USDA Supply/Demand Report Today: Trader Interest but Most are Looking Ahead

Posted on 07/11/2019 6:24 AM

Lower U.S. rates coming | Iran | Tax incentive extenders | China changing negotiating team?

Fed chief strongly hints at July rate cut in House testimony. Federal Reserve Chairman Jerome Powell on Wednesday hinted the central bank will cut interest rates later this month. In testimony before the House Financial Services Committee, Powell suggested the Fed may lower borrowing costs in July to protect the U.S. from the continued economic strain of trade battles and a souring global economy. Asked if June's stronger-than-expected jobs report had changed the central bank's thinking, the chairman said: "A straight answer to your question is, no." The big uncertainty: how far cuts may have to go. Powell will testify today before the Senate Banking Committee.
     The Fed chief also said President Trump lacks the authority to fire him. When asked if he would leave if the president told him to, he said: "Of course I would not do that. My answer would be no."
     U.S. eyeing French plan to tax technology firms. The Trump administration said it would investigate whether a French plan to tax technology giants amounted to an unfair trade practice. The proposed 3% levy on revenues made inside France could affect about 30 firms. France’s Senate today gave a voice vote to approve the new tax. America could retaliate with new tariffs on French products.
     Britain says it thwarted three Iranian vessels from interfering with a commercial tanker in the Strait of Hormuz. The three Iranian ships only veered off after “verbal warnings” from the naval ship HMS Montrose, which was escorting the tanker. Iran’s Revolutionary Guard denied there were any “clashes with ... boats, especially English boats,” in a statement carried by the Fars news agency. Last week Iran vowed to retaliate after the Royal Navy impounded an Iranian tanker off Gibraltar. Meanwhile, President Trump on Wednesday warned that his administration would soon "substantially" increase sanctions on Iran after the country exceeded the uranium enrichment level limits laid out in the Obama-era nuclear deal. The strains in the region have already raised shipping costs, with vessel owners reporting sharp spikes in insurance rates.
     Nationwide raids to arrest thousands of members of undocumented families have been scheduled to begin Sunday, the New York Times reports (link). The operation, backed by President Trump, had been postponed, partly because of resistance among officials at his own immigration agency.
     USMCA talks continue. U.S. Trade Representative Robert Lighthizer will visit Congress today to continue negotiations with Democrats tapped by House Speaker Nancy Pelosi (D-Calif.) to secure changes to USMCA. CNBC reported Wednesday that the White House plans to send the implementing bill after Sept. 1, which would offer more time for Lighthizer to get Democrats on board and secure Pelosi’s approval.
     Oil and gas companies in the Gulf of Mexico are bracing for an incoming likely hurricane that is expected to bring devastating flooding and test the limits of the Mississippi River's levees. Nearly one-third of oil production in the Gulf was shut down Wednesday in preparation for the storm.
     Rep. Alexandria Ocasio-Cortez (D-N.Y.) was sued by two Twitter users who argued that if the president couldn’t block opponents on social media, then neither could she.
     The last Volkswagen Beetle rolled off the assembly line in Mexico's central Puebla state, serenaded by a mariachi band and surrounded by proud factory workers. It marks the end of the road for an iconic car that ran from Nazi Germany in the 1940s through the hippie counterculture in the 1960s but failed to navigate a current swerve in consumer tastes toward SUVs.


USDA WASDE report today is being branded as “not much importance” by many traders. But that same attitude regarding the June 28 Acreage report found the traders scrambling for cover when USDA “surprised” them with the planting estimates.

Says a veteran grain industry analyst: “USDA, again, will likely cut corn demand forecasts: you can't cut yield and raise prices without having impacts on demand. Many in the trade tout the World Board's yield model, but they fail to consider or understand demand models.”

Another long-time analyst said, “There are issues that the current batch of traders/analysts do not understand. They have only seen relatively static situations in the last several years so a year of uncertainty as this one is not something they are equipped to handle.”

A tomato trade dispute with the U.S. is a top item of growers in the key electoral state of Florida, Mexican Economy Minister Graciela Marquez said at a conference. Said she has requested a call with Commerce Secretary Wilbur Ross to try to solve tomato trade discrepancies and that it may take place this week.

Reuters: Trump-ordered review on SREs delaying decisions. The request by President Donald Trump for a review of EPA plans regarding small refiner exemptions (SREs) under the Renewable Fuel Standard (RFS) is delaying decisions on those requests, according to sources quoted by Reuters.

