Changes Pushed for Reconciliation Package as Debate Nears

China starts it retaliation steps following Pelosi visit

Additional old-crop cotton sales cancellations by China, with soybean purchases. USDA weekly Export Sales data for the week ended July 28 showed activity for China including sales of old- and new-crop soybeans but cancellations of old-crop cotton purchases. For 2021-22, activity included net sales of 5,703 tonnes of corn, 66,131 tonnes of sorghum, 124,842 tonnes of soybeans and net reductions of 95,028 running bales of upland cotton. For 2022-23, sales of 144,000 tonnes of soybeans and 375 running bales of upland cotton were reported. For 2022 delivery, net sales of 58 tonnes of beef and 16,767 tonnes of pork were reported.

Sen. Kyrsten Sinema (D-Ariz.), a pivotal vote in the Senate, is seeking to preserve a tax break for investment managers and narrow a levy hike on large corporations in the economic package Democrats want to pass as soon as this week. Meanwhile, Sen Debbie Stabenow (D-Mich.) is pushing for last-minute changes to stringent new electric-vehicle tax-credit limits. Details in Policy section.

The Bank of England raised rates by 0.5 percentage point, its largest hike in decades, following the Fed in prioritizing the fight against soaring inflation. The pound erased gains after the central bank raised its key rate by 50 bps to 1.75%, the largest increase in 27 years. The bank said it now expected inflation to pass 13% in 2022, well above its forecast in May, and to remain at “very elevated levels” in 2023.

China fired missiles into the sea in live-fire military exercises around Taiwan and canceled a face-to-face meeting with Japan’s foreign minister over G7 criticism. Taiwan said the drills violate U.N. rules and called it “irresponsible, illegitimate behavior.” Meanwhile, Ukrainian President Volodymyr Zelenskyy urged Xi Jinping, his Chinese counterpart, to hold direct talks with him. More developments in China section.

U.S. weekly jobless claims rose slightly last week but met expectations.

The U.S. trade deficit narrowed in June as a rise in shipments of energy products pushed up exports, while cooling consumer appetite weighed on imports. Details in On Tap Today.

The Senate this afternoon will vote on a resolution under the Congressional Review Act that would claw back the Biden administration’s changes to the nation’s environmental permitting rules. Republicans need only a simple majority to pass SJRes 55, which would nullify a White House rule finalized in April that requires agencies to consider the climate change impacts of a proposed infrastructure project. But even if the Senate passes the measure, it faces long odds against Democrats’ majority in the House.

The Senate ratified the membership of Sweden and Finland in NATO on a 95-to-1 vote, with Sen. Josh Hawley (R-Mo.) voting no.

EPA signals it will not meet court-ordered Oct. 1 deadline on glyphosate; wants deferred until 2026.

Russian prosecutors have asked a court to sentence American basketball star Brittney Griner to 9-1/2 years in prison.

Equities today: Global stocks markets were mostly up slightly overnight. U.S. Dow opened around 30 points lower. The marketplace is looking ahead to Friday morning’s U.S. jobs report for July, which is expected to show non-farm payrolls job growth of around 260,000, compared to a rise of 372,000 in the June report. In Asia, Japan +0.7%. Hong Kong +2.1%. China +0.8%. India flat. In Europe, at midday, London flat. Paris +0.7%. Frankfurt +1%.

U.S. equities yesterday: The Dow gained 416.33 points, 1.29%, at 32,812.50. The Nasdaq gained 319.40 points, 2.59%, at 12,668.16. The S&P 500 moved up 63.98 points, 1.56%, at 4,155.17.

Agriculture markets yesterday:

• Corn: December corn rose 2 cents to $5.96 1/4 after dropping earlier to $5.87 1/2, the lowest intraday price in over a week.
• Soy complex: November soybeans fell 16 3/4 cents to $13.69 3/4, the contract’s lowest closing price since July 25. September soymeal fell $2.80 to $431.40 and September soyoil fell 51 points to 61.82 cents.
• Wheat: September SRW wheat fell 11 cents to $7.63 3/4, a six-month closing low. September HRW wheat fell 6 3/4 cents to $8.35 1/2. September spring wheat rose 2 cents to $8.75 1/4.
• Cotton: December cotton fell 38 points to 94.43 cents per pound.
• Cattle: October live cattle rose $1.825 to $143.95, a three-month closing high. September feeder futures rose $1.45 to $182.90.
• Hogs: August lean hogs rose $1.15 to $121.00, the highest close for a nearby contract since June 2021. October futures fell 37.5 cents to $95.85. The CME lean hog index fell 30 cents to $121.57 (as of Aug. 1), and today’s quote is expected to fall another 63 cents.
  

