North Korea | Clovis | NAFTA 2.0 | Yellen | FMD vaccine | Tax reform | Nutrition Facts delay | FDA hurricane update for farmers | Trucking ‘e-logs’ | Congress’ $10 bil. ATM | SNAP bonuses | WOTUS | Cotton AWP | Markets
— North Korea fired an intermediate-range missile that passed over Japan before crashing into the Pacific after traveling far enough to put the U.S. territory of Guam in range. The launch caused warnings to be broadcast on Japanese TV. President Donald Trump has yet to comment on the latest show of force from North Korea, the first missile test since United Nation sanctions were tightened on the isolated state. Trump plans to make moves against Iran and North Korea a focus of his speech to the General Assembly on Tuesday, administration officials said — the Trump administration recently extended U.S. sanctions relief to Iran as part of its 2015 nuclear agreement, but levied new punitive measures over Tehran’s ballistic missile program, cyberattacks and terrorism.
Muted market reaction. Investors initially fled to safe havens on the news, but the yen, Swiss franc and gold have since given back all of the gains.
Country reaction to the missile launch. U.S. Secretary of State Rex Tillerson said that China and Russia need to take “direct action” against North Korea, adding the missile launch would “only deepen North Korea’s diplomatic and economic isolation.” Japan called the latest North Korean missile launch a “serious act of provocation.” South Korean military officials said they immediately retaliated by sending a missile of their own about 150 miles into the East Sea, also known as the Sea of Japan — the same distance as the base where the North Korean missile originated. “Our military is closely monitoring the North Korean army for further provocations with strengthened vigilance by following their movements and maintaining our readiness,” the Defense Ministry said in a statement. South Korean President Moon Jae-in said his government would hold an emergency meeting in response to the launch.
— Clovis nomination fate still in doubt. USDA Secretary Sonny Perdue reiterated on Thursday that he stood behind Sam Clovis, the nominee to be USDA’s head of agricultural research. Perdue’s statement came shortly after Senate Ag Chairman Pat Roberts (R-Kan.) made remarks that spurred questions about the fate of Clovis’ nomination. Roberts said the committee will move forward “expeditiously” with Clovis’ nomination to be USDA undersecretary for research, education and economics if “that is the desire of the secretary and the president.” Perdue said the president made a good choice in nominating Clovis. “I look forward to his hearing, so the committee has the opportunity to get to know him personally.”
— Ross confirms sunset provision under consideration, but Mexico and Canada reject it. The issue of a five-year sunset period for NAFTA as part of the 2.0 negotiations underway with Canada and Mexico continues with Commerce Secretary Wilbur Ross confirming at a Politico Pro Policy Summit that there is an active discussion on the matter. “The five-year thing is a real thing,” Ross said. The view of those favoring it is that it “would force a systematic re-examination” of NAFTA every five years. “Why that’s important is the forecasts that have been made at the initiation of NAFTA and of other trade agreements mostly have been wildly optimistic as to the results,” he said. However, Ross acknowledged it is not yet a “done deal” as far as a U.S. proposal.
Canada and Mexico indicated they will not back the concept. Canada’s Ambassador to the U.S., David MacNaughton, said that a five-year sunset raises Canadian concerns and should also raise concerns with U.S. businesses that have to made long-term investment decisions. Gerónimo Gutiérrez, Mexico’s ambassador to the U.S., said that re-examination would introduce economic instability, which would harm industries across all three countries.
Canada’s opposition in detail. “A trade agreement like this, one of the reasons you do this is to create an environment in which businesses can make investments, '' said MacNaughton. “Many of those investments people look to 20 years, 25 years for payback. The best thing you can try to do is have good will and try to work through the tough times. He predicted that Ross would get objections from U.S. businesses over the idea of an automatic sunset provision.
Renegotiation talks on NAFTA began in Washington in mid-August followed by a second round in early September in Mexico City. The third round starts in Ottawa, Canada, on Sept. 23.
