2020 seen as 'major transition' for China's corn market
In Today’s Updates
* USTR Lighthizer guest on this morning's AgriTalk radio program
* Report: 2020 seen as major transition for China's corn market
* Grassley: Trump should muzzle Navarro
* China ups competition with U.S. on GPS, space power
* How China made propaganda out of the pandemic and U.S. protests
* Mnuchin: Economic stimulus measure may pass Congress in July
* IMF updates its global economic growth forecasts
* Dry bulk shipping costs are rebounding
* Japan’s largest ship owner: time to get on defensive over direction of global trade
* NCGA to weigh in on EPA RFS proposal
* 20 million boxes of meat, dairy, fruit & vegetables to food banks via aid program
* Trump administration may extend tax filing deadline beyond July 15
* Apple and potato growers push for CFAP aid
* U.S. food supply update
* Lawmakers focus on major meat packers relative to work protections, exports
* Grassley urges Senate Ag hearing to force changes in cattle pricing
* Meat industry obsolete in 15 years?
* Update on reopening America... and around the world
* Major League Baseball and its players’ union resolved their differences
* Coronavirus update
* Plexiglass supplies are running low
* Latin America is new center for the pandemic
* European Union is considering blocking travelers from U.S.
* Brazilian court rules president must wear a mask in public
* Canada denied its aluminum exports harm the U.S. market
* Kim Jong Un hits pause button on threats against South Korea
* Voters rebuffed Trump by nominating Republicans he opposed for House seats
* Rep. Alexandria Ocasio-Cortez won her Democratic primary
* A look at agriculture policy via Bloomberg event tomorrow
* SNAP/food stamp spending jumped to $5 billion in March
Equities today: Equities in Asia were mixed on light volumes. The MSCI Asia Pacific Index slipped 0.2% while Japan's Topix index closed down 0.4%. Europe stocks were lower and U.S. futures are mixed amid the prospect of renewed trade tensions between the U.S. and Europe knocked investor sentiment. Bloomberg reported that Washington is considering new tariffs on $3.1 billion of exports from the U.K., France, Germany and Spain, in a move that would broaden transatlantic trade tensions just as economies slowly reopen from lockdowns. The move is part of the U.S. response to the most recent ruling in the very long-running fight at the World Trade Organization on aircraft subsidies. EU Trade Commissioner Phil Hogan recently told ministers in the bloc that the U.S. had stepped back from settlement talks, adding that the EU would have little choice but to impose its own sanctions in the absence of further discussions.
U.S. equities yesterday: The Dow gained 131.14 points, 0.50%, at 26,156.10. The Nasdaq rose 74.89 points, 0.74%, to finish at a record 10,131.37. The S&P 500 advanced 13.43 points, 0.43%, at 3,131.29.
The three months to June are set to be the best quarter for the S&P 500 in 45 years, according to Bloomberg data, marking a rebound from the 20% dive in the first quarter when Covid-19 struck in the early part of the year.
Divergence in the performance of the major indexes this year is the widest in more than a decade as the Nasdaq yesterday notched its 21st record close of 2020.
On tap today:
• International Monetary Fund updates its global economic growth forecasts at 9 a.m. ET.
• Federal Reserve Bank of Chicago President Charles Evans is scheduled to speak on the current economic conditions and monetary policy before a virtual event, the Corridor Business Journal Mid-Year Economic Review.
• Federal Reserve Bank of St. Louis President James Bullard will speak on "Covid-19 and the Economy" before the Greater Louisville Inc. — The Metro Chamber of Commerce.
• Home price data. U.S. Federal Housing Finance Agency will release home price data for the month of April. Home prices rose 0.1% in March.
• Mortgage applications. Mortgage Bankers Association is scheduled to release data on mortgage applications for the week ended June 19.
• Crude oil prices are under pressure ahead of US government inventory data due later this morning in the wake of American Petroleum Institute data released Tuesday evening showing a build in US crude supplies. US crude has fallen more than 2.2% and is trading around $39.50 per barrel while Brent crude is down around 1.7% to trade near $42 per barrel.
