Evening Report | August 2, 2022

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First ship carrying Ukrainian grain anchors off coast of Turkey... The first ship carrying grain to leave Ukrainian ports since the recent deal to restart exports safely anchored off Turkey’s coast on Tuesday. A delegation from the Joint Coordination Center (JCC) in Istanbul, where Russian, Ukrainian, Turkish and United Nations personnel work, is expected to inspect the ship at 0700 GMT (2 a.m. CT) on Wednesday, according to Turkey's Defense Ministry.

“We hope that there will be some more outbound movement tomorrow,” UN spokesman Stephane Dujarric told reporters. “This is delicate, complex and complicated, but there are other movements planned.” Dujarric said there were about 27 ships in the three Ukrainian ports covered by the export deal that had been “sitting in port for a long time with cargo,...with contracts signed, ready to go.”

As we reported in “First Thing Today,” a senior Turkish official said the plan was for one ship to leave Ukraine’s ports each day.

 

Pelosi lands in Taiwan... House Speaker Nancy Pelosi (D-Calif.) arrived in Taiwan late Tuesday on a trip she said demonstrates American solidarity with the Chinese-claimed self-ruled island. Pelosi, who is the first House speaker to visit Taiwan in 25 years, is scheduled to meet with Taiwan’s President Tsai Ing-wen on Wednesday.

China immediately condemned Pelosi’s visit, with its foreign ministry saying the situation seriously damages peace and stability in the Taiwan Strait, “has a severe impact on the political foundation of China/U.S. relations and seriously infringes upon China’s sovereignty and territorial integrity.” The ministry said it lodged a strong protest with the United States.

Chinese warplanes buzzed the line dividing the Taiwan Strait before Pelosi’s arrival. The Chinese military has been put on high alert and will launch “targeted military operations” in response to her visit, the defense ministry said.

The People’s Liberation Army Eastern Theatre Command announced it will conduct joint air and sea drills near Taiwan starting Tuesday night, and test-launch conventional missiles in the sea east of Taiwan.

In a Washington Post opinion piece released shortly after she landed, Pelosi outlined her reasons for visiting, praising Taiwan’s commitment to democratic government while criticizing China as having dramatically increased tensions with Taiwan in recent years. “We cannot stand by as the CCP proceeds to threaten Taiwan - and democracy itself,” Pelosi said, referring to the Chinese Communist Party. She also cited China’s “brutal crackdown” against political dissent in Hong Kong, as well as its treatment of Muslim Uyghurs and other minorities, which the U.S. has deemed genocide.

White House national security spokesperson John Kirby said after Pelosi’s arrival the U.S. “is not going to be intimidated” by threats or aggressive rhetoric from China. Kirby said the visit is not a violation of either any sovereignty issues or Washington’s longstanding “one-China policy.” He said, “There’s no reason for this visit to become a spurring event for a crisis or conflict.”

 

Biden administration justifies Trump-imposed duties on Chinese goods... The Biden administration filed a brief with the U.S. Court of International Trade defending the duties imposed by the Trump administration on some $320 billion in Chinese goods. The Office of the U.S. Trade Representative (USTR) said “China’s unfair acts, policies and practices included not just its specific technology and IP policies referenced in the notice of initiation in the investigation, but also China’s subsequent defensive actions taken to maintain those policies... which had resulted in increased harm to the U.S. economy following the one-year period of investigation.”

Next step: Stakeholders will file a joint status report and propose a schedule for further disposition in the case within 14 days.

 

Farmer sentiment modestly improves... The Purdue University/CME Group Ag Economy Barometer farmer sentiment index rose 6 points (6.2%) in July to a reading of 103. Producers were somewhat more optimistic about both current and future economic conditions on their farms compared with the previous month. The Index of Current Conditions rose 10 points (10.1%) to a reading of 109 The Index of Future Expectations rose 4 points (4.2%) to a reading of 100. Although all three indices rose, they were still 23% to 24% lower than a year earlier.

