Even USDA officials admit more ag aid needed
In Today’s Updates
* Trying to make complex CFAP easier to understand
* Sports fans flock to stock markets
* Yields on U.S. gov't bonds have stalled near all-time lows
* Treasury today bringing back the 20-year bond,
* Labor Dept. ending economic-data lockups
* CBO: U.S. economy’s recovery will drag on through the end of next year
* American birthrate falls to record low
* Even USDA officials admit more aid is needed and likely coming from Congress
* USDA's communication for the CFAP rollout gets an F grade
* OIG report finds USDA's MFP within authority and powers under CCC Charter Act
* Bloomberg: EPA provides slight boost in biofuel, biodiesel levels in RFS proposal
* China to sell another 10,000 tonnes pork
* WSJ: China significantly ramped upimports of U.S. farm goods over past two months
* Update on reopening America... and around the world
* Coronavirus update
* Global carbon-dioxide emissions in April fell by 17%
* Biden talks rural issues today with Rep. Kind
* Two dams in Michigan were breached after days of heavy rainfall
* Trump signs order easing regulatory enforcement
* GOP sends invitations for in-person convention.
Equities today: Global stocks are mostly flat. In Europe, Germany's DAX rose 0.2%, Britain's FTSE 100 rose 0.1%, and the Euro Stoxx 50 was flat. In Asia, China's Shanghai Composite fell 0.5%, Hong Kong's Hang Seng was flat, and Japan's Nikkei rose 0.8% at the close. In the U.S., futures rose slightly.
U.S. equities yesterday: The Dow dropped 390.51 points, 1.59%, at 24,206.86, at or near session lows. The Nasdaq fell 49.72 points, 0.54%, at 9,185.10. The S&P 500 was down 30.97 points, 1.05%, at 2,922.94.
Thousands of sports fans who can't gamble on their favorite teams are reportedly flocking to the stock market instead. Charles Schwab, ETrade and Interactive Brokers together added roughly 780,000 new customers in March or April.
Crude oil futures are posting additional gains ahead of U.S. gov't inventory data due later this morning. U.S. crude is up more than 2%, trading around $32.60 per barrel while Brent crude has gained around 2.2% to trade around $35.40 per barrel.
Yields on U.S. gov't bonds have stalled near all-time lows, a sign investors are anticipating a painful economic recovery and years of aggressive monetary stimulus.
Last issued in 1986, the Treasury is bringing back the 20-year bond, which will debut in a $20 billion auction later this afternoon. "That gives us the ability to extend the duration to raise a significant amount of funds... and lock in a significant amount of very low interest rates," Treasury Secretary Steven Mnuchin said during congressional testimony on Tuesday. The government's borrowing needs have jumped dramatically in recent weeks due to pandemic spending, and the national debt now stands at more than $25 trillion, up 15% since a year ago. While there was thought to issue 50-year and 100-year bonds, Mnuchin determined there wasn't enough demand for those types of securities.
Labor Department ending economic-data lockups. The U.S. Labor Department said yesterday that it will permanently end the practice of giving news media early looks at market-moving economic data, after suspending the pre-briefings during the coronavirus pandemic. “Continuing security, resource, and equity concerns” outweigh “any benefits of the press lockup process,” Bureau of Labor Statistics Commissioner William Beach said in a letter to news organizations (link). With so-called lockups suspended since March because of the pandemic, “the media demonstrated their ability to produce informed and accurate articles within minutes of the electronic release to the BLS website despite not having early access to the data at all,” Beach wrote.
The Congressional Budget Office said the U.S. economy’s recovery will drag on through the end of next year, as investment collapses and the labor market experiences its sharpest deterioration since the 1930s. Gross domestic product will likely be 5.6% smaller in the fourth quarter of 2020 than a year earlier despite an expected pickup in economic activity in the coming months. The unemployment rate will spike to around 16% next quarter, it said, and remain in double digits through early 2021. GDP will drop sharply this quarter — 38% at an annual rate — before snapping back later in the year. Although quarter-to-quarter growth may look strong during the recovery, the overall size of the economy won’t return to its pre-pandemic level until the third quarter of 2022, the CBO estimates.
American birthrate falls to record low. About 3.75 million babies were born in the U.S. in 2019, the smallest total in 35 years. The figures are the latest sign of how American childbearing, which began declining during the 2007-09 recession, never fully rebounded when the economy bounced back. Link to WSJ article.
