WSJ: Trump Admin. Mulling Additional Boosts for Ethanol; Curbing RFS Waivers

Posted on 06/18/2019 7:04 AM

Trudeau to push USMCA | EU, Japan signal stimulus/rate cuts | Biodiesel

Another dose of Trump-led help for the U.S. ag sector is being mulled for corn. The Wall Street Journal reports (link) that President Trump has direct EPA Admin. Andrew Wheeler and USDA Sec. Sonny Perdue to come up with a new plan relative to ethanol that includes curbing RFS waivers, a consistent and loud request from corn industry lobby groups.
     The one sure thing about the World Trade Organization (WTO) is that it takes a long time for anything to occur. Another certainty: Questions raised are just that, questions and that is what member nations are asking about the Trump administration’s second installment of the Market Facilitation Program (MFP 2). Answers when they come will not have any impact on the operation of the program.
      The U.S. is bolstering its military presence in the Middle East. The Trump administration is sending 1,000 more troops in response to "hostile behavior" from Iran.
      Prime Minister Justin Trudeau of Canada is planning to discuss the new USMCA with the House Speaker Nancy Pelosi (D-Calif.) and the Senate majority leader, Mitch McConnell (R-Ky.), this week, several reports note.
     The yield on 10-year Treasuries sank to 2.05% following ECB President Mario Draghi’s move to put stimulus on the table in order to combat slowing growth. Draghi said the central bank could cut interest rates again or provide further asset purchases if inflation doesn’t reach its target. "If the crisis has shown anything, it is that we will use all the flexibility within our mandate to fulfill our mandate — and we will do so again to answer any challenges to price stability in the future," he told an audience in Sintra, Portugal.
     The comments by Draghi also caught the attention of President Donald Trump. Via Twitter, Trump said, “Mario Draghi just announced more stimulus could come, which immediately dropped the euro against the dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others.”
     The Fed today begins a two-day meeting that will likely assess the next downward cut in interest rates. Many analysts predict the Fed will telegraph such a move after this week’s meeting ends, but hold off actually doing it until next month.
     Saudis to push for OPEC cuts, despite tanker attacks. Saudi Arabia is set to push for the oil group to cut output in the second half of the year, as signs of slowing global demand for crude outweigh threats of war and worries about supply disruptions in the Middle East. Link for details in WSJ article.
     Eventual key question for corn market bulls: If there were declining prospects for U.S. corn exports when futures were at $4, how much more of an impact if futures hit $5?
     Financial woes rising in U.S. farm country. Going into the 2019-crop marketing year, ag financial analysts said this would be a key year because farmers had drained more than 70% of their working capital since the peak in 2012. Despite higher prices for some commodities, the likely below-trend yield, at least for corn and perhaps for soybeans, is raising a lot of concern in the farm sector.

     Facebook unveils new cryptocurrency. Libra, as it is called, has backing from big, corporate partners including Visa, Mastercard, PayPal and Uber. In the most ambitious effort so far to take blockchain payments mainstream, Facebook plans to make the service available on Messenger and WhatsApp as well as a stand-alone app.
    Bitcoin rally tops $9,000. The price of the cryptocurrency rose above $9,000 to a 13-month high, extending a rebound that has made cryptocurrencies far outperform traditional asset classes this year.
     The Dow and S&P 500 have now erased more than 70% of their May losses during June, with the Nasdaq regaining about 60% of its May decline.


WSJ: Trump administration mulls boosting ethanol further by curbing RFS waivers. The Trump administration is considering curbing waivers that help small oil refiners avoid ethanol mandates, the Wall Street Journal reports, citing people familiar. No decision has been made, but the possible action would aim to help farmers affected by China tariffs.


     President Donald Trump directed EPA Administrator Andrew Wheeler and USDA Secretary Sonny Perdue to come up with a new plan relative to ethanol as they returned with Trump on Air Force One from a visit to Iowa last week, according to the WSJ (link). The report said Trump was “surprised the expansion of ethanol sales year-round hadn’t satisfied farmers.” The steps under consideration, according to the report, are not necessarily new — a limit on the use of small refiner exemptions (SREs) from Renewable Fuel Standard (RFS) obligations. Farmers told Trump at the Iowa stop that the year-round sales of E15 were not a big boost since the SREs continue to be granted. 


— Perspective on WTO member questions about Trump administration’s MFP 2 program. Several WTO member countries have submitted questions, as expected, about the second installment of the Market Facilitation Program. The questions are just that and are not expected at all to impact the operation of the package.

asked the U.S. to “elaborate as to how this announcement made in the middle of the U.S. planting season ‘will not distort planting decisions?’”

noted that USDA Secretary Sonny Perdue claimed the trade aid package announced in 2018 would be all that farmers would get.

