Harvey update | Congress and Harvey aid | Tax reform | Perdue on NAFTA | North Korea | EU & glyphosate license | RFS comment period ends today | E15 waivers | Egypt wheat import policy | Biodiesel
— Texas governor estimates federal funding needs ‘far in excess’ of $125 billion. Harvey left a rising number of deaths and costly destruction in Texas, where Gov. Greg Abbott forecast federal funding needs are “far in excess” of $125 billion, topping the $120 billion mark for Hurricane Katrina. “The worst is not yet over for Southeast Texas as far as the rain is concerned,” he said, referring to a region that includes the cities of Beaumont and Port Arthur, where more than 2 feet of rain fell in just 24 hours as Harvey neared land again.
Harvey-related payouts by private-sector insurers are expected to be between $20 billion and $30 billion, according to Wall Street analysts. The death toll rose to at least 29 people.
Harvey now a tropical depression; to dissipate by Saturday afternoon. Current forecasts take Harvey into northwestern Mississippi by Thursday afternoon, the western Tennessee valley region on Friday, and into the lower Ohio valley early Saturday before anticipated dissipation by Saturday afternoon. The storm is still expected to produce 3 to 5 inches of rain from far eastern Arkansas, northern Mississippi, northeastward across western to central Tennessee, western to central Kentucky and into southern Ohio. Locally higher totals of 6 to 10 inches possible across far northern Mississippi, western Tennessee into southwest Kentucky. Plus, the US Weather Prediction Center warns that catastrophic and life-threatening flooding will continue around Houston, Beaumont/Port Arthur, and eastward into southwest Louisiana for the rest of the week.
USDA Secretary Sonny Perdue said he expects significant damage to the $1 billion agriculture sector in the 54 counties hit by Harvey. “We’ll have a massive presence there once the water recedes,” he said.
U.S. cotton losses from Harvey at least 400,000 bales: Texas A&M. The areas most affected by Hurricane Harvey are near the Upper Coast of Texas, said John Robinson, an economist at Texas A&M’s AgriLife Extension Service. Hardest hit producing counties include Wharton, Jackson and Calhoun, he told Bloomberg in a telephone interview from College Station, Texas. Estimated losses at 400,000 bales is a conservative outlook, he said. Oher areas near Coastal Bend lost cotton that was sitting on modules, many of which were obliterated by winds and rains, and unharvested fiber was probably degraded or lost. While estimated losses won’t make a big dent to the overall expected U.S. bumper crop, Robinson expects domestic cash prices to stay strong, at least until top growing region West Texas ramps up its harvest in the fourth quarters. The impact may be less pronounced for prices on ICE Futures in N.Y., at most 5 cents/lb. boost, he told Bloomberg.
Explosions reported at flooded Crosby, Texas chemical plant. The Harris County Emergency Operations Center is reporting two explosions and black smoke coming from the Arkema chemical plant in Crosby, Texas. The plant's French owner also confirmed the development in a statement. The company evacuated workers from the damaged plant two days ago, and authorities ordered the evacuation of residents within a 1.5-mile radius of the facility, which makes organic peroxides used in the production of plastic resins, polystyrene, paints and other products. The facility had lost power and its backup generators due to Hurricane Harvey, leaving it without refrigeration for chemicals that become volatile at increasing temperatures. The explosions come amid mounting signs Harvey will do lasting damage to the U.S.' energy and chemical infrastructure, much of which is concentrated around the Houston area.
WSJ: "Harvey is straining the global superhighway of the energy trade.” The front-page lead article notes that, "More than a dozen refineries are affected — including the country's two biggest, Saudi Arabian Oil Co.'s Motiva facility in Port Arthur and Exxon Mobil Corp.'s Baytown facility — cumulatively representing more than 30% of U.S. refining capacity." Link to article.
S&P Global Platts, in its latest update Wednesday evening, said roughly 3 million barrels of refining capacity remains offline in Texas. Combined with other refineries running at reduced levels, over a fifth of the U.S. refining has been affected. However, some refiners including Valero and Marathon are beginning to resume operations in some facilities.
Gasoline extended its longest surge since 2013 to pass $2 a gallon on the New York Mercantile Exchange as Harvey forced the closure of the Colonial Pipeline, which transports fuel from Texas to the east coast of the U.S. — the move could drastically restrict petroleum and diesel flows to some of the biggest cities in the United States. September gasoline futures surged above $2 per gallon today as around 20% of U.S. refining capacity remains shut due to flooding from what was Hurricane Harvey. The September contract, which expires at the end of trade today, moved above $2 briefly for the first time since July 2015 for a front-month contract, according to FactSet. The October contract becomes the lead contract Friday and was trading around $1.66 per gallon. Crude prices remain broadly unchanged.
