Health-care reform | Libor | Dollar index | China’s banking system | Japan may boost tariff on frozen beef imports | Ag merger concerns | Perdue in Mexico | AGCO buys Monsanto’s Precision unit | WOTUS | Spring wheat tour | Cargill Inc. interested in poultry firm | JBS meeting | South Korea | NAFTA 2.0 | Lighthizer on China, NAFTA
— Fat is out and thin is in regarding GOP health-care reform. Republican senators have shifted their focus to a so-called “skinny” health care repeal that introduces smaller changes to ObamaCare. These include eliminating individual and employer insurance mandates, and removing the medical device tax, along with a few other provisions. It comes after the Senate voted against a straight repeal of the 2010 Affordable Care Act (ObamaCare) for the second time in 24 hours.
— Libor to be phased out. Libor, the benchmark underpinning more than $350 trillion of financial products across the world, will be phased out by the end of 2021, Andrew Bailey, the head of the Financial Conduct Authority (FCA), said this morning. The FCA said the lack of transactions data meant it was no longer possible to determine a reliable rate. Libor’s reputation has taken a hit in recent years as it became dogged by scandal. Regulators are looking to replace Libor with a more reliable alternative.
— The dollar index has fallen to its lowest level in over a year after the Fed signaled its balance sheet reduction would be starting soon. The central bank kept rates on hold yesterday and made no changes to its overall policy, but the statement following its July meeting said balance sheet normalization would start “relatively soon”. That’s a change from June when it said, “this year.”
— Moody’s Investors Service no longer takes a negative view on China’s banking system, raising its outlook to stable as concerns over “shadow banking” eased since the “government’s adoption of more coordinated policy measures.” Shadow banking is a broad category of banking-like services from non-traditional players; it can include loans from non-financial companies as well as investment products, and largely goes unregulated.
— Japan may raise tariff on frozen beef as imports rise. Tariffs on frozen beef imports from countries without an economic partnership agreement (EPA) with Japan may be raised to 50% from the current 38.5% rate, Tatsuya Haruna, deputy director at the Agriculture Ministry’s livestock promotion division, said Wednesday.
Beef suppliers that may be affected include the U.S., Canada, New Zealand, and European Union nations. Australia, the top beef supplier to Japan, has an EPA agreement with Japan.
Tariffs will be raised if frozen beef imports in the three months through June rise by 17% from the same period last year. It would be the first time in 14 years if triggered, and will be based on Japan trade data due out Friday. In April-May, the first two months of the current fiscal year, frozen beef imports from all nations rose 7.6 percent to 62,436 tonnes, with U.S. shipments rising 14.8 percent from a year ago to 20,530 tonnes. Japan’s frozen beef imports in the year ended March 31, 2017, rose 2.2 percent to 286,000 tonnes, and included 94,300 tonnes from the U.S., farm ministry data showed. Frozen beef imports made up more than half of the total beef imports in the last business year.
— Groups send letter to Justice Dept. noting concerns about proposed mergers in ag sector. Opposition to Bayer AG’s bid for Monsanto Co. grew when three organizations told the Justice Department the deal would hurt competition, farmers, and consumers. The groups, the National Farmers Union, Food and Water Watch and the American Antitrust Institute, on Wednesday sent a 17-page joint letter (link) to the Department of Justice (DOJ) analyzing how proposed mergers would consolidate power among three companies and likely harm competition — and farmers and consumers along with it.
The groups said the deal would give a merged Bayer-Monsanto significant market power in genetics and crop traits, as well as a range of seeds.
The Justice Department is reviewing the proposed merger, announced in September, and a decision from the U.S. government should be coming in a few months. The EU competition authority is also probing the deal.
Last week, 19 Democratic senators told Attorney General Jeff Sessions the department should “conduct a thorough and impartial analysis” of the deal independent of political influence. Link.
In a statement, Bayer says it remains convinced that the merger “will create new and superior products and solutions to help them produce more safe, affordable and nutritious food for all.” But Bayer also restated the companies’ willingness to “undertake necessary actions, including a certain level of divestitures,” that DOJ may require.
— U.S.-Mexico to hold bilateral agriculture trade talks. USDA Secretary Sonny Perdue will meet with Mexico Agriculture Minister Jose Calzada in Merida, Mexico, today and Friday to discuss methods to strengthen agriculture trade between the countries, according to a press statement from Mexico’s Agriculture Ministry. The two secretaries met last month in Savannah, Georgia, to discuss agriculture negotiations between countries. Their meetings will include a panel discussion with U.S. and Mexican producers, agricultural site visits, and a joint press conference.
— AGCO buys Monsanto’s Precision unit that Deere was nixed from buying. AGCO Corp., the third-biggest U.S. agricultural machinery maker, agreed to buy Monsanto Co.’s Precision Planting LLC equipment business, less than three months after Monsanto nixed a $190 million deal with Deere & Co. for the unit. Terms of AGCO’s deal to buy the unit from Monsanto’s subsidiary agricultural technology company Climate Corp. weren’t disclosed, AGCO said in a statement. The Justice Department last year sued to block Deere’s acquisition of Precision on the grounds that the deal would suppress competition for seed-planting technology. Deere, the leading supplier of farm machinery in the U.S., has its own high-speed seeding technology, which it is installing on new planting equipment and selling in retrofit kits.
