Evening Report | December 13, 2023

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Argentina plans to raise grain export taxes, soy tariffs likely unchanged... Argentina’s new government of libertarian President Javier Milei will seek to raise export taxes to 15% on corn and wheat, though that would not impact tariffs on soybeans and soy products, local newspaper La Nacion reported, citing official sources. The export tax is currently 33% for soybeans, 31% for soybean meal and soyoil, and 12% for corn and wheat and grain sorghum. Reuters confirmed the report via an Argentine industry source with direct knowledge of the matter.

Adjusting export taxes would require action by Argentina’s congress. La Nación and other local media reported Milei’s government would seek to push through the tax increase via a bill that would be presented in Congress, though timing of such a measure was uncertain.

“Once this emergency is over, we are going to move forward with the elimination of all export duties,” Economy Minister Luis Caputo said.

Exchange raises Argentine wheat crop forecast... Argentina’s wheat production in 2023-24 is now forecast at 14.5 MMT by the Rosario Grain Exchange, up 1 MMT from its prior estimate. It noted recent rains associated with El Niño boost the crop. The exchange left its Argentine soybean and corn crop forecasts unchanged at 50 MMT and 56 MMT, respectively.

Fed continues pause, ‘dot plot’ projections swing dovish... As widely expected, the Fed left interest rates unchanged at a range of 5.25% to 5.50% for a third consecutive meeting. The post-meeting statement noted inflation “has eased over the past year,” and said officials would watch the economy to see if “any” additional rate hikes are needed, implying the tightening cycle has likely come to an end. New economic projections show a dovish switch with 17 of 19 Fed officials projecting rates will be lower by the end of 2024 – with the median projection signaling rates falling 75 basis points. That’s a notable shift in tone and outlook to dovish.

The median economic projections now signal 2.6% GDP growth this year (2.1% in September), falling to 1.4% next year (1.5%) and then rising to 1.8% (unchanged) in 2025 and 1.9% in 2026 (1.8%). Core PCE inflation is projected to be 3.2% this year (3.7% in September), 2.4% in 2024 (2.6%), 2.2% in 2025 (2.3%) and reach the target of 2.0% in 2026 (unchanged).

The economic projections, as a whole, portray a “soft landing” scenario, which officials have repeatedly predicted.

Fed Chair Jerome Powell said the word “any” was added to the post-meeting statement about further rate hikes to show officials believe the tightening cycle is likely near an end, without completely taking that off the table. But Powell noted it’s not likely the Fed will raise rates further and said officials are now thinking and talking about when it will be appropriate to cut rates.

USDA to begin issuing PARP payments... USDA will begin issuing more than $223 million in Pandemic Assistance Revenue Program (PARP) payments. These payments help producers who suffered a decrease in allowable gross revenue due to the Covid-19 pandemic for the 2020 calendar year, addressing gaps in previous pandemic assistance, which was targeted at price loss or lack of market access, rather than overall revenue losses. PARP program participation exceeds available funding. To ensure equitable funding distribution to all eligible producers, a 9.5% payment factor has been applied to all payments.

U.S. producer price inflation cools below 1%... The U.S. producer price index (PPI) for final demand was unchanged from a month earlier. This stability was driven by unchanged goods prices, with higher food costs offsetting a decrease in energy prices. Excluding food and energy, the so-called core PPI was also flat. On an annualized basis, PPI rose 0.9%, while core wholesale prices increased 2.0%, the least since January 2021.

House panel does not call for repeal of PNTR for China... A special House committee focused on China is recommending a significant shift in the way the U.S. treats Chinese-made goods, potentially subjecting them to higher tariffs, even if it means escalating tensions between the two economic superpowers, the Associated Press reports. The committee’s report does not explicitly call for the repeal of China’s preferential trade status (permanent normal trade relations/PNTR) but suggests placing China into a new trading category that would effectively lead to its repeal. This recommendation is endorsed by lawmakers from both parties, indicating a growing willingness in Congress to build upon the tariffs implemented during Donald Trump’s presidency, even though it may risk retaliation from China, which could adversely affect American farmers, ranchers and exporters.

