North Korea | Next Fed leader | Inflation | Harvey impacts | Trucking costs soar | White House reverses on KORUS | GMO label study | DDGs | Hurricane Irma | Trump deals with Dems | Ag trade | Soymilk | Menendez trial opens | Amazon | Deere and robots
— North Korea update. If the United Nations does not put additional sanctions on North Korea, U.S. Treasury Secretary Steve Mnuchin said he has an executive order ready that would impose penalties on any country that trades with Pyongyang.
— Cohn now seen as unlikely pick to be Fed chairman: WSJ. President Trump is unlikely to nominate Gary Cohn as the next Federal Reserve chairman, adding to uncertainty over the central bank’s leadership and policies next year, the Wall Street Journal reported. Trump told the newspaper in July that he was considering Cohn as a potential successor to Fed Chairwoman Janet Yellen, whose term as central bank chief expires in early February. Fed Vice Chairman Stanley Fischer said Wednesday he will resign in mid-October for personal reasons, adding another vacancy to the three others on the seven-member Fed board of governors. The shift in Cohn’s prospects for the top Fed job arises largely from his criticism of Trump’s response to the violence in Charlottesville, Va., people familiar with the matter told the WSJ. Trump has told people that he is impressed with Yellen, leaving them with the sense he might ask her to serve another term.
If Yellen is not renominated, it would mark the first one-term Fed chair in years.
Other names that have been discussed by Trump and his team as possible nominees to top Fed posts include former governors Lawrence Lindsey and Kevin Warsh, former BB&T Bank chief executive John Allison, and Stanford University economist John Taylor, according to people familiar with the discussions.
Kevin Warsh, an economic official in the George W. Bush White House, and member of the Fed board from 2006 until 2011, is currently leading the pack of possible replacements, according to some Fed watchers.
— Beige Book update notes continued flat inflation. Several Federal Reserve districts mentioned a lack of inflation – steady prices – in their recaps released in the Beige Book report, the economic snapshot released two weeks prior to the conclusion of the Federal Open Market Committee. However, the overall summary on prices said, “Prices rose modestly overall across the country.” Wages are still not moving a lot as the update noted “limited wage pressures and modest to moderate wage growth.” So it appears the Fed will be still be grappling with the issue of inflation when it meets September 19-20 and will also have another hurricane to consider. Since no monetary policy shifts are expected, the start of the balance sheet trim, updated economic forecasts and the post-meeting press conference by Fed Chairwoman Janet Yellen will be the focal points.
— Fed note on Hurricane Harvey. The Beige Book did acknowledge the storm which hit areas of the Texas coast as the data was collected before August 28. “Hurricane Harvey created broad disruptions to economic activity along the Gulf Coast in the Dallas and Atlanta Districts, although it was too soon to gauge the full extent of the impact. Many firms and organizations in the affected areas closed due to flooding. A fifth of the oil and natural gas production in the Gulf of Mexico was offline, and many onshore producers in the Eagle Ford region temporarily stopped production. Harvey also affected fuel and petrochemical production, forcing fifteen refineries in the region to shut down temporarily and several others to operate at reduced capacity. Some areas experienced gasoline shortages, and supply was expected to remain tight in the Southeastern United States because of pipeline disruptions. Contacts in the Richmond District indicated that spot freight prices jumped after the storm, as freight was being redirected around the country. The Port of Charleston expected increased volumes in coming weeks as freight traffic is routed away from the Port of Houston.”
— Trucking costs in the U.S. Gulf Coast region are surging in the wake of Hurricane Harvey, the Wall Street Journal reported, as rigs get diverted to the Texas recovery effort and another storm approaches the Florida coast. The spot-market price to ship on a tractor-trailer from Dallas to Houston jumped 66% in the past week, according to online load board DAT Solutions LLC, the result of high demand for relief supplies and the severe imbalance of serving a region that’s producing little to pay for return trips.
Diesel fuel prices also are rising fast because of shortages caused by the shutdown of refineries and delivery networks. Freight operators should get a boost as demand for construction materials grows with the rebuilding effort.
As for Irma, Freight railroads are working under a rail emergency situation and ports as far north as Savannah, Ga., are prepared to shut down if the storm turns up the coast.
— White House said to assure KORUS exit off table: Inside U.S. Trade. The White House “has assured key lawmakers that its threat to begin withdrawing from the U.S.-Korea Free Trade Agreement has - for now - been taken off the table,” Inside U.S. Trade reported, citing unnamed sources.
— Study on GMO labels released. USDA has until July of next year to issue a rule implementing the law that Congress passed in 2016. A study conducted for USDA by consulting firm Deloitte said consumers will have trouble using the codes, both because of the difficulty of using the available cell phone apps and because of inadequate broadband access. Alternative methods of reading GMO labels were suggested in the report, including the type of text messaging that some transit riders use to get information about train and bus arrival times. USDA also should consider developing or endorsing consumer-friendly apps, the report concluded. Link to study.
USDA acknowledged much of what most probably knew — technology is a key to relaying the information, but technology itself presents a challenge. The availability of Internet/broadband and/or Wi-Fi networks, especially in rural areas, is one of the keys.
