Chinese and U.S. officials may resume talks over trade impasse
— First USDA assessment of impact of Trump's trade tariffs comes today via the S/D report. USDA will incorporate tariffs against U.S. farm products into its updated Supply & Demand report issued today. The forecasts will assume the tariffs will “hold for the rest of the year.”
One item some traders are looking for: whether USDA will assume increased Chinese purchases of U.S. soybean meal, because that product is not included in the list of Chinese tariff countermeasures.
A key assumption is the dollar figure on which Trump tariffs are included in the demand assessments — most believe it will be only the tariffs actually implemented, not the tariffs announced but not yet in place — most think USDA cannot or should not assume tariffs not yet in place.
— House panel to assess impacts of Trump's trade tariffs on farmers, consumers. House Republicans have scheduled a hearing next Wednesday afternoon to examine how farmers, consumers and businesses have been impacted by President Donald Trump's decision to impose tariffs on goods from China and other trading partners. "Farmers, growers, and ranchers in my home state of Washington and around the country are significantly hurt because products that they are forced to import to stay competitive — such as agriculture equipment, chemicals, steel and aluminum — are now prohibitively expensive," Rep. Dave Reichert (R-Wash.), chairman of the House Ways and Means Committee's trade panel, said in a statement. "Adding insult to injury, these same farmers, growers, and ranchers are experiencing severe retaliation through prohibitive tariffs and other measures by their major customers, including China, Canada, Mexico and the EU."
"This hearing will provide an important opportunity to discuss both the direct and indirect negative effects of the U.S. Section 232 and 301 tariffs on America’s farmers, as well as the retaliation they are now experiencing," Reichert said. "It will also be an opportunity to discuss the effects on the rural communities that depend on a vibrant agriculture sector."
— Chinese and U.S. officials may resume talks over trade impasse. After the U.S. unveiled a list of Chinese imports worth $200 billion that could face higher duties, China’s Vice Minister of Commerce Wang Shouwen said “when we have a trade problem, we should talk about it,” according to Bloomberg. Some Trump administration officials have indicated they are willing to talk if China obliges.
“China has said many times that the premise for negotiations is honoring one’s word. To my knowledge, the two sides haven’t been in touch to renew talks,” Gao Feng, spokesman of Ministry of Commerce said at a press conference in Beijing. “We don’t want to have a trade war. We are not afraid of one, and we will fight one if forced to,” he said.
White House spokeswoman Lindsay Walters revealed U.S. officials have had high-level talks with Chinese officials on “multiple occasions in the past few months” and have made clear U.S. concerns about the country’s trade practices. “The Trump Administration remains open to further discussions with China, but it is important that China finally address the longstanding concerns that have been repeatedly raised,” she said.
Top Republicans urged Trump to sit down face-to-face with Chinese President Xi Jinping and find a solution. “It’s clear the escalating trade dispute with China will go one of two ways – a long, multiyear trade war between the two largest economies in the world that engulfs more and more of the globe, or a deliberate decision by President Trump and President XI to meet and begin crafting an agreement that levels the playing field between China and the U.S. for local farmers, workers and businesses,” House Ways and Means Chairman Kevin Brady (R-Texas) said.
— Senate on Wednesday passed a mostly symbolic measure to push back against Trump’s authority to impose tariffs on trading partners, such as Mexico and Canada, in the name of national security. “It’s just a step in the direction we’d like to go,” Sen. Bob Corker (R-Tenn.) said before what he called a “test vote” on the nonbinding measure. Senators voted 88-11 to instruct the lawmakers appointed to iron out differences with the House over a spending bill to also insert a provision giving a role to Congress when the executive branch decides to impose tariffs on the basis of national-security concerns.
“We have to rein in an abuse of presidential authority and to restore Congress’s constitutional authority in this regard,” said Sen. Jeff Flake (R., Ariz.), who was one of the authors of the measure. “We couldn’t have won a binding vote today, but a couple of weeks from now we might be able to,” Flake said. “We put members on record supporting Congress having a role,” Flake said of the motion. “Now, once you vote that way, how can you say to your constituents, ‘Well, when it’s real, I’m not going to vote this way.’” Flake said he’s received “no assurance” from leaders that they would support an effort to push through a more substantive measure that would allow Congress to block Trump from imposing any more tariffs for national security reasons under Section 232 of the Trade Expansion Act of 1962.
