China offers olive branch, but it's more of a twig than a branch | WHIP+ snafus already
In today's updates:
* China offers olive branch as it exempts 16 U.S. items from tariffs
Markets: President Donald Trump launched another round of criticism of the Fed via Twitter this morning, calling for interest rates to be cut to zero or less.
— Reuters: White House meeting set today with biofuel companies. Officials from companies like Louis Dreyfus and Renewable Energy Group will meet at the White House early today, Reuters said, with White House Chief of Staff Mick Mulvaney leading the meeting. The session is said to focus on getting industry support for a plan being worked on by the administration to increase biofuel use.
Opposition still in play. The reported plan — increases of 500 million gallons for conventional biofuel and 500 million gallons for advanced biofuels relative to 2020 Renewable Fuel Standard (RFS) levels and a 250-million-gallon boost for 2021 biodiesel — has been met with opposition from both refiners and from biofuel backers who want the reallocation of all of the RFS obligations covered by small refiner exemptions (SREs) granted the past three compliance years — around four billion gallons in ethanol equivalent.
Oil refinery workers and labor groups want President Trump to know he has to woo voters from places other than Iowa. Workers in Ohio and Michigan will hold a rally Thursday to persuade Trump to reconsider plans to boost biofuel made in Iowa. Their message: You need our votes too.
Meanwhile, USDA Sec. Sonny Perdue is again having trouble understanding a key term related to the RFS. First it was his difficulty in understanding RINs. Now it's the word reallocation. “Reallocation is probably just a buzzword about that, when you talk about how you talk about recovering the federal waiver issues. Technically is it reallocation or not? I don’t know, I’m not sure exactly what you mean by reallocation,” he said.
— U.S. Grains Council focusing on Asia to up ethanol exports. The U.S. Grains Council is seeking to expand U.S. ethanol exports in Asia in the wake of China’s tariffs that have cut off U.S. shipments to China. The group is "is ramping up this year its commitment and presence in Asia market development for U.S. ethanol exports," Tim Tierney, regional director strategic marketing for ethanol in north Asia at the council, told Reuters. With China’s market effectively closed to U.S. ethanol, the group hopes to expand ethanol exports to Asia to around one billion gallons within five years, Tierney told the news service on the sidelines of the Asia Pacific Petroleum Conference (APPEC).
The group had been targeting the region for 1.5 billion gallons in exports over that period previously, a significant increase from current annual U.S. ethanol exports to Asia of around 200 million to 300 million gallons.
"China clearly would have been a big market for us if we could address the trade dispute there, but we see Japan, Indonesia, Vietnam and the Philippines as our priority growth markets here," Tierney stated. "We have a 70% tariff on U.S. ethanol for China. I think there is clearly a signal from China that they would rather not buy ethanol and other agricultural products.” The target of one billion gallons of U.S. ethanol exports to the region does not include India, a market which Tierney said was a “significant ethanol growth market.”
— U.S./China trade policy update:
- China exempts handful of products from additional tariffs, but not soybeans. China has announced that 16 U.S. products will be exempt from additional tariffs, including whey and fish meal, but the country has not extended exemptions for the import of pork or soybeans from the U.S. The U.S. is the largest supplier of whey to China, a product that apparently met the criteria China spelled out on the exemptions — that they could be made for products that are not easily obtained elsewhere. The exemptions will take effect Sept. 17 and are valid through Sept. 16, 2020. China’s Finance Ministry announced the actions and said it would consider more exemptions and make announcements “at appropriate times.” Today’s exemptions apply to the round of tariffs China imposed on U.S. goods starting last July in retaliation for higher U.S. levies. The Chinese government began accepting applications for tariff exemptions in May, but it is the first time they have stated which products will be excluded.
- China's move is seen as a positive step in the U.S./China relationship. It comes as the editor of the state-run Global Times tweeted that China will implement measures to ease the impact of the trade war. Hu Xijin said on Twitter that the actions will benefit some companies from both China and the U.S.
