FOMC interest-rate decision today | RFS hearing shows continued discord
In today's updates:
* U.S./China Phase 1 finish timeline is murky but that is not new news
Markets: Shares in Beyond Meat tumbled 22% yesterday as investors feared huge sell-offs by early backers of the plant-based food company. "We do anticipate we'll be doing more promotion through trade and discounts going into the future," noted Executive Chair Seth Goldman. More than 28 million shares swapped hands, representing nearly 50% of all BYND shares outstanding, as the expiration of the IPO share lockup further weighed on the stock.
The Washington Nationals won a do-or-die sixth game of the World Series, with the seventh and final game tonight. My Baby Shark cat was a good luck charm, so another request is being made (alias, Muffin) to bring back a World Series trophy in the winner-take-all game tonight.
— U.S./China trade policy update:
- A lack of solid news on U.S./China front gives way to “breaking news” reports that most should not even bother reading. Farmers, traders and especially “beat reporters” want to know the latest on the lingering U.S./China trade talks. Reports earlier this week noted that Phase I was almost done, then President Trump said about the same thing on Monday. But on Tuesday, an “exclusive” Reuters report was headlined, “U.S.-China trade deal may not be ready for signing in Chile - U.S. official.” That suggested a slow news day was underway. Trade watchers are already accustomed to timelines being delayed and sometimes accelerated, so a “news” report that Phase 1 language “may not be ready” for singing during the Nov. 16-17 APEC summit in Chile was nothing to halt the printing presses over. Expect other false alarms until the APEC confab.
- In Beijing, foreign ministry spokesman Geng Shuang said there would be another telephone call shortly between the top negotiators from the U.S. and China, noting that working-level discussions were happening at a quick pace. "It is China's hope that the two sides can find a way to resolve the economic and trade issues on the basis of mutual respect, equality and mutual benefit," Geng stated.
- Reuters reported (link) that China is balking at committing to large purchases of U.S. farm products, quoting an official from a Chinese state-owned company as saying the country “does not want to buy a lot of products that people here don't need or to buy something at a time when it is not in demand.” The official also cautioned that if the products arrived in China in a “concentrated way, it might be hard for the domestic market to digest.”
- A White House spokesman said, "The president has been clear that he wants real structural changes that yield actual, verifiable, and enforceable results, leading to fairer trade, more efficient markets, and increased prosperity for both countries."
- Vietnam benefited hugely from the U.S./China trade battle. Now it needs to figure out how to keep those gains. Link to Bloomberg article.
— House RFS hearing shows split between biofuel backers, refiners. The House Energy & Commerce Environment and Climate Change Subcommittee hearing Tuesday, "Protecting the RFS (Renewable Fuel Standard): The Trump Administration's Abuse of Secret Waivers,” emphasized the differences that have emerged in recent years between biofuel backers and those who dislike the Renewable Fuel Standard (RFS), such as some in the refining industry.
- RFA blasts EPA decision making. “In its ongoing pursuit to undermine the RFS, the oil industry continues to advance the red herring narrative that the ‘cost of compliance’ presents an unbearable economic hardship that threatens the viability of petroleum refineries,” said Renewable Fuel Association (RFA) President and CEO Geoff Cooper. “Specifically, refiners claim that when they choose to purchase RFS compliance credits (known as Renewable Identification Numbers, or ‘RINs’) from competitors in lieu of blending renewable fuels, an insufferable financial burden is created that warrants regulatory ‘relief.’” The group maintains that the arguments used are “absurd and contrived.” Link to testimony.
However, Cooper said that the Trump administration “apparently has been convinced by oil refiners that RIN prices are indeed something that must be managed, despite the original intent that the RIN market would operate freely to help ensure achievement of the statutory RFS requirements.”
The level of SREs granted has risen dramatically over 2016-2018, Cooper said, directly lowering biofuel use. “The effect of the 2016-2018 retroactive exemptions on required renewable fuel blending volumes is substantial,” he testified. “Cumulatively, the 85 exemptions reduced 2016-2018 RFS blending requirements by a total of 4.04 billion gallons, or 1.35 billion gallons annually (a six-fold increase from the annual average of 0.23 billion gallons from 2013-2015).”
