CBO Makes Big Cotton Error in Update of Farm Bill Baseline

Groups supporting biodiesel and renewable diesel continue to press EPA

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June 09, 2023 07:55 AM

Groups supporting biodiesel and renewable diesel continue to press EPA

In Today’s Digital Newspaper

An abbreviated report today as I am headed to St. Louis for a family event.

— OMB meetings on EPA’s RFS plan for 2023 and beyond are ongoing, addressing the Renewable Fuel Standard (RFS) obligations. Proponents of the renewable natural gas industry have criticized the EPA’s proposals related to Renewable Identification Numbers (RINs) and awarding eRINs to electric vehicle (EV) manufacturers instead of those producing the fuel for EVs. Reports suggest that the EPA has reconsidered this eRIN plan since proposing RFS levels for 2023-2025 in December 2022.

Additionally, groups supporting biodiesel and renewable diesel have pressured the EPA, arguing that the initial RFS package proposed levels were too low considering the announced capacity increases. Out of a total of 35 planned meetings, 15 will take place between today and June 13. The EPA has until June 14 to finalize its RFS plans.

— The Ukrainian Agriculture Ministry warned that the collapse of the Nova Kakhovka dam could result in the loss of millions of tons of crop production. With reduced water supply, growing vegetables becomes impossible, and grain and oilseeds will have lower yields. Flooding may affect tens of thousands of hectares of land in southern Ukraine, and around 500,000 hectares (1.24 million acres) could turn into a “desert” due to insufficient irrigation. Affected crops include vegetables, grains, oilseeds, and melons. Moreover, the dam’s destruction has impeded navigation along parts of the Dnipro River, disrupting an agricultural export route.

— The Security Service of Ukraine (SBU) reportedly intercepted a call that implicates a Russian “sabotage group” in the destruction of the Nova Kakhovka dam in southern Ukraine. This news comes from Reuters, citing the domestic security service as their source. The governor of the Kherson region, where the dam was situated, has revealed that the explosion led to approximately 600 square kilometers (230 square miles) of land being submerged underwater.

— Russia: Pipeline talks will impact Black Sea grain deal talks. Russian Deputy Foreign Minister Mikhail Galuzin said a blast that damaged an ammonia pipeline between Russia and Ukraine would be considered during talks on the Black Sea grain deal, RIA news agency reported. Russia has repeatedly said resuming ammonia flows through the pipeline is one of the stipulations for it remaining in the deal. Russia’s ambassador to Turkey was separately quoted on Friday as saying there were no grounds to extend the deal, but that Moscow was continuing consultations with the United Nations.

— China keeps balance sheets mostly unchanged. China’s ag ministry made few changes to its supply/demand balance sheets this month, including no adjustments to its corn, soybean and cotton production or import forecasts. The ministry expects soybean and corn imports in 2023-24 to decline slightly from this year, while cotton imports are expected to remain steady.

— China’s factory price deflation accelerates. China’s producer price index (PPI) fell for an eighth consecutive month in May, down 4.6% annually – the fastest decline since February 2016 as sluggish demand weighed on a slowing manufacturing sector. The consumer price index (CPI) rose 0.2% from year-ago last month, up from a 0.1% increase in April. Food price inflation slowed to 1.0% annual growth from 2.4% the previous month.

— FY 2024 spending plans. House Speaker Kevin McCarthy (R-Calif.) and House Minority Leader Hakeem Jefferies (D-N.Y.) recently met with leaders of the House Appropriations Committee to discuss fiscal year (FY) 2024 spending plans after finalizing the debt limit package. The main issues are the spending levels and whether they will align with the debt limit plan, the FY 2022 levels that the House Freedom Caucus supports, or other levels. Decisions are near on subcommittee allocations and a topline number.

The debt limit plan provision requires a 1% cut in both defense and nondefense spending if appropriations bills aren’t in place by a designated time and this may serve as an incentive to complete the appropriations process for the first time since FY 2019. Final levels will likely change during negotiations with the Senate. Democrats, led by Jeffries, do not support spending plans below levels in the debt limit package.

Starting June 15, the House Appropriations Committee will work on Defense and Energy and Water spending plans at the subcommittee level. Full committee markups for Military Construction-VA and Agriculture-FDA will occur on June 13 and 14, respectively, with more markups planned for June 21-23.

— U.S./U.K. work on critical minerals pact to boost EV industry and collaboration. On Thursday, President Joe Biden and U.K. Prime Minister Rishi Sunak announced their intention to commence work on an agreement to improve collaboration between the United States and the United Kingdom on the extraction and processing of critical minerals, which are vital components used in electric vehicle (EV) batteries. This step comes as both nations seek to boost their domestic EV industries and mitigate the effects of climate change.

A deal on critical minerals could potentially allow the UK’s EV industry to qualify for a portion of the US EV tax credits, further deepening the ties between the two countries. Additionally, the US administration plans to request Congress designate the UK as a domestic source with respect to the US Defense Production Act.

