Potential for more Chinese imports | China trade data | KORUS talks | RFS hearing | E15 markup | House Ag spending bill | WOTUS | EPA funding | Calif. drought aid | Perdue on school lunch standards | Perry to Mexico | National security and steel | Yellen | Brazil beef
— U.S. farmers could gain from China’s flagging production: WSJ. Over the past three years, China has abolished guaranteed minimum prices for cotton, soybeans, corn and sugar, causing domestic production of those staples to drop, according to an article in the Wall Street Journal (WSJ). Grain production fell in 2016 for the first time in 13 years, and production of sugar and cotton has fallen by more than a quarter in the past three years. The impact of those declines, the article noted, has been masked by sales from China’s strategic stockpiles. “But those will eventually run out, triggering a rise in demand for imports from the world’s second-largest economy. That could be a boon to farmers from Brazil to the U.S. and Thailand.”
Growth in Chinese production is likely to lag behind demand, said Andrzej Kwiecinski, senior agricultural policy analyst at the Organization for Economic Co-operation and Development. The country would import more feed grains, then more livestock and, eventually, more fruits and vegetables, as increasing labor costs make China less competitive, he said.
— China’s latest trade data could boost friction with President Trump. Chinese exports to the U.S. surged 19.8% in June, the fastest pace since 2015, while its overall exports only rose 11.3%. That has driven a 23% on-year rise in the U.S.-China trade deficit to its widest level since late 2015. The data could increase trade policy tensions between the U.S. and China, especially because President Trump has been vocal about lingering U.S. trade deficits, especially with China. Tariffs on steel and other measures aimed at redressing the balance could follow.
Meanwhile, China’s imports from North Korea dropped 13.2% in January-to-June, but exports rose 29.1% during the period, as overall trade expanded 10.5% to $2.55 billion in the six months. The goods were not included on the U.N. embargo list, said Huang Songping, a customs spokesman.
— Trump administration wants to meet South Korea to alter trade agreement. Changes are being sought between the two countries regarding the U.S.-Korea Free Trade Agreement, known as KORUS. “President Trump continues to keep his promises to lower our trade deficit and negotiate better trade deals for American workers, farmers, ranchers, and businesses,” U.S. Trade Representative Robert Lighthizer said. “Since KORUS went into effect, our trade deficit in goods with Korea has doubled from $13.2 billion to $27.6 billion, while U.S. goods exports have actually gone down.”
But as with other trade agreements, the U.S. meat sector is nervous about past trade accord gains. For example, South Korea’s tariffs on U.S. beef dropped from 40% to 32% when the pact was put in force on March 15, 2012, and they are scheduled to drop gradually to 9% by 2028. The U.S. shipped about $1.1 billion worth of beef to South Korea in 2016, up from just $582 million four years earlier. Much of that increase is attributed to the tariff reductions in KORUS.
“Korea is an important ally and key trading partner and in order to strengthen our relationship, we need free, fair and balanced trade,” Lighthizer said in a letter to South Korean Trade Minister Joo Hyung-hwan asking for a special session of a joint committee established under the pact to oversee its implementation. Terms of the trade deal mandate that the joint committee meet within 30 days of the request, a provision Lighthizer noted in his letter. He did not specify what specific changes the United States wants, but Trump has previously mentioned the automotive provisions of the pact.
— EPA sets Aug. 1 hearing on RFS. The EPA hearing will be in Washington and will focus on the biofuel volume mandates for 2018. EPA said the hearing will start at 9 a.m. EDT and end “and when all parties present who wish to speak have had an opportunity to do so.” Some proponents and opponents of the Renewable Fuel Standard (RFS) were displeased regarding EPA’s recent biofuels announcement.
— Markup on E15 ethanol bill likely before delayed August recess. A committee vote on legislation to boost ethanol sales is likely to take place before the August recess, a spokeswoman for Sen. Chuck Grassley (R-Iowa) told Bloomberg BNA. The legislation (S 517) would allow sales of transportation fuel containing 15% ethanol (E15) in the summer months. Sen. John Barrasso (R-Wyo.), chairman of the Environment and Public Works Committee, said a markup will be held but he did not give a specific date. Barrasso opposes the bill. He and GOP Senate leadership promised ethanol supporters a vote on the E15 bill in exchange for “yes” votes on a measure to roll back an Interior Department regulation on methane venting and flaring. The bill faces hurdles.