— CFAP: Even USDA officials admit more aid is needed and likely coming from Congress. Reuters and some industry analysts apparently do not understand the two-pronged payment approach to the Coronavirus Food Assistance Program (CFAP), as the are only using one of the payment rates. Using different sources to make “one” payment makes it complicated and that is the case with initial reporting by some on the aid package. In brief: Income losses will be partially compensated under the CARES Act ($9.5 billion). Commodity Credit Corporation (CCC) authority will be used to partially compensate producers ($6.5 billion) for the purchase of materials and facilities required in connection with production and marketing of ag commodities and the disposal of surplus commodities. But they will come as one payment.
Meanwhile, USDA officials and farm-state lawmakers agree on one thing: more ag aid will be needed. USDA is shy to talk about more aid as future assistance will in part be based on 2020 production and that's a no-no topic while planting is still underway.
Watch this (link) for an explanation of payment calculations.
Link to frequently asked questions and answers about CFAP.
Bottom line on USDA's CFAP: USDA took just over a month to lay another egg of a program. Farm/aid policy, never an easy topic, was made increasingly complex by the use of two pools of money to make the payments — CARES Act and the Commodity Credit Corporation/CCC. If it was one batch of money, that would be one thing. But using different sources to make “one” payment makes it complicated. And of course USDA has to track each pot of money to make sure they do not spend more that is available. Meanwhile, there is a lot of farmer frustration about it being based on 2019 levels given how poor that crop was, and a lot of anger about those who sold out before Jan. 15 getting nothing. (Prices were higher if farmers sold before Jan. 15, but some say the USDA plan rewards poor marketing decisions. Others note if they sold before Jan. 15, they had nothing to experience a price decline on.)
Also, USDA's communication for the CFAP rollout gets an F. You have to go to several places to get a government version of English on explaining the program, per the two links above.
— OIG report finds USDA trade aid programs were within authority and powers under the Commodity Credit Corporation... CCC... Charter Act, and USDA deployed CCC controls to make sure they did not exceed borrowing authority. The topic concerns USDA's Market Facilitation Program (MFP). Estimates of trade damage were supported "by a reasonable methodology and were applied consistently across commodities,” the report said. OIG made no recommendations in the report relative to any changes for the efforts. Link to report.
Concerns raised by Sen. Debbie Stabenow (D-Mich.) and others were addressed by the OIG report. Stabenow and her staff, some say, favor Midwest crops over southern ag products.
For the 2018 MFP, OIG noted that the agency pegged trade damages to be over $10.8 billion. “The Department apportioned $12 billion in funding for that year,” OIG noted. “USDA officials stated that the $12 billion apportionment was higher than the $10.8 billion estimated due to uncertainty in rolling out the trade mitigation package in its first year.”
Under the 2019 program, USDA analysis placed damages at over $18.2 billion and apportioned $16 billion in funding for that effort. “USDA officials stated that the $16 billion apportionment was lower than the $18.2 billion estimated due to lessons learned from the 2018 trade mitigation package, which enabled USDA to be more precise,” OIG said.
USDA comments. The Office of the Chief Economist (OCE) told OIG they designed the effort to be WTO compliant. “According to OCE officials, USDA sought to be consistent with World Trade Organization principles used when resolving trade disputes,” OIG said.
— Bloomberg: EPA provides slight boost in biofuel, biodiesel levels in RFS proposal. A slight increase in overall biofuel levels for 2021 and an increase in the 2022 biodiesel levels are contained in the EPA proposed rule that is currently being analyzed by the Office of Management and Budget (OMB), according to Bloomberg.
The news service reports the level of advanced biofuels would rise to 5.17 billion gallons for 2021 vs 5.09 billion gallons for 2020, with 670 million gallons for cellulosic biofuels, up from 590 million gallons for 2020. For 2022 biodiesel, the plan would increase the level to 2.76 billion gallons, up from 2.43 billion gallons in 2021.
The report indicated conventional ethanol would be at 15 billion gallons and said that the plan did not address the issue of small refinery exemptions (SREs). The latter seems somewhat puzzling since EPA said in their finalized 2020 biofuel and 2021 biodiesel levels that they would increase the renewable volume obligation (RVO) percentages to account for an average of SREs recommended by the Department of Energy over a 2016-2018. Presumably, that indicates the adjustment to the RVOs is not a part of the plan currently under review at OMB.
