Biden to Call on Congress to Suspend Gas and Diesel Tax for Three Months

Grassley says votes in place in Senate Ag panel and full Senate for livestock bills

This is an abbreviated dispatch as I am in Lebanon, Pa., scheduled to speak at a hog and poultry meeting.

Equities: Futures signal a return to sharp losses in U.S. markets. The S&P 500 is now poised for its worst first half since Richard Nixon’s presidency. With just seven trading days left until the end of June, the index is down 21% since the beginning of the year. In Asia, stock markets mostly declined. The South Korean won fell against the dollar to its lowest level in 13 years.

Markets: Treasury yields are down, and the dollar is up as investors turn to safer assets. The U.S. dollar index is a bit firmer in early trading. The yield on the 10-year U.S. Treasury note is fetching 3.218%. Shares of energy producers are slipping premarket, tracking a 4% decline in crude prices, amid fears of falling demand. Wall Street's fear gauge, the CBOE Volatility Index, is up 4%.

Ag markets: Wheat futures were supported by corrective buying overnight though the market is well off its highs this morning. Soybeans faced active followthrough selling. As of 6730 a.m. ET, corn futures were trading fractionally to 4 cents higher, soybeans were 10 to 19 cents lower, SRW wheat was 18 to 20 cents higher, HRW wheat was 13 to 15 cents higher and HRS wheat was 4 to 8 cents higher. Front-month U.S. crude oil futures were down nearly $5 and the U.S. dollar index was around 100 points higher this morning.

Treasury Secretary Janet Yellen said the Fed can combat inflation without unemployment rising significantly. The tight labor market that formed over the past two years, as the economy recovered rapidly from a brief pandemic recession, could aid the Fed in combating inflation, Yellen said.

Federal Reserve Chairman Jerome Powell appears before the Senate Banking Committee today to deliver the central bank's semiannual monetary policy report to Congress. Inflation and interest rates will be two prime topics.

Russia/Ukraine: Germany’s first shipment of heavy weapons to Ukraine has arrived, after weeks of mounting criticism that the EU’s largest country was not doing enough. Russian artillery crews are firing roughly ten times as many rounds as Ukraine, according to Valery Zaluzhny, Ukraine’s army chief. In a speech on Tuesday the country’s president, Volodymyr Zelenskyy, said that the country was fighting every day to get modern weapons.

India is telling oil companies to load up on discounted Russian crude. The Indian government has asked state oil companies to scoop up huge volumes of cheap crude from Russia, according to industry executives.

Russia, Turkey agree to more talks on restarting Ukraine grain exports.  Russian and Turkish delegations have agreed to continue consultations on the safe exit of Turkish merchant vessels and grain exports from Ukrainian ports, Russia’s defense ministry said. Turkey’s TRT Haber broadcaster said talks between the Turkish and Russian military officials were “positive and constructive.” A Turkish dry cargo ship stuck at the Ukrainian port of Mariupol safely departed from the port hours after the meeting, it said. Meanwhile, Russia’s foreign ministry says the country could export about 25 MMT of grain and at least 22 MMT of fertilizers by the end of the year.

Xi opens BRICS forum. Chinese President Xi Jinping will provide the keynote speech at the BRICS Business Forum in Beijing today. The address will help set the scene ahead of a BRICS virtual summit with the leaders of Russia, India, Brazil, and South Africa on Thursday.

One item heading lower: China-to-U.S. shipping rates. Shipping prices have cooled in recent months as some U.S. importers temper merchandise orders amid concerns about elevated levels of inventory and uncertainty about continued strength in consumer spending. Freight rates from China to the U.S. West Coast stood at $9,585 a box last week, down 34% from the start of the year and 50% from a year earlier.

     Shipping executives estimate that inbound container volumes across the 10 largest U.S. ports have fallen by an average of 25% since May. “If spot rates don’t go up in the summer, it will be a strong sign that demand is falling,” says Vespucci Maritime CEO Lars Jensen, on container shipping prices.

     According to a report from Bloomberg Intelligence, many Asian tech firms and auto makers are facing fewer supply challenges, but logistical hurdles remain for some and may extend to 2023. Several problems are lingering, like empty containers crucial for Asia’s exporters. They’re getting stuck in the port of Rotterdam as a growing backlog of undelivered goods at Europe’s busiest export hub forces ocean carriers to prioritize shipments of filled cargo boxes.

Biden to call on Congress to suspend gas and diesel tax for three months. The president will call on Congress to suspend the federal gas and diesel taxes for the next three months, the latest effort by the White House to provide relief to Americans struggling with record-high gasoline and diesel prices. The move is contingent on legislative action, which would temporarily lift the 18.3 cents tax per gallon on gasoline and 24 cents tax per gallon on diesel during the summer months. The three-month timeframe was specifically to address the surging gas demand during the summer months when travel increases. In the longer term, however, a Biden administration official acknowledged the revenues from the tax are a vital source of infrastructure funding.

     Biden will lay out the proposal in a speech from the White House this afternoon when he will also call on states to suspend their gas taxes or provide rebates or other forms of relief, the official said. Additionally, Biden is expected to call on oil refinery companies to take steps to boost production.

     Biden will also ask Congress to replenish the Highway Trust Fund, which is supported by gas taxes, with other revenue to make it “whole” amid a gas tax suspension. The White House estimates it would take about $10 billion to do so. That may be a way to garner some additional Democratic votes for the gas and diesel tax suspension.

