USDA Surprises Grain Industry with Big Model-based Cut in U.S. Corn Yield

Posted on 06/12/2019 5:36 AM

Doud laments lack of market access for U.S. ag products in China

It isn't often that USDA's World Board surprises bullish traders and analysts who bend toward a lower crop size. But USDA's model-based 10-bu. cut in this year's corn yield did, indeed, surprise. Analysts who usually use a lot of exclamation marks in their outlook commentary are already saying harvested acreage will likely be cut ahead. They do not, however, say what others are saying: that USDA's 2019-20 corn export estimate appears a tad too high. That will likely be lowered, especially if the corn crop declines further. Also, you can always tell a perhaps too bullish-biased estimate when an analyst does not cut demand forecasts enough relative to a robust cut in production.
     Frustration was evident in a Tuesday House Ag subcommittee panel hearing on trade policy, especially when it came to China. Gregg Doud, the top U.S. ag negotiator at the USTR, said, “I can say an important element of our negotiations has been to resolve a large number of unwarranted and longstanding trade barriers to U.S. agricultural exports. I hope that China will make real structural changes across the range of unfair policies and practices that yield actual, verifiable, and enforceable results.” Doud, known for his candor, said there’s been no U.S. poultry sold to China since a high-path avian influenza outbreak in 2015. Ractopamine issues have adversely affected U.S. pork sales, according to Doud, and after being allowed following a 15-year ban because of BSE, beef sales to China have amounted to “a thimbleful.” Responding to questions from panel members, Doud said regarding China: “We can’t sell them pet food, rice, dairy, animal feed, seafood, potatoes, nectarines, blueberries, barley, alfalfa, almond meal, timothy hay. We don’t have access.”
     Coming June 18: U.S. Trade Representative Bob Lighthizer will testify at a Senate Finance Committee hearing to discuss Trump’s trade agenda. That should prove interesting.
     NPPC official: China trade war thwarting major pork export opportunity. The trade war with China threatens to spoil one of the biggest pork export opportunities in history, a top official at the National Pork Producers Council said Tuesday, according to a report from Politico. China is expected to significantly boost pork imports as it culls its herds because of an outbreak of African Swine Fever. The U.S. is a low-cost producer that should be able to dominate the market — if not for the hefty retaliatory duty that U.S. pork exports now face because of duties imposed by Trump over the past year, NPPC Vice President Nick Giordano said. “Unless the U.S. and China soon settle their trade dispute, what should be a time of enormous prosperity and growth for U.S. hog farmers will instead fuel jobs, profits and rural development in competitor nations,” he said at an event hosted by the Global Business Dialogue, a forum to discuss trade issues.
     Regarding “big” and “immediate” Mexican buys of U.S. farm commodities that President Trump tweeted about last week before the U.S./Mexico agreement was announced, Doud said, “I don’t have any details to that regard.” USDA Undersecretary Ted McKinney said he had nothing to add except that “we’ve got things in line if they are serious about wanting to make some immediate purchases.” He later suggested Trump was referring to a return to normal growth in U.S.-Mexico trade without tariffs in the way. “We do anticipate exactly what the president said in terms of restored, new, reinvigorated sales to Mexico,” the undersecretary added. Rep. Angie Craig (D-Minn.) said it “seems odd that the president has made this announcement and has yet to tell” two of his chief agriculture and trade officials. “So is the president promising additional purchases without that being true, or has [USDA and USTR] just not been told yet what the president is promising?” she asked.
     Frustration is also the word for the U.S. corn industry when it comes to past refinery exemptions from the Renewable Fuels Standard (RFS). RFS, notably the ethanol mandate, has been the real kingpin of corn policy for years. But now it's protecting that mandate that is so important, especially when it comes to refinery exemptions from the EPA. While President Donald Trump was on stage in Iowa on Tuesday, Kevin Ross, first vice president of the National Corn Growers Association, told Trump in blunt terms: “I ask you to listen again. The pain the ethanol and biodiesel industries have endured is holding back a farm economy that has further capacity to produce more clean air and clean liquid fuels for this country. At issue now is that EPA has yet to grant or deny 39 pending small refinery exemption petitions for oil companies.
     Finger-pointing and a clear attack mode was evident in a Tuesday hearing on the EPA. "I'm here for one reason and one reason only. And it's not to weep about all my precious rules being rolled back. Though I admit that the constant roll-back is beginning to tick me off a bit," said Gina McCarthy, in her first appearance before Congress since heading the EPA under former President Obama. "I'm here to remind the political leadership at the EPA that what they do matters, and it's time for them to step up and do their jobs. Just do your jobs. Right now, this administration is trying to systemically undo health protections by running roughshod over the law." EPA counterparts from Republican administrations of Reagan and George W. Bush echoed McCarthy's comments. "Today, as never before, the mission of EPA is being seriously undermined by the very people who have been entrusted with carrying that mission out," Christine Todd Whitman, a moderate from New Jersey who headed the agency under former President George W. Bush, said in her opening remarks. She noted a retreat from science, the influence of regulated industries, a disinterest in addressing climate change and a lack of a focus on public health as areas for concern. "This unprecedented attack on science-based regulations designed to protect the environment and public health represents the gravest threat to the effectiveness of the EPA — and to the federal government's overall ability to do the same — in the nation's history," she said.
     More “new” details regarding MFP 2. USDA Undersecretary Ted McKinney on Tuesday indicated the new payments to farmers could be based on multiple years of production levels. “We have changed how that’s calculated. It’s not just a one-year look back, it’s looking back over several years,” he said at a hearing. But sources had previously indicated a multiple-year formula was likely. Regarding payouts, USDA has said the $14.5 billion in direct aid will come in three tranches, with the first one in July or early August, and the other two will follow later this year if trade conditions don’t improve. McKinney said he expects the first tranche “will be heavier because of the immediate need.”
     Here we go again: a budget brouhaha. House Budget Committee Chairman John Yarmouth (D-Ky.) on Tuesday said he’d been told that acting White House Chief of Staff Mick Mulvaney wants to delay a deal until “as close to Sept. 30 as possible” to maximize leverage. President Trump, Yarmouth added, “has his own ideas” as the “unpredictable” third element in budget talks, he said.
     Was there a “secret” U.S./Mexico agreement? That is President Trump's word for it, as he held up what looked to be a one-page document containing more details of the U.S./Mexico accord that suspended new U.S. tariffs for 90 days. Trump administration officials, and not-so-subtle hints from the president, have suggested Mexico signed off on becoming a safe third country status. But Mexico officials said that may be the case only if after 45 days enough progress on announced agreement details are deemed insufficient. Safe third country status would mean migrants seeking asylum would have to make such a request in the first safe country they crossed. Under such status, that country for many Central American migrants would be Mexico.
     Trump paper