Meanwhile, EPA Administrator Andrew Wheeler will appear before a Senate panel today.
— Update on China:
- China to sell another 10,000 tonnes pork. China will auction another 10,000 tonnes of pork from state-owned reserves May 22, according to the China Merchandise Reserve Management Center. The country has now sold 320,000 tonnes of pork from reserves so far this year as it seeks to assure pork supplies in the wake of a fall in output due to African swine fever.
- China has significantly ramped up its imports of U.S. farm goods over the past two months. Purchases of U.S. corn and pork were about eight times higher than during the same period in 2017 (before Trump began the tit-for-tat trade war with China). Cotton sales were three times higher and soybean imports were up by a third, per USDA data. Link to Wall Street Journal article.
— Update on likely next aid package — Phase 4/CARES 2:
- Treasury Secretary Steven Mnuchin spoke in favor of a wait-and-see approach to more federal aid, while Federal Reserve Chairman Jerome Powell suggested more will be needed. The two officials commented on future aid needs during a Senate hearing on Tuesday.
Powell, for the third time in a week, suggested additional spending by Washington could be needed to prevent long-term damage from high unemployment and waves of bankruptcies. Struggling state and local government budgets could delay the recovery, he added, citing evidence from past recessions. Ultimately, better times require “a combination of getting the virus under control, development of therapeutics, development of a vaccine,” Powell said. It’s up to policymakers to bridge the gap until then.
Mnuchin called for a rapid reopening. “There is the risk of permanent damage” if states delay, the Treasury secretary said. Activity should pick up in the second half of the year as restrictions are lifted, he added.
— Update on implementation of CARES 1
- Treasury Secretary Steven Mnuchin said he plans to use all of the $500 billion-plus that Congress provided to help the economy through direct lending from his agency and by backstopping Federal Reserve lending programs. Mnuchin said he has pledged to use $195 billion of those funds so far and will use the rest after determining how best to deploy the money to help losses associated with the coronavirus pandemic. “I expect to allocate all the capital as needed as was given to us,” Mnuchin said yesterday during a Senate Banking Committee hearing held online. “We are fully prepared to take losses in certain scenarios on that capital.”
- At least 30 public companies say they won't return PPP loans. The decision to keep around $110 million received under the Paycheck Protection Program (PPP) could lead to an audit of their applications, after the Treasury Department ruled that businesses with access to other sources of capital weren’t eligible for the forgivable loans.
- Warren wants criminal liability for aid violations. Sen. Elizabeth Warren (D-Mass.) is calling on the Federal Reserve to hold corporate executives personally liable if they take aid money intended to bolster credit markets and fail to meet all the certification requirements. Executives should be subject “to civil and criminal penalties, including disgorgement, if they provide fraudulent or misleading information or misuse funds, and should be required to immediately repurchase their bonds for the full amount when eligibility criteria are breached,” Warren said in a letter to central bank officials.
Warren is also asking that corporate executives regularly re-certify that they meet the requirements for two of the Fed’s bond-buying emergency lending programs -- the Primary Market Corporate Credit Facility and Secondary Market Corporate Credit Facility.
— Update on reopening America... and around the world:
- As of today, every state will be somewhere along the road toward a full reopening of the economy. Connecticut will allow residents to dine at a restaurant outdoors or go into a retail shop, becoming the final one to lift shelter-in-place orders and business closures. Also being allowed to reopen are offices, museums, zoos and outdoor recreation - all with social distancing requirements and capacity limits.
- Some of the biggest U.S. retailers are ending the extra pay they gave to front-line workers as coronavirus-related costs pile up and the ranks of jobless Americans surge, tipping the labor market in employers’ favor. Amazon.com, Kroger and Rite Aid are among the major companies that have ended or plan to stop paying higher wages for tens of thousands of workers.
- The University of Cambridge is scrapping face-to-face lectures entirely for the coming academic year, as it seeks to enforce social distancing. Instead they will continue to be offered online. Smaller classes may be allowed face-to-face if social distancing can be maintained. Students in other universities around the world have demanded they be reimbursed some of their fees, given the lack of access to campus.
- Singapore will begin the first phase of reopening schools and key businesses from June 2.
- South Korea reopens some schools after months of closure, with a full reopening scheduled for June 8.
— Coronavirus update:
- Summary: Global cases of Covid-19 stand at 4,915,004 with the death count now at 323,653, according to data from the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU). In the U.S., the data show 1,528,661 COVID-19 cases, with deaths at 91,938.