Ag markets today: Two-sided trade was seen in the grain and soy markets overnight, with corn and soybeans mildly weaker and wheat favoring the upside this morning. As of 7:30 a.m. ET, corn futures were trading 2 to 3 cents lower, soybeans were mostly 1 to 2 cents lower, winter wheat futures were steady to fractionally higher in most contracts and spring wheat was 4 to 12 cents higher. Front-month crude oil futures were modestly higher and the U.S. dollar index was around 200 points lower this morning.

Technical viewpoints from Jim Wyckoff:

On tap today:

• Bank of England is expected to raise its benchmark interest rate to 1.5% from 1.25%. (7 a.m. ET) UPDATE: The Bank of England hiked interest rates by 50 basis points, its largest single increase since 1995, as it tries to rein in runaway inflation. The sixth consecutive increase takes borrowing costs to 1.75% and marks the first half-point hike since the Bank was made independent from the British government in 1997.
• U.S. jobless claims are expected to rise to 260,000 in the week ended July 30 from 256,000 one week earlier. (8:30 a.m. ET) UPDATE: Worker filings for unemployment benefits rose last week, holding close to the highest level of the year as the U.S. labor market showed several signs of cooling. Initial jobless claims, a proxy for layoffs, increased slightly to a seasonally adjusted 260,000 last week from a downwardly revised 254,000 the prior week, the Labor Department said this morning. The total is close to the 2022 peak set earlier in July of 261,000 and above the 2019 prepandemic weekly average of 218,000, when the labor market also was strong. The four-week moving average for claims, which smooths weekly volatility in the numbers, rose to 254,750 last week, an increase of 6,000 from the previous week’s revised average. Continuing claims, a proxy for the total number of people receiving payments from state unemployment programs, rose by 48,000 to 1.4 million in the week ended July 23. That was the highest level since the spring. Continuing claims are reported with a one-week lag.
• U.S. trade deficit is expected to narrow to $80 billion in June from $85.55 billion one month earlier. (8:30 a.m. ET) UPDATE: The U.S. trade deficit narrowed in June as a rise in shipments of energy products pushed up exports, while cooling consumer appetite weighed on imports. The trade gap in goods and services shrank 6.2% in June to $79.6 billion after seasonal adjustment, the Commerce Department said Thursday, down from May’s revised deficit of $84.9 billion. That marked the first time the deficit has been below $80 billion since December 2021. Exports grew 1.7% to $261 billion, helped largely by higher shipments of energy and food products. Imports fell 0.3% to $340 billion, reflecting sizable declines in American purchases of autos and food items.
• USDA Weekly Export Sales report, 8:30 a.m. ET
• Federal Reserve speakers: Richmond’s Thomas Barkin to the Lexington Chamber of Commerce at 8 a.m. ET, and Cleveland’s Loretta Mester to the Economic Club of Pittsburgh at 12 p.m. ET.
• President Biden is scheduled to host a virtual meeting of business and labor leaders at 1:45 p.m. ET to discuss the impact of Democrats’ proposed climate-and-healthcare package.

The U.K. central bank raised borrowing costs by 50 basis points or double its previous round of quarter point hikes. It would also be its largest increase in 27 years, lifting key interest rates from 1.25% to 1.75% — their highest level since the start of the global financial crisis. Only one of the monetary policy committee’s nine members voted for a smaller increase.

Inflation in the U.K. is now running at a 40-year high of 9.4%, triggering a cost-of-living crisis amid surging food and energy prices. The central bank’s inflation-fighting record has also been questioned by Liz Truss, the front-runner to be the next U.K. prime minister. She has pledged to set “a clear direction of travel” for monetary policy, as well as a review of the BoE’s mandate that can lead to greater oversight by members of parliament.

The European Central Bank (ECB) released its Consumer Expectations Survey which showed Eurozone consumers expect a recession and high inflation will continue into 2023. The survey, conducted in June, showed expectations that consumer prices would grow by 5% and the economy to contract by 1.3% in the coming 12 months. The actions indicate that Europe and the U.K. are expected to see a slowing economic picture with little immediate relief on inflation at this point.