Although the U.S. has an existing critical minerals pact with Japan, the European Union had previously rejected a similar agreement. It should be noted, however, that the U.S./U.K. collaboration does not represent a full-fledged free trade agreement, which the U.K. has been seeking. The Biden administration has made it clear that they are not interested in negotiating any new FTAs at this stage.

— Cotton AWP increases. The Adjusted World Price (AWP) for cotton moved up to 69.38 cents per pound, effective today (June 9), up from 66.91 cents per pound the prior week. This marks the highest AWP since it was at 70.82 cents per pound the week of April 21.

— CBO made big error in updated farm bill baseline. Sources inform they got the price ratio incorrect between cotton seed and lint. The Congressional Budget Office (CBO) is working with congressional staff to correct matter.

— USDA Undersecretary of Agriculture for Trade Alexis Taylor gave a post-mission briefing on the U.S./Japan ag trade mission. The mission involved 11 state departments of agriculture and 40 agribusinesses and aimed to strengthen the U.S./Japan ag trade relationship.

USDA plans to host six trade missions this year, having already visited Panama, the Netherlands, and Japan, with upcoming trips to Chile, Malaysia, Singapore, and Angola. Propelled by these efforts, in 2022, the USDA trade missions led to 12-month projected sales of $42 million.

The briefing covered a range of U.S./Japan trade matters such as ethanol exports, Indo-Pacific Economic Framework for Prosperity (IPEF), potato exports, and the effects of European Union Protection of Geographical Indications.

Taylor mentioned recent progress in market access for U.S. potatoes in the Japanese market and cited the U.S./Japan Trade Agreement (USJTA) as a key factor benefiting over 90% of American food and ag exports.

Taylor also touched on the administration’s preference for trade and investment framework agreements (TIFAs) over free-trade agreements (FTAs). TIFAs like IPEF are considered more effective in addressing technical barriers, ensuring transparency and science-based approaches in addressing ag trade concerns.

— Bigger ending stocks expected in June WASDE Report. USDA will likely raise its forecasts for old- and new-crop ending stocks for both corn and soybeans in the World Agricultural Supply and Demand Estimates (WASDE) Report at noon ET. Pro Farmer expects cuts to old-crop use, which will push up carryover and likely trickle down through the 2023-24 balance sheets. Changes to the new-crop wheat balance sheet will be largely driven by any adjustment to USDA’s winter wheat crop estimate, which is expected to increase slightly from last month.

— The White House reportedly braces for the death of its student loan forgiveness program. Biden administration officials are privately worrying that the Supreme Court may strike down its proposal, which would eliminate up to $20,000 in education debt per person for millions of Americans, according to the Wall Street Journal. The White House is preparing less legally risky alternatives to help borrowers.

— GM electric vehicles will gain access to Tesla’s charging network. The move, which follows a similar announcement by Ford, will vastly expand charger accessibility for GM. But some in the industry fear that wider adoption of Tesla’s plugs, which are now likely to become the industry standard, will give Elon Musk’s company even greater power over the EV market.

— Investors have recently disregarded poor labor market data and inflation warnings to drive the S&P 500 into bull market territory. However, this excitement appears to be fading as stock futures indicate that the markets may open lower today. The bear market, which persisted for 248 trading days, was the longest since 1948. After reaching its lowest point in October, the S&P 500 has experienced a 20.04% increase, just enough to enter a bull market. Still, the index is about 10% short of its record high, causing some experts to question whether it can be deemed a true bull market yet. A key factor in this rally has been investor interest in artificial intelligence. Deutsche Bank analysts point out that the FANG+ Index, consisting of prominent tech stocks, has been bolstered as many of these companies expand into AI.

— Wildfire smoke from Canada has covered the Northeast U.S., affecting areas like Philadelphia, Washington, D.C., and parts of the Carolinas. The smoke has caused thousands of flight delays between Wednesday and Thursday, and prompted the cancellation of sporting events and a shift to online learning for some schools. Health officials have issued warnings about the poor air quality resulting from the smoke. President Biden has expressed support for Canada’s efforts to tackle the wildfires and has offered assistance. Relief is in sight, as the National Weather Service predicts the smoke will largely move out of the East Coast on Friday, though it is expected to affect the Ohio River Valley.

— The effort to reset global steel supply chains is facing challenges as President Biden proposes a plan to impose tariffs on steel and aluminum imports based on their greenhouse gas emissions during production. The WSJ reports that this plan, called the Global Arrangement on Sustainable Steel and Aluminum, would first apply to EU countries before expanding to other allies. If implemented, it could change global trade dynamics for industrial materials. However, the U.S. and EU have not yet reached an agreement on the design of the new system. The EU advocates for a system based on their newly approved plan, which imposes tariffs on imported materials according to the price of carbon domestic producers pay. This approach aims to protect European manufacturers against cheap imports as they deal with the high costs of climate-related measures.

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