The Department of Energy sent its scoring results of what were initially 40 requests for SREs for the 2018 compliance year in April, the report noted. However, since that took place, EPA data shows that two of those requests were either declared ineligible or were withdrawn, leaving 38 still pending.

The report indicated that a session could be held next week between Trump, USDA Secretary Sonny Perdue and EPA Administrator Andrew Wheeler, but the report also said the session may not take place. Trump became involved in the situation when farmers in June complained to him about the SREs at an appearance he made in Iowa where he highlighted the administration’s decision to make sales of E15 fuel available year-round.

It is murky as to how the matter will play out, but SREs have become a flashpoint between refiners and biofuel backers.

Meanwhile, the politics of SREs will be in full force today in Iowa, where former USDA Secretary Tom Vilsack will take part in a news conference that will target the Trump administration over its handling of the SREs. Former Iowa Lt. Gov. Patty Judge will attend. She chairs a group called Focus on Rural America that is accusing Sen. Joni Ernst (R-Iowa), who is up for re-election in 2020, of failing to stand up to the EPA.

The waiting game continues on whether or not lapsed and other tax incentives will be extended. Bipartisan task force groups were set up in May by Senate Finance Chairman Chuck Grassley (R-Iowa) and ranking member Ron Wyden (D-Ore.). Grassley said they would complete their work by the end of June, but sources not say results are expected later this month. The groups covered six broad subject areas: jobs and community development, health, energy, business cost recovery, individual benefits, and disaster relief. Summaries of each task force's work will help inform the next steps on the temporary tax provisions and the reports are expected to be made public.

Grassley and Wyden told interest groups to help suggest permanent solutions to the dozens of long-temporary policies.

The House Ways and Means Committee advanced extenders legislation via a bill expanding refundable tax credits last month. But the next steps in the House are murky as no floor vote is scheduled and there is no vehicle for extenders to hitch a ride on in the near term. Some suggest negotiations on the federal debt limit and spending levels could offer an opportunity, but congressional leaders will likely want that to be clean of any policy issues, especially one as controversial as tax extenders.

Opponents to an extenders package are also out in force. Some 70 Americans for Prosperity state directors, field staff and leaders from across the country will be on Capitol Hill this week for 229 meetings with House and Senate lawmakers lobbying to stop the extenders' renewal.

U.S./China trade policy update:

  • China Commerce Minister Zhong Shan was listed as being on the telephone call Tuesday between U.S. and Chinese officials. But a Chinese official not on the call was Commerce Vice Minister Wang Shouwen, China’s former ‘foot soldier’ now promoted to “general” in U.S./China trade talks. China watcher Bill Bishop said he has “heard [Chinese leader] Xi does not like Wang, whereas Zhong worked with Xi in Zhejiang.” Bishop then said, “Or is this about concerns with Liu He?” Sinocism intern Huang Yufan checked all the Xinhua reports of the trade negotiations and found that: Liu He had a total of seven announced phone calls with U.S. Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross and U.S. Trade Representative Bob Lighthizer since March last year. This is the first time Xinhua mentioned there is a second Chinese official involved. Liu also led 11 rounds of “high-level” trade talks with American trade officials in Beijing and Washington, and the Chinese negotiation team usually consists of one PBoC governor, seven vice ministers and one unknown female translator.
  • China has definitely reshuffled its negotiation team, which reportedly has some White House officials nervous about the prospect of progress, according to an article in the Washington Post (link), which says, “Commerce Minister Zhong Shan, regarded by some White House officials as a hard-liner, has assumed new prominence in the talks.” Dennis Wilder, a former China analyst for the CIA, told the newspaper, “I am sure his instructions are to get tougher with the U.S.”
  • Still waiting on those big Chinese purchases of U.S. farm products. President Trump said that China would immediately begin buying American farm products, and that the U.S. would hold off on further tariffs on Chinese goods and ease restrictions on Huawei. But Beijing reportedly saw “large-scale purchases as contingent on progress toward a final trade deal that is still nowhere in sight,” according to the New York Times (link). Of orders for soybeans and wheat, Larry Kudlow, the White House’s top economic adviser, said this week: “Haven’t seen them yet.” Meanwhile, a Chinese government spokesperson said Wednesday that any plan to buy more U.S. farm goods still must be agreed on by both sides. “Agricultural product trade is an important issue for discussion between China and the U.S.,” he said. “A resolution of the issue can only be found by both sides on a foundation of equality and mutual respect.”
  • Bishop also reports that he is “hearing a directive has gone out to SOEs (State-owned companies) to not purchase from U.S. information and communications technology (ICT) firms, as part of non-tariff measures to squeeze America companies.”
  • U.S. officials have “privately expressed concern this week that the Chinese are digging in and avoiding firm commitments,” the New York Times reported.
  • Treasury Secretary Steven Mnuchin has encouraged U.S. suppliers to seek approval to resume selling equipment to blacklisted Chinese telecommunications giant Huawei. Concerns have been raised Huawei tech could pose a national security risk and may be used as a backdoor for Chinese government espionage. Mnuchin has been urging technology firms to apply for the export sales licenses even though the Treasury Department is not directly involved in determining the parameters of the blacklist, a national-security process run by the Commerce Department. The move has affected a host of U.S. technology giants that supply Huawei, including semiconductor manufacturers. Some of those suppliers remain frustrated over the lack of an explicit standard on what technologies will be restricted. Link to Wall Street Journal item on the topic.
  • Fishermen are on the front lines of Asia’s most complex territorial dispute: the South China Sea. Six claimants, as well as outside powers like the U.S., have an interest in protecting a waterway that carries more than $3 trillion in trade each year. China’s Coast Guard stepped up patrols in contested areas a few years back, with fishermen from countries like Vietnam and the Philippines reporting encounters with Chinese officials warning them off fishing in certain areas — sometimes with the aid of electric prods.

