Trump, Perdue & Ernst to visit Iowa ethanol plant | Trump threatens further tariffs on China
— Trump and Perdue to Iowa, but details on MFP 2 and disaster aid still sparse and will “come later.” President Trump and USDA Sec. Sonny Perdue will be in Iowa today, along with Sen. Joni Ernst (R-Iowa). They will visit a renewable-energy facility in Council Bluffs to highlight the Trump administration’s recent year-round approval of E15 and Trump will speak to a state Republican Party dinner in West Des Moines. Trump is expected to comment on a recent agreement with Mexico that would suspend new tariffs on them for 90 days, pending on how Mexico fulfills the agreement. Trump will also urge passage of the USMCA and will highlight his administration's accomplishments for American farmers.
Meanwhile, the American Fuel and Petrochemical Manufacturers (AFPM) lobby group filed a lawsuit attempting to block the Trump administration's effort to expand sales of E15, escalating the battle between the oil and corn industries over U.S. biofuel policy. AFPM filed a suit in the U.S. Court of Appeals for the District of Columbia on the EPA E15 rule, with the group having one month to provide an outline of its case. "We fully expect the court's ruling to align with what the EPA and Congress have each previously concluded: the plain language of the Clean Air Act does not authorize an RVP waiver expansion beyond E10. Nothing has changed," said AFPM CEO Chet Thompson. "A waiver for E15 is unlawful, plain and simple."
“It was entirely predictable that Big Oil would challenge President Trump’s effort to provide increased competition, consumer choice at the pump, and lower gasoline prices for a higher-octane fuel,” said RFA President Geoff Cooper. “But EPA’s legal analysis is sound and is overwhelmingly supported by the public record and a plain reading of the statute. President Trump was correct in calling the regulatory barrier to E15 ‘unnecessary’ and ‘ridiculous,’ and we greatly appreciate his effort to empower consumers and the American farmer. AFPM’s desperate effort to have the court overturn President Trump’s E15 rule will fail and reflects a callous desire to protect market share at the expense of rural America. The RFA stands with President Trump and consumers across the country who deserve a price break at the pump.”
— USDA as expected released a statement (link) ahead of the event regarding issues surrounding the $16 billion Market Facilitation Program (MFP 2) and the recent $19.1 billion disaster aid program. But the USDA statement makes clear more information will come later, not today. “In the coming weeks, USDA will provide information on the Market Facilitation Program payment rates and details of the various components of the disaster relief legislation. USDA is not legally authorized to make Market Facilitation Program payments to producers for acreage that is not planted. However, we are exploring legal flexibilities to provide a minimal per acre market facilitation payment to folks who filed prevent plant and chose to plant an MFP-eligible cover crop, with the potential to be harvested and for subsequent use of those cover crops for forage.”
In the coming weeks? Jeez. The lack of transparency from USDA on these issues is frustrating and bewildering to many in the ag sector.
The following are some highlights of what USDA is choosing to discuss now:
- USDA repeats what it said in its first release on MFP 2, that unplanted acreage won’t be eligible for MPF 2 payments. But this time USDA said it may provide a “minimal” MFP payment on prevented-planting acreage that is seeded to a harvestable MFP-eligible cover crop. Farmers must still comply with crop insurance requirements to remain eligible for any indemnities received — if a producer plants a second crop or cover crop, they must comply with crop insurance requirements to remain eligible for a full prevented planting indemnity.
- Crop insurance is not required to qualify for 2019 MFP assistance. However, USDA requires that a producer plant a 2019 MFP-eligible crop to qualify for the 2019 MFP assistance.
- Prevent-plant aid authorized by the disaster aid bill will generally be limited to areas that have disaster declarations. Producers with qualifying losses outside of those areas will have eligibility determined on a case-by-case basis.
