Snags Hit Conferee Talks on Homeland Security Funding Accord

Posted on 02/11/2019 4:38 AM

U.S. Trade Negotiators Begin Talks in Beijing | NCC releases cotton planting intentions

Spending talks this weekend snagged over the issue of how many detention beds would be provided at the border for people detained by Immigration and Customs Enforcement (ICE) officials. Democrats have been seeking to limit the number of beds in exchange for meeting GOP demands to build more physical barriers along the border. Republicans, however, wanted exceptions to the limits. Without an agreement on ICE beds, talks on funding levels and physical barriers stalled.
     Two separate U.S. trade official teams will be in Beijing this week to continue efforts to reach a U.S./China trade accord. Chinese media are noting officials from the country never indicated a March 1 deadline for the talks but instead this was a U.S. development. Axios reported on a possible mid-March summit between President Trump and Chinese leader Xi Jinping in Mar-a-Lago.
     The National Cotton Council on Saturday released results of 2019 cotton planting intentions, with the outlook for the crop keying in part on future U.S./China trade policy.
     House Ag Chairman Collin Peterson (D-Minn.) spoke with USDA Secretary Sonny Perdue recently to discuss what USDA is doing to reduce the risk of the African swine fever virus spreading to the United States.


Snags hit House and Senate conferees on homeland security funding agreement that could offer the president $1.3 billion to about $2 billion in funding for border security. That funding, still subject to change, could include money for some physical barriers, such as “bollard fencing,” and result in a deal as early as today. “We’re 95% to 98% done,” said Sen. Patrick Leahy (D-Vt.), the ranking Democrat on the Senate Appropriations Committee.

President Trump has told allies that he would accept a border security figure of about $2 billion, but House Democrats remain publicly opposed to spending that much on physical barriers. Trump, who had said publicly he would accept political responsibility before the 35-day partial government shutdown began in December, blamed Democrats for the prospect of another one. He wrote in a Twitter post that last week was “a very bad week for Democrats,” pointing to strong economic data, his State of the Union address and the controversy surrounding Democratic officials in Virginia. “I actually believe they want a Shutdown. They want a new subject!”

But snags have developed. Shelby said talks are at a stalemate with the deadline to avert another government shutdown fast approaching. “We got some problems with the Democrats dealing with [Immigration and Customs Enforcement], that is detaining criminals that come into the U.S. And they want a cap on them, we don't want a cap on that,” Shelby said during an interview on Fox News Sunday. Democrats say a cap of 16,500 beds in ICE detention centers would force the Trump administration to focus on detaining undocumented immigrants with criminal records instead of using indiscriminate sweeps that drag in otherwise law-abiding residents. Republicans demanded an exception to the cap for criminals. Democrats declined, saying their 16,500-bed cap left more than enough room for real criminals.

Shelby said today remains the deadline for a deal by the House-Senate conference committee that is negotiating a Homeland Security bill (HJRes 31). “I’m not confident we’re going to get there,” he said. “I’m hoping we’ll get there. The next 24 hours are crucial,” he said Sunday.

One proposal circulating among some White House officials, in an attempt to fend off legal challenges to an emergency declaration, the New York Times reported, is to claim that the wall would be built to protect the more than 6,000 active-duty and National Guard troops now operating near the southwestern border or deploying there soon. “The Wall will get built one way or the other!” Trump wrote on Twitter on Saturday afternoon.

Trump’s top national security aides are scheduled to meet today to discuss the matter. Trump is then to convene a full cabinet meeting on Tuesday. If Trump declares a national emergency to build the wall, Democrats are expected to sue to block construction and halt any shifting of funds.

Because of procedural rules in the House, Monday is seen as the last possible day for lawmakers to unveil a deal that would prevent a government shutdown before the Feb. 15 deadline, assuming there is no short-term continuing resolution, something congressional leaders want to avoid but an option that is still on the table.

The final package, if any, is likely to include multiple spending bills, including one for the Department of Homeland Security that has border security funding as well as other departments, including USDA, that would keep the government operating, and disaster relief to help communities recover from last year’s natural disasters. It is unclear whether the final package will include a short-term extension for the lapsed biodiesel tax incentive program.