- The South China Morning Post reported China could buy some U.S. agricultural products soon, but indications are that offer has conditions on it relative to actions China wants from the U.S., including easing of sanctions. The development echoes reports on this topic last week.
- China officials continue to focus on pork supplies. China will make sure there are sufficient supplies of pork for upcoming holidays, including the Mid-Autumn festival this week, holidays in October and next January’s Lunar New Year, according to an official with the National Development and Reform Commission (NDRC). Peng Shaozong, a manager in the NDRC pricing department, said the government had the “confidence and capability” to secure enough meat and stabilize the market. He also noted the government is looking into releasing pork from state reserves for the holiday. Some cities have already tapped reserve supplies, selling them into the market. China’s Consumer Price Index data released Tuesday indicated the price of pork has continued to increase as supplies have tightened due to African swine fever (ASF). As for ASF, Vice Agriculture Minister Yu Kangzhen said at the same briefing that the situation is still “severe” and the government has not eased control and prevention efforts. Yu also said the government plans a national disinfection effort in the fall.
- The forces of supply and demand are undercutting China’s attempts to rein back the cost of pork to consumers. Prices for the staple of the Chinese diet soared nearly 47% in August from the month before, the Wall Street Journal reports (link), adding to troubles in the market after an outbreak of African swine fever decimated the country’s hogs. The problems in the linchpin market are helping drive up costs for other meats as consumers seek alternatives. The trade war with the U.S. has kept a lid on imports, and China has sought other solutions including price controls and ration books. “Some analysts say the problems could last if China can’t persuade farmers to raise more pigs after more than a year of combating the disease. Without a vaccine for African swine fever, the threat of another outbreak has discouraged farmers from restoring production,” the article noted.
- Huawei’s founder and CEO, Ren Zhengfei, said he was willing to negotiate with the U.S. Justice Department to settle the Trump administration’s battle over his tech company.
- President Trump is considering an executive order to crack down on shipments of fentanyl and counterfeit goods, a move aimed in part at pressuring China to help the U.S. combat its opioid epidemic.
- American companies are more worried about China’s economic slowdown than the trade battle, according to a new survey. The annual survey, released today by the American Chamber of Commerce (Amcham) in Shanghai, showed that 51% of the business lobby’s responding members said U.S. and Chinese tariffs had hurt revenue. However, Amcham members pointed to the interrelated issue of China’s economic weakening as the more pressing factor clouding their outlook. Of the 333 members taking part in an annual survey, 75% said they opposed the U.S. using tariffs, up from 69% a year ago.
— Some FSA state or county offices giving errant advice already on WHIP+. The only thing for now that Farm Service Agency (FSA) offices outside Washington have to go on relative to the Monday announced WHIP+ program is a press release. Some FSA staffers have errantly interpreted parts of the release and have been called by USDA Washington officials about their advice to some farmers and others. County and state offices continue to wait for Washington to send them detailed notices and a handbook on operating WHIP+.
— FRA says Positive Train Control (PTC) in place on 87% of route miles. PTC systems are in place on 86.9% of route miles as of June 30, according to the quarterly update from the Federal Rail Administration (FRA). For Class I railroads, PTC is in place on 91.1% of route miles, with Intercity Passenger Railroads (Amtrak) reporting 99.8% of route miles are covered. Commuter railroads have it in place on 36.7% of route miles with it in place on 12.8% of route miles for other host railroads that are subject to the statutory mandate. FRA data for the first quarter of 2018 indicated PTC was in place on 83.0% of route miles overall, with Class I railroads at 87.1% of route miles, Amtrak at 84.9%, commuter railroads at 25.2% and other railroads subject to the statutory mandate at 12.8%.
— Dan Bishop, a state senator, narrowly won a special House election in North Carolina against Democrat Dan McCready by a two-point margin. Bishop garnered 507%% of the vote, with 48.7% for McCready (link for details). Both sides poured money into the race — more than $10.7 million has been spent by outside groups, besides $6.4 million spent by the two campaigns, making it the second-most expensive House special election in U.S. history. Bishop. President Trump will likely point to the race as a sign of his political capital.