• Release of better-than-expected purchasing-managers’ indices from France and Germany raised hopes that Europe’s economy is on the mend after the pandemic. IHS Markit manufacturing PMIs rose in France to 52.1 in June from 40.6 the month before and in Germany from 36.6 to 44.6. Any figure above 50 indicates expansion.
• Germany’s closely watched Ifo business sentiment index rose by a record amount in June, coming in at 86.2 from 79.7 in May. “German business sees light at the end of the tunnel,” said the Ifo report.
• Dry bulk shipping costs are rebounding amid improving demand from China (particularly for iron ore).
• Gold prices hit a 7.5-year high overnight, on safe-haven demand
• August live cattle futures closed up $2.075 at $97.20 and hit a two-week high Tuesday.
The almost 900,000 F-Series pickups sold last year generated about $42 billion in revenue, according to a study Ford commissioned from the Boston Consulting Group. That ranks near Apple’s iPhone among the biggest U.S. consumer products. On its own, F-Series is larger than McDonald’s, Nike, Coca-Cola and Starbucks.
Dr. Anthony Fauci wore a Washington Nationals mask for testimony yesterday before the House Energy and Commerce Committee.
— Update on China:
- The U.S. trade deal with China is not only fully intact, but Beijing has actually stepped forward in several areas in a constructive way, a top White House adviser said on Tuesday. "They've actually picked up their game," National Economic Council Director Larry Kudlow told Fox Business Network. "It's not just commodity buying, although that is picking up too," but also extends to the issue of intellectual property theft, which has long been one of the sore spots for the relationship, he said.
U.S. Trade Representative Bob Lighthizer has said he’s confident China will stick to the deal, and moreover, that Phase 2 talks will deal with a range of the thorniest issues between the two sides. Note: Lighthizer is scheduled to be on this morning's Agri-Talk program. Link
- President Trump “ought to put a bunch of cotton” in the mouth of White House trade adviser Peter Navarro, Sen. Chuck Grassley (R-Iowa) said, adding the president could “put a sock” in Navarro’s mouth to keep him “from speaking publicly.” His remarks came after Navarro told Fox News on Monday that the trade deal with China was “over.” Navarro later walked back his remarks and Trump tweeted, “The China Trade Deal is fully intact. Hopefully they will continue to live up to the terms of the Agreement!” Grassley said the Phase 1 accord “won’t fall through because it’s critical for the farmers and Trump knows it.”
- An analysis by Grain and Oils News (link) proclaims 2020 as a major transition for China's corn market from a buyer's market to a seller's market. This year is hailed as the "finale" for the temporary reserve price support program that accumulated a huge glut of corn that has been dumped back into the market since the program was ended in April 2016. The estimated 56 million metric tons remaining in the temporary reserve ahead of the May 28 auction is expected to be depleted by this year's sales. Subtracting the sales from the first four auctions, the temporary reserve should now be down to about 40 MMT. Grain and Oils News believes that China's use of corn now exceeds its production by a significant margin. The deficit has been filled by sales of reserves, but the market will now become tighter as the reserves are depleted. The analysis notes that domestic Chinese prices exceed the price of corn imported from the United States by about 500 yuan/mt for July-November.
Over 15.9 million metric tons of corn was sold at four weekly auctions of "temporary reserve" corn held between May 28 and June 18, 2020 — nearly all of the corn offered, according to Dim Sums: Rural China Economics and Policy. Premium prices were paid, with the average price rising from 1765 yuan per metric ton in the first auction to 1884 yuan in the June 18 auction. The auctions are the main source of corn now that farmers have sold nearly all of their surplus corn from last fall's crop.
- U.S.-China trade deal faces a “fresh challenge” as Beijing wants global meat and soybean shippers to attest their cargoes meet safety standards to ensure they aren’t contaminated with Covid-19. Many American exporters have been reticent to take that step, fearing liability, according to Bloomberg, who has been frequently negative in its reporting on the Phase 1 trade developments.
- China ups competition with U.S. on GPS, space power. China yesterday launched a five-ton satellite that is the final piece of the Beidou network, a collection of several dozen satellites that is China’s alternative to the U.S.-run Global Positioning System. GPS provides navigation and timing data essential to operating many products while also tracking. Completion of the network, estimated to cost more than $10 billion, is the latest milestone in China’s decades-long effort to become a power in space. China also plans to send a robotic mission to explore Mars this summer and is moving ahead with plans to build its own space station.