Producers’ assessment of their current financial situation improved as the Farm Financial Performance Index rose 5 points in July, but when asked to look ahead one year nearly half of all respondents said they expect their farms’ financial condition to worsen in the upcoming year. Producers’ top concerns for the upcoming year continue to focus on the rise in input prices followed closely by lower crop prices, rising interest rates and availability of inputs. All of these factors point to a high level of uncertainty among ag producers which helps explain why farmer sentiment remains weak.

“Even though we saw a slight uptick in sentiment this month, there is still a tremendous amount of uncertainty in the agricultural economy,” said James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture. “Key commodity prices, including wheat, corn and soybeans, all weakened during the month and producers remain concerned over rising input prices and input availability.”

 

Opportunity for U.S. agriculture to be ‘hero’ on climate change... America’s farmers have an opportunity to be “a real hero in our ability to address climate change” through improvements in productivity and climate-smart practices, but a successful climate program “has to work for agriculture, were comments by Robert Bonnie, Undersecretary for Farm Production and Conservation (FPAC) for USDA at the 37th International Sweetener Symposium on Monday. Bonnie outlined USDA’s approach to addressing climate change through building broad, collaborative partnerships across agriculture. 

Key is to not dictate approach. “There's so much diversity in agriculture,” Bonnie said, “that the approach to climate change can't be one that dictates practices for low and high. It has to be modern. It has to be producer-led. It has to allow farmers, ranchers, and forest landowners to choose which practices work best for them, and then provides incentives for them to do that.” Initiatives to reduce greenhouse gas emissions must recognize the critical role American farmers play in producing a global supply of food and fiber.  

 “We have to reduce emissions even while we maintain and enhance productivity. We’ve got to feed 9.5 plus billion people in the world by the middle of the century,” Bonnie explained. “U.S. agriculture is really good at productivity, and it’s really good at efficiency. That’s why I’m optimistic about the ability of U.S. farmers and U.S. forest land owners to be able to address climate change.”

Bonnie stressed the importance of crop insurance as a risk management tool, saying, “crop insurance is critically important for so many folks in agriculture.” He noted that there are ways to increase crop insurance accessibility while improving the products available to farmers.

 

Policymakers: Fed has more work to do on inflation... The Federal Reserve must further raise interest rates as inflation has not peaked yet, Cleveland Fed President Loretta Mester said on Tuesday. “We have more work to do because we have not seen that turn in inflation,” Mester said in an interview with the Washington Post. “It’s got to be a sustained several months of evidence that inflation has first peaked – we haven’t even seen that yet – and that it’s moving down.”

Other Fed policymakers on Tuesday also signaled they and their colleagues remained resolute and “completely united” on getting U.S. interest rates up to a level that will tame inflation, which is running at a 40-year high – even if that slows economic activity.

San Francisco Fed President Mary Daly called the Fed’s work on bringing down inflation is “nowhere near” done. Daly, in an interview streamed on LinkedIn and hosted by CNBC, said, “We have made a good start, and I feel really pleased with where we've gotten to by this point,” but she warned there is still “a long way to go” to bring down inflation.

Daly, who is not a voter on the policy-setting Federal Open Market Committee this year, also pushed back against market expectations the Fed will turn to rate cuts next year in the face of a weakening economy. She said. “My modal outlook, or the outlook I think is most likely, is really that we raise interest rates and then we hold them there for a while at whatever level we think is appropriate. We need to keep committed until we actually see it in the data that inflation is materially coming down.”

Chicago Fed President Charles Evans said, “If you really thought things weren’t improving... 50 (basis points) is a reasonable assessment but 75 could also be okay. I doubt that more would be called for.” He still hopes that when inflation finally begins to move down, the central bank can proceed with a 50 basis point move in two months, followed by a series of 25 basis point increases through the first part of next year. Evans noted he thinks rates will have to rise to between 3.75% and 4% by the end of next year but cautioned against too quick a path to get there should the Fed have to retrench unexpectedly on the back of a changing landscape.

 

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