The three conclusions reached in the study are that “Education for consumers and retailers around electronic and digital disclosure links and bioengineered foods will improve access and understanding,” the report said. “Offline options, such as those that provide the bioengineering disclosure through phone or text message, will increase access for consumers who lack smartphones or broadband access.” And their final point is that “Developing or endorsing user-friendly scanner apps will ease the consumer experience.” They also note that technology will continue to change, “resulting in shifting retailer and consumer adoption. Thoughtful action can help to make sure that consumers are able to use such methods to effectively access food information.”
— Vietnam reopens its market to U.S. DDGs. Vietnam has notified the U.S. it will resume imports of U.S. distillers dried grains (DDGs) after having suspended its imports of the U.S. product in December 2016, USDA and the Office of the U.S. Trade Representative (USTR) announced Wednesday. Prior to the Dec. 2016 action, Vietnam was the third largest market for U.S. DDGs with shipments of more than $230 million in 2016. Vietnam halted the imports after it reported quarantine pests in shipments.
Besides DDGs, the two U.S. agencies said this also opens the way for corn and wheat shipments, which were restricted due to previous treatment requirements.
The DDG issue was among those raised by President Donald Trump when Vietnamese Prime Minister Nguyen Xuan Phuc visited Washington in May along with USDA Secretary Sonny Perdue and USTR Robert Lighthizer. Following the series of meetings, the two governments released a joint statement pledging to work closely together to resolve the DDGS issue, USTR said. Technical discussions have been taking place since the December 2016 action by Vietnam with USDA’s Animal and Plant Health Inspection Service (APHIS) engaged in technical discussions with Vietnam’s Ministry of Agriculture and Rural Development regarding alternative treatment options that would allow U.S. exports to resume. APHIS and USDA’s Foreign Agricultural Service (FAS) and Federal Grain Inspection Service then partnered with industry to host a delegation of Vietnamese officials to view the U.S. fumigation and export infrastructure, USTR and USDA said in the announcement. USTR, FAS, and U.S. Embassy officials also met with their counterparts in Vietnam.
— Irma lashes the Caribbean as Florida awaits. The hurricane, one of the most powerful storms ever recorded, left chaos from Barbuda to Puerto Rico and is headed west to other islands today. At least 11 deaths have been reported. The storm is expected to reach Florida on Sunday. “I cannot stress this enough,” Gov. Rick Scott said on Wednesday. “Do not ignore evacuation orders.” Link to Irma’s projected path.
The track that powerful Hurricane Irma will take remains a key focus ahead as the storm rolls through Caribbean islands and appears to be on a path to hit the eastern coast of Florida and roll up into South Carolina. That is the latest guidance from the National Hurricane Center (NHC), but they also caution the further out in the forecast, the greater the variance can be on the path – NHC track errors at day three is 120 miles, day is 175 miles and day 5 is 225 miles. The storm is expected to turn northward from its current location, but NHC cautions, “The timing of the turn is the most important question and one still filled with uncertainty.” The storm is currently a Category 5 storm but is forecast to be a Category 4 storm when it arrives in Florida, provided it does arrive in Florida.
“Irma is increasingly likely to target parts of the Florida peninsula as a dangerous hurricane this weekend,” according to the Weather Channel (link). “Parts of Georgia and the Carolinas could then be struck by Irma early next week.”
Most Florida flood zone property not insured, the Associated Press reported (link). “In just five years, the state’s total number of federal flood insurance policies has fallen by 15%... With 1,350 miles of coastline, the most in the continental United States, Florida has roughly 2.5 million homes in hazard zones, more than three times that of any other state, FEMA estimates. And yet, across Florida’s 38 coastal counties, just 42 percent of these homes are covered.”
Gas shortages loom, orange juice futures traded near their highest since May before stabilizing, and reinsurance companies could take a big hit as primary insurers have reduced exposure to Florida in recent years, according to analysts. U.S. airlines are capping ticket prices for passengers fleeing the hurricane.
— Trump makes a deal with Democrats. President Trump bypassed members of his party on Wednesday, reaching an agreement with congressional Democrats to increase the debt limit and to finance the government until mid-December. GOP conservatives were very upset as were Republican leaders. Trump later confirmed that a continuing resolution and suspension of the debt limit until Dec. 15 would be added to the $7.85 billion Hurricane Harvey emergency aid bill (the House voted 419-3 on Wednesday to send the emergency spending package to the Senate.) “We have a very good meeting with Nancy Pelosi (D-Calif.) and Chuck Schumer (D-N.Y.),” he said.
“Democrats got exactly what they wanted. It is a for a three-month CR, three-month debt ceiling to come due a few days before Christmas, which gives them the greatest leverage in the world to get exactly what they want,” House Freedom Caucus Chairman Mark Meadows (R-N.C.) said.
Congressional Republican leaders were initially silent about the agreement but it hours after House Speaker Paul Ryan (R-Wis.) sharply criticized a proposal from Schumer and Pelosi that would have had Congress extend the debt limit for three months by attaching legislation to the Harvey emergency aid bill. “We’ve got all this devastation in Texas. We’ve got another unprecedented hurricane about to hit Florida. And they want to play politics with the debt ceiling,” Ryan said. “I think that’s ridiculous and disgraceful that they want to play politics with the debt ceiling at this moment when we have fellow citizens in need.”
