Australia’s driest year | China aid programs for impacted industries re: coronavirus
In today's updates:
* Some U.S. hog producers are in a funk
Markets: China’s promised economic assistance is boosting markets. China is reportedly considering direct investments in airlines, and allowing them to buy smaller carriers hit by the coronavirus outbreak. Meanwhile, Adidas reports an 85% drop in store visits, local firms are increasingly unable to pay employees, and foreign firms that depend on Chinese parts are struggling to keep them coming.
The real reason behind anemic U.S. soybean exports: Brazil’s real. Demand for U.S. farm products including soybeans is expected to increase under the Phase 1 deal with China, but transactions will be done at market prices. And it's Brazil, not the U.S., that is now driving the price for soybeans. The devaluation in the real (to record lows) is allowing Brazil to sell its crops at much lower prices.
2019 was Australia's driest year on record, which could constrain agriculture production over the coming years. (Source: Fitch Solutions Macro Research)
— Some U.S. hog producers are in a funk. And it’s not regarding trade policy, China, etc. It is because the expanded kill capacity from several new processing plants will be bested by greater than expected hog production. “We’ll be producing more than plants can take in by this fall,” one Missouri hog producer said. “Our production increases have exceeded some of the best hog industry analysts’ predictions. We previously thought plants would be bidding higher for our hogs.” Other hog industry contacts agreed, noting that while U.S. exports have been robust, the situation becomes acute, one said, “as some plants may not be able to go to additional shifts due to lack of labor.” As for the potential of more processing capacity, one hog industry contact said, “It takes two to three years for that to unfold… and there haven’t been any announcements.”
There is a long-term negative hog industry development cited by some hog industry contacts: China. While they are a growing export market in the short run, especially due to the African swine fever, some industry contacts signal ASF is enabling China leadership to accelerate their long goal of industrializing their hog industry. “In three to five years, Chinese hog production could increase to a level that reduced imports would result, but they will still need imports. If so, this means China will need additional feed needs as they build their hogs back to levels at or exceeding prior levels.”
— Growing number of farmers worried about too much water again in 2020. And for good reason: The National Weather Service is warning there is a high risk of flooding again this spring in a region where the ground is already saturated. While no one is predicting a return to the level of prevent-plant acres of 2019, trips to several states (North Dakota, Nebraska, Arkansas, Mississippi and others) easily show saturated areas are expanding. Meanwhile, farmers are anxious regarding levee fixes, as the Corps of Engineers must certified they have been repaired and back to prior conditions. If not, farmers in the impacted areas will pay a much higher crop insurance rate. The following is a look at 2019 Prevented Plant acres:
— Coronavirus update:
- The death toll from the virus has now passed 2,000 in China though Hubei, the province at the center of the storm, reported the lowest number of new cases since the counting methods were changed last week. China’s Hubei province reported 132 new coronavirus fatalities for Feb. 18, bringing the death toll on the mainland to 2,000. Total confirmed cases in Hubei rose by 1,693 to 61,682, Hubei’s health commission said in a statement. Discharged patients increase by 1,266 to 9,128. The number of people infected worldwide exceeded 75,000.
- China has announced measures to boost poultry supplies amid the coronavirus situation, with the Ministry of Agriculture and Rural Affairs announcing special loans and lower interest rates for key poultry suppliers. Ministry official Yang Zhenhai said that poultry sales channels should operate smoothly and stronger cooperation between poultry farmers and slaughter facilities is also needed. Farmers are being given technical guidance to help them restore production and efforts to help feed producers resume production are also needed, Yang said.
- The Agriculture Bank of China said it would boost credit supplies to farmers, with those producing grain, vegetables, hogs, eggs and aquatic products given priority and will focus on clients that are in the ag industry and produce anti-virus materials, according to Xinhua. Special teams will be set up to fast-track loan applications for the sector and small and micro enterprises and farmers who have been hit hard by the coronavirus situation will be given a one-month grace period on their loans.
- China considering airline aid. China is mulling measures such as direct cash infusions and mergers to help an airline industry crippled by the virus outbreak, according to reports. One proposal involves allowing some of the nation’s biggest carriers (controlled by the state) to absorb smaller ones suffering the most from the collapse of travel.
- G20 a no-go for some Chinese financial officials. The People’s Bank of China and Finance Ministry will not send officials to Riyadh, Saudi Arabia, to participate in the G20 Finance Ministers meeting Feb. 22-23 due to the coronavirus situation. However, Chinese representatives from the World Bank will attend the meeting, according to a Finance Ministry official.
