Perspective on prevent-plant acreage payments
— U.S./China trade policy update:
- President Trump last week said he and President Xi Jinping of China will have “an extended meeting” when the Group of 20 convenes at the end of the week in Osaka, Japan. Many analysts predict the two leaders will commit to continued trade negotiations and reducing the power of Trump's threat to put tariffs on all remaining Chinese imports.
- U.S. Vice President Mike Pence’s decision to defer a speech on China policy boosted optimism ahead of U.S./China trade talks.
- The U.S. Trade Representative published a notice today announcing it will begin accepting exclusion requests from importers on June 30 for China-origin imports under the additional $250 billion on which tariffs were raised in May from 10% to 25%.
- U.S., China must resolve tensions before they spiral: Duterte. The U.S. and China must resolve rising trade tensions before the situation “spirals out of control,” Philippine President Rodrigo Duterte said. “The trade war between the United States and China is creating uncertainty,” Duterte told his Southeast Asian counterparts at a meeting in Bangkok late Saturday. “It is taking a toll on global growth. And it could hinder the ongoing processes of economic integration.”
- U.S. considers requiring 5G equipment for domestic use be made outside China. The Trump administration is considering requiring that next-generation 5G cellular equipment used in the U.S. be designed and manufactured outside China, the Wall Street Journal reported (link). The possible move follows a White House executive order restricting some foreign-made gear and services. The proposals could force telecom equipment giants Ericsson and Nokia to reshuffle their production locations, with Citi analysts estimating that China represented 45% and 10% of their manufacturing-facility area in 2018. Washington has already essentially banned telecom equipment from Chinese companies, especially industry leader Huawei, over cybersecurity concerns.
- Vice Premier Liu He called on Chinese Academy of Sciences to boost scientific cooperation with developed nations during a visit last Friday, according to a statement posted on the academy’s website. Liu asked the institution to strengthen research on “core technology" and deepen reform.
- China wants FedEx to explain its treatment of Huawei. The U.S. logistics firm blamed its failure to ship a Huawei smartphone from Britain to the U.S. on an "operational error."
- China’s imports of U.S. agricultural products fell 55% in the first five months from a year ago. Shipments from other nations grew, including from Brazil, Australia and Canada; imports from Brazil expanded 21% in the same period. China’s production of proteins increased to replace pork output, reduced by African swine fever In Jan.-May, poultry production rose 16% y/y; milk output gained 5.3%; fish output was flat. China reported 137 outbreaks of African swine fever, including 38 outbreaks in 2019, through last week.
- China imported a record volume of meat in May to temper the impact of African swine fever as domestic pork prices rebounded. China bought 556,276 tones of meat and offal in May, up about 45% from a year earlier, according to official customs data published on Sunday. That brings total imports in the first five months to 2.2 million metric tons, a 23% increase from last year. Pork imports surged the most among the meats, increasing 63% to 187,459 tons in May from a year earlier. Lamb shipments climbed 53% to 42,036 tons, while beef imports rose 41% to 123,720 tons. Frozen chicken purchases grew 26% to 63,430 tons, customs data showed.
— If you have read that farmers with prevent-plant acres can get three or four payments, that information needs perspective. Politico last Friday reported that prevent planting benefits will result in "quadruple payments.” Others have reported triple-dipping. The following is a more balanced perspective regarding potential, multiple-type payments:
Some questions remain to be answered regarding prevent-plant. Analysts at Combest-Sell & Associates, a respected ag lobbying and consulting firm in Washington, note the following “legitimate questions”:
(1) Will and to what extent will Market Facilitation Program 2 apply if a farmer plants a cover crop on prevent plant acreage? USDA Sec. Sonny Perdue has signaled he may make MFP payments on cover crops on PP but has said any such payouts would likely be “minimal";
(2) Will any MFP 2 benefit applied to a cover crop apply only to a Title I cover crop plus alfalfa or any cover crop?;
(3) To what extent will prevent-plant claims be bumped up by the disaster bill? During a House hearing last week it was noted that 2016 administrative reductions in coverage were forced by the Office of Management and Budget. Further, lower prices will also temper prevent-plant payments;
(4) Will this bump up apply on all prevent plant claims or only those in disaster counties? Also, funding in the disaster aid package will likely limit prevent-plant payments;
(5) With last week's announcement from USDA's Risk Management Agency (RMA) that a farmer can graze, hay, or chop a cover crop on Sept.1 (instead of Nov. 1), can a farmer sell that hayed or chopped cover crop? USDA's RMA's FAQ accompanying its announcement last week says yes. But while the RMA announcement will aid producers prevented from planting the opportunity to feed their livestock, questions have arisen has to whether it allows the sale of hay or silage.