Trump administration to investigate French gov't over plans to implement tax on technology companies. U.S. Trade Representative (USTR) Bob Lighthizer expressed concerns that the French digital tax could disproportionately affect American companies. "The president has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce," Lighthizer said in a statement. A French finance ministry official said the tax was totally compliant with international agreements and that it was inappropriate to use trade instruments in retaliation for the French digital tax.

Background: The French finance minister said in March that the country would impose a 3% tax on the annual revenues of technology companies that make at least 750 million Euros globally and 25 million Euros in France annually The digital services tax was approved today in France’s Senate via a voice vote. The tax would affect multiple U.S. tech giants, including Apple, Google and Amazon.

The USTR investigation is the first step toward the potential implementation of tariffs or other trade measures against France at a time when President Trump has ignited trade disputes with other allies.

USTR will conduct the assessment under the authority of Section 301, the same provision that President Trump has used to cite national security concerns in imposing steep tariffs on Chinese imports. Any U.S. countermove could result in tariffs on French wine or cars — though both sides would have to seek a negotiated settlement first, a process that could likely take 12 to 18 months. If no agreement is reached, Trump will have to decide whether to levy tariffs instead.

2018 Farm Bill summary of higher limits on USDA farm loans. Higher limits are now available for borrowers interested in USDA’s farm loans, which help agricultural producers purchase farms or cover operating expenses. The 2018 Farm Bill increased the amount that producers can borrow through direct and guaranteed loans available through USDA’s Farm Service Agency (FSA) and made changes to other loans, such as microloans and emergency loans.

Key changes include:

  • Direct Operating Loan limit was increased from $300,000 to $400,000, and the Guaranteed Operating Loan limit increased from $ 1.429 million to $1.75 million. Operating loans help producers pay for normal operating expenses, including machinery and equipment, seed, livestock feed, and more.
  • Direct Farm Ownership Loan limit was increased from $300,000 to $600,000, and the Guaranteed Farm Ownership Loan limit increased from $1.429 million to $1.75 million. Farm ownership loans help producers become owner-operators of family farms as well as improve and expand current operations.
  • Producers can now receive both a $50,000 Farm Ownership Microloan and a $50,000 Operating Microloan. Previously, microloans were limited to a combined $50,000. Microloans provide flexible access to credit for small, beginning, niche, and non-traditional farm operations.
  • Producers who previously received debt forgiveness as part of an approved FSA restructuring plan are now eligible to apply for emergency loans. Previously, these producers were ineligible.
  • Beginning and socially disadvantaged producers can now receive up to a 95% guarantee against the loss of principal and interest on a loan, up from 90%.