Tests conducted in the U.S.: 12,233,987.
Brazil has the world’s third-largest number of confirmed infections: more than 270,000.
China re-imposed lockdown conditions in some northeastern cities after a fresh outbreak.
- Member-states of the World Health Organization unanimously agreed to set up an independent inquiry into the Covid-19 pandemic. The “impartial, independent and comprehensive evaluation” will look at the WHO’s own role in the crisis. America, in particular, has been critical of the inter-governmental organization. Its boss, Tedros Adhanom Ghebreyesus, said the inquiry would start “at the earliest opportunity.”
- Republicans demand testimony of WHO director. Republicans on the House coronavirus oversight subcommittee yesterday called on the panel’s Democrats to pursue the testimony of WHO Director-General Tedros Adhanom Ghebreyesus and Chinese Ambassador to the U.S. Cui Tiankai. In a letter to Chairman Jim Clyburn (D-S.C.), the Republicans wrote the new panel should investigate “China’s obfuscation of the origin of Covid-19” and “manipulation of the WHO to cover up the severity of the outbreak.” Republican Whip Steve Scalise (La.) and Rep. Jim Jordan (R-Ohio), both members of the panel, are also pushing to probe claims that Beijing is stealing U.S. research and disrupting the medical supply chain.
- Spikes in new virus cases in Iran and France. French authorities shut some schools just a week after many students returned because of a spike in new cases. France’s education minister said that some new cases were “inevitable” and added, “The consequences of not going back to school are much more serious.” In Iran, weeks after leaders began easing coronavirus restrictions to help the economy, cases are spiking in eight provinces. Health experts attributed the resurgence to the country’s reopening before cases were consistently falling and before Iran had established widespread testing and contact tracing.
- Trump weighing travel ban on Brazil. President Trump said he’s considering a ban on Brazilians traveling to the U.S. as the Latin American country takes over third place globally in number of Covid-19 cases. “Brazil is having some trouble, no question about it,” Trump said yesterday. “I don’t want people coming in here and infecting our people.” Brazil in the past few days has overtaken Spain and Italy in confirmed infections.
- Mexico-U.S. border closure extended. Non-essential travel restrictions will be extended another month along the U.S.-Mexico border in an effort to contain coronavirus outbreaks, the Department of Homeland Security acting Secretary Chad Wolf said in a statement. Federal Register notices unveiled yesterday show restrictions for both Canada and Mexico will run through June 22. “Non-essential travel will not be permitted until this administration is convinced that doing so is safe and secure,” Wolf said.
- The coronavirus pandemic could cost the global economy $82 trillion over 5 years, a Cambridge study warns. The cost projections are based on 2019 gross domestic product volumes which stood at $69.2 trillion for the world's 19 leading economies.
OTHER ITEMS OF NOTE
- Global carbon-dioxide emissions in April fell by 17% compared with 12 months earlier, according to a study published in Nature Climate Change. Emptier roads accounted for much of the reduction. At the height of their lockdowns, many countries’ emissions fell by 26% or more. The researchers predict most of the deficit will have evaporated by year-end, once economies reopen.
- Biden talks rural issues today with Rep. Kind. Former Vice President and presumptive Democratic presidential candidate Joe Biden will talk about rural policy issues this morning during a virtual roundtable with Rep. Ron Kind (D-Wis.).
- Two dams in Michigan were breached after days of heavy rainfall, forcing the evacuation of thousands of residents. The affected area includes Midland, the home of Dow Chemical, which Gov. Gretchen Whitmer said could be under nine feet of water by this morning.
- Trump signs order easing regulatory enforcement. President Trump signed an executive order yesterday directing federal agencies to ease up on businesses that make good faith attempts to follow agency guidance and regulations during the coronavirus pandemic. The extent to which the order would provide protection for businesses against pandemic-related liability would be limited — legislation would be needed to guard against lawsuits — but supporters say it would shield companies from fines for civil regulatory violations.
- GOP sends invitations for in-person convention. The Republican National Committee is sending its big donors invites for the Aug. 24 to 27 nominating convention, where Trump will receive his party’s presidential nod. The invites ask attendees to RSVP to receive more details. North Carolina’s stay-at-home order remains in place, though on May 8, Gov. Roy Cooper (D) relaxed certain restrictions.