Combest, Sell says until one sees definitive information from USDA on any of these questions, “do not rely upon other information.”
— Biodiesel lobby group urges more than just year-round E15 rule. The Trump administration’s recent move to allow year-round sales of 15% ethanol won’t make up for the gallons lost to small refiner exemptions from the Renewable Fuel Standard (RFS), the National Biodiesel Board warned EPA Administrator Andrew Wheeler in a letter sent Friday (link). The group noted a quote from Wheeler, who said that by allowing E15 sales all year, “it will help make up the difference for any small refinery exemptions going forward.” But the biodiesel group disagreed, saying they “must remind you that the E15 waiver will not provide market growth for biodiesel and renewable diesel,” wrote Kurt Kovarik, the group’s head of federal affairs. “EPA is required to repair the demand destruction for biodiesel and renewable diesel resulting from your agency’s flood of unwarranted, retroactive small refinery exemptions.”
— Other items of note:
President Trump delayed Sunday’s scheduled raids on undocumented families but said they would resume if Democrats did not agree to asylum law changes. The president said he would give both parties two weeks to come up with a solution. “If not, Deportations start!” he tweeted on Saturday. Immigration agents were planning to sweep into immigrant communities in 10 major cities in coordinated raids. Officials said on Friday that they would target about 2,000 families in a show of force aimed at enforcing immigration laws. CNN's Jake Tapper said, House Speaker Nancy Pelosi (D-Calif.) called Trump Friday night asking him to call off ICE raids. White House deputy press secretary Judd Deere confirmed a phone call took place Friday night between Trump and Pelosi. Trump wants to see if Congress can “work out a solution.” Pelosi applauded the delay but suggested she didn’t feel bound by his timetable.
VP Mike Pence said President Trump today will announce additional sanctions on Iran. He made the comments on CNN's State of the Union. President Trump on Sunday via a tweet confirmed that he plans to impose new sanctions on Iran, despite a diplomatic push by European leaders to persuade Washington and Tehran to show restraint.
Trump: No preconditions on talks with Iran. “I'm not looking for war and if there is, it'll be obliteration like you've never seen before. But I'm not looking to do that. But you can't have a nuclear weapon,” Trump told NBC’s Chuck Todd on Meet the Press. Asked if this would include preconditions, Trump said “not as far as I'm concerned. No preconditions.”
Iran says U.S. cyberattacks against it failed. "No successful attack has been carried out by them, although they are making a lot of effort," the country's IT Minister tweeted on Monday.
President Trump and President Recep Tayyip Erdogan of Turkey are expected to meet on the sideline of G20 meetings to resolve a disagreement over Turkey’s purchase of a Russian missile system. Meanwhile, Erdogan has suffered a setback. His handpicked candidate lost in the Istanbul mayoral election.
Kim Jong Un receives ‘excellent’ letter from Trump: North Korea state media. President Trump sent North Korean leader Kim Jong Un a letter containing “excellent content,” Pyongyang’s state media said, a sign some say means the two sides are open to diplomacy even though nuclear talks remain gridlocked.
After Trump signals he would like to meet, Mexico's AMLO Eyes Date in September. Mexican President Andres Manuel Lopez Obrador said he would be willing to have his first meeting with U.S. President Donald Trump in September after Trump said he was interested in such an encounter.
New York farmers impacted by increased labor costs. New York farmers say they are straining under increased costs as a worker shortage has forced them to use a federal visa program to bring in temporary agricultural workers from other countries. For details, link to WSJ item.
Capture and trade for cap-and-trade legislation. Oregon state Republican senators physically left the state to evade arrest ahead of a vote on cap-and-trade legislation, which has already passed the House and has the support of Gov. Kate Brown (D). Brown approved Senate President Peter Courtney's (D) request to send Oregon State Police troopers after the senators to bring them back so that the chamber can reach the quorum to pass bills.
