Hong Kong airport faces more disruption with leader saying risk of sliding into an 'abyss'
In today's updates:
* USDA found a lot more corn, fewer soybeans than many others predicted
A bee line to Berlin. While bees are dying off in many parts of the world, Berlin has witnessed an increase in beehives — and swarms of bees around the city. The population boom can be attributed in part to the recent rise in urban beekeeping, the New York Times reports (link).
Late-night comedy: “I’m not saying the Clintons don’t have any power,” Stephen Colbert said. “But masterminding a scheme to assassinate a high-profile prisoner in a maximum-security federal custody? They couldn’t even mastermind a visit to Wisconsin.”
— USDA's reports again surprised traders. As noted on Monday, shocked traders and farmers are disputing USDA's crop yield and production estimates based on surveys. Many tried to square on-target prior reports of hefty prevent-plant acres to what USDA estimated for corn and soybeans plantings, but that has always been an exercise in futility, as this space warned for weeks.
Limit-down corn on Monday will likely not be repeated today based on initial market indications Monday. Soybean prices could actually go higher because USDA's production estimate was lower than average the average pre-report guesstimate. As reported Monday, many industry participants and analysts have lower corn yield and production forecasts, and these attitudes will likely be reflected in eventually supporting corn values, and definitely soybeans, with so much critical crop-determining weather ahead.
USDA's NASS, much to its credit, had an extended explanation of procedures used for their August estimates. NASS said (bold for emphasis):
“Survey respondents who reported acreage as not yet planted for corn, cotton, sorghum, and soybeans in fourteen States for the Acreage report, released June 28, 2019, were re-contacted in July. Excessive rainfall had led to planting delays and challenges at the time of the survey, leaving a portion of acres still to be planted for corn in Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, New York, North Dakota, Ohio, South Dakota, and Wisconsin; cotton in Arkansas; sorghum in Kansas; and soybeans in Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, New York, North Dakota, Ohio, South Dakota, and Wisconsin. When planting delays occur NASS has established procedures and processes in place to re-contact respondents. In addition to the updated survey information, NASS considered Farm Service Agency (FSA) certified acreage information as well as satellite-based indications of acreage to update planted and harvested acreage estimates for this report. NASS estimates of planted area are always larger than the certified acres reported by FSA because of definitional differences and the fact that some producers do not participate in USDA programs and therefore do not report their acreage to FSA. It is also important to note that data are reported to FSA over an extended period of time, with varying due dates across the country, and is historically incomplete in early August. NASS has carefully analyzed these data for many years and has determined they normally don’t become nearly complete until September for cotton and October for corn, soybeans, and sorghum. A detailed description of how NASS incorporates the FSA certified acreage information into the estimating process can be found at this link. Based on all of the data sources described above, planted and harvested area estimates for corn, soybeans, cotton, and sorghum were updated and included in this report. All States in the estimating program for these crops were subject to review and updating.” Sorghum feed and residual showed an increase of 35 million bushels as the production estimate increased.
USDA began the process of slicing some of its demand forecasts for corn and soybeans (chopping 100 million bu. each out of corn and soybean exports), for example. A likely cut in corn feed and residual is ahead if USDA further lowers corn production.
Perspective: The carping on USDA's estimates and forecasts continues, with some pointing fingers at USDA for announcing that MFP 2 payments would be based on plantings, thereby pushing farmers to make sure they planted as much as they feasibly could to qualify for program benefits. Others simply note weather since USDA's survey means still-lower yield and production estimates ahead, a refrain often used when people are not in sync with USDA findings which in this case are based on conditions as of Aug. 1.
Meanwhile, one should be careful about comparing USDA NASS' August corn and soybean estimates, which were based on farmer surveys, to those put out by the World Ag Outlook Board (WAOB) in July. For corn, the WAOB forecast was based on a “weather-adjusted trend assuming normal summer growing season weather, lowered to reflect the impact of delayed planting progress observed during the month of May and into early June.” For soybeans, the WAOB forecast was based on a “weather-adjusted trend model.”
A comment on Twitter from Jeff Middleton caught some traders' and analysts' attention: “The academic who in early June was cheerleading the hardest for higher corn prices is now asking why IL farmers kept planting corn?? Scratch 1 place off the list for a college visit.”
— Is USDA's NASS failing to understand failed acres? An Illinois-based farmer emails:
“I want to make an observation to you about failed acreage category. This will be a very low figure because many of the actual failed acreage will not be reported. My example will be very common for a lot of producers. On one of my farms I have 185 acres reported to crop insurance and FSA as planted. 30 acres drowned out (zero production) after planting and I did not change the status and go through all the paperwork to change to failed. The remaining acres will probably yield good enough to keep from collecting crop insurance and I also have to factor in enterprise unit option I took. My point is this: There are a lot of failed acres that will not show up until the actual corn yield is known and that will be after harvest when my farms yield reflects the totally drowned out production hit I take. This in my opinion is very common in 2019!”