Mexico’s NAFTA 2.0 plan. “We will focus on what needs to be accomplished. I don’t think any country would consciously sit down and negotiate under the threat of a gun pointed to its head,” Guiterrez said, referring to President Donald Trump’s threats to trigger a provision in NAFTA that allows each country to give six-month notice of its intent to withdraw from the trade pact. Guiterrez repeated the Mexican government’s position that if Trump triggers the provision Mexico will stop participating in renegotiations. He said Trump’s withdrawal threat in April amounted to “a pretty close call. It would be unwise not to take any public expression on the part of the president of the United States with seriousness. Many actors within the United States pointed to the fact that was not the way to go.” He said Mexico has spoken with administration officials and Cabinet members, adding that the relations between the U.S. and Mexico are “better than they look.”
— Trump still not saying whether Yellen gets another term as Fed leader. While President Donald Trump said he likes and respects current Fed Chairwoman Janet Yellen, he told reporters on Air Force One that he has not yet made a decision on whether to reappoint her to another four-year term. Yellen’s current term as Fed chief ends in February 2018.
— NPPC continues push for FMD vaccine bank as part of farm bill. Ken Maschhoff, National Pork Producers Council (NPPC) president, and other pork producers were in Washington this week. One of the topics was urging lawmakers to include $150 million per year in the upcoming new farm bill. They want APHIS to move forward on establishing a vaccine bank that would be adequate to protect the pork and beef sectors.
$200 billion FMD impact price tag. Iowa State University estimates an FMD outbreak would cost the U.S. over $200 billion across the entire agriculture sector, not just the pork industry, including lost pork production, decreased need for grain, and other factors. “I guarantee you every member of Congress, if they knew that for $150 million, they could have insured against (Hurricanes) Irma and Harvey combined, they’d have written that check in a heartbeat,” he said. Currently, the U.S. only has access to enough vaccine to deal with a small, localized FMD outbreak. “One thing that is not in these numbers is the fact the government would be able to sell the vaccine to other countries around the world should we not need it. It would offset some of the cost,” Maschhoff said previously.
“Normally, our whole attitude is keep us out of the farm bill, but this has been different,” Neil Dierks, chief executive officer of NPPC, said at a media briefing on Thursday. Pork industry members say anything less than the full ask would force them to pick and choose which strains of foot and mouth disease they want to fight and how many doses they can purchase.
NPPC leadership said outbreaks in the United Kingdom and Japan in the past two decades show the need to have vaccines at the ready to help mitigate damages the industry could face if an outbreak were to hit the U.S. “The real concern is increased globalization — which includes travel and the threat of bioterrorism — which many in Congress understand that this could be the type of thing that could be intentionally brought into the country to wreak economic havoc,” Maschhoff said.
— Tax reform update. Treasury Secretary Steven Mnuchin said the “Big Six” tax negotiators will put a number on the corporate tax rate as part of their tax reform proposal, with some details set for release late this month. He also said the wealthy will not get an income tax cut, echoing President Donald Trump’s promise Wednesday that “the rich will not be gaining at all with this plan.”
Senate Finance Chairman Orrin Hatch (R-Utah), one of the Big Six members, warned that his tax-writing panel wouldn’t be a “rubber stamp” for whatever is proposed on tax reform. His comments suggest Republicans aren’t united on what should be in a bill.
— FDA Commissioner Scott Gottlieb said he proposed a delay to the Nutrition Facts update because the Obama administration rushed it out and put the agency, which “didn’t have all the implementing guidance that they needed,” in a “difficult position.” Gottlieb revealed the FDA will be pushing back the compliance deadline by “closer to 18 months.” Earlier this summer, FDA announced it would delay the update, which had originally been slated to take effect on July 26, 2018. Some in the food industry had advocated for 2021, or a date that would line up with USDA’s coming GMO disclosure rules.
— FDA updates guidance on hurricanes, floods and food. FDA released info on how it is helping farmers determine what their next steps should be if their fields of produce or rice were affected by floodwaters. Link for details.
— Some truckers won’t keep on truckin’. Truckers starting in December must submit to having their time behind the wheel recorded electronically. So-called “e-logs” will be required. Proponents say it will make it easier to enforce limits on hours behind the wheel and that most big fleets have been using e-logs for years. But small operators argue they can’t afford to spend up to $1,000 per vehicle to outfit their trucks with electronic logs, or pay monthly service fees, the Wall Street Journal reported.
Some owner-operators say they’ll get out of the business when the new rules kick in, potentially taking trucks off the road just as an improving economy is driving up freight demand. Regulators are trying to head off this threat by easing truckers into the new regime: while log-less drivers can be fined starting in December, they won’t be pulled off the road until April.