— Trump advances WOTUS repeal. Today begins a 30-day comment period on withdrawing the Obama implemented Waters of the U.S. (WOTUS) rule. The EPA and Army Corps of Engineers are publishing the proposal in today’s Federal Register. It would rescind the existing WOTUS rule and reinstate the jurisdiction of the Clean Water Act the way it existed before 2015. Environmental groups (link) and lawmakers have urged a longer comment period than 30 days. The repeal rule is seen as a back stop in case the Supreme Court determines the 6th Circuit didn’t have authority over the case and the hold is lifted. A new WOTUS rule is expected by late this year or early in 2018.
— Central and NW North Dakota spring wheat yields down significantly vs year-ago: Tour. Average yield for the second day of the Wheat Quality Council spring wheat tour came in at 35.8 bushels per acre, down sharply from 46.9 bushels per acre in 2016 and the five-year average of 46.6 bushels per acre. While early planted fields looked the worst in Wednesday’s tour sampling, reports noted later-planted fields could still improve with harvest a few weeks away, provided temperatures do not get too hot. The tour wraps up today.
— Report signals Cargill Inc. interested in JBS’ Pilgrim’s Pride unit. Cargill Inc. is said to be considering a bid for the JBS unit Pilgrim’s Pride, according to the Brazilian newspaper O Estado de S. Paulo. However, a representative for JBS said the U.S. poultry processing unit was not for sale, a stance the firm has held since JBS’ financial woes emerged earlier this year.
— JBS sets September 1 shareholder meeting. Brazilian meat packer JBS has set a September 1 shareholder meeting to address concerns over potential losses, a session urged by BNDESpar, the investment arm of the Brazilian state development bank and a 21-percent shareholder in the company. BNDES CEO Paulo Rabello de Castro urged last month the meeting be called to propose reshuffling of the board and examine ways to address a credit shortfall and potential losses faced by the meatpacker.
— South Korea to downgrade bird flu alert. Citing a fall in the risk from highly pathogenic avian influenza (HPAI), South Korea’s Ministry of Agriculture, Food and Rural Affairs is expected Friday to downgrade its bird flu alert level by one notch from the current highest level. No new cases have been reported since June 19, but the ministry indicate it will continue disinfecting farms and monitoring the situation until September.
— Ag panel hears need for quick NAFTA 2.0 action. House Ag Committee members stressed the need to complete NAFTA 2.0 quickly, after officials from the U.S. grain industry testified that there’s already been a 4% decline in sales of corn and a 13% decline in sales of soybean meal to Mexico this year versus 2016.
Former USDA Secretary Tom Vilsack told that panel that any renegotiation of NAFTA needs to ensure more predictability and transparency, as well as reduce tariffs on U.S. dairy exports. Canadian officials are forcefully defending its Class 7 program for ultra-filtered milk and its supply management program, which sets production quotas and restricts imports to stabilize farmers’ incomes. Canada argues these policies are not the cause of the U.S.’s milk oversupply problem. House Ag ranking member Collin Peterson (D-Minn.) predicted they could represent a potential rift in the coming talks, arguing the Canadians “are going to defend this no matter what.”
Meanwhile, a new letter from 32 freshmen Republicans wrote U.S. Trade Representative Robert Lighthizer noting their support and concerns regarding NAFTA. “We recognize that a 23-year-old agreement needs updating, and commend your desire to make improvements and ensure strict enforcement,” 32 freshman lawmakers said in a letter to U.S. Trade Representative Robert Lighthizer. “We are also keenly aware of the potential for damage to U.S. farmers, businesses, manufacturers, service providers and workers if long-standing agreements are suddenly vacated. Canada and Mexico are our largest export markets, and our $3.5 billion in daily trade with these two countries supports 14 million American jobs.”
U.S., Canada and Mexico are preparing to hold the first round of talks to renegotiate NAFTA beginning Aug. 16. in Washington.
The lawmakers told Lighthizer they were concerned that U.S. industry and farmers are already being hurt as other countries negotiate trade agreements without the United States. “This creates a sense of urgency that makes us glad our predecessors provided you with Trade Promotion Authority, empowering you to launch, negotiate and conclude trade agreements,” they said.
— Lighthizer pledges to focus on China’s industrial policy; talks about NAFTA. The Trump administration is focused on confronting Beijing over its industrial policy “one way or another,” including by holding the country accountable to the rules of the World Trade Organization (WTO), U.S. Trade Representative (USTR) Robert Lighthizer said in an interview. “There’s no question that China has an industrial policy that is designed to create jobs and wealth in China, and in many cases there are things that are outside of the norm of the WTO,” Lighthizer told conservative talk-show host Kevin McCullough. He acknowledged that some actions were in violation of the WTO, whereas others simply weren’t covered by the rules of the global trading body. “There are examples of them subsidizing and dumping and doing other things that we would find to be noneconomic,” he added. “Our objective is not to let that go on in an unfair way, and that’s really where the president is focused.”
Asked during the same interview what the president’s current thinking is on NAFTA and whether he still believes the deal should be “scrapped,” Lighthizer tamped down the idea. “Scrapped is too strong,” he said. “But the president wants very, very substantial changes.” Listen to the full interview here.