Transportation impact update. While the U.S. Coast Guard has opened the Houston Ship Channel to some vessels, full access for large ships could be days or even weeks away, transportation sources note. As for trucking, “We’re seeing the beginning of a massive impact on all trucking networks. It’s going to get ugly,” said Jett McCandless, chief executive of trucking technology company Project44, on Harvey’s aftermath. Major U.S. railroads have warned that it could be a long time before normal operations resume in the Houston. Union Pacific Corp and Berkshire Hathaway Inc.'s BNSF Railway, the two leading U.S. railroads, and regional railroad Kansas City Southern have suspended operations in the area affected by the storm. Union Pacific, the No. 1 U.S. railroad, said that as of midday on Wednesday, sections of track were out of service in 18 of its 28 Houston-area subdivisions, and it was sending traffic along alternate routes through Longview and Dallas. BNSF said in a Tuesday customer announcement that normal train flows in the area were unlikely to resume for "an extended period." Loadings of wheat, corn and sorghum onto ships for export have been halted in Texas. And although coastal grain elevators have not been significantly damaged they have been unable to receive supplies, Reuters reported.
President Trump is being urged to tap oil reserve (SPR) to ease flood-caused price spike. The Trump administration should release part of the nation’s emergency oil stockpile to protect consumers from sharp gasoline price spikes in the wake of refinery shutdowns in flood ravaged Texas, Sen. Edward Markey (D-Mass.) urged in a letter to the White House on Wednesday.
Hurricane Harvey has set a preliminary record, surpassing 50 inches for the greatest amount of single-storm rainfall ever measured for the continental U.S., according to the National Weather Service, Additional rainfall accumulations of 6 to 12 inches are expected to the north and east of Houston from far east Texas into southwestern Louisiana. This is producing devastating flooding throughout the region. Numerous Flash Flood Warnings are currently in effect. Link for details (pdf).
— Congress likely to piecemeal Harvey aid. A Hurricane Harvey disaster aid package is likely to follow the approach Congress took after Hurricane Katrina, with a quick release of federal funds, followed by other funding following more damage assessments. The costs are said likely to far exceed the $51.8 billion initially provided after Katrina in 2005 and Hurricane Sandy in 2012.
Katrina and Sandy are benchmarks for the speed of legislative response. Congress provided an initial $10.5 billion on Sept. 2 and another $51.8 billion on Sept. 8, 2005, within weeks of the hurricane hitting. More money followed in the subsequent year. Lawmakers took longer to agree on Sandy aid, approving a $50.5 billion package in the first week of 2013, more than two months after the storm.
Rebuilding of parts of Texas and potentially Louisiana after Hurricane Harvey may be the most expensive disaster relief effort ever, with early projections of federal aid soaring to $150 billion. Texas Gov. Greg Abbott, a Republican, said Wednesday he thinks federal aid in the wake of Hurricane Harvey should top what was eventually provided after Hurricane Katrina hit New Orleans in 2005 and Superstorm Sandy struck the Northeast in 2012. Congress in total approved about $120 billion in long-term relief after Katrina, according to the Congressional Research Service.
It's possible the first round of assistance will get attached to a must-pass vehicle like the bill to fund the federal government after current funds expire Sept. 30, Sen. Roy Blunt (R-Mo.) said. Republican leaders and the White House are discussing a plan to continue current federal funding at the $1.070 trillion level through December. Blunt, a senior appropriator, said the first batch of Harvey aid could be packaged with a continuing resolution; a debt limit increase needed by roughly Sept. 29; or other must-pass legislative items on the agenda. He said he prefers to fund the disaster relief in several batches as specific needs become clear, rather than in one giant spending bill at the outset. “My view has always been that multiple bills are fine, and that you’re better off to pass multiple bills knowing what the real costs are than some number that no one can really justify,” Blunt said. “Years later, we are still trying to figure out how to spend the Sandy money, for instance.”
Disaster aid for other states is also a possibility.
— Trump urges Congress to act on tax reform package, but details lacking. President Donald Trump warned Congress not to stymie the chance to rewrite the U.S. tax code and reinvigorate the economy as he kicked off his effort to sell the American public on a tax plan. “So this is our once-in-a generation opportunity to deliver real tax reform for everyday hard-working Americans,” Trump said during a speech Wednesday at a manufacturing plant in Springfield, Missouri. “I am fully committed to working with Congress to get this job done, and I don’t want to be disappointed by Congress -- do you understand me?” One senior White House official said there would be ample time to discuss the specific points of the tax plan later.