U.S. mortgage applications climbed 1.2% in a week, coming as the 30-year fixed mortgage rate posted its largest weekly decline since 2020. Home buyers rushed to lock in rates that temporarily dipped even as the Federal Reserve hiked interest rates for a second consecutive time.

How Bill Gates transferred $20 billion. A federal filing shows Bill Gates transferred billions of dollars worth of shares of Canadian National Railway and tractor and farm equipment maker Deere & Co. as part of the $20 billion donation to the Bill & Melinda Gates Foundation that Forbes exclusively reported in July.

Market perspectives:

• Outside markets: The U.S. dollar index is lower in early U.S. trading. The yield on the 10-year U.S. Treasury note is fetching 2.727%. U.S. crude was higher at around $91.05 per barrel and Brent was nearly unchanged around $96.70 per barrel. Gold and silver futures were posting solid gains ahead of U.S. economic updates, with gold around $1,803 per troy ounce and silver around $20.34 per troy ounce.

• SPR release update. The U.S. has been releasing about one million barrels a day from the Strategic Petroleum Reserve (SPR), which along with China’s reduced demand amid Covid-19 lockdowns has helped lower oil and fuel prices. Those releases are set to end in October.

• Glencore, a minerals-and-metals giant, announced profits for the first half of 2022 more than doubling to a record $18.9 billion. The miner has cashed in on its bid to stick with its coal business—which others have retreated from in recent years—as the fossil fuel’s price has surged following the war in Ukraine.

• An exodus of speculators from agricultural markets has exacerbated the fall in commodities prices. The Wall Street Journal notes (link) that crop prices have tumbled to about where they were a year ago, which was historically high due to poor harvests but before markets were inflamed by Russia’s invasion of Ukraine.

• Ag trade: Taiwan purchased 50,910 MT of U.S. milling wheat. Japan purchased 122,103 MT of wheat from its weekly tender, including 54,680 MT of U.S., 32,410 MT of Canadian and 35,013 MT of Australian. Iran purchased between 180,000 and 240,000 MT of milling wheat likely to be sourced from Russia.

• NWS weather: Monsoonal rains across the Southwest spread northward over the coming days... ...Heat expected to build across the Northern/Central Plains and the Northeast... ...Fire Weather Threat continues in the Northwest.

Items in Pro Farmer’s First Thing Today include:

• Relatively quiet overnight trade
• Russia: Grain export deal not a ‘one-time mechanism’
• China fires back at G7 leaders
• Strong technical performance for cattle futures
• Cash hog fundamentals weaken

— Summary: In the south of the country, Ukraine is ramping up counterattacks towards the city of Kherson. Artillery duels are intense, and Russia is conducting more air strikes. Ukraine hopes to leverage its advantage in longer-range weapons: on Monday it received four more American HIMARS and three similar European rocket-launchers. Yet pushing Russia out of Kherson province will be hard, analysts note. Russia is reported to have moved ten of its scarce battalion-sized tactical groups to reinforce the area, virtually doubling its presence.