While Trump and the GOP celebrated, many analyses suggest the race was uncomfortably close in a solidly Republican district.
— Other items of note:
Trump dismisses John Bolton. The president dismissed his national security adviser. “I disagreed strongly with many of his suggestions, as did others in the Administration,” Trump tweeted. For now, deputy national security adviser Charlie Kupperman is serving as acting national security adviser. Bolton only lasted 520 days in the job — a longer stint than his Trump administration predecessors.
White House officials have privately raised concerns about the legal backing for USDA’s trade relief program, the Washington Post reports (link). But in a statement, a USDA spokesman said the concerns raised by OMB were already resolved, however. The administration is also asking Congress again to ensure that the Commodity Credit Corporation (CCC) can continue making payments to farmers in the coming months.
As of Monday, USDA has paid $3.1 billion out of $7.25 billion available in Trump MFP-2 trade aid payments to producers since disbursements began Aug. 21. USDA disbursed $8.6 billion in cash to farmers and ranchers for 2018 crops and livestock via MFP-1 and says up to $14.5 billion is available for this year’s production.
Poverty is dropping; fewer people have health insurance. The number of people living in poverty fell by 1.4 million. But, 2 million fewer people have health insurance: data show that 27.5 million Americans were without health insurance in 2018, the first year-to-year increase in a decade and the first time the uninsured rate has gone up since the Affordable Care Act has been in effect.
Justin Trudeau will likely officially kick off Canada's election campaign today ahead of a planned Oct. 21 vote. He's set to meet with Queen Elizabeth II's representative to request the dissolution of parliament, marking the formal start of campaigning. Neither his Liberal nor the opposition Conservative Party is polling high enough to win a majority of the 338 seats up for grabs, meaning the next Parliament could be more fragmented than the current one. Polls indicate the Liberals are just ahead of the opposition Conservatives. The next Parliament could be more divided than the current one, threatening Trudeau’s left-leaning agenda.
U.S. warns of feral hogs approaching country from Canada. Link for details.
— Markets. The Dow on Tuesday gained 73.92 points, 0.28%, at 26,909.43. The Nasdaq fell 3.28 points, 0.04%, at 8,084.16. The S&P 500 was up 0.96 point, 0.03%, at 2,979.39.
Trump calls for zero interest rates ‘or lower’ in latest salvo on Fed. President Donald Trump launched another round of criticism of the Fed via Twitter this morning, calling for interest rates to be cut to zero or less. “The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term. We have the great currency, power, and balance sheet….,” Trump tweeted. “....The USA should always be paying the the lowest rate. No Inflation! It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of ‘Boneheads.’” The next word from the Fed on rates will not come until a week from today — September 18 when the Federal Open Market Committee (FOMC) meeting concludes. The expectation is that the Fed will reduce the target range for the Fed funds rate by 25 basis points, with the CME FedWatch tool placing odds at 91.2% for that to be the result.
The European Central Bank begins two days of policy meetings today, and as it weighs more economic stimulus measures, it’s unlikely to raise its deposit rate above minus 0.4%. While economists broadly expect the European Central Bank to cut its key rate, expectations over the size a possible bond-purchase program have eroded. ECB Chief Mario Draghi departs Oct. 31 and reports say his push to announce a large monetary stimulus effort prior to leaving have run into opposition, including from the 25-member ECB rate-setting committee. They argue the Eurozone economy is not weak enough to warrant an expansion of stimulus efforts and actions to lower rates or launch a new bond-buying effort could leave the ECB without ammo to address issues should the Eurozone economy stumble further.
Hong Kong Stock Exchange proposed a $37 billion deal to buy the London Stock Exchange. Together, the two stock exchanges would be worth more than $70 billion. The cash and share offer of around $36.65 billion represents a "compelling strategic opportunity," according to the Hong Kong Exchange.