As for EPA’s supplemental RFS plan, Cooper pointed to EPA’s statement that it would follow recommendations on SREs as outlined by the Department of Energy (DOE) “under appropriate circumstances.” Cooper cautioned that EPA does not specify what those “appropriate circumstances” would be. “In short, the supplemental proposal fails to provide the necessary assurances that the statutorily required volume of 15 billion gallons of conventional renewable fuel will actually be enforced in full in 2020 and beyond,” he concluded.
- On the other side of the issue, Chet Thompson, president of the American Fuel and Petrochemical Manufacturers, countered, “Contrary to the premise of today’s hearing and much of the narrative around this issue, however, small refinery waivers have not had any demonstrable impact on domestic biofuels demand, which is at or near record highs. In fact, until recently, the Administration’s RFS policy reduced compliance costs while enabling record biofuel use.” Link to testimony.
He countered that the Trump administration has take “substantial policy actions” that benefit the biofuel industry, including year-round sales of E15, an action AFPM has opposed. He insisted that it shows the administration is not “devastating the renewable fuel industry” via its biofuel policy. “The Administration has also expanded the mandated volumes despite declining gasoline consumption, including year-over-year increases beyond statutory minimums in the biomass-based diesel category,” Thompson said.
“AFPM recommends that the Committee take a critical look at the data referenced in this testimony and take a skeptical view towards claims that EPA’s management of the RFS and ancillary programs have harmed the biofuels industry,” Thompson concluded. “Indeed, until the recent proposal to reallocate small refinery waivers, the Administration’s approach has supported both lower compliance costs and record domestic biofuel consumption.”
“Right now, President Trump is pitting farmers and refiners against each other to the detriment of all stakeholders and consumers,” Chairman Frank Pallone (D-N.J.) said in his opening statement. “As a result, the RFS does not appear to be working the way it should for anyone involved.”
House Ag Chairman Collin Peterson (D-Minn.) has filed a bipartisan bill that would require all information provided by refiners in their petition for a waiver to be disclosed publicly. It would also set a June 1 deadline for refiners to seek exemptions for the upcoming year.
Perspective: The situation is unlikely to provide much in terms of bridging the gap between biofuel supporters and opponents. And it comes as a 32-day comment period on the supplemental EPA plan for 2020 biofuel policies under the RFS. Odds remain that the RFS situation will not become clearer until EPA comes forward with its final plan, a decision the agency has only said it would do later this year. Given that the comment period on the RFS plan runs through Nov. 29, the Nov. 30 deadline for finalizing the 2020 biofuel standards will be missed. And EPA has not committed to a timeline of when they will do so, only saying it will be later this year. Meanwhile, EPA today is holding a public hearing in Michigan to gather input on their plan. Clearly, the U.S. biofuel policy situation will remain uncertain until the final 2020 biofuel plan is in place.
— USDA announced interim rules for hemp production. The regulations, which will take effect later this week, establish testing protocols to distinguish between legal hemp and federally controlled marijuana and a path for state and tribal governments to submit regulatory plans for review. They also provide legal protection for interstate transportation of hemp and make producers eligible for federal programs including loans and insurance coverage. “We are always excited when there are new economic opportunities for our farmers, and we hope the ability to grow hemp will pave the way for new products and markets,” USDA Secretary Sonny Perdue said in a video.
In some cases, truckers transporting hemp across the country have been arrested because of differences in state testing procedures distinguishing between hemp and marijuana. Observers believe the new rules should eliminate that risk.
The interim hemp production rules will become effective upon publication in the Federal Register likely on Thursday. USDA posted a preview copy of the interim rule on its website (link), giving state and tribal officials an early look at the federal requirements for growing a legal hemp crop, defined as plants with 0.3% or less delta-9 tetrahydrocannabinol (THC). The rule will take effect upon publication, but the department will take comment for 60 days. A final rule will be issued after a public comment period.
USDA is setting the minimum rules, allowing states to impose more restrictive requirements.
Background. Senate Majority Leader Mitch McConnell, R-Ky., included provisions in the 2018 Farm Bill that removed hemp from the Controlled Substances list, where it had been classified as an illegal substance with its cannabis cousin, marijuana. McConnell built on language he’d gotten into the 2014 Farm Bill that allowed limited and controlled hemp production overseen by states to make sure pot growers didn’t use hemp as a cover for growing what is still an illegal substance under federal law. “This will help farmers around the country continue pioneering this crop into the 21st century, and I’m proud to say Kentucky is prepared to take the lead,” McConnell said Tuesday on the Senate floor. He said he had focused on the plant as an alternative for former tobacco growers in Kentucky and an opportunity for the next generation of farmers.
