North Korea | Budget, aid, debt limit bill to White House soon | Hurricane Irma | Earthquake in Mexico | Trump poll | Perdue breakfasts with Ag panel leaders | USDA reorg | Federal Reserve | Ethanol and Brazil | Dicamba | Cotton AWP | China economy | Markets
— South Korea is closely watching North Korea over the possibility it may launch another intercontinental ballistic missile as soon as tomorrow when it celebrates its founding anniversary. North Korea has previously marked key dates with displays of military power, but now its tests appear to be driven by the need to improve missile capabilities.
— Budget, hurricane aid and debt limit suspension bill will be on the way to the White House soon. The Senate Thursday passed, 80-17, a stopgap spending, $15.25 billion in hurricane aid and debt ceiling relief package, with the House poised to give final approval today. The Senate package includes a suspension of the debt limit through Dec. 8 and a stopgap funding measure, through Dec. 8, to avoid a government shutdown when the new fiscal year begins on Oct. 1. The House is set to give final approval to the package (HR 601) today, clearing the way for President Donald Trump’s signature.
The hurricane aid in the package amounts to only a small amount of the money that will be needed to rebuild the coasts. The price tag of Harvey alone could top $100 billion, Texas officials have said. Around half of the funds replenish the Federal Emergency Management Agency’s accounts, so it can continue to clean up from Hurricane Harvey and help contend with Irma’s potential damage. A portion of the funds go to the Small Business Administration loan program to get affected businesses back on their feet. A proposal was offered by Majority Leader Mitch McConnell (R-Ky.) and was incorporated into the bill, adding $7.4 billion in Community Development Block grants — intended to help recovering neighborhoods build infrastructure and affordable housing, as well as combat poverty.
The bill includes a three-month extension of the Pesticide Registration Improvement Act (PRIA), which authorizes user fees that fund EPA’s regulatory work. The existing law is set to expire at the end of this month. Lawmakers are still working on a long-term extension. The package also includes a three-month extension of the National Flood Insurance Program, which would otherwise expire on Sept. 30.
House Speaker Paul Ryan (R-Wis.), who was surprised by an agreement he had denounced as “ridiculous” and “unworkable” just hours before it was announced, tried to ease an intra-party rift between some GOP lawmakers and President Trump. “What he was aiming for in that meeting yesterday was a bipartisan moment while the country is facing two horrible hurricanes,” Ryan said, in explaining Trump’s decision to back the Democratic three-month stopgap plan. But Ryan also made clear his opposition to such short-term suspensions of the debt limit, saying, “We can’t keep doing it that way” without unnerving the credit markets. “I think stability and longevity are key,” he said.
Trump continued his new partnership with the Democrats because at Rep. Nancy Pelosi’s request (D-Calif.), he tweeted that DACA recipients shouldn’t worry about their status in the six months before the program ends. “No action!” he promised.
Meanwhile, House Majority Leader Kevin McCarthy (R-Calif.) announced Thursday night that work on the GOP’s eight-bill 2018 spending bundle has been postponed until next week, citing the impending landfall of Hurricane Irma.
— Harvey victims to get U.S.-produced food aid: Perdue. Families impacted by Hurricane Harvey will get meal packages with food that is 100% grown and produced on U.S. farms, USDA said. The Disaster Household Distribution program is a “short-term measure that is designed to address an immediate need for food until a long-term solution is ready to be put in place,” USDA Secretary Sonny Perdue said in a statement. The program is expected to last as long as four weeks and will serve upwards of 20,000 households, per a request by the state, according to reports.
The program was approved to begin today (Sept. 8), and there are plans to work directly with the Feeding Texas food bank organization and other local food banks to issue food boxes to participants located in presidential declared disaster areas.
Background. The Disaster Household Distribution program comes into play when commercial food supply outlets like grocery stores are not available. Food banks are supposed to use their food pantry network to distribute the food. The boxes will contain 25-30 pounds of USDA foods and will be based on existing shelf-stable items, said the press release.
USDA will continue replacing food for the Disaster Household Distribution as needed so the state has USDA food readily available “for those in need.”
USDA also has approved a waiver to allow all disaster-affected schools to provide meals to all students at no charge and a request by Texas officials to waive the Supplemental Nutrition Assistance Program (SNAP) regulations to allow program participants to buy hot foods and hot ready-to-eat foods with their benefits.