- USDA finally addresses another topic that too many ag writers and even some lawmakers have botched. The question per USDA: “I heard that I could get 90% of my crop insurance guarantee as a prevented planting payment through the disaster bill, is that true?” USDA's response: “The Additional Supplemental Appropriations for Disaster Relief Act of 2019 gives the USDA the authority to compensate losses caused by prevented planting in 2019 up to 90%. While the authority exists, USDA must operate within finite appropriations limits. It is highly unlikely that the supplemental appropriation will support that level of coverage in addition to crop insurance. Congress appropriated $3.005 billion in assistance for a wide array of losses resulting from disasters throughout 2018 and 2019, requiring USDA to prioritize how it is allocated. The Department plans to provide assistance on prevented planting losses within the confines of our authority.”
- USDA is currently exploring legal flexibility to provide assistance that better utilizes the harvest price in conjunction with revenue and prevent planting policies.
- USDA is reviewing the Nov. 1 restriction for haying or grazing cover crops on prevented-planting acres.
Here are some questions USDA should have answered:
- Were you rushed into still trying to determine program details because President Trump tweeted the program before most if not all at USDA even knew this was coming?
- Did Secretary Perdue actively argue against allowing $1 billion more in funding for 2018 MFP payments via the disaster aid bill? This funding was not included in the measure.
- Is the reason USDA went to a county MFP payment rate because you were tired of answering complaints that MFP 1 payment rates were too low for eligible commodities other than soybeans?
— The “other details coming” is not limited to USDA, but also to the recent 90-day tariff suspension on Mexico. “We have fully signed and documented another very important part of the immigration and security deal with Mexico, one that the U.S. has been asking about getting for many years,” Trump tweeted early on Monday. “It will be revealed in the not too distant future and will need a vote by Mexico’s legislative body! We do not anticipate a problem with the vote but, if for any reason, the approval is not forthcoming, tariffs will be reinstated!” Trump said. Since the deal was announced Friday evening, Trump has been hinting that some details have yet to be made public and that Mexico will step up agricultural trade with the United States.
But Marcelo Ebrard, Mexico’s foreign minister, flatly denied any hidden detail, saying on Monday that Trump's reference to a vote in Mexico had to do with the prospect of additional measures if last week’s deal did not succeed in stemming migrant flows. The deal says unspecified “further actions” will be taken in 90 days “in the event the measures adopted do not have the expected results.” Ebrard acknowledged Mexico had until late July to deliver on a reduction of migrant flows to “reasonable levels.” If Mexico fails to reduce migrant flows to Washington’s satisfaction, Ebrard said he would need to go to the Mexican Senate to say “the measures we took did not work, the Americans are proposing this . . . What can we do and what can we not do?” He said that was the legislative vote to which Trump referred.
Mexico promised swift deployment of its newly created National Guard to its southern border and to allow migrants who apply for asylum in the U.S. to return to Mexico to await their court hearings — a process that could take years. In return, the U.S. reportedly dropped its “virtual ultimatum” to make Mexico a so-called safe third country, whereby migrants would be forced to apply for asylum in Mexico instead of in the US. It also agreed to join Mexico in development efforts to ensure that people are not forced to flee the northern triangle of Guatemala, Honduras and El Salvador because of poverty or crime, Ebrard said.
Mexico agreed to revisit demands by the U.S. for a radical overhaul of the immigration system if its proposed measures to curb migration don’t work. Link for details on this via the Wall Street Journal. Meanwhile, the Washington Post reports (link) that Mexican negotiators agreed to an unprecedented immigration pact and preemptively accepted broader measures in Mexico if initial efforts don’t deliver quick results, according to officials and related documents. In another WaPo item (link), it says Trump appears emboldened by tariff showdown with Mexico and “he will look to continue tying tariff threats to non-trade issues with other foreign powers.”
Although the U.S. reportedly demanded migrant arrivals at the U.S. border be reduced to “zero . . . I think that’s an impossible position,” Ebrard said. No numerical target has been agreed but “if there is a reduction . . . we’ll have succeeded and that’s an enormous bargaining chip with the U.S.”
