China urges key industries to return to work | Perspective on Senate Dem's MFP 2 report
In today's updates:
* USDA's WASDE report today will likely add more, not less, confusion re: China
Markets: U.S. stock index futures are pointing to a higher open on Wall Street today as equities look to continue Monday’s rally.
Popeyes chicken sandwich continues to be a hit. Restaurant Brands International reported that the fast-food fried chicken shop saw sales jump 42% last quarter with CEO Jose Cil saying that the new chicken sandwich "has proven to be a game-changer for the brand in every way.”
— U.S./China trade policy update:
- USDA's WASDE report today will likely add more, not less, confusion to China's commitment to purchase $80 billion of farm products over two calendar years. Why? No commodity dollar or tonnage amounts have been provided to the public nor to USDA analysts. And, China's calendar commitments will cover several crop marketing years. This will not stop some from using today's USDA report to predict what China may purchase, but the forecasts today will hardly reflect that situation. The WASDE report should contain a brief explanation of how the Phase 1 accord with China factors in to today's forecasts, but observers hope USDA's explanation is better written than the department's multipage attempt at it last week. And all this occurs before what some expect to be an eventual Chinese request for a delay in its purchase commitments due to the coronavirus outbreak.
— Coronavirus update:
- Death toll from the coronavirus outbreak has topped 1,000, and infected more than 42,000. The virus has spread to at least 25 other countries. The U.S. has reported 13 cases so far, the latest of which was confirmed in San Diego, California, on Feb. 10. On Feb. 6, the first U.S. citizen died from the virus in Wuhan. The person was 60 years old. The New York Times reported it was a woman with underlying health conditions. An epidemiologist who is heading to the World Health Organization’s emergency meeting on Tuesday lists what is known, and not yet known, about the virus — link to New York Times article.
- China's coronavirus epidemic may peak in February and then plateau before easing, the government's top medical adviser on the outbreak said. In an exclusive interview with Reuters, Zhong Nanshan, a leading epidemiologist who won international fame for his role in combating the SARS epidemic in 2003, said the situation in some provinces was already improving, with the number of new cases declining. Zhong, who had previously predicted an earlier peak, said the forecast was based on modelling and developments in recent days, as well as government action. "So, we suppose maybe, the peak time may be reached at the, maybe middle or late this month, February ... and then keep a little bit plateau or something like that and, then going down," he said.
- “It could be the spark that becomes a bigger fire. But for now it is only a spark,” said WHO chief Tedros Adhanom Ghebreyesus regarding coronavirus. Chinese officials have warned that the virus is mutating, which could make it harder to control and treat. Gao Fu, the director-general of China's Center for Disease Control and Prevention, said the virus was adapting and changing — making it harder to fight.
- There are no vaccines to prevent humans from contracting a coronavirus. Five leading drug companies — Johnson & Johnson, Regeneron Pharmaceuticals, GlaxoSmithKline, Moderna, and Gilead Sciences — have announced plans to research and develop treatments for the new coronavirus.
- Two new hospitals have been built in Wuhan. Construction on each lasted just 10 days.
- Xi Jinping emerges for the first time in China’s coronavirus outbreak. The Chinese leader went to Beijing’s Chaoyang district on Monday and visited a residential community to understand more about their work in fighting coronavirus. Xi has been absent from view since the outbreak and has still not made any visits to Wuhan.
- China urges key industries to return to work. The Chinese government today asked key industries related to the national economy and the people's livelihood to resume work immediately, which had been shuttered after Beijing extended the Lunar New Year holiday to contain the spread of the coronavirus. So far, grain production and processing is at 94.6% of total capacity, while coal mining was at 57.8% of total capacity, an official said. In a "letter to farmer friends" Chinese agricultural officials urged farmers to go into fields to prepare for spring planting while taking care to wear masks, wash hands, and avoiding congregating in groups. A circular issued by the Ministry today gave similar instructions, warning village officials not to demand unauthorized transport permits or to block roads without approval from county or higher governments in order to ensure that seeds and inputs needed for spring planting can reach villages. The letter closed by reminding farmers to wear masks when leaving home, wash hands when returning, and to avoid congregating in groups while in fields. The circular ordered local officials to ensure that farms and workers go into the fields in an orderly manner at separate times and divide work.