The rules cover issues such as licensing of growers and testing procedures for hemp THC at labs certified by the Drug Enforcement Administration and what to do with hemp with THC levels above 0.3%. Plants above that percentage in dry weight will be destroyed, according to procedures required for marijuana under the Controlled Substances Act and by the Drug Enforcement Administration. The 2018 Farm Bill left the Food and Drug Administration responsible for regulating CBD and clarifying its uses. The agency has begun its review, but the hemp industry and politicians are sounding increasingly impatient. “There are ongoing conversations with the FDA on CBD products, ongoing work to help growers and retailers to access credit and financial products,” McConnell said.
State and tribal governments may submit their hemp regulatory plans to the USDA for review. USDA will evaluate and approve the plans within 60 days of submission. The goal is to give state and tribal officials enough time to put the plans into action for a 2020 hemp season that will start with planting in the spring.The interim final rule will sunset in two years. “We will use the 2020 growing season to test drive the interim rule to guide any adjustments made in the final rule,“ said Greg Ibach, the undersecretary for marketing and regulatory programs, on a call with reporters. Ibach and Bill Northey, undersecretary for farm production and conservation, said the coming year will be a learning curve for hemp farmers and regulators. “Throughout this process, USDA has cautioned producers who wanted to grow hemp to make sure they had a relationship with a reliable processor or end user that would buy their crop at the end of the crop year,” Ibach said.
Barb Glenn, CEO of the National Association of State Departments of Agriculture, said the 46 states that have approved hemp production have indicated they will send plans to USDA for review. “We appreciate USD’s objective to evolve hemp regulations as the industry matures. We are all learning as this industry grows,” Glenn said in a statement.
USDA will offer alternatives for growers who live in states or tribal lands that have approved hemp production within their boundaries but that don’t submit plans for federal review.
Meanwhile, hemp growers, processors and related businesses announced the formal establishment of the Hemp Federation of America (HFA) to advocate on behalf of industrial hemp in Washington, DC. The group set a Nov. 14 date for their first fly-in and Capitol Hill climb. Will Wheeler, an Oklahoma rancher and farmer who is serving as HFA’s board chairman, said an industry that could see a domestic market estimated to be anywhere from $800 million to $2 billion annually needs a trade association to see to its interests in Washington, DC.
— Ag labor reform bill to be unveiled today by group led by Rep. Zoe Lofgren (D-Calif.), despite very low odds the legislation, or any labor reform legislation, will make it through Congress, especially a bill like the one today that would include a controversial path to legalization for current workers. It would also establish a mandatory E-Verify system nationwide for farm employers, in a bid woo conservative lawmakers. The measure also focuses on the needs of dairy farmers and other producers who need year-round workers, by offering 40,000 extra green cards for agricultural labor and creating a capped program to grant three-year visas for workers in certain sectors like dairy.
The legislation is expected to largely focus on the adjustment of legal status for existing undocumented workers and their families with modest changes to the H-2A program. While those who currently depend on existing undocumented workers may be pleased with the House legislation, producers who depend mainly on H-2A may not be enthusiastic, sources signal. Rep. Lofgren has been successful in tapping support from key Republican lawmakers on the legislation, but sources do not expect that to result in broad support in the Republican conference generally. Should the measure make it through the House, even the severe farm labor shortage would not likely apply enough pressure on the Senate to move its own version of farm labor relief legislation. Meanwhile, the emphasis of the House legislation on blue card workers casts doubt on the Trump administration buying into the approach. Immigration politics will likely defeat any effort on this topic.
— Other items of note:
USTR Bob Lighthizer will meet again today with House Dems on USMCA; compromise near. House Ways and Means Chairman Richard Neal (D-Mass.) said after a working group meeting Tuesday morning that a compromise is “really close” and could ultimately come down to a handful of outstanding labor issues.
Rep. John Shimkus (R-Ill.) a senior member of the Energy and Commerce Committee, said he is reconsidering his decision to retire at the end of this Congress. Shimkus said he will make a decision quickly and cited the chance to lead the committee as a “very exciting” possibility.
