U.S. Ag Sector Angst Mounts on Lingering U.S./China Trade War, Other Issues

Posted on 08/27/2019 6:14 AM

China says no weekend calls on trade; Japan insists U.S. end threat of new auto tariffs

In today's updates:

* Ag sector anxiety mounting on U.S./China trade war
* China's foreign ministry: no recent telephone call between U.S. and China on trade
* U.S. and Chinese trade officials could talk on telephone today
* Perdue refutes EPA claim of no impact from small refiner exemptions
* Japan insists U.S. end threat of new tariffs on autos before finalizing an agreement
* Digital deal between U.S., France and others nears the end zone
* Johnson & Johnson hit with $572 million opioid verdict
* Iran's Hassan Rouhani wants sanction lifted before any meeting with Trump
* Brazil’s president spurned wildfire aid
* Democrats may push a stopgap spending measure through Nov. 22

Markets: Equity markets on Monday turned higher mostly due to more upbeat news on the trade policy front with China and Japan. But as updates on that front show, it’s not clear whether there are solid grounds for optimism.

Late-night humor. Conan O’Brien: “Sources at the White House say that multiple times, President Trump has asked if a nuclear bomb could stop a hurricane. Yeah. Luckily, every time he asked, his 13-year-old son told him no.”

 

Farmers’ mounting frustration with the U.S./China trade war. Several polls are showing the increase in U.S. farmer and rancher anxiety about the lingering trade war. Ditto for some agribusiness companies. Losing China, the world’s most populous country, as a customer has been a major blow to U.S. agriculture.

The Farm Journal Pulse shows farmer support for President Trump is eroding. Amid increasing tariffs and controversial biofuels policies, farmer support for President Donald Trump is waning, according to a Farm Journal Pulse poll conducted Aug. 23. The survey of 1,153 farmers shows 71% of them approve of the job Trump is doing. In July, 79% of farmers supported the president. Of the farmers who currently support the president, just 43% strongly approve, which is down 10 percentage points from July. The strongly approve number is significant because that is the group Trump needs to make sure he does not lose his base in the 2020 election.

Pulse poll on Trump

Farm bankruptcy filings in the year through June were up 13% from 2018, and loan delinquency rates are on the rise, according to the American Farm Bureau.

While the Trump administration has tried to soften the blow to impacted farmers via trade aid packages over two years totaling $28 billion, more farmers say they are losing patience with the president’s approach and suggest it will not take much to lose their votes as well.

At some point we have to quit playing games and get back to the table and figure this out,” said Brian Thalmann, the president of the Minnesota Corn Growers Association, told the New York Times.

Trade policy is just one of several topics frustrating the ag sector, with the Trump administration's prior and aggressive use of Renewable Fuel Standard waivers and low prices for a host of commodities being two additional anxiety hot spots.

Seizing on mounting Farm Belt frustration Trump's economic agenda, Democratic rivals are stepping up their push to take back part of rural America, whose overwhelming support for Trump helped propel his upset 2016 election victory, Reuters reported (link). Roger Johnson, president of the National Farmers Union, said in a statement last Friday: "Between burning bridges with all of our biggest trading partners and undermining our domestic biofuels industry, President Trump is making things worse, not better."

— Perdue takes on EPA’s Wheeler, refutes EPA claim of no impact from small refiner exemptions. USDA Secretary Sonny Perdue delivered a strong rejection of EPA's claim small refinery exemptions (SREs) are having "zero impact" on corn ethanol producers. "I would refute the comment" as "[there is a] negative impact" on ethanol production from the waivers, Perdue said during a Virginia appearance.

EPA "likes to point to export totals of ethanol production, which is good and healthy" to argue the waivers are not hurting ethanol producers, Perdue explained. While welcoming ethanol exports, Perdue stated, "the demand destruction over domestic usage has been affected by the small refinery waivers."

Ethanol math. Perdue pointed out that with a 15-billion-gallon mandate for conventional ethanol, “every time you issue a waiver, you decrease that [obligation], which decreases corn use, and that decreases ethanol capacity for the American producer.” Perdue cited a need to boost the infrastructure for E15 fuel as one way to help offset the small refiner exemptions.

U.S./China trade policy update:

  • China's foreign ministry said it was “not aware” of weekend phone calls in which U.S. President Donald Trump said China asked to “get back to the table.” Foreign ministry spokesman Geng Shuang, when asked about the call, said: “I have not heard of that... China and the U.S. should resolve their trade disputes through dialogue. We have had 12 rounds of high-level consultations, and working teams from the two sides are keeping in touch. Regretfully the U.S. has announced its decision to add new tariffs on Chinese products. Such maximum pressure will hurt both sides and is not constructive at all.”
  • Technical level talks only. Hu Xijin, editor-in-chief of the state-run tabloid Global Times, wrote on Twitter that the two sides had maintained contact at a “technical level,” which “doesn’t have [the] significance that President Trump suggested.”
  • Officials from both countries were due to speak today, according to a previous statement from China’s Ministry of Commerce after their last telephone call on Aug. 13 took place between Chinese Vice-Premier Liu He, Beijing’s top trade negotiator, and U.S. Trade Representative Bob Lighthizer and Treasury Secretary Steven Mnuchin.
  • Attack and then praise strategy. Asked about his inconsistent approach in labeling Chinese President Xi Jinping first as an enemy in a Twitter post last week, then praising him as a great leader, Trump said: “Sorry, it’s the way I negotiate.”