Background. Direct farm loans, which include microloans and emergency loans, are financed and serviced by FSA, while guaranteed farm loans are financed and serviced by commercial lenders. For guaranteed loans, FSA provides a guarantee against possible financial loss of principal and interest.

Other items of note:

  • Cotton Inc. debuts Amazon store curated by celebrity stylist. Featuring brands like American Apparel, J. Crew and Adidas, the Hamptons-inspired collection was put together by eight social media influencers. Link for details.

  • New hemp program provisions coming soon. The 2018 Farm Bill contained provisions that allow USDA to approve plans submitted by U.S. states, territories and Indian tribes for hemp production. Plan approval will begin after USDA rules and regulations are in place, anticipated prior to the fiscal year 2020 hemp planting season. The interim final rule to establish a domestic hemp production program was sent to the Office of Management and Budget June 27. Link to USDA’s Agricultural Marketing Service (AMS) frequently asked Q&As.

  • The White House is reportedly pushing Congress to quickly raise the debt ceiling after a recent report showed the federal government will breach it earlier than expected. The Treasury Department is now taking steps known as "extraordinary measures" to prevent the government from going over its borrowing limit, with senators growing anxious that they might have to vote to raise the nation’s debt ceiling in a matter of weeks given new estimates that the government could hit its borrowing limit earlier than expected. Link to Washington Post item for details.

  • First, there was the meatless burger. Soon we may have fishless fish. Impossible Foods, the California company behind the meatless Impossible Whopper now available at Burger King, is joining a crowded field of food companies developing alternatives to traditional seafood with plant-based recipes or laboratory techniques that allow scientists to grow fish from cells. Link to New York Times article.

  • Senate Agriculture Committee will hold a hearing on ag research next Thursday with Scott Hutchins, USDA’s deputy undersecretary for research, education and economics.

  • Sen. John Barrasso (R-Wyo.) called for a five-year reauthorization of surface transportation programs paid for by highway users, including drivers of electric vehicles. The bill will include new competitive grants to repair crumbling bridges.

  • Senate Energy and Natural Resources Committee will examine the role of American LNG exports in global markets at a hearing this morning where Assistant Energy Secretary for Fossil Energy Steven Winberg is set to testify.

Markets. The Dow on Wednesday ended up 76.71 points, 0.29%, at 26,860.20. The Nasdaq rose 60.80 points, 0.75%, at 8,202.53. The S&P 500 gained 13.44 points, 0.45%, at 2,993.07. The S&P 500 hit 3,000 for the first time, after the Fed chairman signaled an openness to cutting interest rates soon amid signs of economic weakness. The Federal Reserve chair, Jerome Powell, in testimony before Congress Wednesday, raised concerns about a global slowdown hurting the U.S., laying the groundwork for a cut later this month.

Powell testimony, FOMC minutes build expectations for a rate cut at July 30-31 FOMC. Fed Chairman Jerome Powell’s testimony on monetary policy before the House Financial Services Committee gave clear signals the U.S. central bank is likely to lower interest rates at the July 30-31 Federal Open Market Committee (FOMC) meeting. He highlighted concerns about trade uncertainty, business investment and other factors that have the Fed concerned. Those concerns first emerged after the June 18-19 FOMC meeting where St. Louis Fed President James Bullard voted against leaving rates steady, instead backing a 25-basis-point cut in rates. Powell said in his post-meeting press conference that many members of the Fed backed lowering rates, but agreed they needed to see more information before taking such a step. The minutes from that FOMC session, also released Wednesday, echoed those sentiments and contained several references to concerns by Fed members. The combination helped support financial markets and boosted expectations for an even bigger rate cut at the July 30-31 session after those odds dwindled after the strong jobs report. Powell reprises his testimony today before the Senate Banking Committee.

Federal Reserve Chairman Jerome Powell said Facebook’s proposed cryptocurrency project poses “serious concerns” and warned the company against a “sprint toward implementation.” Testifying before lawmakers on Wednesday, the Fed chairman raised questions about how Facebook’s Project Libra could affect “privacy, money laundering, consumer protection and financial stability... It cannot go forward without there being broad satisfaction with the way the company has addressed” those concerns, Powell told the House Financial Services Committee. “All of those things will need to be addressed very thoroughly and carefully.” Set to launch next year, Libra would allow users to send and receive money through exchanging a proprietary cryptocurrency backed by dozens of major corporations, including Facebook.


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