OPEC+ Reportedly Reaches Tentative Deal on Extending Oil Cuts One Month

Posted on 06/03/2020 7:49 AM

More ag groups want into CFAP | Trump to talk with advisers about next aid package

 


In Today’s Updates


 

* OPEC+ reportedly reaches tentative deal on extending oil cuts one month
* Caixin PMI reaches highest level in 10 years
* Private sector job losses less than expected
* Global equities continue rally
* Dollar continues to weaken to lowest since mid-March

* Grassley confident China will follow through on Phase 1 purchases
* China using unrest in U.S. to counter Washington's criticism
* Bill wants to halt alleged theft of U.S. university research by China, others
* WSJ: A cold war with China would be expensive
* Brazil's exports of soybeans (mostly to China) significantly higher than previous years
* JCI on China buys of U.S. farm products
* Iowa Rep. Steve King defeated in GOP primary by State Sen. Randy Feenstra
* More small refinery exemption requests received by EPA
* Biofuel producers ask EPA to become more transparent regarding SREs
* Trump to meet with advisers re: next Covid aid package

* Liquid egg sector, more wheat growers want to be included in CFAP payments
* Two thirds of farmers believe more CFAP payments will be necessary
* PPP and agriculture
* U.S. food supply update
* Tyson Foods: 815 meatpacking workers tested positive for Covid-19
* Demand for cold-storage space in Europe has surged
* Firms selected to distribute meat, dairy and produce to food banks hire lobbyist
* Update on reopening America... and around the world
* Dept. of Energy will reopen D.C. headquarters for some employees next week
* Coronavirus shock could upend Las Vegas economy for years
* Coronavirus update
* CDC, OSHA give agriculture workers virus protection guidance
* India reported 8,909 new coronavirus cases, its biggest single-day rise
* Dr. Fauci ‘cautiously optimistic’ about a vaccine

* Popular anti-depressant drug, Zoloft, in short supply as stocks diminish following spike
* WTO to hold online discussion on trade, environment and Covid-19

* U.S. launching investigations into digital services taxes
* House Democrats plan to release details of their highway bill today
* Trump again threatens to move GOP convention
* EPA to finalize rule by end of July to cut back oversight of methane
* Apple is tracking looted iPhones

 


MARKET FOCUS


 

Equities today: International stock indexes rose on assessment that economic activity will improve. South Korea’s Kospi Composite led gains in Asia Pacific, adding 2.9% after the government proposed an extra budget worth $28.9 billion, the third this year, to ease the economic impact of the coronavirus pandemic. Hong Kong’s Hang Seng rose 1.3%, while China’s Shanghai Composite increased 0.2%. Japan’s Nikkei 225 rose 1.3%, trimming its year-to-date losses to about 4.4%. Australia’s S&P/ASX 200 advanced 1.7%. The pan-continental Stoxx Europe 600 gained 0.7%. U.S. equity futures signal a strong opening as optimism grows over the reopening of the U.S. economy .

 

     U.S. equities yesterday: The Dow gained 267.63 points, 1.05%, at 25,742.65. The Dow, which had dropped by as much as 36.7% from its bull-market peak to its bear-market low, is now 12.4% off its highs. The Nasdaq rose 56.33 points, 0.59%, at 9,608.37. The S&P 500 was up 25.09 points, 0.82%, at 3,080.82. The tech-heavy Nasdaq, which is now positive for the year, needs to gain just 2.2% to retake record territory. The S&P 500 is now up 40% from its pandemic low.

 

Market perspectives:

 

     • The dollar continued to weaken to the lowest since mid-March as global risk appetite returns. The euro is moving higher. The British pound is rising as investors grow optimistic about trade negotiations between the U.K. and the European Union.
     • Bitcoin's climb above $10k was short-lived.
     • The copper-to-gold ratio is at an extreme low.
     • Brent crude is testing resistance at $40/bbl as OPEC+ considers an extension of production cuts.
     • The decline in U.S. oil rigs is slowing.
     • More crude tankers are lining up off China’s coast in a sign of the country’s growing demand for oil.
     • Railcar loadings of truck trailers are gradually recovering, but railcar loadings of cyclical cargo remain very weak. Meanwhile, orders for container ships will fall to the lowest level in 11 years in 2020. In Japan, ship owners are preparing to sell a large number of dry-bulk vessels as steel production in the country plummets.

