USMCA in Senate | NPPC targets Impossible Pork | Big U.S. ag exports in Nov.
In today's updates:
* Iran fired 22 ballistic missiles last night, but there are no reported casualties
Markets have recovered following initial panic after Iran launched some 22 ballistic missiles at bases housing U.S. troops in Iraq. Down by nearly 400 points overnight, Dow futures have recouped all of their losses, while oil has given back gains (Brent crude oil jumped as high as $71.75 a barrel, before settling at $68.60; U.S. crude is now lower) and gold is off its highs. The direction of today's session will likely depend on the U.S. response. President Trump will make a statement this morning, but tweeted last night that "all is well" and seemed to suggest there were no American casualties in the attacks.
Soybean futures gap. According to Bloomberg, a gap has once again opened up between U.S. and Brazilian soybean prices. This development will likely cap the rally in U.S. soybean futures.
Australia fires put farms in double jeopardy. One of the country’s worst fire seasons adds to losses from three years of drought, killing thousands of livestock, as well as gutting the outbuildings that store their feed and blackening the paddocks where they graze. Link to WSJ article.
Krispy Kreme rolls out a big product that comes in a small package. The doughnut maker has added mini doughnuts to its permanent menu to help those who are trying to stick to their New Year's resolutions but also want doughnuts. "Too many people bail on their New Year's resolutions before they are even halfway through January... Sometimes a mini-indulgence, or cheat, is all you need to help you stick with it. So, we miniaturized our most popular doughnuts," said Dave Skena, Chief Marketing Officer for Krispy Kreme, in a news release. "A little Krispy Kreme goes a long way."
— Mideast tension update:
- Iran fires on U.S. forces at two bases in Iraq, calling it ‘fierce revenge’. Iraqi officials say the Iranian strikes, involving at least a dozen ballistic missiles, caused no American or Iraqi casualties.
- Trump, who will address the nation this morning, tweeted: "All is well! "So far, so good!” A Pentagon statement (link) on the strikes said: "It is clear that these missiles were launched from Iran and targeted at least two Iraqi military bases hosting U.S. military and coalition personnel at Al-Assad and Irbil."
- A Tweet from Iran's Foreign Minister suggested the attack was "one and done." Iran does not appear to want further escalation. Iranian Foreign Minister Mohammad Javad Zarif tweeted: "Iran took & concluded proportionate measures in self-defense ... We do not seek escalation or war, but will defend ourselves against any aggression."
- Markets initially reacted violently to the escalation of hostilities in the Mideast, with stock futures tumbling, but after Iran's tweet on the topic, stocks pared losses, and oil and gold retreated from the highs as investors reassessed the chances of a broader conflict. Despite the Middle East unrest, America’s average gasoline prices have remained under $3 a gallon. The national average price of a gallon of gasoline has been steady at $2.58.
- Update: Speaking from the White House, Trump seemed intent on de-escalating the crisis, indicating he would not retaliate military for the strikes. Instead, he said the U.S. would immediately put in place new economic sanctions "until Iran change its behavior." Trump said he would ask NATO allies to “become much more involved in the Middle East process… The civilized world must send a clear and unified message to the Iranian regime: Your campaign of terror, murder, mayhem will not be tolerated any longer,” Trump said. “It will not be allowed to go forward.” Before Trump even said "good morning,” he walked out and immediately said, "As long as I'm president of the United States, Iran will never be allowed to have a nuclear weapon." He then added, "good morning" and began his address.
— U.S. hog farmers missed “the opportunity of a lifetime” last year during the trade war with China, the Wall Street Journal writes (Link to article). A tariff of 72% on imports of U.S. pork was in place for most of the year, draining demand for U.S. hog supplies — which stood at 77.3 million head as of December, according to USDA.
U.S. pork producers are hoping a thaw in relations will be a boon for exports to China. Chinese buyers opted to purchase more pork from the European Union and Brazil after an African swine fever epidemic decimated hog herds in Asia, rather than turn to the U.S. The result: 575 million pounds of frozen U.S. pork stored in warehouses and hog futures still well below their near-term peak.
— Reuters: China suspends plan for nationwide 10% ethanol fuel this year. China has suspended its plan to require 10% ethanol in the nation’s fuel supply in 2020, according to sources quoted by Reuters who have been briefed on the situation. The China National Development and Reform Commission (NDRC) said in a December meeting with ethanol producers and oil majors that they would halt the rollout of the ethanol effort nationwide, but it would still be in place in some provinces that started on the process.
A decline in government-owned corn stocks and a lack of ethanol production capacity were factors in the decision, the report said. This comes as ethanol was expected to be one of the commodities imported by China via the Phase 1 trade deal with the United States. The apparent decision does not mean there will be no ethanol as part of the commodities China is expected to import under the deal, but the suspension of the mandate could temper some expectations for hefty volumes to be involved. It is also not clear how long the delay could last or if the 10% ethanol fuel mandate is no longer going to be pursued.
