s permanent representative to the UN, is to become the country’s first female ambassador to America. The position has been vacant since the resignation of Sir Kim Darroch last year after confidential diplomatic cables criticizing President Donald Trump were published.
— Markets. All three major indices rolled to record finishes Thursday. The Dow rose 88.92 points, 0.30%, at 29,379.77. The Nasdaq gained 63.47 points, 0.67%, at 9,572.15. The S&P 500 was up 11.09 points, 0.33%, at 3,345.78.
OPEC+ panel agrees to more-sizable output cuts. The OPEC+ Joint Technical Committee (JCT) is recommending that the cartel and associated oil producers cut production another 600,000 barrels per day (bpd) in a response to the oil price downturn resulting from demand worries over the Wuhan coronavirus. The 600,000 bpd is about 0.6% of global supply and would extend current curbs of 1.7 million bpd. Reports indicate that if the 600,000 bpd cut is approved, it would be effective immediately and be in place through June. Indications are that the OPEC+ meeting scheduled for early March will not be moved ahead into February unless there is agreement on an output reduction. Others note that the actions taken by governments around the world and China in particular to contain the coronavirus and expected stimulus measures to counter the impacts have the potential to thwart the need for OPEC+ countries to lower their output further than current target. And simply extending those current targets may be another option the cartel and other countries could agree to.
Employment report comes this morning. On the U.S. economic schedule, nonfarm payrolls in January is likely to have increased by 160,000 jobs, after increasing by 145,000 jobs in the previous month. The unemployment rate is likely to have remained unchanged at 3.5% in January from the month before. Average hourly earnings likely rose 0.3% in January, following a 0.1% increase in December — real hourly earnings are now below their growth path from 1994. Economists expect today's employment report to show improvement in wage growth for January. Today's report will include historical revisions for all of 2019.
Treasury Secretary Steven Mnuchin said U.S. officials have reduced their expectations for economic growth in 2020 because of disruptions caused by the grounding of Boeing’s 737 MAX. In an interview with Fox Business, Mnuchin said gross domestic product growth may be lower than 3% this year. “Boeing has had a big impact on our exports, being our largest exporter,” Mnuchin said. “I think that could be 50 basis points if not more.” Boeing halted production of its troubled 737 MAX jet last month after it was grounded by regulators following two fatal crashes. As for the impact of the coronavirus, Mnuchin said officials are closely monitoring the situation but hadn’t yet seen major effects on supply chains. “There’s no question that the virus will have some impact on global growth and some impact on the U.S.”
Risk of recession returns to Germany. The manufacturing slump continues in Germany as industrial production fell by 3.5% M/M in December, a day after factory orders were shown to have declined at the fastest pace in more than a decade. That signals Europe's largest economy may have contracted at the end of 2019.