 

Private sector job losses less than expected. The ADP private sector employment update showed that employment fell 2.76 million in May, less than the 8.6 million decline expected. Attention remains on the broader U.S. government jobs update due Friday morning.

 

U.S. crude-oil futures rose 2.5% to $37.70 a barrel as expectations grew that an alliance of oil-producing nations, led by Saudi Arabia and Russia, was close to a deal extending output cuts.

 

Reuters reports that Saudi Arabia and Russia have reached a preliminary agreement to extend the oil production cuts by one month. A meeting of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) planned for Thursday will push for an extension of the 9.7 million barrels per day oil production cap agreed upon in April. While Saudi Arabia wants to extend it by three months, Russia countered with one month; without an agreement the cuts are set to be scaled back in July to 7.7 million bpd for the rest of the year.

 

     Supply numbers for OPEC members over May, the first month of the deal, show that OPEC members failed to comply with the deal. ING analysts note that OPEC compliance came in at around 77%, “and it was the usual culprits who fell short. Iraq and Nigeria had a compliance of 42% and 33% respectively. In fact, even the largest OPEC producer, Saudi Arabia did not meet its production quota of around 8.5MMbbls/d, with the Kingdom’s output averaging 8.7MMbbls/d.”

 

     With U.S. futures rising as much as 3% yesterday, concern is emerging that the increase will encourage more American shale output. That could undercut efforts by OPEC and allies to cut supplies in a bid to shield the market from demand losses in the wake of the coronavirus crisis. U.S. driller Parsley Energy said it’s turning oil wells back on just weeks after shutting them off. (Chart source: ING)

 

     OPEC cuts

 

Caixin/Markit China services PMI in expansion territory. The Caixin/Markit China services PMI for May rose to 55.0, up from 44.4 in April, the highest mark since late 2010 and bringing the index back into expansion territory. A rise in new domestic business was reported while there was a fourth monthly decline in export orders. The reading on employment in the sector also declined, but the rate of decline was not as severe as previously.

     Eurozone services PMI rises, but remains in contraction. The IHS Markit Eurozone services PMI for May rose to 30.5, up from the flash reading of 28.7. While the highest level in three months, it remains well below the 50 mark which separates expansion from contraction. Even though the levels of business activity and employment remain deeply negative, IHS Markit Chief Business Economist Chris Williamson said “the downturn has already eased markedly in all countries surveyed.”

 

     PMI

 

 


POLICY FOCUS


 

Iowa Rep. Steve King defeated in GOP primary by State Sen. Randy Feenstra in Tuesday's Republican primary for Iowa's 4th congressional district, according to Cook Political Report House Editor David Wasserman (link). Feenstra had 45.8% of the vote with 36 of 39 counties reporting. House Republican leadership stripped the nine-term King of his committee assignments in 2019 (including on the Ag Committee) after he questioned in an interview with the New York Times how the terms "white nationalist, white supremacist, Western civilization" became offensive. King, whose district is home to giant meat-processing facilities with a large immigrant workforce, has a history of criticizing immigrants. Feenstra, the preferred candidate of establishment Republicans seeking to oust King, easily outraised the incumbent, bringing in $925,800 to King’s $331,000. He won endorsements from the U.S. Chamber of Commerce and the National Right to Life Committee. Feenstra's victory will likely move the seat into safe Republican territory for the general election in November — with King’s loss, the Cook Political Report moved the race from “lean Republican” to “safe Republican.” The 4th District is 92.8% white, making it one of the least diverse districts in the country.

 

     Iowa Democrats chose Theresa Greenfield to challenge first-term GOP Sen. Joni Ernst. Greenfield, a real estate developer backed by the Democratic Senatorial Campaign Committee, defeated retired Navy Admiral Michael Franken and two other challengers. Although Greenfield raised $7 million for her campaign, she spent only about $2.3 million ahead of the primary, leaving her with a significant war chest for her battle with Ernst.

 

     Iowa’s 2nd District seat, vacated by the retiring Dave Loebsack, will include Democrat Rita Hart against GOP state Sen. Mariannette Miller-Meeks, who defeated former Illinois Rep. Bobby Schilling in the GOP primary.

