USDA Calls Out Press Reports of Coming Round Two of Tariff Aid Package

Posted on 05/22/2019 5:44 AM

Trump wants Congress to approve USMCA before tackling infrastructure

USDA late Tuesday fired back at press reports that mostly quoted Bloomberg News providing some of the possible details of the coming Round Two of Trump tariff aid for the U.S. ag sector. From a USDA spokesperson:
     “Details on the new farming support program will be forthcoming shortly, but we want to be clear that the program is being designed to avoid skewing planting decisions one way or another. Farmers should continue to make their planting and production decisions with the current market signals in mind, rather than some expectation of what a farming support program might or might not look like based on inaccurate media stories.”
     Ouch. Confirmed details are expected to come as soon as this Thursday, but on Tuesday, soybean markets saw quick bearish reaction to the Bloomberg item on belief the program would lead to even more plantings of the crop despite a carryover near one billion bushels.
     USDA officials have tried to tell anyone asking that they are taking efforts to make sure whatever they announce will not skew plantings. That depends on how the direct payments are made, including the year or years of plantings, and what yield component is used. Payment acres could also be capped to stymie favoring one commodity over another.
     NCGA wish list. Here is a link to what the National Corn Growers Assn. is asking for.  


— U.S./China trade policy update:

  • No word yet on any future face-to-face U.S./China negotiations. Some observers say even if there is an announcement of talks ahead, the current situation has complex issues escalating, not declining and that the skirmish has turned to an economic and geopolitical war, not just a trade war.
  • President Xi Jinping has urged China to begin a modern “long march,” invoking a turning point in Communist Party history to suggest that Beijing has abandoned hopes of a trade deal in the near term.
  • Mixed signals on U.S./China trade talks sent by China's ambassador to the U.S. There are still no additional trade talks formally scheduled between U.S. and Chinese negotiators. In remarks to the Fox News channel, China's Ambassador to the U.S., Cui Tiankai, said that while China is open to more talks, he laid the blame at the U.S. side for the current stalemate. "China remains ready to continue our talks with our American colleagues to reach a conclusion. Our door is still open," Cui said. However, Cui noted, the U.S. keeps "changing its mind" on provisions in the deal, adding that the U.S. had backed away from what he said were provisions that had been tentatively agreed to. "It is quite clear it is the U.S. side that more than once changed its mind overnight and broke the tentative deal already reached," Cui said. "So we are still committed to whatever we agree to do, but it is the U.S. side that changed its mind so often."
  • Cui also commented on the restrictions the U.S. placed on Chinese telecom firm Huawei, saying the U.S. actions were "without any foundation and evidence" since Huawei is "a privately-owned company. It is just a normal Chinese private company." He further said the U.S. actions are simply "politically motivated."
  • U.S. companies in China are facing a backlash from the heightened trade war, with almost half the members of the American Chamber of Commerce in China and a similar group based in Shanghai reporting they have been hit with retaliatory measures. Around 47% of the members of the two groups said that on top of recently imposed tariffs, they faced retaliation such as slower customs clearance, more inspections and delayed approvals for licenses, according to a survey released today. About a third of the 239 American companies surveyed said they were cancelling or delaying investments in China while about 40% said they were considering relocating manufacturing facilities outside of China, with southeast Asia and Mexico among the favored destinations. “Such strategy constitutes a rational choice for many companies to insulate themselves from the effects of tariffs while maintaining their ability to pursue domestic market opportunities,” the report stated.
  • U.S. retailers prepare for increases in tariffs. The outlook for the retail sector is gloomy, as sales at Kohl's, J.C. Penney and Nordstrom fell during the first quarter. Chains also are readying themselves for the impact of higher tariffs on merchandise imported from China, the Wall Street Journal reported (link). Home Depot estimates it will spend around $1 billion more under the new tariffs, on top of $1 billion in added costs under higher levies last year. The retailer expects to buy more from some suppliers to lower its prices and spread consumer price increases across more items to limit the impact on sales. Retailers are also using short-term tactics like raising prices, pushing vendors for price cuts or paying more to ship goods faster ahead of the higher tariffs, the WSJ detailed.
  • Trump administration could backlist Chinese surveillance technology firm. The New York Times says the move against Hikvision “would mark another step to counter China’s economic ambitions, and the first time the administration punished a company for China’s detention of Uighurs.” Link to article.

— Trump tells Democrats to approve USMCA before taking up infrastructure legislation. President Trump in a letter (link) told Democratic leaders that Congress should approve his trade deal with Canada and Mexico before taking up infrastructure legislation. Trump sent the letter to House Speaker Nancy Pelosi (D-Calif.) and Senate Minority Leader Chuck Schumer (D-N.Y.) the day before a White House meeting scheduled with them today to discuss a potential infrastructure package. “Before we get to infrastructure, it is my strong view that Congress should first pass the important and popular USMCA trade deal,” Trump wrote. “Once Congress has passed USMCA, we should turn our attention to a bipartisan infrastructure package.”

In a joint statement late Tuesday, Pelosi and Schumer said they looked forward to hearing the president’s plan to fund a $2 trillion infrastructure package. “In our conversations with the president, Democrats will continue to insist on our principles: that any plan we support be big, bold and bipartisan; that it be comprehensive, future-focused, green and resilient,” they said.