Congress is out next week, and lawmakers and staff will want to get away for Valentine's Day — which is Thursday —and the long President's Day weekend.

White House announces trade delegations to Beijing. United States Trade Representative Bob Lighthizer and Secretary of the Treasury Steven Mnuchin will travel to Beijing for “principal-level meetings” that will take place from Feb. 14 through Feb. 15, the White House said in a statement.

The top U.S. trade duo will confer with Chinese Vice Premier Liu He, Beijing’s chief trade negotiator, and central bank governor Yi Gang. These meetings will be preceded by deputy-level negotiations that will begin on Feb. 11, led by Deputy U.S. Trade Representative Jeffrey Gerrish and will also include USTR Chief Ag Negotiator Gregg Doud, USDA Undersecretary for Trade and Foreign Agricultural Affairs Ted McKinney and Undersecretary of Commerce for International Trade Gilbert Kaplan.

A resolution isn’t expected before a 90-day truce on tariffs expires March 1. Any agreement before then, or a simple extension of the truce, will be viewed as a positive for markets. If not, the U.S. is expected to raise import taxes from 10% to 25% on $200 billion in Chinese goods. White House National Economic Council Director Larry Kudlow said in a Fox Business interview last Thursday that a “pretty sizable distance” remains between the parties.

Chinese foreign ministry spokeswoman Hua Chunying said today that she hoped the latest negotiations would go well. “We, of course, hope, and the people of the world want, to see a good result,” she told reporters at a regular press briefing.

Lighthizer told a bipartisan group of senators in a private meeting that major sticking points remain in negotiations with China, a sign that it is unlikely the world's two biggest economies will strike a deal before a March 1 deadline, The Hill reported (link). Lighthizer provided the briefing to members of the Finance Committee, as well as other committees with a stake in implementing trade deals, including the Agriculture, Judiciary, and Health, Education, Labor and Pensions Committee.

Meanwhile, Senate Minority Leader Chuck Schumer (D-N.Y.) this week will unveil legislation designed to curtail Chinese exports of fentanyl — a deadly synthetic drug accused of fueling the opioid crisis in the U.S. — with economic sanctions on those that produce it.

China opinion item comments on March 1 deadline. The March 1 deadline for trade negotiations between China and the U.S. is a “media topic created by the U.S. side” and it could be extended to a later date such as May 1, said an opinion piece posted by several Chinese official media outlets on the eve of the latest round of trade talks between Beijing and Washington. The opinion piece, first published on a social media account, Taoran Notes, on WeChat on Sunday, is not a direct statement from the Chinese government, but it was quickly picked up by other state media, including the social media outlets of the official People’s Daily and Beijing Daily, suggesting support for the argument. “People focus on whether China and US can reach a deal or an understanding over trade before March 1,” the opinion piece said. “But in fact, people may have fallen into an ‘agenda setting’ trap by the U.S. The idea of a March 1 deadline actually offers a cover for Sino-U.S. trade talks. The real issue is not the time limit but whether China and U.S. can reach a deal. If the talks go well but the two sides can’t reach a deal on technical details, then it can be postponed for another two months — for instance, it should be fine if it’s extended to May 1.”

If Trump meets with Xi on trade policy issues, when could it be? It could take until after mid-March based on some China-watcher assessments. Why? President Trump during the recent State of the Union address announced he will hold a second summit with Kim Jong-un in Hanoi, Vietnam from Feb. 27-28. China's annual "two meetings" begin March 3, so scheduling a Trump-Xi meeting before the middle of March could be challenging, China-watcher Bill Bishop explains, especially if Xi convenes the Fourth Plenum between the end of February Politburo meeting and the start of the "two meetings.”

White House officials have informally discussed the prospect of having a summit between President Trump and Chinese President Xi Jinping at the Mar-a-Lago estate, according to Axios. The news outlet, citing two administration officials with direct knowledge of the conversations, reported that the officials talked about having the summit there in March with the goal of ending a months-long trade war. The officials told Axios that Mar-a-Lago was the "likely" location for the next meeting between Trump and Xi. But the two cautioned that nothing was finalized. The meeting could take place as soon as mid-March, the officials added to Axios. A third official told Axios that Beijing has also been discussed as an option for a meeting.