 

     In Iowa's 3rd District, former GOP Rep. David Young easily won the Republican nomination to run against first-term Rep. Cindy Axne, who unseated him in 2018.

 

A look at other Senate races via Tuesday's primaries. Voters in Montana nominated Sen. Steve Daines (R) and Gov. Steve Bullock (D) to face off in a likely competitive contest. Democratic Rep. Ben Ray Luján, who abandoned a promising climb up the House leadership ranks for a run at the other chamber, will face former TV weatherman Mark Ronchetti in a New Mexico race that tilts Democratic.

 

More small refinery exemption requests received by EPA. Updated information published by EPA indicates additional activity on the small refinery exemption (SRE) front. As of May 21, 27 SRE requests have been received by the agency for the 2019

compliance year. And there has now been one SRE request received for the 2020 compliance year.

 

     Requests below prior years. The level of requests for SREs in the 2019 and now 2020 compliance years continues to run below the levels seen in prior years. And the agency has insisted they will make decisions on the SREs in a timely manner, but so far they have not yet addressed any of the 2019 compliance year requests.

 

     The issue of how EPA intends to address the 10th Circuit Court decision that three SREs granted for the 2016 compliance year were invalid remains unresolved. The agency has yet to signal how they will address that in the wake of the court decision.

 

Biofuel producers ask EPA to become more transparent regarding SREs. The National Biodiesel Board is asking the EPA to immediately disclose any petitions from small refiners for waivers from previous years of the Renewable Fuels Standard (RFS). Those petitions don’t appear on the EPA’s online dashboard, which EPA Administrator Andrew Wheeler created to improve transparency relating to the small refinery exemptions, despite recent testimony from the administrator and Energy Department officials that they’ve received such requests, wrote Kurt Kovarik, NBB's vice president of federal affairs, in a letter.

 

     Biofuels producers argue the petitions from refiners are an attempt to circumvent a ruling earlier this year from the 10th Circuit that sharply limited the EPA’s ability to grant waivers. “Retroactive small refinery exemptions destroy demand for biodiesel and renewable diesel and cause severe economic harm to advanced biofuel producers,” Kovarik wrote.

 

Update on China:

  • Grassley confident China will follow through on Phase 1 purchases. Senator Chuck Grassley (R-Iowa) said he’s not worried that China will not follow through on its ag purchase commitments under the Phase 1 trade agreement with the U.S., despite mounting tensions between the nations. Grassley said U.S. Trade Representative Robert Lighthizer shared the same view. These comments came after a call with Chinese Vice Premier Liu He. Specifically, Grassley told reporters on a weekly call, “I don’t have any reason to think that China long-term (is) not going to keep their agreement and that’s Lighthizer’s view after his conversation with the vice premier of China that he briefed me on. So I’m not worried about it.”
     
  • China is using the unrest to counter Washington's criticism of its decision to impose a national-security law on Hong Kong. Beijing is pointing to the demonstrations in the U.S. and President Trump's response to highlight what it regards as American hypocrisy.
     
  • Bill wants to halt alleged theft of U.S. university research by China, others. New legislation to be unveiled today aims to stop China and others from stealing U.S. taxpayer-funded research at universities by enhancing the authority of federal agencies to monitor and punish the schools and scientists. The bill is being pushed by Sens. Rob Portman (R-Ohio) and Tom Carper (D-Del.). The legislation doesn’t cite any foreign government by name, using instead the term “malign state actors.” The measure addresses findings by the Senate Permanent Subcommittee on Investigations, which the senators lead, that Beijing uses recruitment programs with generous funding to lure scientists and their knowledge to China and that U.S. universities have systematically failed to report foreign gifts as required by law.
     
  • Huawei hid business operation in Iran after Reuters reported links to its CFO. Huawei has long described the firm — Skycom Tech — as a separate local business partner in Iran.
     