Trump outlined four principles that he’s referred to before — simplifying the tax code and closing loopholes that benefit wealthy Americans and special interests; slashing the corporate rate to create more jobs and higher wages; providing tax relief for middle-class families; and cutting the tax companies would pay to bring back the trillions of dollars in profit that they currently hold offshore. He repeated his endorsement for a 15% corporate income tax rate, down from the current 35%; most sources see an eventual rate in the mid- to high-20% area.
Trump's remarks singled out by name Democratic Sen. Claire McCaskill of Missouri to support the tax bill. She is one of 10 Democratic senators up for re-election next year in a state won by Trump. Should McCaskill vote against any tax package, Trump said, “you have to vote her out of office.” He added: “She’s got to make that commitment.”
Next Tuesday, Trump will meet with a group known as the "Big Six" that has been negotiating details of the package: House Speaker Paul Ryan (R-Wis.), House Ways and Means Chairman Kevin Brady (R-Tex.), Treasury Secretary Steven Mnuchin, Senate Majority Leader Mitch McConnell (R-Ky.), Senate Finance Chairman Orrin Hatch (R-Utah) and National Economic Council Director Gary Cohn. Notably, there will be no Democrat in the room.
— NAFTA a success for most of U.S. agriculture: USDA's Perdue. USDA Secretary Sonny Perdue said Wednesday he’s been trying to convince the Trump administration the North American Free Trade Agreement (NAFTA) is “good for U.S. agriculture.” The trade deal just has some “rough edges” that need to be smoothed for improvement, he said during a presentation at an industry event in Decatur, Illinois. “I talked to him this morning, actually,” Perdue said of his conversations with Trump. “He’s concerned about American agriculture,” but he’s also concerned about trade deficits in other parts of the economy, particularly in automobiles and manufacturing, he said. Perdue said he hopes the administration can find a solution that “reconciles” and “resolves those issues.” Perdue said the primary concerns he’s been hearing from farmers on the NAFTA talks are issues regarding labor, regulations and trade.
A second round of NAFTA 2.0 negotiations is scheduled for Sept. 1-5 in Mexico City. U.S. Trade Representative Robert Lighthizer will be in Mexico City for the round's conclusion. John Melle is leading the U.S. negotiating team. Kenneth Smith Ramos is Mexico's chief technical negotiator. He heads the Trade and NAFTA Office of the Ministry of the Economy of Mexico, in Washington. Steve Verheul is leading Canada's negotiating team, following his role as lead negotiator for the Canada-EU trade deal, known as the Comprehensive Economic and Trade Agreement.
President Trump can pull the U.S. out of the agreement, under NAFTA Article 2205, by giving the other parties six months’ notice. If a party withdraws, the agreement would remain in force for the remaining parties. While Canada hasn't been that explicit, Mexico said it will leave NAFTA negotiations if Trump unilaterally rescinds the trade agreement.
— Mixed U.S. signals on North Korea. "The U.S. has been talking to North Korea, and paying them extortion money, for 25 years. Talking is not the answer!" President Trump tweeted on Wednesday, while Defense Secretary James Mattis said the U.S. is "never out of diplomatic solutions." Secretary of State Rex Tillerson also expressed hopes last week that the U.S. would be open to "some dialogue" with Pyongyang.
— France to vote against renewal of EU glyphosate license: AFP. France will vote against proposal of EU Commission to renew license for glyphosate herbicide in EU for 10 years, AFP reported, citing an unidentified person in the French ecology ministry. The EU vote on the substance, which is used by Monsanto, is likely to take place on Oct. 4 in Brussels.
Background. On July 3, 2017, 1,323,431 people submitted a petition demanding the ban of glyphosate in the European Union. Responding to a similar petition in the summer of 2016, the European Commission relicensed the use of Glyphosate for 18-months pending a review.
The French decision effectively blocks Monsanto’s licensing process, as a qualified majority of EU member states is required to renew the weedkiller’s 10-year license. The license expires at the end of 2017.
— RFS comment period closes today as pressure mounts on EPA to alter some initial volume requirements. The public comment period is closing toeday for an EPA proposal to reduce the amount of some biofuels added to the nation’s motor fuels. The EPA is expected to finalize new levels no later than Nov. 30 every year.
EPA’s July proposal would keep the requirement for conventional biofuels like corn-based ethanol at the 15 billion gallons set for 2017. The biomass-based diesel standard, which is set a year in advance of the others, would be 2.1 billion gallons in 2019, the same amount set for 2018.