— U.S./China trade policy update:

  • China’s Treasury holdings fell to their lowest level in two years in April, increasing concerns about the impact of the Sino-American trade war on the largest foreign creditor to the US government. The country’s holdings fell $7.5 billion to $1.1 trillion, their lowest level since April 2017. The latest selling activity came before the trade dispute between Beijing and Washington intensified in May. Except for a small net purchase in February, China has now sold Treasuries every month since September 2018.
  • Sourcing from other countries besides China will raise costs, in many cases more than the 25% tariffs, U.S. companies told a panel of officials from the USTR, the Commerce and State Department, and other federal agencies on Monday. Moving operations to Vietnam and other nations will also not be feasible for years due to a lack of skills and infrastructure in those locations.
  • The U.S. blacklisting campaign against Huawei is additionally taking a toll, with the company’s founder forecasting a hit to revenue of about $30B this year and next.
  • China to suspend pork imports from Canadian firm. China will halt imports of pork from Canadian firm Frigo Royal Inc. after finding ractopamine in shipments from the firm, according to the Chinese General Administration of Customs. Inspections for ractopamine will be increased on all imports of pork from Canada, according to the agency, with the country previously cautioning Canada that it would open all containers of meat and meat products from Canada and may inspected 100% of the contents. China in April halted imports from Canada’s Olymel LP and Drummond Exports due to labeling problems.
  • With tensions between the U.S. and China threatening to slow down global trading volume even further, export-reliant economies such as Japan, South Korea and Taiwan will likely be most badly hit, according to an economist from Moody's Analytics.

— USTR Lighthizer begins first of two days of hearings on Trump trade policy. U.S. Trade Representative Bob Lighthizer is up today before the Senate Finance Committee, his first appearance since trade talks with Beijing collapsed in early May. Lighthizer will testify before the House Ways and Means Committee tomorrow.

Auto tariffs. One issue relative to Trump’s trade agenda, and his negotiations with Japan and the European Union, is his threat to slap tariffs on autos and car parts. Last month, Trump said he would delay that decision, while instructing Lighthizer to negotiate agreements that would reduce imports of those goods.

— Vietnam culls 2.5 million pigs in bid to halt ASF. Vietnam has culled more than 2.5 million pigs in a bid to contain the spread of African swine fever (ASF) that has spread to farms in 58 of 63 provinces in the country. Reuters reported than an unnamed official at the country’s Department of Animal Health said it was “only a matter of time” before ASF arrives in all 63 provinces. Vietnam’s Ministry of Agriculture and Rural Development indicated in 2018 there were 30 million pigs in Vietnam, raised in a combination of small “households” and in commercial operations. The country reported its first case of ASF in February.

— Biodiesel in House tax extender bill. An extension of the lapsed biodiesel tax credit is part of the tax extender legislation that the House Ways and Means Committee may mark up as soon as Thursday. Details of the measure are subject to change before it is publicly released. Other breaks that expired at the end of 2017 include a credit for short-line railroad track maintenance.

Details. The language is expected to restore the biodiesel tax credit retroactively to 2018, and the authorization is expected to cover the next one or two years.

Perspective: The House approach is not expected to be the final language on this matter as congressional sources are more closely watching Senate action ahead that will be led by Finance Chairman Chuck Grassley (R-Iowa). The outlook for this issue has long been a chance for tax incentive extenders to be added to a must-pass end-of-session spending measure. That strategy has not changed.

— EPA to unveil final CPP replacement plan Wednesday: Politico. EPA Administrator Andrew Wheeler will release the agency’s final Affordable Clean Energy (ACE) rule, the rule aimed at replacing the Obama-era Clean Power Plan (CPP), according to Politico. The plan is not expected to vary significantly from the proposed effort released in 2018. The proposed ACE rule outlined technologies that states could use to require efficiency upgrades at coal-fired power plants, a shift from the CPP effort that called on states to shift away from coal and toward natural gas and renewable energy sources.

— Biden: End some tax breaks to address poverty, health care. Former Vice President and 2020 Democratic presidential candidate Joe  Biden told a clergy-led group focused on fighting poverty Monday that the U.S. could afford free community college and “total health care” if it rolled back parts of President Donald Trump’s signature 2017 tax overhaul. “We have the greatest income inequality in the  . . .  United States of America since 1902. The fact here is, there is plenty of money to go around,” Biden said. “This isn’t about punishment.  . . .  This is just plain fairness. Simple, basic fairness. And we have all the money we need to do it.”