The committee crafted these recommendations after months of deliberation and hearings, with hopes of adapting them into legislation that Congress could pass before the next year's elections. The proposed shift would phase out China’s preferential trade treatment, which was granted two decades ago, and would raise tariffs on Chinese goods, aiming to protect American businesses from unfair competition. The revenue generated from increased tariffs would be used to expand market opportunities for U.S. producers and enhance national security.

In the event of Chinese retaliation, the committee suggests Congress should consider additional spending to mitigate the damage to U.S. workers and industries.

Additionally, the committee recommends lowering the threshold for duty-free imports into the U.S., with a focus on reducing it from the current $800, potentially impacting foreign adversaries like China. The current threshold was raised to $800 in 2016, and proponents argue that it benefits small U.S. businesses and consumers, while opponents contend that it’s not worth the government’s expense and effort to collect duties on low-value shipments.

If enacted, the committee’s recommendations “will reset the terms of our relationship” with China and “prevent the flow of American capital and technology from supporting its military advances and human rights abuses,” Rep. Mike Gallagher (R-Wis.), the committee’s chairman, and Rep. Raja Krishnamoorthi (D-Ill.), its top Democrat, said in a statement.

China is not willing to play by free-market rules, so the U.S. should adopt a new, tougher strategy that allows higher import tariffs and other measures to prevent reliance on Beijing, the committee said.

Bottom line: Congress is under no obligation to adopt the recommendations and is unlikely to do so given its long list of other priorities. But the report highlights how Republican and Democratic lawmakers alike want to unwind a relationship at the center of global trade even as President Joe Biden has sought to stabilize ties with Beijing and President Xi Jinping. Gallagher said he and other members are continuing to work on restrictions on outbound investment and predicted the House would act on those proposals in the first quarter of 2024.

Measure would overturn lifting of Paraguay beef ban... The White House decision to lift a long-standing ban on Paraguayan beef imports would be overturned by a resolution Sens. Jon Tester (D-Mont.) and Mike Rounds (R-S.D.) are crafting. The two lawmakers proposed a similar bill on Brazilian beef. “The Biden administration has this one backwards — resuming beef imports from a country with a recent history of foot and mouth disease is bad news for both Montana consumers and producers,” says Tester.

USTR notice sets allowable sugar imports under tariff preferences... The Office of the U.S. Trade Representative (USTR) released a notice in the Federal Register specifying the allowable levels of sugar, syrup goods and sugar-containing products that can enter the U.S. under preferential tariff treatment through various trade agreements. This notice pertains to several countries, including Chile, Morocco, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Peru, Colombia and Panama. For some of these countries, none of the specified products can enter the U.S. duty-free, while specific quantities are outlined for other nations in the notice.

USDA delays Organic Livestock and Poultry Standards... USDA’s Agricultural Marketing Service (AMS) postponed the effective date of its Organic Livestock and Poultry Standards to Jan. 12, 2024. This delay extends the original effective date of Jan. 2 by 10 days. The reason behind this delay is to ensure compliance with the Congressional Review Act (CRA), which mandates Congress be given a minimum of 60 days to review significant rules before they come into effect. AMS notified Congress about the rule on Nov. 13, and as a result, the Jan. 2 effective date did not allow for the required 60-day review period by law. Additionally, there are technical corrections to other effective dates for some parts of the rule.

U.S. solar, wind energy to surpass coal in electricity generation for first time in 2024... In the coming year, electricity generated from solar and wind systems in the U.S. is projected to exceed the power produced by burning coal for the first time. This shift is driven by a significant increase in solar panel installations. According to government data, in 2024, fossil fuels are expected to generate approximately 599 billion kilowatt-hours, down from 669 billion kilowatt-hours in the current year, as coal-burning power plants continue to close. In contrast, wind and solar energy combined will provide around 688 billion kilowatt-hours of electricity in 2024, compared to 595 billion kilowatt-hours this year, signaling the increasing prominence of renewable energy sources in the nation’s power generation landscape.