— Congress has found a $10 billion ATM. Lawmakers of both parties have found a secret stash of money that can be tapped to fund their pet projects, the Congressional Quarterly notes. A building fund managed by the government’s landlord, the General Services Administration, collects billions of dollars in rent that is supposed to be used to fund repairs of aging federal facilities. But most of the money sits unspent, since Congress has been unwilling to devote large sums of discretionary funding to building repairs. As a result, the building fund continues to grow each year, with a current balance of about $10 billion. “That makes for an enticing piggy bank for lawmakers looking for some extra cash,” CQ reported.
Tapping the ATM. In the omnibus spending package the House passed Thursday, lawmakers approved at least four amendments that took money from the building fund to finance other initiatives. The amendments, sponsored by Republicans and Democrats alike, called for taking millions of dollars from the fund to help combat drug trafficking and aid small businesses.
— Senate Ag panel focus on SNAP federal bonuses. Leaders of the Senate Agriculture Committee said the 2018 Farm Bill could modify or eliminate federal bonuses that may have led at least two states to manipulate food stamp data in order to win a share of the funds. Chairman Pat Roberts (R-Kan.) and ranking member Debbie Stabenow (D-Mich.) said they were troubled by testimony from the USDA Office of Inspector General that a “significant number” of states may have skewed information on underpayment and overpayment of food benefits to people on the Supplemental Nutrition Assistance Program, or SNAP, to achieve low error rates. In April, the Justice Department announced that Virginia and Wisconsin would each pay the federal government a $7 million fine for violating the False Claims Act. Error rates include underpayments and overpayments to beneficiaries.
“That’s unacceptable. We can’t have states gaming the system,” Roberts said during a hearing Thursday to review nutrition programs as lawmakers prepare to update the 2014 Farm Bill.
Roberts and Stabenow stressed that the $70 billion-a-year program is a good program that helps more than 40 million low-income people feed themselves and their families.
— Democrats oppose WOTUS repeal. Twenty-one members of the Senate Democratic caucus urged EPA Administrator Scott Pruitt and the Army Corps of Engineers in a letter released Thursday to reconsider plans to scrap the Obama administration’s Waters of the U.S. (WOTUS) regulation. “For an administration to change the definition of what constitutes a water of the United States almost immediately upon entering office creates more, not less, regulatory uncertainty,” they wrote. “We need stability and certainty for our constituents to be safe and our economy to grow.”
— Cotton AWP lower; special import quota #21 announced. The Adjusted World Price (AWP) for cotton fell to 63.27 cents per pound, effective today (Sept. 15), down from the prior week. Meanwhile, USDA said it will establish Special Import Quota #21 for Upland Cotton for 12,798,043 kilograms (58,780 bales) of upland cotton. Quota number 21 will be established as of September 21, 2017, and will apply to upland cotton purchased not later than December 19, 2017, and entered into the U.S. not later than March 19, 2018.
Other news of note...
— Venezuela is telling oil traders it will no longer receive or send payments in dollars as the country looks to sidestep U.S. sanctions.
— No DACA deal. House Speaker Paul Ryan (R-Wis.) and top Republicans pumped the brakes on talk of an immigration deal between Trump and Democrats. Ryan said, “These were discussions, not negotiations. ... There isn’t an agreement.” President Trump specified that the legislation must be accompanied by a “massive” border security upgrade. He added that the package did not need to include funding for a wall.
— Trump blasts Sanders’ Medicare-for-all plan. President Trump called Sen. Bernie Sanders’ (I-Vt.) proposed plan to eventually have Medicare cover the health-care needs of all Americans “a curse on the U.S.,” that he promised to veto, if need be. Trump’s comment came in two tweets, a day after Sanders rolled out his “Medicare for All” plan.
— China and bitcoin. A senior executive at China’s state-backed internet finance body says “stateless” digital tokens such as bitcoin posed risks as they could be used for illegal actions, and rules are needed to support the development of “legal” digital currencies. The cryptocurrency traded down another 11% overnight as major Chinese exchange BTCChina announced it will stop all trading from Sept. 30. It has now plunged nearly 40% since its September 1 peak. China now wants a regulatory framework to support digital tokens. Li Lihui, a senior official at the National Internet Finance Association of China and former president of the PBOC, further said that global regulators should work together on digital currencies.