     Energy Secretary Jennifer Granholm is separately holding a meeting with oil executives on Thursday to discuss ways to reduce gasoline and diesel prices, after Biden sent a letter to seven major companies demanding they take action to help lower costs for consumers. Executives from Exxon Mobil, Shell, Valero, Marathon, Phillips 66, BP and Chevron are slated to attend the meeting, the White House said.

     Impact: When some states opted to suspend their own fuel taxes in the past, sometimes prices came back higher, according to a study released last week from the Wharton School at the University of Pennsylvania.

American drivers are starting to buy less gasoline as they feel the economic burden of record prices that continue to hover near $5 a gallon. In the first full week of June, gasoline sales at U.S. stations were down about 8.2% compared with the same week last year — the 14th consecutive week that sales have lagged behind 2021 levels, according to surveys by energy-data provider OPIS. In the week ended June 10, the Energy Information Administration’s measure of implied demand — an estimate of products supplied to consumers — declined by roughly 110,000 barrels a day from the prior week, to about 9.1 million barrels a day. That figure is down from about 9.4 million barrels a day the same time last year. The WSJ reports (link) that drivers have begun consolidating trips or filling up their tanks with only as much fuel as they need to get by for a few days. Some are carpooling or taking mass transit, while others are working from the office for fewer days each week.

EPA will stay with court timeline for 2023 RFS proposal. EPA will release its proposed rule on the 2023 volume standards for biofuel under the Renewable Fuel Standard (RFS) in September, the same timeline the agency negotiated in a court decision. The agency committed specifically to Sept. 16, but a regulatory agenda from the Biden administration lists the proposed plan as coming in September 2022 with a finalized rule in April 2023.

     EPA has not yet determined a timeline for an effort to finalize options on E15 fuel dispenser labels that would modify the text and color of the label and then remove it entirely. EPA has also proposed requiring future underground storage tanks to be compatible with higher blends of ethanol and provides additional options for determining compatibility with higher ethanol blends for existing storage tanks.

Grassley: Votes in Senate Ag panel and in full chamber to clear two livestock measures. Up for votes in the Senate Ag Committee today are S 3870, the Meat and Poultry Special Investigator Act of 2022 and S 4030, the Cattle Price Discovery and Transparency Act of 2022. Sen. Chuck Grassley says he is confident the panel and full Senate will have the votes to clear the two bills. “I certainly hope as soon as we return to Washington after our July break, that (Majority Leader Charles) Schumer will put these bills on the floor for a vote,” Grassley told reporters Tuesday. "I’m confident the Senate has 60 votes to pass the Lower Food and Fuel Costs Act. We can restore transparency in the cattle market and provide year-round E15.” The North American Meat Institute, which represents meatpackers, said in a statement that cattle prices are running at or near record highs.

     The Cattle Price Discovery and Transparency Act includes several reforms aimed at improving transparency and price discovery in cattle markets. It would establish a cattle contract library and require the USDA secretary to set a minimum threshold for negotiated trade volumes. Grassley noted that Sen. Mike Rounds (R-S.D.) has agreed to cosponsor the Price Discovery and Transparency bill, which means it now has 10 Republican and 10 Democratic cosponsors.

          The Meat and Poultry Special Investigator Act would create a new USDA office dedicated to enforcing competition rules under the Packers and Stockyards Act.

Grassley calls EPA’s roundtables on WOTUS “dog and pony shows,” and said he and other senators had met with EPA Administrator Michael Regan in the office of Sen. Mike Braun (R-Ind.) last week. Grassley revealed he showed Regan a map that indicated 90% of the land in Iowa would come under WOTUS and noted that several courts have ruled against the Obama-era WOTUS policy. Regan said EPA is going to be careful to write a policy that the agency can defend in the courts. Grassley said he urged Regan not to finalize the Waters of the U.S. (WOTUS) policy until the Supreme Court acts on WOTUS cases.

USTR Katherine Tai will testify before a Senate Appropriations subcommittee today. The Biden administration’s trade policy has not been totally revealed so panel member questions will be key. One topic will be existing and future U.S. trade with China. Senate office buildings remain closed to the public, but the hearing will be livestreamed on the Senate Appropriations Committee website.

The Senate cleared a procedural hurtle to accelerate the passage of a bipartisan bill to toughen federal gun laws. The decision is an initial step towards the first serious gun-control legislation in decades. Later this week senators will vote on the bill, which includes measures to deny people deemed dangerous access to firearms. The legislation, drawn up after several high-profile mass shootings, is meant to encourage compromise between Republicans and Democrats.

     Timeline: House leaders say they will be able to clear the gun control bill this week without altering its schedule. The House is scheduled to leave town on Friday until July 12.

Inflation in Britain rose to 9.1% in May, the highest rate in 40 years. Soaring food and gasoline costs continue to propel consumer prices upwards. The cost of raw materials also “leapt at their fastest rate on record,” according to the Office of National Statistics. Last week, the Bank of England warned that annual inflation could hit 11% this year.

Transportation legislation. A markup scheduled today at the Senate Commerce Committee is a bill (S 4357) that would reauthorize the Maritime Administration and give $1.6 billion for ports, security, and shipyards. The bill would also require the Transportation Department to create a strategy to bolster the maritime economy and evaluate new, more sustainable ship technology.

SCOTUS rejects Bayer in Roundup bid. A ruling rejected a multibillion-dollar appeal from Bayer, refusing to shield the company from potentially tens of thousands of claims that its top-selling Roundup weedkiller causes cancer.