— Trump at it again on latest China-related statements. The latest warning from the president came Tuesday in unscheduled called-in comments to CNBC in which Trump warned Chinese leader Xi Jinping that a new round of tariffs would be levied on the country’s goods if the two leaders failed to meet at the G20 summit in Japan. Trump said he believed there would be a bilateral meeting with Xi in Osaka on the sidelines of the world leaders’ gathering later this month. But Chinese officials have not confirmed their president’s acceptance of such a bilateral encounter, and this has clearly upset Trump based on his comments to CNBC (link for details).
In Trumpese: “I think the differences can be worked out very easily. I would be surprised if he didn’t go. I think he is going, I haven’t heard that he’s not,” Trump said. But he added that levies on $300 billion of additional Chinese imports would be imposed immediately if Xi failed to show up, on top of a 25% tariff in place now on $250 billion of goods. “We are expected to meet. If we do, that’s fine, and if we don’t, that’s fine. Look, from our standpoint, the best deal we can have is 25% on $600 billion, OK?”
Trump's comments continue his trademark complexity when he first says “differences can be worked out very easily,” knowing full well both sides of met 11 times already to settled their differences. The president then says from the U.S. standpoint, the best deal is to have 25% on $600 billion of Chinese goods, a statement not many in the ag sector or other business sectors would agree with.
Trump again signaled a compromise that Xi wants. Trump renewed an offer he has made to Beijing in recent months to find a settlement with China on the fate of Huawei, the telecommunications network company that has been placed on a U.S. export blacklist after it was charged with violating U.S. sanctions and stealing trade secrets. Trump said Huawei was a “threat” to the U.S., but he added that “it could be very well that we do something with respect to Huawei as part of our trade negotiations.”
— Trump went on the offense against domestic constituencies that he views as standing in the way of his multi-front trade offensive. In his comments to CNBC, Trump took a direct swipe at the U.S. Chamber of Commerce, the business group that opposes tariffs, saying he would have to reconsider his membership in the group.
But another “domestic” group Trump focused on what another of his favorite topics: the Federal Reserve. “[China] devalues their currency, they have for years: it’s put them at a tremendous competitive advantage. And we don’t have that advantage because we have a Fed that doesn’t lower interest rates,” Trump said. “We should be entitled to have a fair playing field but, even without a fair playing field — because our Fed is very, very disruptive to us — even without a fair playing field we are winning.” Trump has been a strong critic of the Fed, having repeatedly called for the central bank to cut interest rates. He has over the past year called the Fed his “biggest threat” and said he was “not even a little bit happy” with chairman Jay Powell. In his comments to CNBC on Monday, Trump described the Fed’s decision to raise interest rates in December as “a big mistake... They raised interest rates far too fast. That’s No. 1,” said Trump. “No. 2: they did quantitative tightening: they were taking in $50 billion a month. Fifty billion a month. And they’ve now eased that, but it’s still $25 billion a month, which is ridiculous. Now, China’s doing just the opposite. They’re pumping money in. So I’m winning, but I’m not winning on a level table.”
— Trump did not limit his anger at China, adding French wines to his list. Trump said it was “unfair” that France received better access to U.S. markets than the “California guys” got in Europe. “We’ll do something about it,” he said. The U.S. has threatened to impose tariffs on European wines in response to subsidies benefiting Airbus, the European aircraft maker, after the World Trade Organization ruled in Washington’s favor in the long-running dispute.
— Tariff-heavy U.S. trade policies are triggering financial strains in supply chains. Some companies have run up inventories of raw materials or finished goods to get around impending levies while others have offered customers longer payment terms to help them adjust to increasingly uncertain costs. The Wall Street Journal reports (link) the measures are “soaking up corporate cash in a growing tug-of-war in supply chains, with more money tied up in product stockpiles or payments and less available for capital spending and operating costs.” The Hackett Group Inc. estimates about $3.4 trillion in working capital was locked up across U.S. companies at the end of 2018, up from $2.7 trillion five years ago. Colorado-based electronics distributor Arrow Electronics Inc. says it has also sowed confusion, with some suppliers absorbing the higher tariff costs, others charging extra for each shipment and still others tacking on lump-sum tariff charges.