Among other things, he suggested that eliminating certain tax credits and other provisions would pay for universal access to Medicaid. “I think everyone is entitled to have total health care,” he said. “Every single person in the United States should have access to Medicaid right off the bat.”

After his appearance, a Biden spokesman clarified his position, saying Biden would provide “access to a Medicare-like public option” and not charge premiums to people who would qualify for Medicaid if their states had expanded it under the provisions of the 2010 health care law.

Other items of note:

  • President Trump has ordered an additional 1,000 troops to the Mideast, after Tehran announced that it would soon violate part of the 2015 nuclear deal. Iran has abided by the terms of the Obama-era agreement since the U.S. withdrew last year. But Tehran said on Monday that it would exceed the limits on uranium stockpiles within days unless European countries helped it circumvent American sanctions. Here’s a look at the background of the dispute. The additional troops come after 1,500 were deployed in May. They will be used mainly for surveillance and protecting American forces already in the region.

  • Tanker activity near the Gulf of Oman is dwindling and freight rates for crude carriers in the region are soaring. The sparse activity across the region reflects the high anxiety hitting shipowners in the days following attacks that crippled two tankers, the Wall Street Journal reports (link), and heightened risks of transporting crude through Middle Eastern waters. Ship brokers say rates for moving oil there have jumped as much as 50%. Some 70 large crude carriers, or 10% of the world’s supertanker fleet, remain near the Strait of Hormuz, but many are idled as they await business, the article detaied. Tanker Heidmar Inc. says it would “exercise extreme caution when considering new contracts in the region.” While the U.S. and Iranian governments trade accusations, oil prices have been climbing and could go still higher if the security threat continues.

  • Trump said millions of undocumented migrants would soon be deported. The president tweeted last night that Immigration and Customs Enforcement would next week begin to remove millions of people from the country. He also said that Guatemala would sign an agreement (paywall) that would require asylum-seekers to claim refuge there.

  • The U.S. gov’t cut aid to Central America. The Trump administration reallocated or suspended a total of $550 million earmarked for El Salvador, Guatemala, and Honduras, citing the volume of asylum-seekers from those countries, according to Reuters.

Markets. The Dow on Monday rose 22.92 points, 0.09%, at 26,112.53. The Nasdaq gained 48.37 points, 0.62%, at 7,845.02. The S&P 500 added 2.69 points, 0.09%, at 2,889.67.

The Federal Reserve is meeting today and Wednesday. Traders are watching to see if the central bank will signal its intention to cut rates later this year.

The European Central Bank signaled it's open to further stimulus. ECB President Mario Draghi said the central bank could cut interest rates or purchase assets if inflation falters. The ECB “in the coming weeks” will consider adjusting monetary policy “commensurate to the severity of the risk” to the economic outlook, Draghi said in remarks to an ECB research conference in Portugal. The ECB, he noted, could take action to create more room for new bond buys in its 2.6 trillion euro ($2.9 trillion) quantitative easing (QE) effort. Earlier this month, the ECB signaled it would not raise short-term rates until after the middle of 2020, but these comments mark a further shift towards easing. Draghi indicated there was a “lingering softness” in economic data, stating, “In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required.” He also called on governments to bolster their fiscal spending and make progress on a common budget tool for the Eurozone. This marks another central bank signaling that easing of policy may be their next step, underscoring concerns about the global economic situation. The Draghi remarks also come as the U.S. Fed starts its two-day meeting, with increased talk of the Fed moving toward a rate reduction.

Bank of Japan’s Kuroda says rate review meeting this week to include discussion on ‘uncertainties.’ The Bank of Japan (BOJ) will debate economic risks at this week’s rate review, including U.S./China trade tensions and the latest developments on Brexit, according to BOJ Governor Haruhiko Kuroda in remarks to the country’s parliament. "The BOJ will guide monetary policy appropriately taking into account the impact overseas economic changes could have on Japan's economic outlook and the momentum for achieving our inflation target," he said. He noted uncertainty over the global economic outlook is “high” and the central bank would “certainly” discuss rising overseas economic risks at the session.

Facebook unveiled a consortium to create an open-source digital currency called Libra, set to launch in the first half of next year, which would allow consumers to send money around the world easily and for free. While Libra won't be run by Facebook — but rather by a nonprofit association and backed by relatively stable government money —  the company does have a plan to profit from it with a new subsidiary, Calibra, which is building a digital wallet for storing and exchanging the currency.


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