— U.S./China trade policy update:
- Hong Kong airport faces another day of disruption. Demonstrators again swamped the city's international airport, blocking the gates to the security and immigration areas and messing with the busy transit hub. Airlines tried to reschedule flights for passengers caught in the political turmoil. Chinese officials and media dubbed the development “terrorism,” raising the stakes. Hong Kong's airport suspended check-ins, hours after the city's leader pleaded for order — Hong Kong’s Chief Executive Carrie Lam warned the unrest risks tipping the city into “an abyss.” The Hong Kong Airport Authority said in a statement that operations had been “seriously disrupted.” China watchers say leader Xi Jinping will likely be wary of taking drastic action, such as deploying troops, for fear of broader fallout, especially a response from President Donald Trump who to date has helped Chinese officials by his subdued comments on the matter. A New York Times article today (link) says the protests are putting Hong Kong on a collision course with China’s Communist Party.
- State-run Chinese media have posted videos of the People’s Armed Police assembling across the border in Shenzhen, while Chinese officials describe the Hong Kong protests as a “color revolution” and “terrorism” — a term used to justify the repression of minority Muslims in Xinjiang.
- China is blaming Washington for its own economic and internal strains. The N.Y. Times notes (link) the "hostility toward America," by Chinese officials and state-run news organizations, "has escalated ... in tandem with two of China’s big problems: a slowing economy complicated by trade tensions and turbulence in Hong Kong that has no end in sight." "Beijing also does not appear to see an end to its differences with Washington over the Chinese telecommunications giant Huawei, which was blacklisted by the Trump administration as a security threat," the article added.
- The yuan is at an appropriate level currently and its fluctuations will not necessarily cause disorderly capital flows, according to Zhu Jun, head of the PBOC's international department. China is able to "navigate all scenarios" arising from Washington’s recent move to label Beijing a currency manipulator, she added, and the renminbi will be a "strong currency" over the medium and long term. The central bank set the official midpoint reference rate for the yuan at 7.0326 per dollar today, marking the fourth consecutive session above the key 7 level.
- Reuters: China central bank official U.S. currency manipulator label was a ‘shock.’ China’s yuan currently is at an appropriate level and fluctuations in its value will not cause disorderly capital flows, Zhu Jun, head of the People’s Bank of China (PBOC) international department, told Reuters in a “text interview.” The country was “shocked” that the U.S. labeled China a currency manipulator and said that China can “navigate all scenarios” from the move. She reiterated that China has confidence the yuan will be a “strong currency” over the long and medium term, she told Reuters.
- China new yuan loans come in under expectations in July. Chinese banks extended 1.06 trillion ($150.06 billion) in new yuan loans in July, down from 1.66 trillion yuan in June and under expectations for 1.25 trillion yuan in loans to be issued. While new yuan loans often fall in July compared with June, analysts are noting that the figure also came in under year-ago levels when new yuan loans totaled 1.45 trillion yuan. This is boosting expectations for actions by the People’s Bank of China to ease monetary policy to spur economic activity.
- The People’s Bank of China has denied allegations that it is devaluing the yuan to counter American tariffs. But, White House trade advisor Peter Navarro cautioned China against such practices signaling that the U.S. will respond forcefully if Beijing weakens its currency to neutralize the effect of tariffs.
- Prime Minister Boris Johnson of Britain planned to reconsider his country’s use of Huawei hardware in its 5G networks from “square one,” according to John Bolton, the U.S. national security adviser. Meanwhile, Huawei Technologies Co. hired the law firm Sidley Austin LLP to lobby on trade as the U.S. pressures allies to join it in blacklisting the Chinese telecom giant and the company finds itself increasingly mired in Trump’s trade war with Beijing.
- Another U.S./China battleground: the internet is "splitting in two," as the Wall Street Journal put it, and giant companies from the U.S. and China are racing for advantages, hidden and overt, around the world. Link for details.
- President Xi Jinping and his team have concluded that China is far too reliant on the U.S. for technology and agriculture, Bill Bishop of Sinocism tells Axios. That is why China has accelerated efforts to become self-sufficient, while also diversifying their reliance away from the U.S. Even if there is a trade deal, that shift will not reverse.
- The scramble to reset supply chains is hitting a new floor as U.S.-China trade tensions mount. The U.S.’s move to raise tariffs on many Chinese goods to 25% from 10% is pushing companies like flooring importer HMTX Industries LLC to the brink, the Wall Street Journal reports (link), as they try to defray soaring costs without losing customers. “The latest levies are rippling through the supply chain, upending budget projections and prompting torturous negotiations as businesses that previously absorbed some costs are pressing manufacturers and retailers to share the pain.” Wholesalers have raised the price of luxury vinyl flooring by nearly 25%, and exporter CFL Flooring has set up factories in Taiwan and Vietnam to help reduce customers’ exposure to China, the item details. “The various levies could cost each U.S. household on average $770 more annually—and that doesn’t include new tariffs President Trump announced this month.”
