Posted on 03/05/2019 6:46 AM

E15 and RINS reform rule | Hemp | Canada woes | Push for another MFP


Potential elements of a U.S./China trade agreement have been pouring out lately, but traders apparently are not believing them. The “bonanza” level of purchases of a growing list of U.S. farm products that have been conjectured would normally shoot prices higher. But the “news” has been bandied about so frequently and with ever-higher numbers, that traders appear to be immune to the talk. They want an actual announcement, including details of the commodities, dollars, tonnages and time frame. One trader said, “It’s like when you were a kid and your team was down 14-0 in softball, you did not worry cause your team hadn’t come up to bat yet, but you just hoped the game wouldn’t be called off because of the opponent’s lead.”

     They may have to wait until March 27 for the “big hitters” to show up at the plate, when President Donald Trump and Chinese leader Xi Jinping may meet, but even that is a tentative date.

      Bottom line: A drumbeat of positive news regarding the talks is easily beaten back by remarks from top U.S. negotiator Bob Lighthizer, or someone else, that significant hurdles remain. Reports from USDA Secretary Sonny Perdue that China would purchase an additional 10 million tons of U.S. soybeans were not followed by big USDA daily sales announcements, leaving traders to wonder how much is hype and how much is fact.

 

     China Premier Li Keqiang said the nation must be prepared for a "tough struggle" as it faces a "grave and more complicated environment." He cut the country's economic growth target this year to 6.0%-6.5%, lower than the GDP growth of 6.6% in 2018, the slowest pace since 1990. The Shanghai Composite still climbed 0.9%, boosted by the billions of dollars in planned tax cuts and infrastructure spending needed to boost the economy.

     Trump plans to end preferential trade treatment for India and Turkey. The president announced that he will no longer allow products from the two countries to enter the US duty-free as part of a beneficiary program. He said that India has not assured the U.S. of complete access to its markets, and that Turkey is no longer a developing country. India played down the impact of the move, saying it was keeping retaliatory tariffs out of trade talks. The country has currently been exporting $5.6 billion worth of goods to the U.S. duty free under the GSP program.

     Hillary Clinton ruled out another presidential bid. The former Democratic presidential nominee told a local New York broadcaster she would not run in 2020, but that she would play an active role in helping candidates. More than a dozen Democrats have announced campaigns for the 2020 presidential nomination so far.

 


 

— U.S./China trade policy update:

  • China minister says working-level discussions continue with U.S. counterparts. Working teams from the U.S. and China are continuing their negotiations toward reaching a trade deal, according to Chinese Commerce Minister Zhong Shan. The talks so far have been "difficult," Zhong said at the sidelines of the National People's Congress but said there had been a breakthrough in some areas and called on both sides to meet halfway if they wanted a deal. Zhong also reiterated a Chinese view of the talks that they have to be based on the principle of mutual respect and equality. "In the economic and trade talks, both sides should make joint efforts to implement the important consensus reached by the leaders of the two countries," Zhong told the Xinhua News Agency.
  • Delay in China tariff hike now official. The Office of the U.S. Trade Representative (USTR) today published the notice in the Federal Register that suspends the increase in tariffs on $200 billion in Chinese goods to 25 percent. "The rate of additional duty for the products covered by the September 2018 action will remain at 10 percent until further notice," USTR said (link). The agency had announced Dec. 19 that the increase was delayed until March 2 but this week formally took action on the matter after President Donald Trump announced that he was not going to put the higher tariffs in place.
  • "Chinese hackers have targeted more than two dozen universities in the U.S. and around the globe [including MIT] as part of an elaborate scheme to steal research about maritime technology being developed for military use,” the Wall Street Journal reported. Link.
  • Take your pick of quotes from Secretary of State Mike Pompeo regarding ongoing U.S./China trade talks. Pompeo, who was in Iowa on Monday, said he was “hopeful” a deal could be reached and that “lots of progress has certainly been made.” But he remained cautious. “I’ve been involved in a lot of negotiations. They can fall apart at the last minute for sure,” he warned in a radio interview.
  • A budding U.S./China trade deal could set the landscape for natural gas trade for years to come. The agreement under discussion would boost several already-competitive U.S. industries like agriculture and autos, the Wall Street Journal reports (link), while potentially hitting other major exporting nations. That’s particularly true for liquefied natural gas, with China potentially committing to buying $18 billion worth of gas from U.S. exporter Cheniere Energy Inc. The losers would be other big exporters that have invested heavily in LNG exports, among them U.S. allies Australia and Canada. Major LNG exporting projects are in the pipeline in Canada, while Australia has been counting on its rising LNG exports to China to offset falling coal revenues. A big pact with China would bolster Cheniere’s infrastructure expansion plans and boost investor interest in other projects to add to the three operational terminals the U.S. now has for LNG exports.
  • China concession in trade talks. Banking and insurance regulatory chief Guo Shuqing said China and the U.S. will reach an agreement on the opening up of China's financial sector.
  • Pompeo comments on U.S./China trade talks. While in Iowa this week, U.S. Secretary of State Mike Pompeo was asked about the effects of the tariffs and ensuing retaliation on Iowa. He suggested Monday that the long-term payoff will be worth the short-term pain.“If we get this right, if we stop the Chinese from stealing tens of billions of dollars a year worth of Iowa intellectual property, if we stop the Chinese from preventing Iowa farmers from selling the products into this enormous and growing market, then that next generation ... will have these farms,” Pompeo said in an interview on Iowa Public Radio. “They’ll have the opportunity.”
  • The trade war cost Americans $1.4 billion a month last year. "The entire incidence of the tariffs fell on domestic consumers and importers up to now, with no impact so far on the prices received by foreign exporters," the economists Mary Amiti, Stephen Redding, and David Weinstein wrote in a new study by the New York Federal Reserve, Princeton, and Columbia.
  • China slashes taxes and defense budget growth. Value-added taxes were cut more than expected and state firms have to hand in more profits to bridge fiscal shortfall, while defense budget growth was slashed from 8.1% to 7.5%. Meanwhile, China set its economic growth target of 6.0% to 6.5% for 2019, down from last year’s target of “about 6.5%.” The figure was revealed in the government work report to be delivered by Premier Li Keqiang as the National People’s Congress opens. The "uncertainties of the China/U.S. trade friction" were one of the factors cited in announcing a lower growth targets. Li outlined the plans to bolster the Chinese economy, including increasing deficit spending, launching new tax cuts and other fee reductions for businesses that would total about 2 trillion yuan ($298.374 billion) and a 30% boost in bank lending to small and private companies. The range for a growth target by China was used in 2016 when it was also seeing economic challenges. Since then, they have used the phrase "around" when setting the growth target. In 2018, China GDP was 6.6%. Keeping employment up was key, Li said. “We will put employment first,” he commented. Efforts on job creation will come via an 800 billion yuan ($119 billion) investment in railway construction and 1.8 trillion yuan to build roads and waterway transportation.