— Phillips 66 chartered a Marshall Islands-flagged ship to help meet fuel shortages resulting from Hurricanes Harvey and Irma. The energy producer took advantage of a temporary waiver of the Jones Act, which ordinarily requires the use of U.S.-flagged ships for transportation between U.S. coasts.
— China poultry processing inspection. Food Safety News looks at how the Food Safety and Inspection Service released its final audit of China’s poultry processing inspection system, which found it equivalent to the standards that exist in the U.S. Link to article.
— Portman explains his flip-flop on trade agreements. Sen. Rob Portman (R-Ohio), a former U.S. trade representative, acknowledged in a BuzzFeed interview his own shift on trade, noting that despite his former stance as an unabashed free-trader, he came out against the Trans-Pacific Partnership last year and wants to see substantial changes to NAFTA. Link to article. Meanwhile, Portman joined Ohio’s other senator, Democrat Sherrod Brown, in calling on Commerce Secretary Wilbur Ross to wrap up his department’s Section 232 investigations examining whether to limit imports of steel and aluminum on the basis of national security. The reports had initially been expected at the end of June but have since been put on hold indefinitely. That has led to a “corresponding surge of steel imports entering the U.S. market,” Brown and Portman wrote in their letter to Ross. “Unfortunately, since the Commerce Department began the investigation, import volumes have increased even more as foreign producers seek to export steel product to the U.S. before the administration imposes any Section 232 remedies,” the senators wrote.
— President Trump spoke with Mexican President Enrique Peña Nieto on Thursday to give condolences after a massive earthquake hit the country a week ago, and he blamed poor cell service as the reason why it took so long for the two leaders to connect.
— South Korea ‘ready to cooperate’ with U.S. on trade pact. While South Korea and the U.S. are stalled on talks over their five-year-old bilateral free trade deal, Seoul’s trade minister said his team plans to “gradually negotiate” as “both sides maintain awareness of each other’s needs.”
— U.S. ‘deeply skeptical’ WTO can solve world’s ag woes. Trump administration officials said they remain “deeply skeptical” that 2017 will be the year that the World Trade Organization (WTO) resolves the divisive agricultural debates that have bedeviled its trade negotiators for decades. Prospects remain slim for any sort of multilateral agricultural agreement this year, with less than three months until the WTO’s biennial ministerial in Buenos Aires, the U.S. said during a Sept. 13 meeting in Geneva.
— Brazilian President Michel Temer has been charged with obstruction of justice and racketeering, related to the plea-bargain testimony by executives at JBS, the world’s largest meatpacker. It will now be up to the lower house of Congress to vote on whether or not the president should stand trial before the Supreme Court.
— Sen. Klobuchar proposes higher bar for mega-mergers. Sen. Amy Klobuchar (D-Minn.) introduced two bills intended to “modernize” antitrust enforcement, including a proposal to require big merging companies to prove their tie-ups won’t harm competition. Meanwhile, the panel that screens foreign investment in the U.S. for national security reasons could be missing risky transactions because of a lack of resources, the Senate Banking Committee chairman. Sen. Crapo, said Sept. 14.
— Equifax scrutiny widens as FTC opens probe into data breach. The Federal Trade Commission said it is investigating the data breach at Equifax Inc., deepening government scrutiny of the cyberattack that may have compromised the privacy of 143 million U.S. consumers. The FTC probe adds to a string of state and federal investigations.
— Ontario might retaliate if U.S. implements Buy American policies favored by Donald Trump, the Toronto Star reported.
— Markets: U.S. stock futures, along with equity markets in Europe, were under slightly pressure this morning after an explosion at a London train station, which was being investigated as a “terror incident,” and another North Korean missile test. On Thursday, the Dow closed at another record high, and was on pace for its best weekly gain in nearly five months. The 10-year Treasury yield was at 2.202% and a barrel of West Texas Intermediate for October delivery was trading unchanged at $49.89.
Light, sweet crude out of Canada and North Dakota have surged to their highest levels in over four years, as Midwest and East Coast refiners bid heavily for the grades following Hurricane Harvey. The shutdowns in the U.S. Gulf have had a twofold effect on Midwest refineries: It pushed WTI to its lowest point against Brent crude in two years, cheapening Bakken and Canadian grades, and has also boosted refining margins.