PG&E Corp. agreed to pay $1 billion to over a dozen Californian cities, counties and districts impacted by wildfires over the last few years, according to the utility and county lawyers, though the settlements are separate from thousands of individual cases that the utility expects to face during bankruptcy. The utility also said that inspections of the transmission lines and distribution poles in its territory found more than 1,000 high-priority safety problems but that nearly all of them have been repaired. Meanwhile, on Friday, Gov. Gavin Newsom laid out a proposal for helping to meet such claims while also helping to shield the utilities’ ratepayers and the companies themselves. The plan follows two years of the worst wildfires in California history, which killed dozens of people and destroyed the town of Paradise. The key element, the administration said, was a $21 billion fund financed by utility investors and ratepayers to help settle claims arising from wildfire disasters. The plan would also tie executive compensation at the state’s investor-owned utilities to safety. “Climate change has created a new reality in the state of California,” Newsom, a Democrat, said in a statement. “It’s not question of ‘if’ wildfire will strike, but ‘when.’”
Building the turbines was the easy part. In the Oklahoma panhandle, one entrepreneur saw a future fueled by cheap and clean energy. But there was a big snag. The U.S. has 21st-century technology to produce the power, but still has a 20th-century grid that can’t move it from the windy and sunny parts of the country to the urban markets. Link to WSJ article.
Trump vetting documents show deep conflicts in Trump's initial Cabinet. Scott Pruitt, Sonny Perdue and other potential candidates for Trump administration jobs had a wide array of potential conflicts, according to Axios, which obtained the vetting documents for those individuals. Many of them still won jobs anyway. Some details:
• Scott Pruitt, who became director of the Environmental Protection Agency, was seen as too close to the energy companies he would be regulating. One section of his vetting document was titled “Allegations Of Coziness With Big Energy Companies.” (He was eventually forced to resign.)
• Sonny Perdue, the Agriculture Secretary, was flagged because his family business received a $24,525 contract from the department in 2011. It was described as a potential conflict of interest.
— Markets. The Dow on Friday fell 34.04 points, 0.1%, to 26,719.13, after earlier rising as high as 26907.37. To reach a record close, the average needed to finish above 26828.39, its Oct. 3 record closing level. The S&P 500 lost 3.72 points, 0.1%, to 2,950.46, while the Nasdaq Composite declined 19.63 points, or 0.2%, to 8031.71. The Dow industrials are up about 7.7% in June; if the gains hold, it will be their best monthly performance since October 2015.
For the week, the Dow rose 2.4%, while the S&P 500, which set a new intraday high before pulling back, finished the week 2.2% higher; with this week's gains, the S&P has climbed 17.7% so far this year and is on track to post its best first half since 1997 — it is up over 25% from its Christmas Eve nadir.
For bulls, the next question is "how long until Dow 30,000?" writes Jack Hough in Barron's. "U.S. stocks trade at 17 times forward earnings estimates, about where they were in early 2017. Assuming they hold that valuation, the earnings outlook implies potential for yearly gains of 5% or so from here. Where does that leave us on the Dow? So long as we can agree that precise targets are folly, we’ll drop our [previous] date [of 2025] but stick with our 4% to 5% yearly return. From here, that means 30,000 by the end of 2021."
U.S. Treasury prices backed off from their best levels of the year, driving the two-year yield up 6 bps to 1.78% and the 10-year yield 7 bps higher to 2.07%. The two-year note, the coupon maturity most sensitive to Fed expectations, reached its lowest since November 2017, and more than a half-percentage point below the bottom of the Fed’s current 2.25% to 2.50% target range for federal funds.
Why the dollar is still relatively firm vs other major currencies. Despite low U.S. interest rates., they are a lot higher than interest rates in most of the developed world. The benchmark 10-year bond yield is negative in Germany, the Netherlands, Switzerland and Japan; it's also very close to going negative in France. Negative interest rates have spread throughout Europe during the second quarter as growth concerns intensify.
U.S.-traded oil rose 0.6% Friday to $57.43 a barrel. That came after prices jumped 5.4% the day before, and put its weekly gain to 8.8%,its largest since December 2016.
Trump says he did not threaten to demote Fed's Powell: NBC interview. President Donald Trump said on Sunday on NBC's Meet the Press that he has the power to demote Federal Reserve Chairman Jerome Powell but has not threatened to do so.
German business confidence fell to its lowest level since November 2014, according to the Ifo index. While firms report their current situation as having improved somewhat recently, they are growing more pessimistic about the future. Companies in the manufacturing, construction and service sectors all reported deteriorating expectations. “The German economy is heading for the doldrums,” Ifo concluded.