Peterson on preventing the spread of African swine fever (ASF). House Ag Chairman Collin Peterson (D-Minn.) represents Minnesota's 7th District. In his weekly letter released Friday, Peterson said hog producers in his district have contacted his office with concerns about the ASF virus that is currently causing massive losses for pork producers across Asia and Europe. ASF is highly contagious, extremely resilient, and almost always lethal for pigs. While the virus is not harmful to humans, an outbreak in the U.S. would be extremely costly for American pork producers.

Peterson said he spoke with USDA Secretary Sonny Perdue last Monday to discuss what USDA is doing to reduce the risk of the virus spreading to the United States. “We will continue to work with leaders of the feed and pork industry to stay up to date on the best practices for risk mitigation. The 2018 Farm Bill included $300 million in funding over ten years to ensure the U.S. is prepared to prevent and respond to animal pests and diseases,” Peterson noted.

National Cotton Council (NCC) economists noted several key factors that will shape the U.S. cotton industry’s 2019 economic outlook. This past year can be characterized as a year with significant uncertainty and volatility in the global economy and the world cotton market. For this outlook, the ultimate fate of the tariffs is a significant wildcard impacting the global market. Based on the positive statements resulting from the recent negotiations, the NCC assumes that the additional tariffs being imposed by the two countries will be removed in advance of the 2019 marketing year.

In her analysis of the NCC Annual Planting Intentions survey results (link), Dr. Jody Campiche said the NCC projects 2019 U.S. cotton acreage to be 14.5 million acres, 2.9% more than 2018. However, it is important to note that although the survey results suggest a slight increase in acreage, the increase is largely the result of weaker competition from soybeans.

Overall abandonment is projected to be lower in 2019 because most regions currently have adequate moisture levels. With abandonment assumed at approximately 10% for the United States, Cotton Belt harvested area totals 13.0 million acres. Using an average 2019 U.S. yield per harvested acre of 840 pounds generates a cotton crop of 22.7 million bales, with 21.9 million upland bales and 782,000 extra-long staple bales. U.S. cottonseed production is projected to increase to 7.0 million tons in 2019.

Regarding domestic mill cotton use, the NCC is projecting a modest increase of U.S. mill use to 3.25 million bales in the 2019 crop year. As the single largest user of U.S. cotton, U.S. mills continue to be critically important to the health of the cotton industry. In the face of rising textile imports from Asian suppliers, the U.S. textile industry has focused on new investment and technology adoption in order to remain competitive.

Campiche noted that export markets continue to be U.S. raw fiber’s primary outlet. World trade is projected to be higher in the 2018 marketing year, but the trade tensions and increased competition from other major exporting countries has led to a decline in the U.S. trade share. Despite the decline, the U.S. will remain the largest exporter of cotton in 2018. U.S. exports are projected to reach 15.0 million bales in the 2018 marketing year.

Prior to the implementation of tariffs, the U.S. was in a prime position to capitalize on the increase in Chinese cotton imports. With the imposition of the 25.0% tariff, China has turned to other suppliers during the 2018 marketing year, allowing Brazil, Australia, and other countries to gain market share. Vietnam is currently the top export market for the 2018 crop year, followed by China and Mexico.

China is projected to consume 40.5 million bales in 2018. For the 2018 crop year, China is expected to import 7.5 million bales, which is 1.8 million bales higher than in 2017. The gap between China’s cotton consumption and production is currently around 13 million bales. From 2015-2018, the gap was filled with reserve sales and a small level of imports. The reserve stock level now is considered to be approaching a normal or maintainable level, and China is expected to increase imports in 2019.