— Ag spending bill heads to House floor after panel clearance. The fiscal year 2018 agriculture spending bill approved by voice vote in the Appropriations Committee would provide $20 billion in discretionary spending for USDA, FDA and the Commodity Futures Trading Commission (CFTC). It now heads for House floor. The measure would provide $1.1 billion less than FY 2017 enacted levels after adjusting for the CFTC. The combined total of both discretionary funds and required mandatory spending for programs like nutrition assistance and crop insurance is $144.9 billion, $4.1 billion above President Trumps request and $8.6 billion below the fiscal 2017 enacted level. The bill would provide $248 million for the Commodity Futures Trading Commission and $5.2 billion to the FDA, including $2.8 billion in discretionary funds.
Brazil export language. An amendment includes a requirement that USDA conduct a food safety equivalency determination for all products eligible for export to the U.S. from Brazil, including raw beef.
Chinese chicken exports. Another amendment would require USDA to provide a report to the committee detailing the measures officials from China will take to inspect chicken and report disease outbreaks prior to finalizing any rule allowing chicken raised and slaughtered in China to be exported to the U.S. In May, the Trump administration struck a deal with China that would send more Chinese chicken to the U.S. and more U.S. beef to China, but concerns about the safety of chicken raised and slaughtered in China continue. The language would deny funding for carrying out the rule unless USDA’s Food Safety and Inspection Service can “ensure that the poultry slaughter inspection system for the PRC (People’s Republic of China) is equivalent to that of the U.S.” It also includes a prohibition on federal nutrition programs buying raw or cooked Chinese chicken and sets out requirements China will have to meet to export cooked chicken to the U.S.
Migrant farmworker housing. Rep. Dan Newhouse (R-Wash.) raised a successful amendment expanding the eligibility of farm workers, primarily temporary agricultural workers via the H-2A visa program, for housing to migrant workers legally admitted to the U.S. for farm work. Newhouse said the language acknowledges that the pool of U.S. agricultural workers is shrinking and that more farmers are using the H-2A program. New report language says the change in eligibility would apply to housing units currently unoccupied or underutilized. Rep. Robert Aderholt (R-Ala.), chairman of the House Ag Appropriations Subcommittee, said he supported the amendment as long as report language accompanying the spending bill prohibits the displacement of U.S.-born workers or people legally admitted to the country. “I understand housing is one of the biggest cost impediments to hiring legal, foreign workers,” he said.
Food aid spending included. A manager’s package increased proposed funding — from $185 million to $201.6 million — for the McGovern-Dole International Food for Education and Child Nutrition program that uses school meals to encourage families in developing nations to send their children to school for an education. The spending would be the same level as enacted for fiscal 2017.
Farm loans. The bill includes a $200 million increase to USDA’s guaranteed farm operating loan program, but the measure still would cut hundreds of millions from several other USDA farm loan programs, including guaranteed ownership and direct ownership and operating loans.
CFTC amendment. A cleared amendment would put into law sections of a House-passed bill (HR 238) that require the CFTC to include 12 elements in all cost benefit analysis of its regulations or orders and exempt a company’s inter-affiliate transactions from being regulated as swaps.
The House panel rejected, 25-27, a continuation of the federal ban on horse slaughter, but the topic will likely be part of the ag spending bill debate in the Senate, where it has supporters. Opponents of the ban argue that feral horses are a major problem in many states and that the U.S. ban simply shifts horse processing to Mexico, where the animals are treated inhumanely.
— Language making it easier to repeal WOTUS included in spending bills. The House Appropriations Committee advanced Wednesday the $37.6 billion Energy-Water fiscal 2018 spending bill. Democrats were unsuccessful in moving to strike all policy riders from the bill, including one that could pave the way for an easier repeal of the Army Corps and EPA’s Waters of the U.S. (WOTUS) rulemaking. The bill language effectively exempts the WOTUS repeal from the legal requirements of the Administrative Procedure Act, the federal law governing how federal agencies propose and issue regulations, including the need for a justification for the withdrawal. EPA Administrator Scott Pruitt submitted a proposed repeal for the regulation on June 27, likely setting up a final repeal by the end of the year or first quarter of 2018. Similar WOTUS language was included in the Interior-Environment spending bill.