— U.S. ag exports post big result for November. U.S. agricultural exports totaled $12.66 billion in November, up from $12.08 billion in October and the biggest monthly total since March 2018 when they were at $12.81 billion.
Imports moved down to $10.31 billion versus $10.92 billion in October. That resulted in a trade surplus of $2.35 billion for the month, the largest surplus since December 2018 when it was $2.49 billion. US ag exports totaled $135.54 billion in fiscal year (FY) 2019 against imports of a record $130.94 billion for a trade surplus of $4.6 billion, the smallest trade surplus since FY 2006.
USDA forecasts FY 2020 ag exports at $139.0 billion with imports of a record $132 billion to result in a $7.0-billion trade surplus. The first three months of a fiscal typically bring some of the largest U.S. ag export results while imports tend to peak in the March-May period. To meet USDA’s ag export forecast for FY 2020, shipments of US ag goods need to average $11.43 billion monthly, while imports will have to average $11.08 billion monthly to meet the import forecast.
— NPPC: Impossible Pork violates labeling laws. Impossible Food’s plan to market new “Impossible Pork” products violates federal food labeling laws because the product is not pork-based, according to the National Pork Producers Council (NPPC). “What’s impossible is to make pork from plants. This is a brazen attempt to circumvent decades of food labelling law and centuries of precedence,” NPPC Director of Science and Technology Dan Kovich said in a statement. “Any adjective placed in front of the word pork can only refine it, not redefine it. It’s not pork. It’s not pork sausage. It can’t be labelled as such.”
NPPC also noted that the regulatory responsibility for lab-grown products is an open question relative to whether that will rest with the Food and Drug Administration or USDA’s Food Safety and Inspection Service (FSIS) — the latter being the agency NPPC and many other ag interests prefer.
The group also raised questions about the processes used by companies to create the products beyond use of labels that NPPC fears will “not clearly differentiate them from traditional products for consumers.”
— Reuters: Impossible foods halts talks with McDonald’s. Impossible Foods has ended its talks with McDonald’s to supply the burger chain with plant-based burgers, Reuters reported, saying the company said they cannot produce enough of the product. Impossible Foods CEO Pat Brown told Reuters in an interview that "it would be stupid for us to be vying for them right now ... Having more big customers right now does not do us any good until we scale up production." Given what he said was “high” demand for their product, Brown said he wished they “had vastly more capacity than we do right now.”
Shares of Beyond Meat closed with gains following the wire service report. An official with Beyond Meat told Reuters in December they have the capacity to supply a company like McDonald’s. Chuck Muth, chief growth officer with Beyond Meat, told Reuters that talks with McDonald's are going "very well" and that its new and upcoming facilities around the world are guaranteed to help it keep up with demand — not just in the United States, but globally. McDonald’s in September tested a PLT burger in Canada that used patties made by Beyond Meat.
Meanwhile, McDonald's is expanding its pilot of Beyond Meat burgers to 52 restaurants across Canada after rolling out the plant-based meat burgers in 28 local outlets in October. The news comes after Beyond Meat shares soared 12.4% on Tuesday.
— Senate Finance Committee advances USMCA ratification. The Senate Finance Committee voted 25-3 yesterday to advance the legislation to implement the U.S.-Mexico-Canada trade deal. A full Senate vote on President Donald Trump’s rewritten NAFTA trade agreement will be put off until next week at the earliest, after the deal was referred to six other committees for review (see next item).
— Other Senate panels to consider USMCA legislation. Passage of the U.S.-Mexico-Canada Agreement (USMCA) by the Senate Finance Committee Tuesday, via a 25-to-three vote, is the first consideration of the deal by Senate committees. The Senate parliamentarian determined Monday that the USMCA legislation will also have to be considered by the Health, Education, Labor, and Pensions Committee; the Environment and Public Works Committee; the Senate Appropriations Committee; the Foreign Relations Committee; the Budget Committee; and the Commerce, Science, and Transportation Committee.
Their action on the bill does not have to take place in any particular order and the measure cannot be amended — it is an up-or-down vote in each panel. But the process of getting their markups scheduled and completed will add additional time to the USMCA approval process.
Indications are the initial consideration by the full Senate may not come until late next week at the earliest. USMCA is still fully expected to easily clear the Senate, but the combination of additional committees considering the implementing legislation and the still-pending impeachment trial in the Senate clouds the exact timing at this point.
— Senate Majority Leader Mitch McConnell (R-Ky.) said he will proceed on impeachment trial without a witness deal. McConnell said he has enough votes to set impeachment-trial rules that don’t guarantee new witnesses would be called, rebuffing demands from Democrats amid mounting signs that a deadlock over the process was beginning to loosen. The intention, with no commitment to calling witnesses or admitting new evidence, signals a partisan vote.
House Speaker Nancy Pelosi (D-Calif.) said she would send the two articles of impeachment to the Senate “soon,” though not before McConnell set out his rules.
