USDA forecast for record FY 2019 ag imports likely too low; export outlook close
In today's updates:
* Chinese officials reportedly hesitant to pursue a broad trade deal with the U.S.
Markets: Odds have moved toward a cut in U.S. short-term rates at the next meeting of the Federal Open Market Committee (FOMC) on Oct. 29-30. The CME FedWatch website puts the probability of a quarter-point cut in the fed-funds target, currently 1.75%-2%, at 77.5% on Friday, nearly double that of a week earlier. Odds of an additional quarter-point cut are slightly less than even money at the December FOMC meeting, but rise to better than 2 to 1 at January’s Fed gathering.
Inflation is rising... for child allowance. Two-thirds of parents give their child an allowance, and the average is now $30 a week, a survey found. Link to NYT article.
Fed's George isn't worried about inflation. "The U.S. economy is currently in a good place with low inflation, low unemployment, and an outlook for continued moderate growth," Kansas City Fed President Esther George said Sunday. George, who dissented against the quarter-percentage-point rate cuts made at the July and September FOMC meetings, didn't rule out supporting another rate reduction if it's warranted, but appeared skeptical over the need for further action. "The moderation of economic growth in 2019 has been in line with my own outlook that calls for a gradual decline to a trend level over the medium term."
Giant pigs might solve China’s pork shortage. An enterprising farmer thinks breeding gargantuan pigs could increase supply and bring heftier profits. Link for details.
— U.S./China trade policy update:
- Trump sees "very good chance" of China trade deal; says no link to Biden probe request. President Trump said that his administration has a "very good chance" of making a trade deal with China and insisted there were no links between China talks and his desire for Beijing to investigate presidential candidate Joe Biden. Sen. Marco Rubio (R-Fla.) told reporters that Trump wasn’t serious about getting the Chinese to investigate the Bidens. “He’s just needling the press, knowing that you guys will get outraged by it,” Rubio said.
- Four days of talks will be held in Washington this week — Monday and Tuesday by deputy-level officials and Thursday and Friday by high-level trade officials including U.S. Trade Representative Bob Lighthizer and Treasury Secretary Steven Mnuchin. Vice Premier Liu He will lead the Chinese contingent in the high-level talks.
- Trump administration officials and business leaders have discussed ways each side could make concessions to yield a mini deal, to delay the Oct. 15 and Dec. 15 tariffs or to jump start drawn-out negotiations, some sources and reports note.
- China spin or new strategy? President Trump and some of his top officials in recent weeks have quickly shot down any suggestion that there will be a push for an interim, mini trade accord with China, with National Economic Council Director Larry Kudlow openly suggesting some media are doing China's bidding in the ongoing negotiations. Bloomberg over the weekend reported (link) Chinese officials are signaling they’re increasingly reluctant to agree to a broad trade deal pursued by President Trump, ahead of negotiations this week. In meetings with U.S. visitors to Beijing in recent weeks, the news service said senior Chinese officials have indicated the range of topics they’re willing to discuss has narrowed considerably. Top Chinese negotiator Liu reportedly told visiting dignitaries last week he would bring an offer to Washington that won’t include commitments on reforming Chinese industrial policy or the government subsidies that have been the target of longstanding U.S. complaints, Bloomberg reported.
- China’s Commerce Ministry said last week that Chinese companies have agreed to buy “sizable amounts” of soybeans and pork from the U.S., but didn’t specify the quantity.
- Senate Finance Committee Chairman Chuck Grassley (R-Iowa) said the impeachment process shouldn’t weigh much on the China talks as long as the “personal energy” between the Trump and Chinese leader Xi Jinping continues.
- Focus ahead is whether Trump will attend the mid-November summit of the Asia-Pacific Economic Cooperation (APEC), a gathering of heads of state from countries including China.
— JBS USA to produce pork without growth drug banned by China, seeking more exports. JBS USA will remove ractopamine, a growth drug, banned by Beijing from its U.S. hog supply, the company said on Friday. The meat packer's move away from the drug, a feed additive, shows how companies are maneuvering to take advantage of an expected shortage in China, the world's largest pork consumer, due to African swine fever (ASF).
— USDA’s forecast for record FY 2019 ag imports likely too low; export outlook close to likely final result. The pace of imports of agricultural products into the U.S. has been strong for most of Fiscal Year (FY) 2019, enough that there have been deficits registered in four of the 11 months so far. And with only one month to go in the fiscal year, it looks like USDA’s import forecast is too low.
The value of U.S. agricultural exports in August came in at $10.46 billion, down from $10.79 billion in July and the smallest export total of FY 2019. That brought the cumulative export total to $124.46 billion, down from the same period in FY 2018 when exports totaled $133.11 billion.
Imports in August were valued at $11.27 billion, up $360 million from July, marking 10 of 11 months so far in FY 2019 when imports have been $10 billion or more. That bought the cumulative total for imports to $121.68 billion, up from the $118.08 billion level amassed during the first 11 months of FY 2018.
The totals resulted in a monthly deficit of $812.64 million, but a cumulative trade surplus of $2.78 billion.
USDA import forecast too low. USDA August 29 forecast U.S. agricultural exports in FY 2019 would be $134.5 billion against imports of a record $129.3 billion, for a surplus of $5.2 billion. USDA’s forecast for exports could still be achieved as exports in September would need to be $10 billion to meet that forecast.