  • A cold war with China would be expensive. China’s companies are major customers for U.S. high technology and its students help fund America’s universities and paper over decades of underinvestment in basic science and math education. If “decoupling” proceeds, then much more federal funding for basic research — and for U.S. science and math education — may be needed to plug the gap, the Wall Street Journal reports (link). That probably means higher taxes and a more welcoming immigration policy for foreign talent from India and other nations to offset a potential Chinese brain drain. Finally, American consumers need to be prepared to pay more for the luxury of a secure and diversified supply chain, the article concluded.

    China cold war

     
  • Brazil's exports of soybeans (mostly to China) are significantly higher than in previous years.

    Brazil sb exports

     
  • JCI on potential China buys of U.S. farm products: “As China has bought large volumes of soybeans from S America for shipments from May to July and tensions between China and the U.S. have led to a decline in U.S. soybean futures prices, Chinese soybean meal spot price hike has been limited. At the beginning of June, market rumored that due to the escalation of tension in Sino/U.S. relations, China suspended the originally planned scale of procurement of U.S. beans and pork, and the plans for other agricultural products have also been shelved. Resuming the normal import of DDGS trade is one of the contents of the Sino/U.S. economic and trade agreement, but now the relationship between China and the United States is tense. When will the punitive tariffs on U.S. DDGS be lifted? There is no time in sight. Perhaps we can ask President Trump... In short, the market is highly concerned about the scale and rhythm of China’s procurement of U.S. agricultural products, and fluctuations in import plans have prompted the market to stop unilaterally bearish on the domestic corn and soybean meal market. If the implementation of the Sino/U.S. trade agreement is interrupted, the scale of China's imports of corn and other grains will fall by more than 70% from the previous expectation. This is why Chinese market participants are bearish toward corn market but still reluctant to short it.”

Update on next aid package — Phase 4/CARES 2:

  • Democrats want to send another round of stimulus checks to U.S. households, extend the enhanced jobless benefits set to expire on July 31 and provide additional aid to states facing widening budget shortfalls. Republicans have called for incentives that encourage people to return to work, as well as liability protections for employers from pandemic-related lawsuits as businesses across the country reopen.

    The price tag of the next legislative package also remains in flux, though Republicans said it could reach as high as $1 trillion, a figure Senate Majority Leader Mitch McConnell (R., Ky.) has privately told the president he doesn’t want to exceed.

     
  • President Trump is planning to meet with senior advisers as soon as this week to discuss a set of proposals meant to encourage the public to return to work and resume normal life, including going out to restaurants and taking vacations.
     
  • Two thirds of farmers believe more CFAP payments will be necessary, according to the latest monthly Purdue/CME Group survey of producer sentiment (link). Meanwhile, 81% of farmers said they were either very concerned (38%) or somewhat concerned (43%) about the future viability of the U.S. ethanol industry.

    Ethanol

Update on implementation of CARES 1, including CFAP:

  • Iowa’s governor, ag secretary and senators are making the case for liquid egg producers to get their share of CFAP relief. Iowa lawmakers and officials sent a letter (link) to USDA Sec. Sonny Perdue on Tuesday asking to send more support for the state’s egg farmers. The group said about 70% of Iowa’s egg-laying flocks sell to the liquid egg market, which has been impacted by the closure of schools and restaurants. It’s distinct from the shell egg market, which saw a temporary boost when the pandemic started, said Gov. Kim Reynolds, Iowa Ag Secretary Mike Naig and Sens. Joni Ernst and Chuck Grassley, all Republicans. In the letter, the Iowa officials detailed that liquid egg prices have dropped by more than 68% since mid-January, citing data from USDA itself and similar estimates from market analysts. Iowa’s egg industry accounts for $2.6 billion in economic activity and supplies one of every six eggs consumed in the U.S., according to the letter.
     
  • The National Association of Wheat Growers wants USDA to reconsider denying CFAP payments to all classes of wheat, including hard red winter and soft red winter, and not just the hard red spring wheat and durum wheat growers who have been covered so far. The group said USDA should have also considered price volatility in the CFAP payment calculations. Link to letter.
     
  • PPP and agriculture. The Small Business Administration has published a chart detailing loans made under the Paycheck Protection Program (PPP) as of May 30. It shows that in the category of “Agriculture, Forestry, Fishing and Hunting,” SBA has made 127,465 loans totaling $7,578,090,541, or 1.49% of the total. The chart also notes that 54 Farm Credit lenders have made 13,851 loans totaling $1,258,709,206.