Wyden ‘concerned’ negotiations with China tied to president’s personal interests. Sen. Ron Wyden (D-Ore.), the top Democrat on the Senate Finance Committee, asked Trump administration officials to make clear whether they were linking trade talks to President Trump’s efforts to find compromising information on Joe Biden, according to the Financial Times (link/paywall). In a letter to several cabinet secretaries — including Steven Mnuchin, Treasury secretary, and Mike Pompeo, secretary of state — Wyden said he was “deeply concerned” that recent comments by two of Donald Trump’s advisers suggested the president was attempting to connect his personal political interests with a trade deal. Wyden said he became concerned after Michael Pillsbury, an informal White House China adviser, told the Financial Times this month that he received details about Hunter Biden’s business activities in the country during a trip to Beijing. Pillsbury’s remarks came after Trump had urged Beijing to investigate Biden, a top contender for the Democratic presidential nomination, and his son Hunter.
The soaring food-delivery market may be coming down to Earth. Grubhub Inc. sent a shudder through the sector by slashing its revenue and profit outlook, the Wall Street Journal reports (link), while warning that it will have to pay more to lure new customers as business competition heats up. “The results along with a 10-page letter to shareholders suggest the well-funded expansion of Door Dash and Uber Eats is changing the business, and that pressure is growing on the companies to raise incentives for customers and strike new deals with restaurants.” One analyst says the food-delivery market is “increasingly irrational,” and Grubhub Chief Executive Matt Maloney told the WSJ in an interview, “Right now, we are in a weird bubble that is about to burst.” The bigger concern is that Grubhub suggests overall growth is slowing, and that may be the biggest sign yet of a coming shakeout, the article concludes.
Senate Minority Leader Chuck Schumer (D-N.Y.) worries President Donald Trump will shut down the federal government to divert attention from the House's impeachment probe. Funding will lapse on Nov. 21 if Congress cannot pass a spending plan and get Trump's signature on it.
— Markets. The Dow on Tuesday fell 19.30 points, 0.07%, at 27,071.42. The Nasdaq lost 49.13 points, 0.59%, at 8,276.85. The S&P 500 eased 2.53 points, 0.08%, at 3,036.89.
Fed rate-cut decision expected as new criticism from Trump emerges. The Federal Reserve is widely expected to announce a 25-basis-point trim to the target range for the Fed funds rate when the Federal Open Market Committee (FOMC) meeting concludes this afternoon at 1 p.m. (CT). The CME FedWatch tool expectations for the cut were at 96.2% ahead of the U.S. trading day, with only a 3.8% possibility that the Fed will make no change to rates. The slim chance for a no-rate-cut action is driven in part by positive signals on the U.S./China trade front — something the Fed has cited in its prior decisions to lower rates. If the Fed lowers rates, it would set the target range at 1.5% to 1.75%. The Fed has also launched purchases of short-term securities, a move they insist is not the quantitative easing deployed by the U.S. and other central banks to spur economic activity. But even as some cite the more-positive news on the trade front, there is no final agreement in place. Economic data since the prior FOMC session has been mostly positive, with consumers continuing to provide positive support for the economy even as business investment has pulled back. Given the high expectations for a rate cut, the focus today will be on how the Fed statement and how Fed Chairman Jerome Powell frame the forward guidance from the U.S. central bank, especially with the expectation that a rate cut today may not be followed by an additional reduction in December — the FedWatch tool expectations for a December rate cut are at 22.8%, with no change in December given 75% odds. There is also a 2.9% chance the Fed could actually raise rates at the December session. If the latter were to happen, no doubt it would prompt even more criticism from President Donald Trump via Twitter. He took aim at the Fed again Tuesday, tweeting, “’Over in Europe and Japan they have NEGATIVE RATES. They get paid to borrow money. Don’t we have to follow our competitors?’ @Varneyco Yes we do. The Fed doesn’t have a clue! We have unlimited potential, only held back by the Federal Reserve. But we are winning anyway!”
Mixed signals in U.S. consumer report. Consumer Confidence in October eased to 125.8 compared with an upwardly revised September figure of 126.3, according to the Conference Board reading. Expectations were for a mark of 128.8. The labor market portion of the index provided support for the overall reading along with income expectations. But the labor market portion indicated that the outlook for jobs is slightly weaker, suggesting that Friday’s jobs update will still show a solid labor market but a slowing pace of new jobs.
Saudi Aramco plans to formally launch its IPO on Sunday, aiming to begin trading on the Saudi stock exchange in December. More from Reuters.