— Sen. Murkowski warns nominations may be delayed by Senate impeachment process. Senate Energy & Natural Resources Committee Chair Lisa Murkowski (R-Alaska) told reporters Tuesday that consideration of nominations for administration posts will potentially not be able to voted on by Senate panels during the Senate impeachment trial unless the nominations can gain unanimous consent from the chamber. “It is my understanding we cannot move nominations again without that full consent," Murkowski said. Getting all 100 senators to back nominations is not all that likely, she noted. She also indicated she would not seek to extract floor time for energy legislation she wants to move in exchange for votes in the impeachment process.
— API takes on fracking opponents. “Somehow at the very moment of progress” in reducing emissions, some Democratic presidential candidates want to ban fracking, American Petroleum Institute President and CEO Mike Sommers said Tuesday on a press call ahead of its annual State of American Energy event in Washington. “I disagree with the premise our campaign is defensive,” Sommers added. “It is really about going on offense to tell the story of this industry.”
API, the largest U.S. oil and gas trade group, released a report projecting banning fracking for oil and gas would “invite a global recession” and lead to 7.3 million in job losses by 2022.
Sommers said API would seek this year to contrast its approach to reducing emissions, favoring increasing investments in new cleaner technologies by member companies, with aggressive regulations and mandates favored by Democrats running for president. Sommers, however, indicated API is not prepared to veer from its playbook of opposing direct federal regulation of methane, while also refusing to endorse carbon taxes, despite some of its large member companies taking opposite views. Oil and gas companies’ flaring and venting of methane and their ability and willingness to contain it has emerged as a flash point that could determine the role of gas in a clean energy future. Sommers argued that companies are motivated to contain methane for economic reasons: “This industry has no interest in methane emissions coming from our industry.” He said, however, that existing regulations that indirectly capture methane, along with state rules, are sufficient to curb methane.
Sommers reiterated API’s long-standing aversion to a federal carbon tax, which he called a “complicated subject.” Sommers added that API is “excited to be a part of the discussion” as Democrats prepare to unveil legislation to cut emissions to net-zero by 2050. “We want to participate in that debate,” he said.
— Cargill profits jump after ASF pig cull causes meat shortage in Asia. A meat deficit caused by a deadly pig virus in Asia has boosted results at Cargill, the global agribusiness with a portfolio of beef and poultry plants. Sales of protein — meat and eggs — were the largest contributor to fiscal second-quarter adjusted net profit of $1 billion, a Cargill spokeswoman said on Tuesday. The earnings were 19% higher than the same quarter a year before. A Cargill joint venture with Teys Bros in Australia normally exports beef trimmings to the U.S. for use in ground beef. In the second quarter ended Nov. 30 those shipments were “pulled to China,” said Lisa Clemens, Cargill’s senior director of investor relations.
The company also operates a massive chicken complex in the Chinese province of Anhui. “We are seeing, within China, higher domestic demand for poultry,” Clemens said.
Clemens cautioned that the global meat squeeze had mixed effects on Cargill. In the Philippines, it drove up the cost of chicks bought by a poultry joint venture operated with the fast-food chain Jollibee Foods.
— Other items of note:
Election countdown. 26 days until the Iowa caucuses. 300 days until Election Day.
French and U.S. officials are racing to reach a compromise over France’s proposed tax on American internet giants before the World Economic Forum conference in Switzerland later this month. Link to NYT article.
Kelly Loeffler, Georgia’s new U.S. senator, will join the Agriculture Committee, which oversees the Commodity Futures Trading Commission — even though her husband runs the huge markets operator Intercontinental Exchange, which is under the CFTC’s umbrella. Link to WSJ item.
— Markets. The Dow on Tuesday fell 119.70 points, 0.42%, at 28,538.68.The Nasdaq declined 2.88 points, 0.03%, at 9,068.58. The S&P 500 lost 9.10 points, 0.28%, at 3,237.18.
The U.S. trade deficit narrowed to -$43.1 billion in November, leaving some analysts to conclude that net exports are going to provide a larger boost to Q4 growth than initially expected. Forecasting firm Macroeconomic Advisers is tracking fourth-quarter gross domestic product growth at a 2.5% pace, with net exports contributing 1.5 percentage point to the gain. Some note the recent decline in imports is due to importers pulling forward demand to get ahead of consumer-focused tariffs, it may be set to reverse and be a drag on GDP in coming quarters. The release of December’s international trade data is scheduled for Feb. 5. Economists expect the sharp decline in imports to abate in early 2020 because of the recently negotiated phase-one trade deal.
The goods deficit with China fell 7.9% in November from the prior month to a seasonally adjusted $25.61 billion, the smallest since 2013. Exports to the Asian nation rose by $1.4 billion, the most since February, while imports declined for a sixth straight month, reflecting the toll of more than a year of tariffs.
Inflation in the euro area reached a six-month high in December. Consumer prices rose by 1.3% year-on-year, up from 1% the previous month. Observers say this adds to evidence that the bloc’s economy is stabilizing.