Report for NPPC finds big impact if China cuts its 72% tariff on U.S. report
In today's updates:
* U.S. & Chinese negotiators held a phone call on Phase 1 issues; consensus in sight
Markets: WTI crude continues to hover near the $58-a-barrel level amid the trade optimism and a forecast for the first U.S. crude inventories drop in five weeks.
Impossible Foods is in talks with investors about a new funding round that would more than double the $2 billion valuation the alternative protein company attained earlier this year. Sources additionally told Reuters that the fundraising could mean an initial public offering may be on tap as early as next year. Rival Beyond Meat still trades at 3X the level where the company's IPO was priced in May and the strong rally has pushed most of the sell-side community to the sidelines.
Weather woes. The National Oceanic and Atmospheric Administration is caught between growing demand for timely and accurate weather information, and competition from a host of new companies threatening to beat government agencies at their own game, a Washington Post article notes (link). The outcome of that competition could affect the public’s access to the best available weather and climate data in the years ahead. On Monday, the Minnesota-based firm DTN announced a merger with Europe’s Meteogroup (link), creating what they claim will be the largest private weather company worldwide.
— U.S./China trade policy update:
- China, U.S. held phone call this morning (Beijing time) to discuss key Phase 1 concerns. Liu He, Bob Lighthizer and Steven Mnuchin agreed to continue communication about an agreement, according to Chinas Ministry of Commerce. The officials “discussed how to address respective core concerns, reached consensus on solving related problems, and agreed to keep communication for the remaining matters in the ‘phase one’ trade negotiations,” the ministry said in a statement. The official Xinhua News Agency said the two sides discussed “solving issues regarding each other’s core concerns, reached consensus on properly resolving related issues and agreed to maintain communication on remaining issues in consultations on the Phase 1 deal.”
- There was something different about the most recent phone call between Chinese and U.S. officials. It included China’s Commerce Minister Zhong Shan, the Governor of the People’s Bank of China Yi Gang, and Vice Chairman of the National Development and Reform Commission Ning Jizhe. Observers say that indicates high-level involvement at this point of the discussions.
- Liu made the call Tuesday after U.S. negotiators passed on making plans to visit this week, as hoped for by the Chinese side. The Commerce Ministry said both sides had agreed to keep in touch on remaining issues for a Phase 1 deal.
- Communist Party newspaper Global Times ran a front-page article citing experts dismissing “negative media reports” about the talks. It cited a scholar at the Chinese Academy of Social Sciences, Gao Lingyun, who it said was “close to the trade talks” and said the two sides may reach a “Phase 1” agreement soon. Gao said Beijing and Washington had agreed that tariffs would be rolled back as part of such a deal, but had not agreed yet on which tariffs might be removed or lowered.
- U.S. and Chinese officials may have discussed agricultural purchases and a review mechanism for the implementation of a potential agreement, the Global Times reported, citing unidentified expert close to the trade talks. Officials may have also discussed a date for a face-to-face meeting. The Global Times is a Chinese tabloid run by the People’s Daily, which is the flagship newspaper of the Communist Party.
- Big impact if China cuts its 72% tariff on U.S. pork. A trade agreement that eliminates China’s 72% tariff on U.S. pork could reduce the bilateral trade deficit by nearly 6% and generate 184,000 new American jobs over the next decade, according to Iowa State University economist Dermot Hayes for the National Pork Producers Council. U.S. pork producers see a potential $24.5 billion market in China within 10 years if the Trump administration can gain unrestricted trade access after the Asian country’s hog herd has been devastated by African swine fever. The projection was based on a “best-case scenario” in which China drops all tariffs and barriers to pork imports, including speeding up customs processing to allow for imports of chilled pork. China had a 12% duty on frozen pork before the trade war and has now added a 60% punitive tariff. Currently, China’s customs processing is restricting imports of non-frozen U.S. pork, Hayes said. China’s pork tariff is only 12% for other major suppliers, such as Canada, the EU and Brazil. But U.S. exporters face steeper duties because of Beijing’s retaliation for Trump’s tariffs on more than $350 billion worth of Chinese goods. Unrestricted access to the Chinese market would generate $24.5 billion in U.S. pork sales over the next 10 years, or twice the current projections, Hayes said. Hayes projected that without tariffs, China would import 35% of its pork — a level similar to Mexico and Australia after they concluded free-trade agreements — and U.S. producers would capture half that market.
- China summons U.S. ambassador over Hong Kong legislation. While U.S. and China trade officials held a call on trade issues, China summoned U.S. Ambassador to China Terry Branstad to lodge a protest over legislation passed by the House and Senate relative to the situation in Hong Kong. This marked the second time Branstad has been summed to meet with Chinese officials, the first coming after the arrest of Huawei executive Meng Wanzhou. China’s Vice Foreign Minister Zheng Zeguang called on the U.S. to “immediately” stop interfering in Hong Kong’s affairs and what labeled China’s internal affairs. The U.S. legislation “blatantly interferes” in China’s own affairs and is “in serious violation of international law and basic norms governing international relations," Xinhua quoted Zheng as saying. "Any attempts to put Hong Kong in chaos and destroy Hong Kong's stability and prosperity are doomed to fail. Otherwise, the United States has to bear all the consequences that arise.”