As for imports, USDA’s outlook appears to be too low. To meet the forecast for a record $129.3 billion, imports would just have to be $7.6 billion in August. While import values are typically the lowest or close to the lowest levels in a fiscal year in September, it would seem unlikely they would fall enough to meet USDA’s forecast. But, U.S. agriculture is still likely to register a trade surplus for the year if the ag export forecast of $134.5 billion is met as import values would have to surge above $12.8 billion to register a deficit for FY 2019. That would set a new monthly record import level, exceeding the prior monthly import record of $12.1 billion which was registered earlier in FY 2019 – April.
U.S. ag imports over the past 10 years have declined in September compared with August by an average of nearly 4.5%. If that would happen in September, that would put imports at $10.77 billion. U.S. exports, however, have risen six of the past 10 years, falling in four in September compared with August.
If U.S. ag exports slump to $10 billion, meeting USDA’s export forecast, it would take U.S. ag imports to $132.5 billion for the year. If the U.S. ag export forecast is hit, and imports fall as they historically have, that would leave just a $2 billion trade surplus.
— Other items of note:
Immigrants will be denied visas if they cannot prove that they have health insurance or the ability to pay for medical care, the Trump administration said. “Immigrants who enter this country should not further saddle our health care system, and subsequently American taxpayers, with higher costs,” President Trump wrote on Friday. The proclamation will become effective Nov. 3.
White House will pull back from northern Syria, endorsing a Turkish military operation that would push America’s Kurdish allies out of the area. The Kurds have been key to defeating Islamic State in Syria. But the Turkish government considers them terrorists. America had previously promised economic sanctions if Turkey tried to attack them.
The Supreme Court is preparing to issue major decisions on divisive issues in a presidential election year. Link to New York Times article.
After heavy rains, U.S. authorities are racing to drain water from Upper Missouri River reservoirs to prepare for the next flood season. This is complicating efforts to shore up damaged levees downstream. Link to WSJ article.
Russia's deputy PM returns to idea of grain OPEC creation: Interfax. A Russian Deputy Prime Minister in charge of agriculture has proposed the creation of a grain organization along the lines of the Organization of the Petroleum Exporting Countries (OPEC), Interfax news agency reported on Saturday, citing his office. Russia, the world's largest wheat exporter, is one of the world's largest oil producers, but is not a member of OPEC.
United Auto Workers' strike against General Motors (GM) could continue for the foreseeable future, as the union said talks between the sides have "taken a turn for the worse." The UAW vice president said GM submitted an inadequate counter offer to a Saturday night proposal from the union. GM made an offer to the union that essentially repeated one already rejected by the UAW, according to Terry Dittes, the UAW VP in charge of the GM department. Analysts estimate the strike has cost GM more than $1 billion, while LMC Automotive estimates the company has lost production of 118,000 vehicles through Oct. 2.
Truckers are pulling back at a time of the year when they should be growing. Trucking companies reduced payrolls for the third straight month in September, the Wall Street Journal reports (link), cutting 4,200 jobs collectively as hiring in the broader U.S. market slows. Truckers have now cut employment by 9,600 jobs since mid-summer, a sign of a broad retrenchment in the sector from last year’s booming market along with apparent pessimism over peak-season demand. That’s a contrast with logistics operations focused on e-commerce fulfillment. Warehousing and storage businesses added 3,400 workers last month while parcel carriers boosted employment by 3,600 jobs. “The difference is that many truckers are more exposed to a faltering American industrial economy even as online retail sales have been growing. U.S. factory activity contracted last month and producers of durable goods cut their payrolls by 4,000 jobs in September.”
EPA Administrator Andrew Wheeler will be in North Dakota today to talk about his agency’s rewrite of the Waters of the United States (WOTUS) rule.
60 Minutes interviewed Land O’Lakes CEO Beth Ford about the trade and weather challenges affecting farmers, and innovations in the industry. Link for details.
New York Times says some farmers are beginning to grow hemp as a way to ride out Trump’s trade war. Link for details.
— Markets. The Dow on Friday gained 372.68 points, 1.42%, at 26,573.72. The Nasdaq moved up 110.21 points, 1.40%, at 7,982.47. The S&P 500 added 41.38 points, 1.42%, at 2,952.01.
For the week, the Dow lost 246.53 points, 0.9%. The S&P 500 declined 0.3%, but the Nasdaq finished up 0.5%, ending a two-week losing streak.
“Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019,” said Timothy Fiore, chair of the Institute for Supply Management, or ISM, which surveys 800 business across 18 industries to derive the PMI figure.
New York Fed’s model puts the odds of a recession at 38% in the next 12 months, based on the difference between the yields of the three-month and 10-year Treasuries. That also means there’s a 62% chance that a recession won’t occur.
Key oil reports this week. The Organization of the Petroleum Exporting Countries will release its monthly report on the global oil market Thursday, followed by one Friday from the International Energy Agency — the first since the September attack on Saudi Arabia's oil industry. Meanwhile, on Tuesday, EIA releases its Short-Term Energy Outlook (STEO), including Winter Fuels Outlook.