Senate Majority Leader Mitch McConnell (R-Ky.) said he plans to offer the CR and the debt limit suspension as an amendment to the Harvey aid package. “The President agreed with Sen. Schumer and Congresswoman Pelosi to do a three-month CR and a debt ceiling into December. And that’s what I will be offering based on the President’s decision,” McConnell said. Republican leaders had tried to get an 18-month debt limit extension. They also proposed six months before Trump agreed to the three-month extension put forward by Schumer and Pelosi.
Some congressional watchers say tax reform is now less likely, with trust ruptured between Trump and Republican Hill leaders. However, a White House source said in making the deal with the Democrats, the president was trying “clear the decks” for tax reform.
Meanwhile, Trump is hosting the entire Cabinet at Camp David this weekend, according to CNN which said it has “learned that the president will host the members of his Cabinet at the secluded government-owned retreat in Maryland starting Friday. They are expected to discuss a wide range of issues, spanning from the administration’s legislative strategy for tax reform to the growing nuclear crisis in North Korea.”
— U.S. ag exports fell less than imports in July. Exports of U.S. agricultural products declined to $10.40 billion in July, compared to $10.42 billion in June, while imports slipped to $9.68 billion for the month compared to $9.97 billion in June, according to USDA’s Latest U.S. Agricultural Trade Data update.
The shifts in imports and exports still resulted in U.S. agriculture registering a trade surplus for July of $718 million, up from $449 million in June.
This brings cumulative U.S. agricultural export values to $119.71 billion so far in FY 2017 compared to $107.33 billion at this point in Fiscal 2016 while imports now total $99.86 billion compared to $94.76 billion through July of Fiscal 2016. The cumulative trade surplus is at $19.85 billion compared to $12.57 billion.
USDA in August adjusted its trade forecasts for Fiscal 2017 to $139.8 billion and imports to $116.2 billion for a surplus of $23.6 billion.
This marks the fourth consecutive month with a trade surplus of under $1 billion, including the May trade deficit of $16.8 million. In fiscal 2016, the U.S. registered five months with a trade deficit under $1 billion, including two monthly trade deficits while there were six months under $1 billion in FY 2015. In order to meet USDA’s updated forecasts for FY 2017, U.S. agricultural exports need to average $10.1 billion while imports need to just average $8.17 billion. The value of U.S. agricultural imports was under $9 billion in FY 2016 three months and fourth months in FY 2015.
— Dairy confronting ‘soymilk’. Dairy groups are squaring off against soy, almond, and rice producers on legislation that would prohibit use of such terms as “milk” or “ice cream” in a product name, such as “soymilk,” if the product isn’t from a hooved animal. The DAIRY PRIDE Act was introduced in January by two dairy-state lawmakers, Rep. Peter Welch (D-Vt.) and Sen. Tammy Baldwin (D-Wis.). The identical bills (HR 778, S. 130) are in committee, where no action has been taken.
The DAIRY PRIDE Act would accomplish what the dairy groups have been unable to get through lobbying the FDA on the matter. Eleven entities have lobbied on the measure this year, with dairy interests significantly outspending the plant-food side, according to a Bloomberg Government analysis. Doug DiMento, a spokesman for Agri-Mark Inc., a dairy co-op, told Bloomberg BNA that the industry hopes this legislation is included in a vehicle such as the 2018 farm bill if it doesn’t advance as a stand-alone measure.
— Prosecutors opened the corruption trial of New Jersey Democratic Sen. Robert Menendez saying he “sold his office for a lifestyle he couldn’t afford” to achieve favors for campaign donor Salomon Melgen. Menendez is accused of illegally using his influence on behalf of the Florida opthamologist.
— You think distribution is not a growth market? Consider this: Amazon has opened a search for a second headquarters and will spend more than $5 billion and add as many as 50,000 jobs.”
— Deere is bringing robots to the farm with the acquisition of Blue River Technology for $305 million. The startup makes “see-and-spray” robots that affix to tractors. They use computer vision to identify plants in the field in need of fertilizer, pesticides or other costly “inputs” used to manage crops. Blue River Technology, based in Sunnyvale, California, is a leader in applying machine learning to agriculture. “We welcome the opportunity to work with a Blue River Technology team that is highly skilled and intensely dedicated to rapidly advancing the implementation of machine learning in agriculture,” said John May, President, Agricultural Solutions, and Chief Information Officer at Deere. “As a leader in precision agriculture, John Deere recognizes the importance of technology to our customers. Machine learning is an important capability for Deere’s future.”
— Markets watching ECB, North Korea, Hurricane Irma. The dollar hit a two-year low, while the euro rose to the strongest level in more than a week as stocks in the region struggled for direction ahead of the ECB meeting. Tensions over North Korea, Hurricane Irma and the clouded outlook for American monetary policy also threaten to outweigh positive sentiment from the U.S. debt extension in today’s trading session.