- There was a bounce back in EU trade with China in April, driven by face-mask imports.
- How China made propaganda out of the pandemic and U.S. protests. China's state media have been using the pandemic and U.S. protests sparked by the killing of George Floyd to rally its citizens at home. The Wall Street Journal explains (link) how China’s propaganda machine is spinning global events, even as Beijing’s relationships around the world grow tenser.
— Japan’s largest ship owner says it’s time to get on the defensive over the direction of global trade. Mitsui OSK Lines (MOL) is cutting its fleet by 5% over the next three years, the Wall Street Journal reports (link), on expectations that a deep decline in trade volumes as a result of the coronavirus pandemic will persist. The offloading of 40 vessels in a fleet that counts container ships, dry-bulk carriers, tankers and car carriers is a strong sign that ocean carriers are focused on managing their capacity in a transforming global market.
MOL’s announcement came as the World Trade Organization projected that overall trade would fall at the steepest pace on record this quarter. Signs that companies are reconsidering far-flung supply chains may be more troubling to ocean carriers in the long term, and suggest vessel owners need to join their shipping customers in getting more nimble. "The fall in trade we are now seeing is historically large — in fact, it would be the steepest on record. But there is an important silver lining here: It could have been much worse,” said Roberto Azevêdo, the WTO’s director-general.
— NCGA to weigh in on EPA RFS proposal. EPA’s proposed levels for 2021 biofuels and 2022 biodiesel under the Renewable Fuel Standard (RFS) remain on review at the Office of Management and Budget (OMB), with another meeting on the proposal now scheduled. The National Corn Growers Association (NCGA) is scheduled to meet on the proposed rule today. So far, the Renewable Fuels Association (RFA) has not appeared on the list of meetings that have taken place or been scheduled on the proposal.
— Update on next aid package:
- The Trump administration is “seriously considering” another stimulus package that could be passed in July to follow the over $2.2 trillion CARES Act passed by Congress in March. The Democratic-controlled House of Representatives passed a $3 trillion-plus plan last month, but the Republican-controlled Senate wants a more go-slow approach. Treasury Secretary Steven Mnuchin said he had met Republican senators on Tuesday and held discussions about the contours of a new economic relief plan. “We are beginning to discuss the different aspects of what another bill would look like,” Mnuchin said. “We want to take our time because, number one, there’s a lot of money we still haven’t put out, and, number two, we want to make sure whatever we do... is much more targeted to the businesses that are most impacted.”
Republicans are also mulling whether the next relief package should provide Americans with direct payments, in the same way that the Cares Act passed in March provided $1,200 checks. Asked by Scripps television if he was considering another round of direct payments to Americans, President Donald Trump said: “Yeah, we are.” Larry Kudlow, the White House economic adviser, told Fox Business television that the measures under consideration included either tax rebates or checks. “Probably we would want to target [money] to those folks who lost their jobs and are most in need,” Kudlow told the network on Tuesday.
Mnuchin said that while Trump wanted to build more roads and bridges, it would probably not be part of the stimulus package because it would not give the economy a sufficiently quick injection. “Normally these are not shovel ready so... even if we pass something, this isn’t going to impact getting people back to work in September and October,” he said. “The likelihood is the next CARES bill is going to be very focused... We want to make sure that 20 million people that don’t have jobs because of Covid... get back to work quickly.”
— Update on implementation of prior aid measures:
- USDA contractors have distributed more than 20 million boxes of meat, dairy, fruit and vegetables to food banks through the department’s $3 billion Farmers to Families Food Box Program. The program contracted for $1.2 billion in food products including $461 million in fresh fruits and vegetables, $317 million in a variety of dairy products, $258 million in meat products and $175 million in a combination box of fresh produce, dairy or meat products, and began distribution of the food boxes, USDA said.