- Coronavirus may have cost China’s retail and food service sectors billions of dollars in sales during the Lunar New Year week, according to a leading food and agricultural bank. Revenue lost in both retail and food services during the Lunar New Year week could range from 20% to 80%, representing a fall of $31 billion to $124 billion, as major chains shuttered stores across the country, Rabobank said in a report. Some highlights from the Rabobank report:
— Food and beverage necessities like soft drinks are resilient to the virus while frozen foods, ready meals and bottled water may benefit due to panic buying.
— Alcoholic drinks will be more affected, especially baiju, a Chinese spirit where 30%-50% of full-year revenue comes during festival holidays. Wine and beer sales to also suffer.
— Impact on farm products will be limited in short-term as manufacturers usually have raw material inventory to last 45 days, so this will tie them over until the end of February.
— Chinese animal feed consumption will remain stagnant in the short term as the virus postpones farmers’ decision to rebuild hog herds and poultry farms cull stock.
— Animal protein consumption likely dropped greatly in January and February, and demand will remain weak throughout the first half of this year if the virus isn’t brought under control until May-June.
— Perspective on Senate Ag Committee Democrats' revised report on MFP 2. Sen. Dick Durbin (D-Ill.), said, “Once again, USDA has overcompensated southern cotton growers, whose market losses are small and whose prices have gone up, with more aid on a county-by-county basis than Illinois’ soybean farmers.” What? Cotton growers have small market losses? As for Illinois growers getting less aid on a county-by-county basis, Illinois growers have received $1.095 billion this time around (second only to Iowa) and the Ag Secretary’s home state of Georgia has received $235 million. If you look at average payments per county, that would be $10.74 million per county (102 counties) in Illinois and $1.48 million per county (159 counties) in Georgia. So, payments per county in Illinois are more than seven times higher than in Georgia. Link to Senate Democrats' report.
Bottom line: Some lawmakers and staffers are trying to use regional inequity — even when their region is getting more than any other region in the country.
— Trump again pushes $1 trillion infrastructure plan, but not the means to pay. President Donald Trump on Monday reiterated his 2016 call for a major investment into the nation's highways, bridges, broadband and other infrastructure, but offered no direct suggestions on how to pay for it. In his FY 2021 budget proposals, Trump called for a $1 trillion, 10-year investment into infrastructure. The bulk of that would be via the $810 billion highway bill over the next decade. But Trump’s proposal also calls for an investment of $190 billion in additional infrastructure spending over time, peaking with a $47 billion investment in fiscal 2024. Next year’s infrastructure investment would be $5 billion, according to tables released with the spending proposal.
In a two-page addendum laying out Trump's infrastructure plans, the administration broke down how the additional $190 billion would be spent:
- $60 billion for “core infrastructure” grants that could be spent on everything from roads, bridges, pipelines, drinking water and waste treatment.
- $50 billion for easing congestion along key freight routes, including highway, rail, port and waterway freight networks.
- $35 billion to rebuild the 47,000 bridges in the U.S. that are classified as in “poor condition.”
- $25 billion for “revitalizing rural America,” including investments in broadband, water, and other infrastructure projects.
- $20 billion for transit “state of good repair” programs, aiming to rehabilitate existing transit systems.
The money would be distributed via formulas to states, territories and tribes.
The legislative language of the administration’s highway reauthorization program is still under review, administration officials said.
The House is planning a $760 billion, five-year proposal Democrats say includes expanded broadband access, drinking water systems, clean energy systems and other infrastructure beyond surface transportation programs. That legislation, still in development, is to include $329 billion for highways.
An alternative Senate plan will wind its way through several panels.
— What you need to know about Trump's FY 2021 budget proposals:
- Most will go nowhere in Congress.
- Farm-state lawmakers of both parties have been cool to past proposals to reduce federal crop insurance subsidies for farmers’ premiums and other changes to agriculture programs. They will be reluctant again.
- The Trump administration has generally not pursued proposed changes beyond the initial budget request, but the administration has turned to the regulatory process to bypass Congress in pursuing changes to SNAP/food stamps.
- The budget may influence some of the substance of discretionary spending decisions by Congress (programs subject to annual appropriations), but for mandatory spending, including the 2018 Farm Bill’s commodity and conservation titles and Federal Crop Insurance, the proposed budget has no impact.
- Congress will not even write a budget this year. Rep. John Yarmuth (D-Ky.), chairman of the House Budget Committee, has already stated that the House will not write a budget this year. Similarly, it is doubtful that the Senate will bother to write a budget this year. Reason: the two-year spending agreement reached last year already establishes this year’s spending limits so a budget is not needed for this purpose.