Other items of note:

  • Another reason why America is so divided comes from the New York Times, which notes that it is the first time in more than a century that all but one state legislature is dominated by a single party, and lawmakers have pushed in opposite directions. Link for details.

  • The importance of the rural vote was very clear in Iowa on Tuesday as Trump and Joe Biden, the current front-runner for the Democratic nomination, highlighted farm issues in the state as they blasted each other. “We will never stop fighting for our farmers and our country,” Trump said at an event in Council Bluffs. “Our politicians let other countries push us around, treat us badly, treat our country with no respect — and you’d see that with Biden.” Biden, at a campaign event in eastern Iowa, said he hoped Trump’s presence in the state “will be a clarifying event because Iowa farmers have been crushed” by the president’s trade war with China. Biden in the recent past said China was no competition to the United States, but has since backtracked on that matter.

  • Trump on Tuesday directed federal agencies to “streamline” regulations for agricultural biotechnology. The executive order is aimed at boosting investment in biotechnology, but the White House offered few details.

Markets. The Dow on Tuesday closed down 14.17 points, 0.05%, to end at 26,048.51. The S&P 500 lost 1.01 points, 0.03%, to close at 2,885.72, and the Nasdaq Composite fell 0.60 points, 0.01%, to end at 7,822.57.

Ahead of the Federal Reserve’s scheduled meeting next week, President Trump renewed his criticism against the central bank on Twitter, writing that the strong dollar is putting the U.S. ”at a huge disadvantage” and that the target rate is “way too high” due to the “ridiculous quantitative tightening.”

Extreme weather drove the growth in energy demand last year to its highest level since 2010, triggering warnings of a “vicious cycle” fueled by reliance on heating and cooling systems that could worsen the world’s carbon emissions crisis. Oil and gas group BP said in its annual market review that energy consumption grew 2.9% in 2018, led by China and the U.S., despite modest economic growth and strengthening oil and gas prices.

Kudlow sees 3% U.S. economic pace even with no China pact; says USMCA more important. White House economic adviser Larry Kudlow told CNBC the U.S. economy is “very strong” and should maintain a 3% pace this year even without a China trade agreement. He said in economic terms, the pending USMCA trade accord to replace NAFTA is more important than a U.S.-China deal. He also said it looks increasingly like the bond market agrees with him and President Trump that the Fed in the fourth quarter moved “too far, too fast.” He quickly added that he is not treading on Fed independence and that the Fed “will do what they are going to do on their own timetable.”

Veggie burger maker Beyond Meat tumbles 25% after JPMorgan cut. The warning on valuation certainly aided investors who had shorted the stock.


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