- The Trump administration may extend the tax filing deadline beyond July 15 to help Americans who are struggling from the economic impact of the coronavirus pandemic, according to Treasury Secretary Steven Mnuchin. The deadline has already been pushed back once, from April 15 to July 15. “It’s something I’m thinking about,” he told the Bloomberg Invest Global forum. “As of now, we’re not intending on doing that, but it’s something we may consider… We’ll look carefully as we approach this July date.”
Meanwhile, the IRS said people who took required distributions from retirement accounts this year can put the money back.
- Lawmakers from top apple-growing states are asking USDA to send coronavirus relief payments to apple producers. They say USDA miscalculated impacts to the apple industry. Link to letter.
- National Potato Council asked USDA for more access to CFAP, claiming that growers can’t receive “meaningful relief from the program” because of how it’s designed. The group claimed that USDA focused on retail sales when assessing the pandemic’s effect on the potato market, which didn’t account for the more severe impact on sales through restaurants and other foodservice businesses. Link to letter.
— Food supply/industry update:
- Lawmakers focus on major meat packers relative to work protections, exports of pork, beef and poultry. Sens. Elizabeth Warren (D-Mass.) and Cory Booker (D-N.J.) want information from four major U.S. meat companies on the actions they took to protect workers from Covid-19 and on the level of meat they produced during March-May, their level of exports to China and to other countries, the average increase in wholesale prices, average change in prices paid to producers and whether they increased their imports of livestock from outside the U.S. The letter (link) was sent to Tyson Foods, JBS USA, Cargill and Smithfield Foods.
The lawmakers express alarm at exports of U.S. pork, beef and poultry to China and other destinations over the period, stating that exports of beef and pork totaling 1.3 billion pounds from March 20 through early June “actually exceeded the amount of lost production” from issues related to Covid-19. “Indeed, your companies manipulated this crisis to achieve substantial deregulatory measures that placed your workers at even greater risk,” the letter stated.
The lawmakers requested the companies provide the information by June 30.
- Grassley urges Senate Ag hearing to force changes in cattle pricing. Senate Finance Committee Chairman Chuck Grassley (R-Iowa) urged apparent reluctant Senate Agriculture Committee Chairman Pat Roberts (R-Kan.) to hold a hearing on the bill that he and Sen. Jon Tester (D-Mont.) have introduced to force changes in cattle pricing. “The concern I hear from Iowa farmers the last couple months is that the coronavirus has put them on the edge of bankruptcy,” Grassley told rural reporters. “Beef producers are having trouble getting a bid on their cattle,” he added. Grassley's measure would require that a minimum of 50% of a meat packer’s weekly volume of beef slaughter be purchased on the open or spot market. He said the bill should have a hearing and either be passed out of the Ag Committee on its own or be added to a bill to reauthorize mandatory livestock price reporting. Grassley acknowledged that Roberts opposes his bill but predicted a majority on the committee would vote in favor of his bill. Absent any panel action, Grassley said there will be efforts to reauthorize mandatory livestock price reporting via an omnibus bill so there will be opportunity to add his bill as an amendment. “I am looking for every opportunity to get this done. These farmers are hurting,” Grassley said. “There is no reason this should be controversial at all. We’ve just got to get it moving. “The opposition is from the big packers,” he added.
- Meat industry obsolete in 15 years? "From a nutritional standpoint our products match the protein quality and content of the animal products that they replace" and "ours is a clear winner from a health and nutrition standpoint," Impossible Foods CEO Patrick Brown told CNBC. "This is why I think people are increasingly aware plant-based products are going to completely replace the animal-based products in the food world within the next 15 years. That's our mission. That transformation is inevitable." While Impossible markets primarily to the food-service industry, rival Beyond Meat has placed its focus on the consumer and grocery sector.
— Update on reopening America... and around the world:
- Major League Baseball and its players’ union resolved their differences over a shortened 60-game season, and play will begin — with no fans in the stands — on July 23 or July 24.
— Coronavirus update:
- Summary: Covid-19 cases around the world are at 9,273,773 with deaths at 477,807, according to data from the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU). The U.S. case count stands at 2,347,102 with deaths at 121,225. Tests conducted in the U.S.: 28,065,065.