The following are some trash-can proposals Trump's budget made for the Farm Service Agency and Risk Management Agency:
Farm Service Agency:
- Limit Commodity Title and Conservation Title programs to producers under $500,000 AGI.
- Eliminate generic certificates.
- Eliminate separate pay limit for peanuts.
- Subject Marketing Assistance Loans to $125,000 pay limit.
- Limit all farms to one manager.
- Eliminate EAAP for upland cotton.
- Eliminate LFP.
Risk Management Agency:
- Eliminate the 508(h) process.
- Limit crop insurance premium support to producers with under $500,000 AGI.
- Reduce premium support for HPO coverage by 15 percentage points and reduce all other premium support by 10 percentage points other than catastrophic level of coverage.
- Cap underwriting gains at 12% as it is misleadingly defined.
— Former Iowa governor and USDA Sec. Tom Vilsack celebrates after winning a portion of the Powerball prize. The Iowa Lottery said Vilsack claimed his $150,000 winnings Monday. The money stems from the Jan. 22 Powerball drawing, where the jackpot was estimated at $347 million. "Occasionally when the Powerball gets above $250 million, I think, 'What the heck?' You know, you can dream, like everybody else," Vilsack said. "And I also know that the chances of me winning anything are next to none and so the money is going to go to education or veterans or the state fund for natural resources or infrastructure, or all the good things that the lottery does. So, I figure it's a good contribution."
Vilsack said he forgot about the ticket until 10 days after the drawing and decided to check the numbers. He matched the Powerball on one of the easy-play picks and then realized he’d matched all the other numbers — save for one. "And I said, 'My gosh, I got every number but one!'" he said. "So then it was, 'Well, geez, when you get every number but one, surely they've got to give you like $10 or something.'" After double-checking the numbers on the lottery’s website he realized the ticket was worth $150,000. Just to be sure, Vilsack also checked with his eldest son who lives next door.
Vilsack has plans for the money: “The church is going to get a little bit of it, St. Boniface, I'm going to send that check out today," he said. "And the kids are going to get a little bit because you always try to help your kids out. And then the rest is going to go to my banker. And he's going to be very pleased to get it. Because we still have an outstanding mortgage from many years ago and this will help pay it down to the point where retirement can be a little bit more comfortable than it might have otherwise been."
Vilsack served as Iowa’s governor from 1999-2007, and has also served as U.S. Secretary of Agriculture under the Obama administration. He’s currently the president and CEO of the US Dairy Export Council.
— RFA unveils study outlining ethanol's contribution to U.S. economy. The U.S. ethanol industry supported almost 350,000 jobs and generated $43 billion in US economic activity in 2019, according to an analysis released by the Renewable Fuels Association (RFA). The contribution of $43 billion to U.S. GDP in 2019 marked a 7.7% decline compared with 2018. “A major reason for the lower GDP impact can be traced to reduced industry earnings,” the analysis said. Meanwhile, manufacturing activity linked to ethanol production stood at an estimated $15.5 billion in 2019, down from the $14 billion ethanol saw in 2018. The study was conducted for RFA by ABF Economics. Link to report.
— Other items of note:
- New Hampshire Democratic presidential primary, the second contest in the 2020 race, is today. Bernie Sanders is leading in the polls, and Pete Buttigieg isn’t far behind.
- House GOP leader to unveil carbon capture/climate plan. House Republican Leader Kevin McCarthy (R-Calif.) will release the carbon capture portion of a climate plan he is crafting with Republican colleagues on Wednesday, according to a spokesman.
— Markets. Stocks rose on Monday, with the S&P and the Nasdaq setting new highs. The Dow increased 174.31 points, 0.60%, at 29,276.82. The Nasdaq moved up 107.88 points, 1.13%, at 9,628.39. The S&P 500 rose 24.38 points, 0.73%, at 3,352.09.
Federal Reserve Chairman Jerome Powell is scheduled to testify on the seminannual monetary policy report to Congress before the House Financial Services Committee in Washington this morning. Powell will likely be asked about the coronavirus when he begins two days of congressional testimony this morning. Powell will most likely note that it doesn't change the fundamental outlook for the U.S. economy.
The U.S. got its first digital national bank. Varo Money has received a national bank charter from the Federal Deposit Insurance Company (FDIC) after more than three years of trying. It’s much more common for digital upstarts to partner with traditional banks prior to launching online.