— House Appropriations panel clears EPA funding. The measure would cut EPA’s budget by $528 million to $7.5 billion, a reduction of $528 million below the fiscal year 2017 enacted level, but $1.9 billion above the Trump administration’s request. The legislation language supports President Trump’s proposal to reshape the agency’s workforce by providing resources requested to offer buyouts and voluntary separation agreements to employees. The bill includes language authorizing the Administrator of the Environmental Protection Agency and the Secretary of the Army to withdraw the Waters of the United States rule.
— House clears California drought aid bill, but faces Senate hurdles. The House on Wednesday approved a controversial California drought measure aimed at shipping more water to the state’s agricultural region, although the bill faces hurdles in the Senate. House lawmakers voted 230 - 190 in favor of HR 23 from Rep. David Valadao (R-Calif.) along largely partisan lines. The measure seeks to ensure reliable water supplies for the agriculture industry in California’s Central Valley by loosening environmental protections in the Sacramento-San Joaquin Bay-Delta and providing impetuous for new dam construction across the West.
— Perdue defends school-lunch standard moves, asks SNA for help. USDA Secretary Sonny Perdue on Wednesday defended the Trump administration’s recent controversial move to relax some of the school-nutrition standards pushed y former first lady Michelle Obama. Perdue spoke at the School Nutrition Association’s (SNA) annual conference in Atlanta. “Some have said in the press, as you’ve read, that we’re ‘rolling back’, [that] these rules ‘roll back progress.’ I don’t agree with that,” Perdue said. “We’re freezing things in place to help us evaluate what the palatability, what the acceptance of these changes have been and to reduce the burdens on schools to get you back to feeding kids and not doing paperwork so much anymore.”
Perdue said he wants SNA to help USDA make school nutrition standards better. He recently invited Lynn Harvey, SNA’s new president, and the organization’s incoming board to come to Washington and give the department “direct, specific advice on how we can make the best rules going forward possible.”
— Energy Secretary Perry to meet Mexico’s president. Energy Secretary Rick Perry travels to Mexico City today where he will meet with President Enrique Peña Nieto and his energy secretary, Pedro Joaquín Coldwell. According to the Dept. of Energy, the visit will “discuss the great strides being made in Mexican energy reform, and will highlight the longstanding energy partnership” with Perry and Joaquín Coldwell both providing brief remarks.
— Update coming on Social Security and Medicare.Treasury Secretary Steven Mnuchin, Labor Secretary Alexander Acosta and HHS Secretary Tom Price will participate in a press conference today on the Social Security and Medicare Boards of Trustees’ report, out today, about the two programs.
— National security and steel. Commerce Secretary Wilbur Ross will meet with Senate Finance Committee members in Congress to give them an update on the Trump administration’s national security investigations into steel and aluminum imports.
— Brazil says Ag Minister Maggi, USDA’s Perdue to meet July 17 on beef trade. Brazil’s Agriculture Ministry Wednesday said it has confirmed Agriculture Minister Blairo Maggi and USDA Secretary Sonny Perdue will meet Monday, July 17, on beef trade issues between the two countries, according to a note posted on the Brazilian ministry’s website. A Brazilian team was to head to the U.S. today (July 13) on the matter and Brazil had been pushing for a meeting with Perdue to discuss issues that led the U.S. to halt imports of fresh Brazilian beef in June.
— Fed’s Yellen appears before Senate panel today. Federal Reserve Chairwoman Janet Yellen appears in front of the Senate Banking Committee, where she will face more questions interest rates, the Fed’s balance sheet, the job market, wages, etc., similar to her appearance Wednesday before a House panel. The Senate Banking Committee is usually a much more cordial atmosphere for Yellen to deliver testimony on US monetary policy.
Inflation is key. The House session Wednesday was notable in that it was not a contentious session for the most part and did see Yellen make a “little” news. Inflation has now shifted to be one of the key areas. Fed officials and the Federal Open Market Committee (FOMC) have signaled for months they are watching inflation. But Yellen indicated if inflation does not show more signs of move toward the Fed’s two-percent goal, policy could be altered. That puts the wholesale level inflation data this morning and Friday’s consumer-level data in focus even as the Fed’s preferred inflation reading is the personal consumption expenditures (PCE) figure. But that, too, has not moved swiftly toward the Fed’s goal. Even the Beige Book update from the Fed Wednesday indicated wage pressures were not evident.
Fed rate-hike odds are falling. The market sees just a 42.3% chance that the Fed hikes rates by the end of the year, according to Bloomberg’s World Interest Rate Probability data. That’s down from a 51.9% chance on Monday.