— Trump’s poll numbers may surprise you. A WSJ/NBC poll finds that President Trump has 98% approval with Republicans who voted for him in both the primary and the general. Link for details.
— New farm bill on agenda as Perdue held a breakfast with Ag panel leaders. USDA Secretary Sonny Perdue on Thursday hosted House Ag Chairman Mike Conaway (R-Texas) and Senate Ag Chairman Pat Roberts (R-Kan.). Issues relating to the upcoming new farm bill debate and pending USDA nominations were discussed. Perdue briefed the legislators on the reorganization plan he announced later in the day, which includes combining the Agricultural Marketing Service with the Grain Inspection, Packers and Stockyards Administration.
— Additional USDA reorganization efforts announced. The U.S. Codex Office will be moved from the Food Safety and Inspection Service to the Undersecretary for Trade and Foreign Agricultural Affairs (TFAA), according to an announcement from USDA. The International Food Commodity Procurement program that is currently under the Farm Service Agency will be moved to merge with the domestic Commodity Food Procurement program under the Agricultural Marketing Service (AMS). This will put all of USDA’s commodity procurement efforts in one place. Also, the Undersecretary for Farm Production and Conservation (FPAC) is currently undertaking a customer engagement review “to better understand what is working and what needs improvement so that USDA can best support farmers and producers today and in the future,” USDA said.
— Inspection activities also to be consolidated at USDA. Commodity grading and inspection will now be brought under one area, with the Grain Inspection, Packers, and Stockyards Administration (GIPSA) to be merged into the Agriculture Marketing Service (AMS). Currently, GIPSA and AMS both carry out grading activities and work to ensure fair trade practices. The new structure will contain a program area composed of the Perishable Agricultural Commodities Act Program and the Packers and Stockyards Program, as well as some other regulatory activities AMS is currently directed to carry out. In addition, this new program area will have the responsibility to carry out Warehouse Act functions currently being provided by FSA. The grain inspection activities will become a separate program area in AMS.
— Hurricane Irma still tracking toward Florida. As of early this morning, the U.S. National Hurricane Center (NHC) said Irma’s maximum sustained winds have decreased to near 155 mph, making it a Category 4 storm, down slightly from a Category 5. The hurricane center said some fluctuations in strength are likely over the next day or two but Irma is expected to stay a Category 4 storm. Irma is moving toward the west-northwest near 16 mph (26 km/h), according to the NHC, and is expected to continue that way for the next day or so with a decrease in forward speed.
“A turn toward the northwest is expected by late Saturday,” NHC said. “On the forecast track, the eye of Irma should continue to move westward away from the Turks and Caicos Islands and toward the southeastern Bahamas this morning. The core of the hurricane will then move between the north coast of Cuba and the Bahamas during the next day or two, and be near the Florida Keys and the southern Florida Peninsula Sunday morning.” Current maximum sustained winds are near 155 mph (250 km/h) with higher gusts. “Some fluctuations in intensity are likely during the next day or two, but Irma is forecast to remain a powerful category 4 hurricane during the next couple of days,” NHC said. “There is a chance of direct impacts in portions of Georgia, South Carolina, and North Carolina, but it is too early to specify the magnitude and location of these impacts.”
“Every Florida family must prepare to evacuate,” said Florida Gov. Rick Scott as Hurricane Irma, one of the most powerful storms ever recorded, left a path of devastation through the Caribbean and headed toward his state. There were already shortages of gas, water and sandbags. The death toll from Irma — at least seven — is expected to rise. Link to Irma’s projected path.
“Worst case scenario now possible for Florida,” according to the Weather Channel: “Hurricane Irma, a potentially catastrophic Category 4 hurricane, is now hammering parts of the Bahamas and Cuba, and will turn its fury on Florida in what is likely to be the state’s strongest hurricane strike since Charley 13 years ago.” Link for details.
From the Associated Press (link): “They call it the Big One — a mythic, massive hurricane that would obliterate the densely populated southeast coast. ... Irma, it appears, could be it. The storm has triggered near-panic in a region of more than 6 million people that includes Miami, Fort Lauderdale and West Palm Beach, clustered along a narrow ribbon of coastline that has seen nearly double-digit population growth over the past five years.”