— Other items of note:
Kim Jong Un's slain half brother was a CIA informant. Kim Jong Nam, the slain half brother of North Korean leader Kim Jong Un, was an informant for the CIA who met on several occasions with agency operatives, according to the Wall Street Journal (link). Kim was killed at an airport in Malaysia in February 2017, when two women smeared his face with nerve agent VX.
A South Korean NGO said it had found over 300 sites used for public executions in North Korea. The group says that family members of the condemned and even children were forced to watch, often in crowds of more than 1,000, as prisoners were killed, usually by firing squad. The pace of executions is thought to be slowing.
International inspectors said Iran was increasing its production of nuclear fuel, defying restrictions under the 2015 deal that President Trump abandoned.
NMPF priorities. Ratification of the U.S.-Mexico-Canada Agreement (USMCA), implementation of the 2018 Farm Bill's Dairy Margin Coverage (DMC) program and enforcing dairy product labeling regulations are just a few of the priorities the National Milk Producers Federation (NMPF) is currently focused on, officials from the group said during a June 10 press roundtable. With the U.S. dairy sector now "in the fifth year of what has been a very difficult economic period for the industry," dairy producers hope that a reworked dairy safety net and, potentially, an improving trade environment, can help restore stability to the sector, said NMPF President and CEO Jim Mulhern. "Increasing our exports is a critical component of providing adequate milk prices to producers," Mulhern observed. With Section 232 tariffs lifted for Mexico and Canada, and new tariffs on Mexico over immigration averted, "we're hopeful that Congress can shortly begin consideration of [USMCA] and get it moved through this year," he added.
Ag robotics continue to help labor shortage in ag sector. Some growers have seen the future, and it has robotic farm workers. An article, The Age of Robot Farmers, in The New Yorker (link) tells how GPS and A.I. are being tapped to design machines that pick crops — day and night.
Factories that helped build the U.S. industrial boom aren’t manufacturing much optimism these days. Deere & Co., General Motors Co., 3M Co. and other manufacturers are cutting output, slowing hiring or even cutting jobs, the Wall Street Journal reports (link), as American consumers and companies buy fewer cars, trucks and tractors and build fewer houses. “The lagging output is coursing through supply chains, with demand for steel parts, paint and other building blocks of the economy waning and shipments of industrial products weakening,” the report notes. U.S. rail transports of metallic ores and metals fell 7.7% in May from a year ago while carloads of iron and steel scrap tumbled 9.3%, according to the Association of American Railroads. Trucker YRC Worldwide Inc., with a less-than-truckload network focused more on retail goods, says tonnage per day at its YRC Freight subsidiary fell 5.5% in April and 7.6% in May.
— Markets. The Dow on Monday gained 78.74 points, 0.30%, at 26,062.68. The Nasdaq rose 81.07 points, 1.05%, at 7,283.17. The S&P 500 moved up 13.39 points, 0.47%, at 2,886.73.
Gasoline prices slide as summer trips begin. Average retail gasoline prices have fallen in five consecutive weeks, putting many Americans on track to pay much less for fuel this summer and potentially boosting U.S. consumers at a time when many analysts are projecting a slowdown in economic growth.
China’s central bank set its yuan fixing stronger than expected today. The strong bias in the daily fix — which restricts the onshore yuan’s moves by 2% on either side —is the largest since Bloomberg started releasing the survey estimates in August 2017. The central bank also said it plans to sell bills in Hong Kong later this month, a move Bloomberg said will drain liquidity and support the currency.
An 'extraordinary rare' situation is taking place with Beyond Meat's stock. The cost for short-sellers to borrow Beyond Meat shares has soared to 134%, according to Ihor Dusaniwsky, the managing director of predictive analytics at the data-analytics firm S3 Partners, making it more expensive to short the stock than to own it. Beyond Meat short sellers have lost more than $400 million betting against the plant-based burger maker's stock since it went public. The stock is up about 600% from its $25 per share IPO price.