- China said today that it would revoke the credentials of three Wall Street Journal reporters, after officials objected to a headline this month in the newspaper’s opinion pages: “China Is the Real Sick Man of Asia.” The WSJ said the move marks the first time in the post-Mao era that the Chinese government has expelled multiple journalists from one international news organization at the same time. Meanwhile, the Trump administration announced Tuesday that it will now treat five Chinese state-run media companies with U.S. operations like foreign embassies, meaning they will have to register their employees and properties with the State Department.
- Japan’s Financial Services Agency (FSA) is surveying financial institutions in the country to assess the potential impact of the coronavirus situation on credit costs, according to government sources quoted by Reuters. The effort reflects concern on lending to Chinese borrowers and whether that could negatively impact those lenders, the report noted. Japanese financial institutions are said to have lent more than 7 trillion yen ($63.57 billion) to borrowers in China. The FSA has requested banks provide information on their operations in China, the report noted.
— Push by Trump administration hard-liners to stem flow of high-tech exports to China hist a hurdle: President Trump. In a series of tweets, Trump denounced efforts promoted by some within the White House and Commerce Department to halt the export of controlled technologies — including jet engines and semiconductors — to China, out of concern the products could be pirated and used to undermine U.S. commercial advantage in those sectors. “We don’t want to make it impossible to do business with us,” Trump tweeted. “That will only mean that orders will go to someplace else.”
— U.S. transportation industry is in a tailspin, but some potential better news ahead. The Cass Freight Index, a measure of freight volumes and expenditures, posted its biggest year-over-year decline since 2009 in January. Shipment volumes dropped 9.4% from a year earlier and expenditures sank 8%. "Even before the coronavirus issues have any impact on the U.S. transportation market, the freight market is weak," Stifel analyst David Ross said of the latest numbers. But there is some more positive news: The second quarter of the year could see a modest rebound if the coronavirus situation is contained and U.S. companies start to rebuild inventories.
— Other items of note:
- Here comes Bernie… Bernie Sanders has taken a big lead over the rest of the Democratic field as Joe Biden has fallen into a tie for distant second place, according to a new NBC/Wall Street Journal poll. Sanders leads the pack with 27% of Democratic primary voters, unchanged from a month ago. But Biden’s support is down 11 percentage points to 15%. Michael Bloomberg and Elizabeth Warren are at 14%, and Pete Buttigieg is at 13%. Amy Klobuchar trails the field at 7%. The poll of 900 registered voters was conducted Feb. 14-17. Meanwhile, a spokesman for Michael Bloomberg’s campaign said Tuesday that if elected president, Bloomberg would sell his financial-data and media company. Link to poll details via WSJ.
- Here comes Bloomberg… Tonight is the ninth Democratic presidential debate, but it will be the first to include former New York mayor Michael Bloomberg, who has been rising in recent polls. “After a mass introduction to the Democratic electorate on his terms, powered by hundreds of millions of dollars of his own money, Bloomberg is submitting for the first time to an uncontrolled setting on a national scale,” New York Times political reporter Matt Flegenheimer writes. “This does not necessarily play to his strengths.”
- President Donald Trump commuted the prison sentence of Rod Blagojevich, a former Democratic governor of Illinois convicted of trying to sell Barack Obama’s seat in the Senate. He had served eight years of a 14-year sentence. In all Mr Trump granted clemency to 11 high-profile white-collar criminals, including Michael Milken, a financier convicted of securities fraud, and Bernard Kerik, a former New York City police commissioner convicted of tax fraud.
- South Korea launched the world’s first air quality satellite. The Chollian 2B will monitor fine dust and other air pollutants in the East Asian region. The information it will gather could pave the way for a new disaster relief communications system.
- McDonald’s and Starbucks are testing reusable cups. A trial led by the two firms involves stronger cups that can be digitally tracked. Link for details via Bloomberg.
— Markets. The Dow on Tuesday fell 165.89 points, 0,56%, at 29,232.19. The Nasdaq was up 1.57 points, 0.02%, at 9,732.74. The S&P 500 declined 9.87 points, 0.29%, at 3,370.29.
FOMC minutes due today. Minutes from the Jan. 28-29 Federal Open Market Committee (FOMC) meeting are to be released today, with attention focused on the Fed discussion of the potential impacts for the China coronavirus situation and any other risks to the U.S. economy. The recap of the meeting is less likely to contain any surprises given the post-meeting press conference that now accompanies every FOMC meeting. But the extra information provided still offers more insight into the issues the Fed is focused on. The minutes are likely to indicate that Fed officials are still monitoring business investment and what their view is on lessened trade tensions between the U.S. and China.