|Here is this week’s issue of Ag News Weekly. Prepared by Doane Advisory Services, this newsletter features news on developments in agriculture, markets and policy.
In this week’s Ag News Weekly:
|Developments in the Markets
Seasonal harvest pressure upon crop prices has recently been amplified by low water flows across the Mississippi River watershed, with limited shipments and soaring barge freight rates undercutting cash prices and the basis (cash minus futures). Corn seemed most affected, but soybeans and wheat also felt the pressure. However, soybean futures led a late-week bounce driven by news of persistent weather problems in major South American production areas. Although central Brazil has gotten rain lately, the region has been quite dry and looks set for more of the same in the near future. Meanwhile southern Brazil is dealing with excessive rains and northern Argentina is experiencing flooding.
The cotton market has recently traded weakly as the prospect of substantial increases to U.S. and global supplies weighed on prices. The price spike powered by Hurricane’s Harvey and Irma was essentially old news. But bulls jumped back into the market Wednesday when news that a tropical wave was organizing into Tropical Storm Nate. The system is expected to make landfall in southern Louisiana as Hurricane Nate early Sunday morning. It’s not seen as a particularly powerful storm, so its impact on the cotton crop in the Delta states seems likely to be limited.
The emergence of Tropical Storm Nate likely powered midweek gains in the petroleum product markets as well, with both R-BOB gasoline and heating oil futures posting sizable gains on Wednesday and Thursday. But those markets also backed away from their highs Thursday and continued declining in early-Friday trading. The bulls’ inability to sustain the advance, which fell well short of their mid-September highs, also points to easing supply conditions as the energy sector gets back up to speed in the wake of Hurricane Harvey.
Developments in Agriculture
Congressman Bob Goodlatte introduced the proposed Agricultural Guestworker Act into the House of Representative this week, but the next step of the process to passage has reportedly been delayed. The House Judiciary Committee Chairman’s plan to create an improved ag visa program was introduced as planned Tuesday, but industry sources indicated it did not go to the Judiciary Committee for markups as planned on Wednesday. The hearing in which the House Judiciary Committee would take action was postponed. The ag industry is supporting the bill in hopes of improving seasonal access to foreign guest workers legally in the U.S. Sources also stated that hopes to get the bill through both the House and the Senate by the end of the year seem unlikely to be fulfilled.
U.S. soybean exports to China will likely be delayed by at least two weeks, as suppliers are struggling to find enough high-quality beans to meet commitments, according to two trade sources cited by Reuters. Hurricanes Harvey and Irma compromised the quality of the early-harvested southern crops and Midwest supplies are flowing slowly to the Gulf due to low river levels, depressed grain and soybean prices and some lock and dam issues. The low water levels are forcing shippers to reduce loads in individual barges and put together smaller tows. Freight rates have soared, thereby depressing spot quotes along the rivers, as well as the basis (cash minus futures prices). Exporters have reportedly asked Chinese buyers to lower their quality specifications, but they have refused to do so. Meanwhile, waiting times for ships in the Gulf have climbed to 10 to 12 days versus the usual five days at this time of year.
European Commission auditors published a very negative report on Brazil’s ability to police food safety standards in companies exporting meat to Europe. Six EU food safety inspectors wrote the report after visiting Brazil in May, following a scandal involving large meatpackers selling rotten product while bribing officials to turn a blind eye. The report comes as Brussels tries to secure a trade deal by the end of the year with the Mercosur bloc of Brazil, Argentina, Uruguay and Paraguay.
Cade, Brazil’s competition regulator, has delayed a decision on whether to approve Bayer S.A.’s $66-billion takeover of Monsanto. It explained that efficiencies from the combination of the companies were not enough to ease its competition concerns. Therefore, it recommended the companies make some structural changes to garner final approval.
Developments in Policy
After conferring with President Donald Trump this week, Iowa Senators Chuck Grassley and Joni Ernst and fellow Republican Senator Deb Fischer of Nebraska announced they will meet October 17 with Environmental Protection Agency (EPA) Administrator Scott Pruitt to discuss the future of the Renewable Fuels Standard. Renewable fuels advocates worry about the impact of the EPA’s recent announcement it might lower required levels of advanced biofuels for 2018 – and exports of traditional ethanol could count toward meeting that. Although President Trump pledged his support for renewable fuels during the 2016 election campaign, Pruitt has been critical of the rule. Grassley views the EPA’s proposed change as potentially harmful to the biofuels industry, and in his position as Chairman of the Senate Judiciary Committee will hold considerable sway over the eventual policy.
USDA Secretary Sonny Perdue on Wednesday noted frustration about the slow pace of North American Free Trade Agreement (NAFTA) renegotiations, but said he expected the Office of the U.S. Trade Representative to begin putting agricultural proposals on the table during the next round of talks October 11-15 in Washington. Perdue cited issues with Canada over dairy and poultry as his priorities, adding he thinks the dairy issues will be discussed during the upcoming fourth round of talks. Regarding new trade agreements, Perdue stressed the need to negotiate new deals and work to boost market access in other countries, particularly in China and Japan. He mentioned there are “a lot of hungry mouths out there in the southeast Asia arena,” which represent a massive opportunity to boost U.S. exports, if only there were fewer market-access barriers.
The annual hearing on China’s compliance with its World Trade Organization (WTO) commitments took place Wednesday as the Office of the U.S. Trade Representative (USTR) sought input. Josh Kallmer, senior vice president of global policy at the Information Technology Industry Council (ITI), submitted a brief. The ITI brief addresses China’s tech compliance, concluding that, “China’s industrial policy contradicts the spirit of the WTO.” The U.S. Chamber of Commerce notes that revenue and profit growth continues to be seen by U.S. firms operating in China, but “long-standing concerns are intensifying” on Chinese practices. Not testifying for the first time in years: The U.S.-China Business Council. Instead, it is focusing on the hearing set for next week that is part of the USTR Section 301 investigation on China’s intellectual property and technology transfer practices and whether those are hurting U.S. businesses.
House Speaker Paul Ryan (R-Wis.) said the House Ways and Means Committee would release its tax overhaul bill in “two to three weeks,” adding, “probably three weeks.” Asked if the House bill would be released before Halloween, Ryan said, “Oh, yeah.” Ryan, in a Facebook live conversation with Grover Norquist, hinted that a GOP tax plan could make the current mortgage interest and charitable itemized deductions above-the-line deductions. He described the standard deduction, and then said, “And then you can do mortgage and charity on top of that.”
U.S. and South Korean trade officials reached a common understanding on the need to amend the five-year-old KORUS trade agreement in order to increase benefits for both countries, the South Korean government said after a meeting Wednesday between the country’s top trade officials. Discussions are ongoing.