- “Fears that the trade war will trigger a recession are growing,” Goldman Sachs chief economist Jan Hatzius wrote in a Sunday note. His team estimates the conflict will shave 0.6% off U.S. economic growth, and it just downgraded its estimate for fourth-quarter GDP growth to 1.8%, well below the 3% rate of expansion President Trump has promised. Meanwhile, Bank of America hiked its projected chance of a recession in the next year from one in five to one in three. “We are worried,” Bank of America’s team wrote in a Friday note. “We now have a number of early indicators starting to signal heightened risk of recession.” Nearly 70% of the economists that Reuters surveyed said the newest hostilities between the U.S. and China — with Trump threatening to impose 10% tariffs on $300 billion of Chinese imports and threatening to cancel September negotiations, while Beijing allows its currency to weaken — have brought the next recession closer.
— President Trump asked Japan to buy U.S. farm products: Kyodo. President Donald Trump has asked Japanese Prime Minister Shinzo Abe to buy a “huge amount” of U.S. farm products, according to a report from the Kyodo news agency. The report cited Japanese and U.S. government sources for the information. Soybeans and wheat were included in the request, Kyodo said, with the Japanese government said to be mulling its response.
The report indicated one possibility was to buy the products as food security for African countries and would be worth several hundred million dollars, including transportation costs.
— North Dakota reports case of anthrax in cattle. North Dakota has confirmed anthrax in a cattle herd in eastern Billings County, according to an Associated Press item quoting North Dakota state veterinarian Susan Keller. There were no cases of anthrax in the state in 2018, with this being the first case this year.
The agency previously has indicated that it is “not uncommon to have a few anthrax cases reported in North Dakota almost every year.”
Texas has reported 18 cases of anthrax this year in five counties, according to the Texas Animal Health Commission. Anthrax can lie dormant for years in the soil and is most common after heavy rainfall but can also happen during extremely dry conditions.
— Other items of note:
Green cards are now harder to get after the Trump administration issued a rule that would disqualify legal immigrants from permanent residency if they use certain public-assistance programs, a move that immigration advocates said punishes poor migrants. Trump administration officials said the aim is to ensure that those coming to the country can prove financial self-sufficiency. Immigration experts note that over half of applications for permanent residency through family reunification could be denied if the rule takes effect. The program would not apply to those who already have green cards, to certain members of the military, to refugees and asylum-seekers, or to pregnant women and children.
Endangered Species Act protections eased. The Trump administration is making changes to how wildlife regulations are implemented, answering complaints from developers who complained the law has become too onerous. Environmentalists dispute that, noting the changes will endanger critical wildlife habitats. The new rules, expected to go into effect in October, would also make it more difficult for regulators to factor in the effects of climate change. The benefit to taxpayers is that the system will welcome people “who can stand on their own two feet, who will not be reliant on the welfare system,” said Kenneth Cuccinelli, the acting director of United States Citizenship and Immigration Services. The Endangered Species Act was signed by President Richard Nixon in 1973.
President Trump today visits Pennsylvania, touring Shell’s upcoming petrochemicals plant outside Pittsburgh, in a nod to the blue collar support that helped propel him into office. The new plant will showcase growing efforts to capitalize on natural gas deposits by turning gas into plastics.
The U.S. and the U.K. could sign sector-by-sector trade agreements, ahead of a comprehensive agreement, to help Britain handle a no-deal Brexit, said John Bolton, the U.S. national security adviser. Link for more from the Guardian.
A meat tax? Sin taxes discourage harmful behaviors like smoking, so some say why not do the same for ”rampant meat eating?”
— Markets. After a volatile trading session, the Dow on Monday finished down 391.00 points, 1.49%, at 25,896.44. The Nasdaq declined 95.73 points, 1.20%, at 7,863.41. The S&P 500 lost 35.95 points, 1.23%, at 2,882.70.
The U.S. yield curve reached it flattest level since 2007 yesterday, stoking fears about the risk of an impending recession. The 30-year Treasury rate tumbled as much as 14 basis points on Monday to close in on its record-low of 2.0882% from July 2016, while the 10-year note fell 10 bps to 1.65%, and at one point was just 5 bps more than two-year notes.
The U.S. budget gap has reached $867 billion so far this fiscal year — up 27% versus the same point last year. That’s wider than last fiscal year’s shortfall of $779 billion — which was the largest federal deficit since 2012. Details in the WSJ.
Germany’s ZEW economic sentiment reading points to deterioration in German economy. The German ZEW institute said its economic sentiment reading fell to -44.1 in July from -24.5 in June. The group said that trade disputes and rising odds for a no-deal Brexit contributed to the worsening outlook. The results indicate the potential for a significant deterioration in the German economic outlook. The reading was well below expectations and signals Europe’s largest economy is facing headwinds ahead.
Singapore’s government cut its growth outlook to 0-1% from 1.5-2.5% this year, showing how the U.S./China stand-off is hitting the region’s most trade-reliant economies.
The Argentine peso tumbled as much as 25% to a record low of 60 per dollar yesterday, with the country’s main stock index plunging by the second-largest amount of any benchmark in any country since 1950, as investors retreat in the wake of President Mauricio Macri’s stunning defeat in primary elections over the weekend.