    PPP and ag

U.S. food supply/industry update:

  • Tyson Foods said 815 meatpacking workers tested positive for Covid-19 at two of its plants in western Iowa, including nearly 600 employees at Tyson’s Storm Lake pork processing plant that’s scheduled to reopen today. Link to Des Moines Register report.
     
  • Campbell got a lift, now aims to keep it. For Campbell Soup, the pandemic has accomplished what years of corporate strategy could not: getting customers back to stocking their pantries with tinned foods. Link to WSJ article.

    Soup

    Food company sales

     
  • Demand for cold-storage space in Europe has surged after bars, restaurants and sports venues closed, leaving their suppliers hunting for new customers or somewhere to store the unsold food, Bloomberg reports. “Farmers, manufacturers and retailers in the bloc say it’s nearly impossible to find commercial fridge and freezer space. The shortage is forcing production cuts and may mean wasting thousands of tons of produce that suddenly has nowhere else to go.” Lineage Logistics, the world’s largest temperature-controlled logistics provider, says more than 90% of its cold-storage facilities in the region are already full.
     
  • Abu Dhabi Ports will start operating a new shipping company this month that could help the United Arab Emirates avoid disruptions to imports of food and medical supplies amid the pandemic.
     
  • Companies selected by USDA to distribute meat, dairy and produce boxes to food banks hired a lobbyist to counter complaints from lawmakers and industry groups that unqualified firms were awarded lucrative contracts under the $3 billion program. Link to ProPublica article.

Update on reopening America... and around the world:

  • The Department of Energy will reopen its Washington, D.C. headquarters for some employees next week, after being closed for months due to the coronavirus pandemic. The group will include those deemed "mission-critical personnel whose work is best performed onsite … including those who are needed to support limited facility operations," according to an email from Energy Secretary Dan Brouillette to employees.
     
  • Coronavirus shock could upend Las Vegas economy for years. The pandemic hit Nevada’s workforce harder than any other U.S. state, and poses a potentially existential threat to the city’s business model. Link to WSJ article.

    Las Vegas

Coronavirus update:

  • Summary: Covid-19 cases

    • 6,399,876 confirmed cases world-wide, and 380,662 deaths
    • 20,544 new U.S. cases since yesterday
    • 1,831,821 total confirmed cases in the U.S. so far
    • 1,034 new deaths in the U.S. since yesterday
    • 106,181total U.S. deaths so far
    • 17,757,838tests conducted in the U.S.

    Covid U.S.

     
  • Senate confirms Brian Miller to be pandemic inspector general. The Senate voted 51-40 in favor of putting the White House lawyer and former GSA watchdog in charge of ensuring relief funds are not misspent.
     
  • CDC, OSHA give agriculture workers virus protection guidance. Occupational Safety and Health Administration (OSHA) and the Centers for Disease Control and Prevention issue guidance (link) for recommended actions to protect agriculture workers from coronavirus exposure. Guidance includes screening workers for virus symptoms, installing plastic barriers when distances of six feet between individuals are not possible and encouraging workers to use cloth face coverings in certain circumstances.
     
  • Mexico’s health ministry reported 3,891 new coronavirus cases, its highest daily number since the outbreak began. At over 10,000, the number of recorded deaths from coronavirus in Mexico is the third highest in the Americas, behind the United States and Brazil.
     
  • India reported 8,909 new coronavirus cases, its biggest single-day rise as the total number of infections rose above 200,000.
     
  • Dr. Fauci ‘cautiously optimistic’ about a vaccine. The leading expert in the U.S. government’s response to the pandemic expressed cautious optimism that several successful vaccine candidates would prove effective “within a reasonable period of time.”
     
  • Around 70% of Americans say they would get a coronavirus vaccine if it “were free and available to everyone,” according to a Washington Post-ABC News poll. According to the survey, a majority of people of all political affiliations are interested in receiving such a vaccine. But the extent of that interest varies along partisan lines, with slightly more than 8 in 10 Democrats saying they would definitely or probably get vaccinated.” Among Republicans, 58% say they would probably or definitely get the vaccine, while 25% say they definitely will not.
     