The language adopted Wednesday is nonbinding but provided senators the ability to send a signal to the White House that a majority of senators are uncomfortable with the president’s path on tariffs.
Senate Finance Committee Chairman Orrin Hatch (R-Utah), whose panel oversees trade issues, voted yes on Wednesday but has expressed reservations about legislation that would tie the president’s hands more directly. “They ought to give the president a chance,” he said, adding that “we’ll have to see” whether he would allow a committee vote on Corker’s original legislation. “I understand what he feels and I have some feelings that way myself that you just can’t let presidents run off and do everything by themselves.”
In the House, a bipartisan group of House lawmakers introduced legislation to require the Trump administration to obtain congressional approval before imposing national-security tariffs. The measure would also be retroactive and cover national-security tariffs imposed in the prior two years.
House Speaker Paul Ryan (R., Wis.) said, “I don’t want to hamstring the president’s negotiating tactics, but I have long said I don’t think tariffs are the way to go. There are legitimate, absolutely legitimate unfair trade practices, particularly by China that we and our allies should be confronting.”
House Ways and Means Committee Chairman Kevin Brady (R., Texas) said the House may take up legislation on the president’s national-security tariffs in the long term. For now, he said that the plan was to wait and see how Trump’s trade policy worked. “Right now, the focus, though, is how we buy time for the president’s strategy to work against China and critical to that is lifting the pain off our local farmers and manufacturers,” he said.
— Roberts: No comprehensive plan presented to him yet on Trump tariff aid plan. Senate Agriculture Chairman Pat Roberts (R-Kan.) some staff-to-staff contacts have occurred on how USDA might eventually help farmers impacted by President Trump's tariff actions on key importers of U.S. farm products, but there’s been no comprehensive plan presented to him yet. “This is getting out of hand,” he told reporters at the Capitol on Wednesday. “We’re now seeing a lot of companies and industries that people might not think would be affected and once you start a trade war, it’s like shattered glass, you don’t know where it’s going to end up.”
Roberts said there’s been talk of making anywhere between $15 billion and $30 billion available for aid to farmers hurt by the tariffs. “I don’t know how they would do that. I don’t know what the criteria would be that they would use,” he said.
Meanwhile, Morgan Stanley estimates that if the U.S. goes ahead with threatened tariffs on $250 billion worth of imported Chinese goods, the hit to American growth would be around 0.3 to 0.4 percentage point and, for China, it could constitute a drag of 0.3 percentage point.
The European Commission today cut its growth forecast for Germany's economy, citing global trade tensions.
— U.S. ag attaché: U.S. corn, sorghum & wheat to lose competitiveness in China due to tariffs. The U.S. ag attaché in Beijing has filed a grain and feed update report, offering up some commentary on the expected impact of tariffs imposed by China and other trade actions:
Corn: On June 16, China announced imposing an additional 25% tariff on U.S.-origin corn imports to China, effective July 6, 2018. Considering current prices, the duty-paid and landed price of U.S. corn at ports in South China will jump from around $250 per ton (RMB 1,600) a few weeks ago to nearly $300 per ton (RMB 1,900) today. As a result, U.S. corn imports are expected to lose competitiveness to Ukrainian and domestic supplies. Additionally, industry sources report that trade uncertainty has raised the risk premium for U.S. corn.