Irma is threatening $1.2 billion of crops in the third-most populous U.S. state. Florida farmers are moving livestock and securing anything that could blow away in advance of Hurricane Irma — link to Reuters item. And other states are bracing for possible impacts as Irma may make its second U.S. landfall next week somewhere near Savannah, Georgia, and Charleston, South Carolina, experts noted.
EPA Administrator Scott Pruitt, seeking to ensure there’s enough fuel for Florida as Hurricane Irma approaches, on Thursday extended a fuel waiver for summer reformulated fuel requirements for 38 states through Sept. 30. Gov. Scott said the state was working to mitigate any potential fuel shortages. “While we are making progress, you will see lines and outages, unfortunately,” he added. “I know this is frustrating. We are laser-focused on how we get as much fuel as possible to our ports while they remain open.”
Pruitt also told CNN Thursday now is not the time to discuss whether climate change has exacerbated these hurricanes. “To have any kind of focus on the cause and effect of the storm; versus helping people, or actually facing the effect of the storm, is misplaced,” he said. Instead, the focus should be on ensuring access to clean water and protecting Superfund sites, among other issues, he said. His comments echo those made by Energy Secretary Rick Perry last week.
— Hurricane Irma impacting logistics, as expected. Shipping operations along the coast are shutting down. The event has disrupted shipping operations as it barreled across Caribbean islands. The storm is hitting oil tanker movements, with transshipment hubs in the Caribbean shut down. Maersk Line and Mediterranean Shipping Co. said at least 10 vessels would drop or delay calls to several ports. The biggest ports in the southeast, Savannah, Ga., and Charleston, S.C., face shutdowns this weekend, with Savannah already set to close after Georgia’s governor ordered the entire coastal region evacuated, according to the Wall Street Journal.
— An earthquake of magnitude 8.1 struck off the southern coast of Mexico late Thursday, killing at least six people and triggering small tsunami waves but no major destruction. Mexico’s president said the quake was the biggest to strike the country in 100 years, larger even than a huge temblor that struck in 1985, killing thousands.
The quake is a potential tsunami threat to several countries in Central America, including Guatemala, Honduras, El Salvador and Costa Rica, according to the Pacific Tsunami Warning Center.
— Senate panel clears Quarles to be Fed governor. Randal Quarles won approval by the Senate Finance Committee to be a Fed governor and the first vice chairman for supervision at the U.S. central bank. The vote was 17-6, signaling he could face limited opposition in the full Senate. Quarles will replace former Fed governor Daniel Tarullo, who served unofficially as the Fed’s top bank regulator, however Quarles is expected to take a less-harsh approach with Wall Street firms. Quarles will serve a four-year term as the vice chairman for supervision and was also approved for a term as Fed governor that will end in 2032.
— Cleveland Fed’s Mester still sees gradual rate-rises ahead. Even though inflation remains stubbornly low, Cleveland Fed President Loretta Mester said she still sees a gradual path for interest rate increases ahead. She acknowledged it may take “somewhat longer” for inflation to reach the Fed’s two-percent goal, but she said the recent low inflation readings “reflect supply-side factors and relative price changes.” Mester also backed starting to reduce the size of the Fed’s balance sheet, signaling she backs such a start “in the near future.”
— U.S. ethanol groups want Trump to intervene in Brazil dispute. U.S. ethanol producers will ask the Trump administration to intervene in a trade dispute with Brazil as tensions between the industry and foreign competitors continue to escalate. The U.S. exported 277 million gallons of ethanol to Brazil in 2016, a sharp rise from the previous year, according to Energy Information Administration.
The Renewable Fuels Association, Growth Energy and the U.S. Grains Council said in a statement Thursday that the government should “take immediate action and consider all avenues to encourage Brazil” to revoke or at least ease the 20% tariff on ethanol imports from the U.S. it announced last month. The groups are drafting a letter that they plan to send to USDA and the U.S. Trade Representative, requesting the agencies consider the tools that they have under World Trade Organization (WTO) rules. More than $750 million in U.S. exports and jobs are at stake, the groups said.