- The U.S. on Tuesday recorded its largest daily jump in Covid-19 cases in two months as Dr. Anthony Fauci, a leading member of the White House coronavirus task force, warned Congress the country was experiencing a “disturbing surge” in cases. “The next couple of weeks are going to be critical in our ability to address the surges we’re seeing in Florida, Texas, Arizona and other states,” Dr Fauci said. Those states were among the first to loosen lockdowns in an attempt to jump-start economic growth.
- Plexiglass supplies are running low, because of all those new virus-proofing barriers. Link to WSJ article.
- Latin America is the new center for the pandemic, with more than two million infections and 100,000 deaths. Latin America, which has 8% of the world's population, has accounted for 47% of all coronavirus deaths recorded in the past two weeks.
- Beijing’s government said they have conducted nucleic acid tests on more than two million people in the past ten days, and now they have a capacity to do 300,000 tests per day.
- The European Union is considering blocking travelers from the U.S. when the bloc reopens its borders on July 1 because of the country’s failure to control the pandemic, the New York Times reported (link).
- Brazilian court rules president must wear a mask in public. Jair Bolsonaro has to wear a mask when out in the country's capital, or face potential fines of about $390 a day.
OTHER ITEMS OF NOTE
- Canada denied its aluminum exports harm the U.S. market and is underlining this point to its American partners, a Canadian official said after Bloomberg reported Washington planned to reimpose tariffs. In May, the American Primary Aluminum Association, which represents the two companies, sent a letter to USTR Bob Lighthizer and Commerce Sec. Wilbur Ross saying that an import surge from Canada was threatening the viability of their business. “The surge of Canadian metal has a caused the price to collapse and is endangering the future viability of the U.S. primary industry,” the letter said. Link to New York Times article.
The revival of aluminum tariffs could impact cross-border supply chains as manufacturers begin to recover from Covid-19 shutdowns. The added cost could lead U.S. manufacturers to find alternative sources for Canadian aluminum – and potentially hurt cross-border trucking companies. Specialty carriers and divisions within fleets have been hard hit by the fall-off in manufacturing during the pandemic and are slowly recovering. Any changes to cross-border aluminum demand could make a bad situation even worse.
The U.S. first placed tariffs on Canadian steel and aluminum in 2018, leading to Canada responding in-kind. The countries agreed to drop the tariffs in May 2019.
- North Korea suspended plans to deploy troops at its southern border, according to state media. Tensions between North and South Korea had been rising, capped by the North’s destruction of a joint liaison office last week. Analysts say North Korea, after weeks of deliberately raising tensions with threats of military action, may be pulling away just enough to make room for South Korean concessions. The move came a day before the 70th anniversary of the start of the Korean War, a milestone that had prompted talk of renewed escalation by Pyongyang.
- Voters rebuffed President Trump by nominating Republicans he opposed for House seats in North Carolina and Kentucky, the Associated Press reports.
• In western North Carolina, GOP voters picked 24-year-old investor Madison Cawthorn over Trump-backed real estate agent Lynda Bennett. The runoff was for the seat vacated by Mark Meadows, who resigned to become Trump's chief of staff, and joined his new boss in backing Bennett.
• Kentucky Republican Rep. Thomas Massie, a libertarian-minded maverick who often clashes with GOP leaders, was renominated for a sixth House term. Trump savaged Massie in March as a "disaster for America."
- Rep. Alexandria Ocasio-Cortez won her Democratic primary for the New York seat that she won in 2018. She defeated Michelle Caruso-Cabrera, a former CNBC anchor backed by top Wall Street executives. “Their money couldn’t buy a movement,” Ocasio-Cortez tweeted.
- A look at agriculture policy via Bloomberg event. USDA Deputy Secretary Steve Censky, National Association of State Departments of Agriculture CEO Barbara Glenn, and BGOV’s Megan Boyanton will participate in a deep dive into the state of agriculture policy tomorrow when they discuss USDA’s 2020 priorities and the Coronavirus Food Assistance Program, among other issues.
- SNAP/food stamp spending jumped to $5 billion in March as the pandemic began to shake the U.S. economy, according to data released by USDA this week (link). The total number of people enrolled in the program in March was 37.3 million, an increase from February when participation was 36.9 million. The average monthly benefit per person jumped from $121 per person to $137 per person, boosted via aid from Congress.