Meanwhile, the House Ways and Means Trade Subcommittee today will examine enforcement of the new North American trade pact,

— EPA sends RFS reset plan to OMB for review. EPA has sent its proposed plan for a reset of the Renewable Fuel Standard (RFS) to the Office of Management and Budget (OMB), one of the final stages before the plan will be released.

There are no indications regarding the levels EPA is proposing at this stage for 2020, 2021 and 2022 renewable fuel levels (2021 and 2022 for biomass based biodiesel) — the final three years of RFS authorization. However, expectations are that the conventional ethanol component will remain at 15 billion gallons, the level specified in the 2007 energy law. The EPA plan will "propose modifying the applicable volumes targets for cellulosic biofuel, advanced biofuel, and total renewable fuel for the years 2020-2022," according to the notice posted by OMB. "Since the timetable for this rulemaking overlaps that for annual standard-setting rulemakings, this rulemaking will also include the applicable percentage standards for 2020."

EPA noted that the reset plan also includes "several regulatory amendments designed to provide clarity and increase opportunities for renewable fuel production." But the amendments were not detailed.

Other items of note:

  • U.S.-Japan confab. On Saturday, President Trump will depart for Japan to discuss prospects for a bilateral trade deal and policy towards North Korea. The trip comes a week after Trump on Friday delayed a decision for six months on whether to impose new tariffs of automobile and auto-part imports from Japan and other countries.

  • This year’s troubles in the Farm Belt could lead to reduced production. American farmers are looking at taking insurance payouts instead of planting crops, the Wall Street Journal reports (link) reports, as they grapple with cold, wet weather and a U.S./China trade standoff that has crimped their access to a major market. Researchers say claims on corn crops could quadruple this year and soybean payouts could double. Companies handling farm products are feeling the impact. Meanwhile, grain shipments on U.S. railroads are down 4.6% so far this year, according to the Association of American Railroads. Farmers aren’t getting much relief: Heavy storms across the Texas Panhandle and Oklahoma this week spawned dozens of tornadoes and triggered flooding across the region.

  • USDA sends final rule on Dairy Margin Coverage to OMB. USDA has forwarded the final rule for the Dairy Margin Coverage (DMC) program to the Office of Management and Budget (OMB) for their review. USDA has previously announced they will start enrollment for the DMC program June 17 and publishing of the final rule for the program is key for that effort. USDA has already been announcing the income over feed cost margin levels that are used to trigger payments under the DMC. The program is retroactive to Jan. 1 and USDA has been under pressure to get the program operational as the US dairy industry has economically struggled. USDA previously has announced that those producers who elect a DMC coverage level of $9 and $9.50 per cwt. will be eligible for a payment for January, February and March.

  • ASF vaccine eight years away: USDA official. Greg Ibach, USDA’s undersecretary for marketing and regulatory programs, said Tuesday that it “may be as long as eight years from finding a vaccine that’s effective” relative to African Swine Fever (ASF). Meanwhile, Ibach said USDA is working on a “regionalization agreement with Canada,” relative to keeping ASF out of both countries and processing to contain the spread if there is an outbreak. Some industry sources say the eight-year prediction could be optimistic. Ibach also noted the focus is heaviest on Canada given the flow of animals from Canada into the U.S. Regarding Mexico, Ibach said the U.S. is not as familiar with their efforts, but expressed confidence the two sides could work together should ASF be found there.

Markets. The Dow on Tuesday gained 197.43 points, 0.77%, at 25,877.33. The Nasdaq moved up 83.35 points, 1.08%, at 7,785.72. The S&P 500 was up 24.13 points, 0.85%, at 2,864.36

St. Louis Fed's Bullard signals Fed may need to lower rates to hit inflation target. If inflation fails to move up to meet the Fed's target of 2%, the U.S. central bank may need to lower the target range for the Fed funds rate, St. Louis Fed President James Bullard said in remarks in Hong Kong. "A downward policy-rate adjustment even with relatively good real economic performance may help maintain the credibility of the [Federal Open Market Committee’s] inflation target going forward," Bullard said. "A policy rate move of this sort may become a more attractive option if inflation data continue to disappoint." The Fed has signaled it is continuing to focus on inflation as it has stubbornly run below the Fed's target. Bullard also urged China to accept U.S. demands in the now-stalled trade talks with the U.S., arguing that would help the Chinese economy. "They would establish credibility on trade inside China and would reassure foreign investors that they can invest in China and be treated appropriately," Bullard stated. "If that occurs, I would see blue skies ahead for the Chinese economy."

Saudis strike deal to buy U.S. natural gas. Saudi Arabia has agreed to purchase U.S. liquefied natural gas from Sempra Energy, marking a new strategic direction for the kingdom as it seeks to establish a footprint in the growing global market for the fuel, the Wall Street Journal reports. The transaction demonstrates how the U.S. energy boom is dramatically changing global trade. Historically, Saudi Arabia has been a major supplier of oil to the U.S., but due to the shale revolution, the Energy Department predicts America will become a net energy exporter in 2020.

Prime Minister Theresa May of Britain has offered the prospect of a second referendum on the country’s withdrawal from the European Union, a last-ditch attempt to win support for her exit plan. However, opposition to the May plan quickly came from both Labour and Conservative party leaders.


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