Assuming a resolution to the U.S.-China trade dispute, China is expected to increase mill use in 2019 to 41.4 million bales. With a further reduction in stocks for the 2018 crop year, China’s imports are expected to increase in the 2019 crop year to 11.1 million bales. Chinese stocks are projected to fall by 4.2 million bales during the 2019 marketing year to 28.2 million bales. With a resolution to the U.S.-China trade dispute, the U.S. is expected to export more cotton to China in the 2019 marketing year and gain back some market share.

U.S. exports are projected to increase to 17.4 million bales in the 2019 marketing year. If realized, it would represent the second highest level of U.S. exports, second only to the 2005 marketing year. When combined with U.S. mill use, total offtake falls short of expected production, and ending stocks are projected at 6.1 million bales. In absolute terms, stocks would be the highest since the end of the 2008 marketing year. A stocks-to-use ratio of 29.4% would be the highest since the 2015 marketing year.

Campiche said world production is estimated to increase by 7.0 million bales in 2019 to 125.5 million bales, which would be the highest level since the 2011 crop. World mill use is projected to increase to 126.5 million bales in 2019. Ending stocks are projected to decline by 1.3 million bales in the 2019 marketing year to 74.2 million bales, resulting in a stocks-to-use ratio of 58.7%. Stocks outside of China are projected to increase to a record level in 2019.

Based on the underlying assumptions and resulting cotton balance sheet, the level of stocks outside of China in the 2018 marketing year along with higher projected production in 2019 may contribute to a more bearish tone for cotton prices in the coming year. However, the increase in world trade due to higher Chinese imports along with a resolution to the U.S.-China trade dispute could provide some price support.

As for uncertainties and unknowns that can change the outcome, for the coming year, a key factor affecting the U.S. cotton industry is the ongoing U.S.-China trade dispute and the 25% tariff on U.S. cotton imported into China. Under a scenario with tariffs remaining in place, the projected expansion in world trade and the opportunity to backfill trade into other markets would allow U.S. exports in the 2019 marketing year to increase from 2018, but not to the extent as expected in the absence of tariffs. The longer-term imposition of tariffs also would dramatically increase the likelihood of permanent losses in market share in China.

Other items of note:

  • President Trump will get together with the leader of North Korea, Kim Jong-un, this month in Hanoi, choosing the capital of a communist nation for a high-stakes summit meeting intended to eliminate a potential nuclear threat, the White House said on Friday. “My representatives have just left North Korea after a very productive meeting and an agreed upon time and date for the second Summit with Kim Jong Un,” Trump said on Twitter. “It will take place in Hanoi, Vietnam, on Feb. 27 & 28. I look forward to seeing Chairman Kim & advancing the cause of peace!”

  • Rep. Walter Jones, (R-N.C.) dies at age 76. Jones came to Congress in the Republican revolution of 1994 and later became an independent voice and critic of the war in Iraq. Jones, who died Sunday and had not voted since September because of illness, entered hospice care in January after breaking his hip.

  • California Democratic Gov. Gavin Newsom today will order the removal of roughly 360 National Guard members from California’s southern border in a rejection of President Trump's characterization of a recent influx of Central American refugees and migrants as a national security crisis.

Markets. The Dow on Friday ended down 63.20 points, 0.25%, at 25,106.33. The Nasdaq rose 9.85 points, 0.14%, at 7,298.20. The S&P 500 edged up 1.83 points, 0.07%, at 2,707.88.

For the week, the Dow and Nasdaq notched their seventh straight gains, and the S&P 500 also ended with a small weekly gain.

Major U.S. stock benchmarks have rallied since a Dec. 24 low, with the Dow surging 16.5% since that Christmas Eve low, the S&P 500 index rising 16.2% over the same period and the Nasdaq leaping 19.1%, according to FactSet data.

FactSet's latest earnings outlook says that while the S&P 500's fourth-quarter earnings are on pace to finish with double-digit growth, its estimates for Q1 are getting bleaker. FactSet's "blended" earnings per share estimate (a mix of actual company forecasts and analyst expectations) had already been calling for a 0.9% decline. Now it's forecasting a wider 1.9% dip, which would be the first decline since the second quarter of 2016.

The 10-year Treasury yield closed the week at 2.63%, while March WTI crude oil closed 0.2% higher at $52.72/bbl.


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