— NFU pushes another round of MFP, with updated payment rates. The National Farmers Union has never supported a trade agreement in Congress, including the initial North American Free Trade Agreement (NAFTA). It has not yet offered its final position regarding NAFTA’s hoped-for successor, the U.S.-Mexico-Canada Agreement (USMCA). But that isn’t stopping the Democratic-leaning group to say it wants USDA to update its Market Facilitation Program (MFP) payment rates if retaliatory tariffs continue, and the administration agrees to provide another round of payments, despite continued statements from USDA Sec. Sonny Perdue and others that the program will not be offered for another crop year.

As for restructuring the MFP, Rob Larew, NFU’s senior vice president of policy and communications says “some commodities weren’t treated very fairly” under the existing payment rates.

If U.S./China trade talks falter or do not live up to their billing, the push will be on Congress to offer ad hoc assistance, perhaps in the form of a Trade Adjustment Assistance (TAA) program. Going into 2020 elections, observers look for the Democratic-controlled House to make the first step for such a program if needed.

— Pompeo predicts USMCA approval. Secretary of State Mike Pompeo said Monday in Iowa that he thinks the U.S.-Mexico-Canada (USMCA) agreement will be approved. "I think the USMCA is going to make it," Pompeo told a group of FFA students in Des Moines. "So, you can write this down: The Secretary of State made a prediction today. I could be wrong, but I don't see that many obstacles." Admitting that it still has to go through Congress, Pompeo urged the students to tell their lawmakers to back the deal.  "I don't think this'll become a political struggle," he predicted. "I remain very optimistic that there's a large consensus that this makes sense for American workers and we'll get it passed. I hope I'm right."

But a key House Democratic member predicts a tough path ahead for the USMCA. House Ways and Means Chairman Richard Neal (D-Mass predicts it won’t be an easy sell for the Trump administration. “Look, it’s going to be very hard to do this,” Neal said in an interview with Politico. Neal, who leads the powerful House committee responsible for trade issues, emphasized that he hasn’t made up his mind about USMCA.

— Some hurdles in play as U.S. and European trade talks take place in Washington this week. The U.S. continues to push agriculture issues are part of the talks, with push back from EU negotiators. The divisions could affect the flow of goods from farm products to automobiles. The White House is threatening to impose duties on U.S. car and auto-parts imports starting in May. That could hit $60 billion in annual European Union exports and would trigger retaliation from Brussels. EU officials are refusing to engage on agriculture, saying any talks should focus on industrial goods.

Other items of note:

  • Canada’s political crisis: A second minister in the cabinet of Prime Minister Justin Trudeau has quit in protest over accusations that he and his aides tried to influence a criminal case against a Canadian company accused of bribery. The resignation of Jane Philpott, who led the treasury board, comes after the justice minister stepped down last month. The prime minister and his aides have been accused of political meddling to protect SNC-Lavalin, an engineering firm, from a bribery trial.

  • President Donald Trump is ending India’s and Turkey’s preferential trade status, which allows some goods duty-free access to America. It is Trump’s latest attempt to tackle what he sees as unfair trade practices. The U.S. Trade Representative said India has failed to give reasonable access to its markets, while Turkey, which is “sufficiently economically developed,” no longer qualifies.

  • EPA on Monday sent its proposed rule to allow year-round sales of E15 to the White House for review. The EPA proposed rule for allowing year-round sales of E15 fuel and to make changes the Renewable Identification Number (RIN) program has been sent to the Office of Management and Budget (OMB) for review. EPA spokesman Michael Abboud confirmed the action to several news services via an emailed statement. "We hope to expeditiously propose and finalize the rule consistent with the President's direction," he said. EPA has pledged it would get the rule finalized by the start of the summer driving season – June 1. Though that goal has been called into question recently due to the US government shutdown, EPA officials insisted last week the agency was on track to meet this goal.

  • USDA will hold a listening session focused on regulations for newly legalized hemp production. The second public meeting on implementation of the 2018 Farm Bill is scheduled for March 13.

  • APHIS hosting farm bill listening session. Animal health provisions in the 2018 Farm Bill that are linked to the Animal and Plant Health Inspection Service (APHIS) will be the subject of a listening session the agency has scheduled for March 21.

Markets. The Dow on Monday dropped 206.67 points, 0.79%, at 25,819.65. The Nasdaq was down 17.79 points, 0.23%, at 7,577.57. The S&P 500 lost 10.88 points, 0.39%, at 2,792.81.


 

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