Evening Report | January 23, 2024

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China to further expand oilseed production to reduce imports... China will grow rapeseed on more land and stabilize soybean acreage this coming year, Bloomberg reported, extending a policy drive to boost oilseed harvests and cut reliance on overseas supplies. China has sought to increase output of oilseeds such as soybeans and rapeseed and cut the ratio of meal used in animal feed, as food security becomes an increasingly important priority. Apart from boosting yield and stabilizing acreage, the ministry will also focus on reducing losses from agricultural disasters. The ministry will draw up contingency plans for disaster prevention in different regions and crops and establish regional centers to respond to catastrophes and secure grain production.

Vilsack: Biofuels and climate markets could help preserve farms... USDA Secretary Tom Vilsack addressed the American Farm Bureau Federation convention in Salt Lake City and emphasized that the decline in the number of U.S. farms can be halted by adopting climate-smart farming practices, expanding biofuel production, and increasing local and regional marketing. Vilsack stressed the importance of finding alternative ways to boost income, especially for small and medium-sized operations.

During his speech, Vilsack announced $50 million in grants for seven projects aimed at expanding independent domestic fertilizer production. He also revealed $157 million in assistance for 675 projects to help farmers and rural small businesses install renewable energy systems or improve energy efficiency.

Vilsack highlighted the need to support small and mid-sized farming operations, as the country cannot afford to accelerate their loss. He mentioned that farmers could potentially earn revenue from sustainably produced commodities and environmental services, such as carbon sequestration and emissions reduction practices.

USDA has allocated $3.1 billion for its climate-smart farming initiative, supporting 141 pilot projects. Additionally, the Treasury Department has opened the door for biofuels to qualify for tax credits in the production of low-carbon sustainable aviation fuel (SAF) potentially creating a significant market. USDA also has programs aimed at expanding local and regional food networks and increasing local processing of agricultural products to benefit producers.

Biomass-based diesel production reaches 4 billion gallons in 2023... The production of biomass-based diesel, which includes motor and aviation fuel, reached 4 billion gallons in 2023, marking a 1-billion-gallon increase from the previous year, according to the Clean Fuels Alliance America. Kurt Kovarik, vice president of the trade group, highlighted the growth of advanced biodiesel, renewable diesel, sustainable aviation fuel (SAF) and heating oil from sustainably sourced feedstocks within the clean fuels industry.

The Renewable Fuel Standard (RFS) set targets for the use of biomass-based diesel in motor vehicles, aiming for 2.82 billion gallons in 2023, 3.04 billion gallons in 2024 and 3.35 billion gallons in 2025. The Clean Fuels Alliance expressed disappointment in EPA’s failure to mandate a more rapid expansion of biomass-based diesel usage when updating the RFS last year.

Of note: Approximately half of the U.S. soybean oil produced during the 12 months ending in September 2023 was used in the production of biofuels, highlighting the significance of biofuels in the agricultural sector.

Risk of EU prices rising, growth slowing from Red Sea attacks... The European Union faces a risk of consumer prices surging and economic growth slowing due to disruptions to shipping through the Red Sea, though it has yet to feel an economic impact, a top EU official said. European Commission Vice President Valdis Dombrovskis, who oversees the bloc’s economy, said shipping traffic through the Red Sea had decreased by 22% in one month in the face of attacks by Houthis rebels.

“So far there has not been visible impact on energy prices and more generally impact on goods prices. But we already see impact on transport prices, which have increased,” Dombrovskis said after a meeting of EU trade ministers to address the issue. “Certainly, it’s a risk factor. The broader economic impact on consumer prices and the EU economy in general will depend very much on the length of this crisis,” he said. “Hence, swift action is necessary.”

The Suez Canal, at the north end of the Red Sea, carries 12% to 15% of global goods trade and 25% to 30% of shipping containers. For the EU, 23% of all goods imports came by ship from Asia in 2022, the vast majority of it travelling through the canal.

Growing concerns of a trade war between EU and China... Increasing frustration in Brussels and perceived political intransigence in Beijing are raising concerns of a potential trade war between the European Union (EU) and China, according to the South China Morning Post. Despite Chinese Premier Li Qiang’s recent efforts to portray China as a supporter of open markets and multilateralism during his visit to Europe, EU officials see a different picture behind closed doors.

China’s promises of market access for individual member states are viewed as attempts to weaken support within the EU for tougher measures against China, including addressing issues such as the trade deficit, manufacturing overcapacity and access to China’s markets. The EU has expressed its readiness to use trade weapons to address these concerns.

While EU leaders engaged in detailed discussions with Chinese President Xi Jinping and Premier Li, the responses did not inspire hope for improvement. Xi warned against following the path of former U.S. President Donald Trump in attempting to rebalance trade with China.

China has already initiated some responses, including an anti-dumping probe into French brandy, seen as retaliation against the EU’s investigation into subsidies in China’s electric vehicle sector. China has also tightened shipments of critical minerals to the West, which are essential for semiconductor production.

Despite expectations China would open up its economy, it appears to be asserting more control, with increased national security measures, surveillance and restrictions on meetings with foreign diplomats.

The EU is urging China to be more responsive and build trust to rebalance the relationship, but the ball is seen as being in Beijing’s court. The EU plans to unveil more details of its economic security strategy, focusing on screening outbound investments in hi-tech sectors and strengthening export controls. However, the package will not propose legally binding changes to EU rules.

Some EU capitals believe a stronger European approach is necessary, particularly in the face of the potential return of Trump to the White House, as highlighted by French President Emmanuel Macron. Macron emphasized the need for the EU to become more sovereign and capable of defending itself in a geopolitical landscape dominated by the U.S. and China.

Bottom line: The situation remains complex, with tensions between the EU and China potentially escalating into a trade war, which would further impact global trade dynamics.