Wheat: On June 16, China announced a 25% additional tariff on US wheat imports in response to the recent U.S. 301 announcement. The additional 25% tariff will raise the duty-paid cost for US HRW by at least $78 per ton (500 RMB) from $312 per ton (1,995 RMB) to $390 (2,495 RMB). Trade tensions have had a chilling effect on Chinese imports of U.S. wheat, with almost no new business booked in the second quarter of 2018. Formerly steady buyers are concerned that U.S. wheat consignments are too risky to execute. Industry sources report that due to trade tensions, buyers are seeking to expand imports from Black Sea-origins. The Kazakhstan Ministry of Agriculture reports that China will expand import quota allocations of Kazak wheat to 500,000 tonnes in 2018/19 and one million tonnes in 2019/20. Separately, COFCO announced that it is prepared to expand imports from Russia from 4,000 tonnes in 2017/18 to two million tonnes in 2018/19. On April 18, China and Russia jointly announced the construction of a 650,000-per-tonne inland port in Fuyuan, Heilongjiang province, the farthest easternmost point in China. The port is scheduled for completion by September 2019 and will facilitate grain handling between China and Russia.
Sorghum: On April 17, China announced a preliminary determination that U.S. sorghum exports harmed “domestic [sorghum] producers” and imposed a temporary 178.6% antidumping duty on U.S. sorghum beginning on April 18, which required a cash deposit. Shortly after the announcement, duty-paid, landed prices of U.S. sorghum at South China ports rose from $300 per ton (2,000 RMB) to $710 per ton (4,600 RMB). The investigation was terminated on May 18 and all collected deposits were returned. China's Ministry of Commerce decided that its investigation harmed consumers, and the livelihoods of “livestock producers.” Traders reportedly lost between $50 to $100 million in penalties and additional fees for breach of contract, redirecting vessels, demurrage payments, storage at bonded warehouses, and fire sale discounts to third-country buyers. Traders scrambled to redirect more than 30 Panamax vessels to third-country destinations after the April 18 announcement. After the May 18 announcement, some redirected vessels back to China. Some Panamax vessels carrying 55,000 tonnes and valued at $16 million (100 million RMB), incurred losses totaling about $4.7 million (30 million RMB).
On June 16, China announced an additional 25% tariff on U.S. sorghum imports to China, effective July 6, 2018. After July 6, considering current prices, the duty-paid and landed price of U.S. sorghum at ports in South China will jump around $300 per ton (1,950 RMB) a few weeks ago to $360 per ton (RMB 2,340). U.S. sorghum imports to China are expected to lose competitiveness to domestic feed grains, but remain competitive for vinegar and baijiu processing. Additionally, uncertainty due to both U.S. and Chinese trade action has raised the risk premium for grain merchandisers to trade U.S. sorghum to China.
— Reuters: EPA dropped plan to make up for waived RFS obligations. EPA shelved a plan that would have boosted the Renewable Fuel Standard (RFS) biofuel percentage to 11.76% for 2019 from 10.88% in a bid to offset the volume of obligations waived for small refiners, according to EPA documents Reuters said were released by the agency to provide more public insight in the decision-making process.
Exemptions for some 2.25 million gallons of biofuel were granted in 2016 and 2017, according to the recap of the documents released by EPA, including waivers covering 1.46 million renewable identification numbers (RINs), the documents said. EPA projected that 8.18 billion gallons of gasoline and 5.44 billion gallons of diesel produced by small refiners would be exempt from requirements in 2019, the report said, with a proposal sent to the Office of Management and Budget (OMB) June 19.
The documents indicated that some legal justification was added to the proposed rule which indicated "this approach is consistent with the text of our regulations, which accounts for the amount of gasoline and diesel projected to be produced by exempt small refiners in 2019."
But after a push by refiners against the changes, on June 22, EPA removed the proposed changes in an email to OMB.
— Other items of note:
Trump says NATO members agree to ‘substantially’ lift spending. President Donald Trump said world leaders gathered at the NATO summit had agreed to “substantially up” their commitment to defense spending. An emergency session was convened after Trump warned allies that if they didn't immediately meet the 2% goal, "I'll do my own thing." Trump added that American commitment to NATO, an alliance that is at the core of western security, “remains very strong.” NATO members agreed in 2014 to move toward committing at least 2% of their gross domestic product (GDP) on their sovereign defense capabilities by 2024. Meanwhile, the House unanimously passed a resolution expressing support for NATO, calling it “the most important and critical security link between the United States and Europe.”
Treasury Secretary Steven Mnuchin will testify before the House Financial Services Committee on the state of the international financial system.