  • A popular anti-depressant drug, Zoloft, is in short supply as stocks diminish following a spike in mental health problems caused by the coronavirus pandemic. The Food and Drug Administration moved the drug to a list of those facing shortages on Friday. Overall Zoloft has seen a 12% increase in prescriptions — to 4.9 million — over the past year, Bloomberg reports. Prescriptions in the U.S. hit an all-time record in March.
     
  • WTO to hold online discussion on trade, environment and Covid-19. An online discussion will be held June 4 to examine the issues of trade, the Covid-19 pandemic, and the environment, according to the WTO. Trade and trade policies can help shape the future direction for the world given the “close links between human wellbeing and a healthy environment.” But making sure that trade and trade policy can help with the economic recovery will require cooperation around the globe, the trade body said. Issues the discussion will address include the role of sustainable trade after Covid-19, making global supply chains greener and more resilient to environmental and other shocks and actions WTO members can take to support economic recovery.
     
  • Other Covid-19-related events today include:

    • House Budget Committee hears from former Congressional Budget Office Directors Doug Elmendorf and Douglas Holtz-Eakin on the economic effects of Covid-19.

    • Pandemic Response Accountability Committee holds a public forum on stakeholder perspectives on the federal response to Covid-19.

    • House Judiciary Committee hears from Michigan Secretary of State Jocelyn Benson and Fair Fight Action Chairwoman Stacey Abrams on protecting the right to vote during the Covid-19 pandemic in virtual hearing.

    • Vice President Mike Pence holds a video teleconference with governors on Covid-19 response.

 


OTHER ITEMS OF NOTE


 

  • U.S. launching investigations into digital services taxes. The Trump administration is taking the initial step to prepare tariffs against a range of trading partners unless they back off proposals to impose taxes that would fall heavily on the major American internet companies. The Office of the U.S. Trade Representative said on Tuesday that it was beginning investigations into tax measures known as digital-services taxes that are being proposed or implemented in many countries as a way to tax commerce on the internet. The USTR said it was investigating a European Union-level proposal, as well as national proposals from Austria, Brazil, the Czech Republic, India, Indonesia, Italy, Spain, Turkey and the U.K. “President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies,” said USTR Robert Lighthizer. “We are prepared to take all appropriate action to defend our businesses and workers against any such discrimination.” The USTR said it had requested consultations with all the governments in question. Though the French tax was designed to target digital services in general, French officials often referred to the measure as the “GAFA tax” which stands Google, Apple, Facebook and Amazon.com — the American companies on whom such a tax would heavily fall.
     
  • Trump again threatens to move GOP convention. The president's comments came after North Carolina Gov. Roy Cooper said that uncertainty around the pandemic made it impossible to guarantee that the state could hold a “full” convention in Charlotte in August. Cooper said Republicans should plan for a "scaled-down convention with fewer people, social distancing and face coverings" given the impact of the pandemic.
     
  • House Democrats to unveil highway bill today. The House Transportation and Infrastructure Committee expects to release the text of its $494 billion highway bill today. The bill, which would authorize highway, railroad, and transit programs, would replace the surface transportation law set to expire at the end of September. House Democrats released a blueprint for the legislation in January. That outline included $319 billion for highways, $55 billion for rail, and $105 billion for transit. Meanwhile, House Majority Leader Steny Hoyer (D-Md.) said an upcoming “infrastructure package” that includes surface transportation reauthorization measure also will contain “many” recommendations from the Select Committee on the Climate Crisis. Hoyer said he expects that bill to pass the chamber by the end of July, along with the Water Resources Development Act (WRDA).
     
  • EPA is seeking to finalize a rule by the end of July that would cut back its oversight of methane from the oil and gas industry. The agency sent the proposed rule to the White House Office of Management and Budget for interagency review on May 29, according to a notice filed earlier this week.
     
  • Apple is tracking looted iPhones. Thieves who made off with iPhones from Apple retail locations in New York, Los Angeles, Minneapolis, Washington and Philadelphia quickly learned that they were loaded with special security software. On-screen messages displayed: "This device has been disabled and is being tracked. Local authorities will be alerted." The social unrest sweeping across the nation comes just as Apple is in the process of opening more than 100 stores following an extended closure due to the coronavirus pandemic.

 

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