EPA is facing pressure from different sides of the issue on how to handle its biofuel requirements. The corn industry has pushed for more ethanol to be included in the RFS, while the oil industry has called for a lower standard and has urged Congress to revise or eliminate the program. By Wednesday afternoon, EPA had received more than 36,000 online comments on its proposal, a mix of calls for a stronger RFS, demands for reform as well as concerns by environmental advocates that the program leads to the destruction of wildlife habitats.
In Congress, a bill (HR 1314) introduced in March by Rep. Bob Goodlatte (R-Va.) calls for the elimination of the RFS, but that measure is not expected to clear Congress. Another bill (HR 1315) Goodlatte championed proposes reducing the total volume of renewable fuel that must be contained in gasoline for years 2017 through 2022, prohibiting EPA from allowing gasoline containing greater than 10% ethanol from being sold, and nullifying all waivers for the higher ethanol fuel. The measure is also unclearly to clear Congress.
In the Senate, corn state lawmakers are pushing legislation (S 517) sponsored by Sen. Deb Fischer (R-Neb.) that would order the EPA to waive its rule prohibiting the sale of gasoline containing 15% corn-based ethanol, also known as E15, during the summer months. While the measure got a congressional hearing by the Senate Environment and Public Works Committee in June, without the support of the committee’s top Republicans, Chairman John Barrasso of Wyoming and Sen. James Inhofe, of Oklahoma, it’s unlikely to get a vote.
— EPA issues E15 waiver in 12 states as Harvey response continues. The sale of gasoline with up to 15% ethanol (E15) will be allowed in 12 states and Washington, D.C., under a temporary waiver issued by the Environmental Protection Agency (EPA) in response to the impacts from Hurricane Harvey.
"The shut-down of nearly a dozen refineries and extreme weather prohibiting fuel barge movement in the Gulf-area, with several other refineries operating at reduced capacity, has continued to limit the production and availability of fuel to areas both within and outside of the Gulf area," EPA Administrator Scott Pruitt said in a letter to officials in the states and Washington, DC. The Colonial Pipeline that provides fuel to the US East Coast has also been impacted, operating a reduced capacity, he noted.
Under provisions of the Clean Air Act (CAA), the use of low volatility gasoline is required during summer months, situation which has prevented the sale of E15 in summer months. The temporary action is in effect through September 15, 2017, but effectively ends the summer driving season restrictions in the states and Washington, DC, covered by the announcement.
Pruitt comments. “I have determined that an 'extreme and unusual fuel supply circumstance' exists that will prevent the distribution of an adequate supply of gasoline to consumers," Pruitt said. "This extreme and unusual fuel circumstance is the result of a hurricane, an event that could not reasonably have been foreseen or prevented, and is not attributable to a lack of prudent planning on the part of suppliers of the fuel to these areas."
The waiver of federal Reid vapor pressure (RVP) requirements in designated states is to "minimize or prevent problems with the supply of gasoline to these areas," Pruitt said. While stating the waiver is only effective through September 15, he said, "Should conditions warrant, this waiver may be modified, terminated or extended, as appropriate." The waiver applies to Alabama, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Texas, Virginia and the District of Columbia.
— Egypt extends higher moisture limit for imported wheat for extra nine months. Egypt will allow imported wheat to have moisture levels up to 13.5% for an additional nine months, effective from Oct. 3, according to the country's trade ministry. The higher limit applies to all origins of wheat but is seen as a nod to French supplies as they have struggled to meet Egypt's typical 13% moisture limit in the past. However, traders signal that has not been an issue this season for the French-origin supplies. The current 13.5% mark was put in place in February for nine months.
— Argentine oilseed industry group says soybean, soyoil prices will fall from U.S. biodiesel tariffs. Argentine prices for soybeans and soyoil are expected to decline in the wake of the U.S. setting preliminary duties on imports of Argentine biodiesel, according to oilseed industry chamber CIARA. The group said 1.5 million tonnes of soyoil from around 7.5 million tonnes of soybeans were used to make biodiesel sent to the U.S., CIARA detailed. "Today CIARA expressed concern about the drastic and unexpected fall in demand for soybean oil as a result of the arbitrary and unjustified blockade imposed," the statement issued Aug. 30 said. Argentina's foreign ministry remains focused on the situation, saying it is exploring all options but first is trying to negotiate. "A proposal to suspend these preliminary tariffs has already been presented ... we are waiting for the response of the United States," Production Minister Francisco Cabrera said earlier this week.