— MFP 2 payouts. As of Nov. 25, USDA's Farm Service Agency paid $10.169 billion in MFP 2 payments to farmers. The top five states were Iowa at $1.147 bil., Illinois at $1.059 bil., Minnesota at 768.8 mil., Texas at 753.9 mil., and Kansas at 714.6 million. MFP payments for 2019 are being made in up to three batches. The first round of payments began in August and was comprised of the higher of either 50% of a producer’s calculated payment or $15 per acre. For producers who received payments in the first round, their second-round payments will be issued Nov. 18-28 and are 25% of their calculated payment.
— USMCA update:
- House Speaker Nancy Pelosi (D-Calif.) said she is awaiting final written commitments from the Trump administration on issues raised by House Democrats relative to the U.S.-Mexico-Canada Agreement (USMCA). “We are within range of a substantially improved agreement for America’s workers,”Pelosi said in a statement. “Now, we need to see our progress in writing from the trade representative for final review.” But even with an agreement, there’s still little time left for Congress to ratify the trade pact this year.
- President Trump said the new agreement was “sitting on Nancy Pelosi’s desk... She’s incapable of moving it.” He recently said AFL-CIO President Richard Trumka is influencing Pelosi’s decisions on USMCA.
- Trumka is set to discuss the changes that Democrats have hammered out with the administration in a call with major labor unions today, according to a union official.
— Other items of note:
Supreme Court granted President Trump's emergency request to suspend enforcement of a congressional subpoena seeking his financial records from his accounting firm, a move that could keep the documents from House Democrats for months — and possibly not at all.
A federal judge ruled that the former White House counsel Don McGahn must testify before impeachment investigators about the president’s efforts to obstruct the Mueller investigation.
FTC again finds sufficient competition in U.S. ethanol market. The Federal Trade Commission (FTC) has again determined that the U.S. ethanol industry is not subject to market manipulation due to concentration in the industry. The 2019 Report on Ethanol Market Concentration found the “low level of concentration and large number of market participants in the U.S. ethanol production industry continue to suggest that the exercise of market power to set prices, or coordination on price and output levels, is unlikely.” The FTC adopted the report via a four-to-zero vote, with Commissioner Christine Wilson not participating. The FTC is required to issue the report annually under provisions of the Energy Policy Act of 2005.
EU panel advances decision to allow more U.S. beef into Europe starting in 2020. A panel of European lawmakers approved an agreement that will give American producers the biggest share of the EU’s annual 45,000-ton quota for hormone-free beef imports. Link for more from Reuters.
The most prized commodity in parts of the oil-rich Middle East isn’t crude but water. Water from the Nile River is growing more valuable as countries China battle over the scarce resource, the Wall Street Journal reports (link), as they seek to direct the flow of the world’s longest river to nurture new export trade. Dams funded by foreign countries including China and oil-rich neighbors like Saudi Arabia are tapping the river to irrigate industrial farms, many of them producing crops increasingly shipped out of Africa, often to feed livestock. That has meant less water for the 250 million-plus small farmers, herders and city dwellers in the Nile basin, all because the region is essentially “exporting water” to support crops for other countries. “Trade has been turned upside down, with Sudan and Egypt now importing food for their populations despite their fertile farmland,” the article concludes.
Bloomberg News wrestles with owner’s presidential run. A decision to limit coverage of Michael Bloomberg and his Democratic rivals, but continue investigations of President Trump, has sparked criticism. A Wall Street Journal editorial wrote, “There’s a name for folks who dig through only one political party’s trash: opposition researchers” and ends by noting, “If Bloomberg can’t pledge to cover both parties equally, it would be better not to cover the election at all.”
— Markets. The Dow, S&P and Nasdaq all hit new records on Monday. The Dow gained 190.85 points, 0.58%, at 28,066.47. The Nasdaq moved up 112.60 points, 1.32%, at 8,632.49. The S&P 500 was up 23.35 points, 0.75%, at 3,133.64.
The VIX volatility index fell to its lowest close in more than a year, at 11.87.
Federal Reserve Chairman Jerome Powell was upbeat in remarks Monday, saying that even at the current point in the economic cycle he sees the glass “as much more than half full.” He indicated he is confident on policymakers’ ability to extend the U.S. expansion and as he signaled interest rates are likely to remain on hold. He said the Fed will focus on increasing workforce participation and avoiding a drop in inflation expectations as it considers its next steps. Speaking to the Greater Providence Chamber of Commerce in Rhode Island, Powell said the U.S. economy was “generally good,” but added that there was still room for improvement. Powell highlighted several reasons why the recent rate cuts might have been warranted based on new evidence that the Fed’s policy would otherwise have been too tight — for example, because the labor market wasn’t as strong as data previously suggested or because the neutral rate of interest was lower than estimated.
Mexico’s economic activity was flat in the third quarter following three quarters of negative output, putting the economy on track for its worst yearly performance in a decade. Gross domestic product was unchanged from the second quarter in seasonally adjusted terms, the National Statistics Institute said Monday. Revised numbers showed GDP posting 0.1% contractions in each of the previous three quarters.