EU official hopeful of a new day for U.S.-EU trade talks. EU chief Brexit negotiator Michel Barnier, who is scheduled to meet with U.S. Trade Representative Robert Lighthizer and other administration officials this week, said Wednesday he hopes the U.S. and the EU could resume talks this year on a bilateral free trade agreement.
U.S. Commerce Department has signed an agreement with ZTE that will resume operations after a nearly three-month old ban on doing business with American suppliers. The penalty on China's No. 2 telecom equipment maker, instituted after the company conducted business with Iran and North Korea, will be removed once it deposits $400 million in an escrow account of a U.S. bank.
Accelerating trucking costs are adding inflationary pressure to the U.S. economy, according to the Wall Street Journal (link). Last month the Producer Price Index, a measure of the prices businesses receive for their goods and services, rose a seasonally adjusted 0.3% from a month earlier. Freight spending, which has been climbing steadily since last fall, boosted the index as transportation and warehousing costs rose 1.3%, the largest monthly increase in the category since the Labor Department started tracking it in 2009. “A tight labor market, growing energy costs and strong consumer demand have contributed to the tight freight market, driving rates to record levels in some regions. Other reports also signal that inflation pressures are building, which could translate to further pain for shippers, and perhaps higher prices for consumers,” the WSJ article noted.
U.S. wheat crop consultant: “The Southern Plains' 2018 HRW crop will have the highest protein average in the past 20 years for around 85% of the output.” The crop scout consultant said the blending of old-crop inventory with marginal protein “will be a layup” and allow for more milling quality bushels becoming available.”
FDA hosting public meting today on lab-grown meat. The all-day session is to get input on how to regulate the budding sector, which takes cells from animals that have traditionally been raised for food and grows them into tissue that can be used to make burgers, chicken nuggets and even spicy tuna rolls. Both FDA and USDA regulators believe they have jurisdiction over the products. FDA is asking for input on what should be considered to ensure cultured meat and seafood products are safe to eat, including what ingredients might be used and how the process works.
USDA officials have said they notified the Labor, Commerce and Census departments of the policy decision announced earlier this week to only post its reports directly on the web, rather than also release them via accredited media. Those agencies use different technology to publish their reports and didn’t indicate they plan to cancel lockups, USDA’s Chief Economist Robert Johansson and the USDA’s World Agricultural Outlook Chairman Seth Meyer said.
Kip Tom has been nominated to serve as ambassador to the United Nations Agencies for Food and Agriculture at the State Department, Trump announced on Wednesday. Tom is currently chairman of Tom Farms, a large farm operator in Vice President Mike Pence’s home state of Indiana. Tom served on Trump’s agricultural advisory committee.
— Markets. The Dow on Wednesday fell 219.21 points, 0.88%, at 24,700.45. The Nasdaq lost 42.59 points, 0.55%, at 7,716.61. The S&P 500 lost 19.82 points, 0.71%, at 2,774.02.
Cleveland Fed President: Strong economy justifies two more interest rate increases this year. Loretta Mester, president of the Federal Reserve Bank of Cleveland, said solid U.S. economic growth, low unemployment and stable inflation justify continued interest rate increases. “The economy can certainly handle two more increases this year,” Mester said in an interview on Wednesday. “We could end up getting behind if we don’t keep moving things up, so I’m very comfortable, if the economy stays on the path it’s going that we move rates up as appropriate this year.” The Fed voted last month to raise its benchmark federal-funds rate for the second time this year, to a range between 1.75% and 2%, and officials penciled in two more increases this year. Mester is currently a voting member of the rate-setting Federal Open Market Committee.
China has guided the yuan to its largest one-day drop against the U.S. dollar in a year and a half, setting the greenback's reference rate at 6.6726 yuan and weakening the latter currency by 0.7% compared to Wednesday. Earlier this year, "the PBOC wanted to use the currency…as a gesture to show the U.S. that they didn’t want to have a trade war," said Tracy Chen, a portfolio manager at Brandywine Global, but the decline since mid-June is a "sign that the PBOC threw in the towel."