Other items of note:

  • Digital divide deal pending. President Donald Trump and French President Emmanuel Macron announced agreement on France’s digital-services tax depends on a future deal by OECD countries. Under the deal, France will eliminate its 3% tax once a new international agreement on digital taxation is reached. The companies that pay France's tax will be reimbursed once the international agreement is in place.

  • Lift sanctions to talk. After President Trump said he would be open to meeting with Iran President Hassan Rouhani, the Iranian leader said today that he wouldn’t talk until Washington lifted sanctions.

  • Democrats are mulling passing a short-term funding bill to keep the government running after Sept. 30. During a caucus conference call on Friday, Majority Leader Steny Hoyer (D-Md.) raised the possibility of a stopgap measure that lasts through Nov. 22 in order to prevent a government shutdown,

  • Brazil’s government nixed an offer from the G7 of $22 million to help fight fires in the Amazon rainforest. President Jair Bolsanaro noted the G7 leaders’ “colonialist mentality” and said Brazil would not accept demands to “save the Amazon, as though we were a colony or no man’s land.” Bolsonaro has been criticized for denying climate change and being slow to fight the fires; he previously halted out-of-control logging. On Friday, Brazilian military aircraft began dumping water on the flames. Meanwhile, Brazilian farmers say they need fire and deforestation to maintain beef and soy exports, and that the damage done to the rainforest is modest. The pledges included $20 million from the group, as well as a separate $12 million from Britain and $11 million from Canada.

  • An Oklahoma judge ruled against Johnson & Johnson in the state's opioid case, forcing the company to pay $572 million. It was the first ruling in the U.S. holding a drugmaker accountable for helping fuel the epidemic. J&J said the decision in the case is "flawed."

  • EPA’s inspector general releases a report today about the agency’s process for saving emails, texts, and responding to FOIAs.

  • States fight Trump plan to hold migrant families indefinitely. Nineteen U.S. states and the District of Columbia, led by California, filed a lawsuit Monday seeking to stop a new policy the Trump administration announced last week, under which migrant families that crossed the U.S. border illegally would face indefinite detention.

  • Joe Biden, Bernie Sanders and Elizabeth Warren are in a virtual three-way tie for the Democratic party’s presidential nomination, according to a new national poll. The Monmouth University Poll released Monday showed Biden, the poll’s previous front-runner, with support declining from 32% when the Monmouth Poll was taken in June. Sanders, of Vermont, and Warren, of Massachusetts, both picked up several percentage points of support since June. Voters were asked whom they would support among 23 Democratic candidates. Warren’s favorable ratings also improved, while Biden’s slipped and Sanders’s remained stable. Link to more details in New York Times article on the topic.

  • House Financial Services Committee member Sean Duffy (R-Wis.) said he is leaving Congress on Sept. 23 to tend to his family and his ninth child, who the congressman said is due in October and is expected to be born with health complications. During his time on the committee, Duffy advocated for restructuring the Consumer Financial Protection Bureau and also penned legislation to reform the National Flood Insurance Program while serving as the chair of the subcommittee on housing and insurance.

Markets. The Dow on Tuesday gained 269.93 points, 1.05%, at 25,898.83. The Nasdaq moved up 101.97 points, 1.32%, at 7,853.74. The S&P 500 rose 31.27 points, 1.10%, at 2,878.38.

China industrial profits rise but outlook remains uncertain. China’s July industrial profits rose 2.6 percent vs July 2018, a move to positive territory after a 3.1-percent decline in June. However, the outlook remains uncertain as China’s economy continues to struggle amid the trade war with the U.S. "The downward pressure on the economy is relatively high, the market demand is slowing down, the prices of industrial products are falling," said Zhu Hong, senior statistician with the National Bureau of Statistics. "There will still likely be volatility and uncertainty in profits of industrial enterprises.” Petrochemical and auto sectors provided most of the rise in the July data. For January-July, industrial firms’ profits were 3.50 trillion yuan, NBS said, down 1.7% from the year-ago period and a slight improvement from the 2.4% decline registered in the first half of 2019. This continues to suggest that China will have to deploy additional stimulus measures to keep their economy from continuing to struggle.

Sugar markets are getting a bitter lesson in the economics of supply and demand. Raw-sugar prices are on course for their biggest one-month decline this year, the Wall Street Journal reports (link), as a growing glut, a strong dollar and a slowing world economy combine to push prices toward their lowest level in a decade. A big part of the decline stems from India, which overtook Brazil as the world’s biggest grower of sugar in the 2018-19 season, producing 33.1 million tons. The current crop from India will be the third in a row that exceeds 30 million tons, and the 2020-21 harvest is likely to be larger still and swell the country’s already enormous stockpiles. India’s market fundamentals are hardly pure: A subsidy program contributed to a 52% rise in exports last year, and experts expect the government to renew the program this year.


 

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