The move comes two weeks after the U.S. Commerce Department proposed duties on biodiesel imported from Indonesia and Argentina, claiming producers in those countries benefit from state subsidies. Earlier this year, China slapped tariffs on U.S. ethanol and a byproduct that’s used as animal feed.
The Brazilian ethanol duty applies to imports from the U.S. in excess of an annual cap of 600 million liters (158 million gallons). Brazil’s own ethanol industry uses sugarcane, of which it’s the largest grower.
Meanwhile, Argentina is trying to strike an accord to suspend the preliminary duties set by the U.S. on biodiesel, Horacio Reyser, the Foreign Ministry’s international secretary, said, according to reports. But any deal would have to be approved by U.S. producers.
Separately, the European Union confirmed Thursday it’s slashing antidumping duties on imports of Argentine biodiesel, in line with a ruling from the WTO.
As for U.S. ethanol and the RFS, EPA Administrator Scott Pruitt has set off an ethanol industry debate about lifting the volume requirement beyond the 15-billion-gallon conventional biofuel limit established under the Renewable Fuel Standard (RFS). Pruitt told Radio Iowa last month that he would consider going beyond the limit set by Congress if biofuel volumes are reset in two years’ time.
— Monsanto filed a petition with the state of Arkansas, seeking to remove a ban on the herbicide dicamba that is scheduled to take effect next April 15. Dicamba has been linked to crop damage, but Monsanto calls the ban “unwarranted and misinformed.”
Monsanto petitioned the state’s Plant Board and sent a letter to Gov. Asa Hutchinson calling for him to reject a state task force’s recommendation that use of dicamba be banned after crops have emerged from the soil. In the letter, Monsanto Chief Scientist Robb Fraley pushed back against Arkansas’ efforts to regulate the chemical beyond what the EPA has required. The state was the only one that did not permit the in-crop use of Monsanto’s low-volatility dicamba formulation XtendiMax in 2017, a decision Fraley said was arbitrary. While the EPA signed off on the chemical in 2016, “the Plant Board subsequently adopted a rule preventing its in-crop use within the state based on the absence of ‘required’ University of Arkansas research data. The Plant Board’s decision was (and is) arbitrary and capricious because the administrative record shows that no such requirement ever existed-and still does not exist.” Link to letter. Link to petition.
— Cotton AWP jumps; cotton import quota #20 announced. The Adjusted World Price (AWP) for cotton rose to 64.13 cents per pound, effective today (Sept. 8), up from 61.85 cents per pound the prior week. This the highest AWP since it was at 66.29 cents per pound the week of July 28.
USDA also announced special import quota #20 for upland cotton will be established September 14 for 12,798,043 kilograms (58,780 bales) of upland cotton and will apply to upland cotton purchased not later than December 12, 2017, and entered into the U.S. not later than March 12, 2018.
— China’s economic data is showing robust growth ahead of leadership changes and a key Communist Party meeting in October. August exports from the nation rose 5.5% from a year earlier, while imports expanded 13.3%, resulting in a trade surplus of nearly $42 billion. President Donald Trump will likely find this of note: China’s trade surplus with the U.S. jumped to $26.2 billion, the highest in almost two years.
Meanwhile, a new report from the U.S.-China Business Council outlined various ways the U.S. could boost exports with China. It also includes breakdowns by state and congressional district. Link for details.
— Markets: The U.S. dollar index is now at its lowest level since January 2015, slipping 0.54% at 91.16, and it has now fallen nearly 11% in 2017. The greenback is losing ground against both the yen and euro as a combination of factors weigh on investors’ minds: the impending landfall of Hurricane Irma, tensions over North Korea, the ECB’s indication it may taper its QE program, as well as a Fed rate hike that’s likely off the table for December.
Haven demand continues to fuel U.S. Treasuries, with benchmark yields plumbing a fresh 2017 low at 2.0144 percent before stabilizing while the dollar tumbled, as noted. The 10-year is at its lowest level since the election. The benchmark yield holds at 2.05%, a level it hadn’t seen since the day after President Donald Trump’s election victory. Gold headed for a third week of gains ahead of a potential North Korean missile launch, and the yen rallied 0.7% to 107.68 per dollar, the strongest in 10 months. The Stoxx Europe 600 Index is 0.14% lower. S&P futures point to a weak open.