• Volodymyr Zelenskyy seeking ‘direct talks’ with China’s Xi Jinping to help end Russia’s invasion of Ukraine, according to the South China Morning Post. The Ukrainian leader has urged Beijing to use its economic and political power to press Moscow to comply with international norms. In the exclusive interview with the SCMP, Zelenskyy also says he hopes China and other countries will ‘unite’ to support Ukraine’s reconstruction. In 2021, China was Ukraine’s top trading partner, with a trade turnover worth almost $19 billion, according to figures from Ukraine’s embassy in China. “I’m confident, I’m sure that without the Chinese market for the Russian Federation, Russia would be feeling complete economic isolation,” he said. “That’s something that China can do — to limit the trade (with Russia) until the war is over.” Link for details.
• No other ships have left Ukraine in the last 48 hours, and officials on all sides have given no explanation for that delay. A U.N. statement said three Ukrainian ports are due to resume exports of millions of tons of wheat, corn and other crops. It said inspectors “gained valuable information” from the Razoni’s crew about its voyage through the Black Sea maritime humanitarian corridor. The Joint Coordination Center is “fine-tuning procedures,” it said.
• Ukraine expects first ship to arrive for grain on Friday. A Turkish bulk carrier is expected to arrive in the Ukrainian Black Sea port of Chornomorsk on Friday and will be the first vessel to arrive at a Ukrainian port since the war began, a spokesperson for the regional administration of Odesa said. “The Turkish bulk carrier OSPREYS, flying the flag of Liberia, is heading from the Dardanelles Strait to the port of Chornomorsk,” the spokesperson wrote late Wednesday. “This will be the first vessel that has not been blocked in our ports since Feb. 24, heading to (collect) Ukrainian export grain,” he noted.
• The London insurance sector will reportedly cover Ukrainian grain exports through the Black Sea corridor. The region will be classified high-risk, and every ship will need separate layers of coverage for the cargo and the ship itself, up to $50 million per cargo.
• A Biden administration proposal to cap the price of Russian oil is facing skepticism from some oil analysts and financiers who question whether the U.S. and its allies can effectively dictate the global sales price for a major supplier of oil. Treasury officials have said that without insurance and financing from the U.S., U.K. and EU, Russia would be largely unable to export its oil, which would risk a potentially large price increase that markets haven’t yet anticipated. But others dispute that analysis, pointing to signs that Russia and purchasers of its oil are already seeking alternatives to the insurance and reinsurance suppliers in the U.K. and EU. Link for details via the Wall Street Journal.

— Senate reconciliation update:

• CBO says deal cuts deficit by $102 billion. The Senate Democrats’ tax, climate and drug-pricing bill would reduce federal budget deficits by $102 billion over 10 years, the nonpartisan Congressional Budget Office (CBO) said (link). CBO also calculated that increasing the Internal Revenue Service budget would generate $204 billion in new revenue from cracking down on tax avoidance, something that wasn’t included in the official deficit score. When that is factored in, the CBO analysis is in line with the $300 billion in deficit reduction claim initially made for the bill by Sen. Joe Manchin (D-W.Va.) and Senate Majority Leader Chuck Schumer (D-N.Y.).

  The deficit decrease is driven in part by a repeal of a Trump administration restriction on prescription drug rebates, generating $122 billion and by allowing Medicare to negotiate the cost of high-priced drugs, which generates $102 billion. A 15% corporate minimum tax on large corporations generates $313 billion, as expected, while a narrowing of the carried interest loophole nets $13 billion in the score, slightly less than Democrats forecast.

  Perspective: The Tax Foundation notes: “The $280 billion in new spending and tax subsidies Congress just authorized in the Chips and Science Act will nearly cancel out the reported $300 billion in deficit reduction that supporters say will be delivered by the Inflation Reduction Act. And this does not consider the harm that the tax increases will do to the recessionary economy.”

• Stabenow seeks changes to EV tax credit limits. Sen. Debbie Stabenow (D-Mich.) is seeking last-minute changes to strict new electric-vehicle tax-credit limits in the deal amid pressure from the auto industry. Stabenow called the provision a “serious concern,” adding that the EV tax credit, worth billions of dollars, wouldn’t be usable for years. Major automakers including Ford Motor Co., General Motors Co. and Toyota Motor Corp. are arguing against limits that include prohibitions on batteries and critical minerals that are processed in China and other “foreign entities of concern,” which could render the credit useless. Other limits include new caps on vehicle price and consumer income that have drawn opposition from newer automakers like Rivian Automotive LLC.
  

• Sinema wants to nix carried interest loophole. Sen. Kyrsten Sinema (D-Ariz.) is seeking changes to the tax and climate measure, Politico reports (link), citing multiple people familiar with the matter. Sinema wants to remove the carried interest loophole provision and would like to add about $5 billion in drought resiliency, Politico reports.

  Changing the tax provisions risks irking Sen. Joe Manchin (D-W.Va.), who negotiated the legislation with Majority Leader Chuck Schumer (D-N.Y.). Manchin has said he is “adamant” that the carried interest change remain in the bill.

  One way to make the corporate minimum tax less costly to businesses is to let companies still claim depreciation tax breaks for their investments in equipment and facilities. The levy as currently drafted doesn’t allow businesses to claim those benefits.

— Senate panel to vote Sept. 7 on McKalip as chief agriculture negotiator at USTR. The Senate Finance Committee will meet September 7 to vote on sending the nomination of Doug McKalip to be chief agricultural negotiator at the Office of the U.S. Trade Representative (USTR) to the full Senate. The panel held a hearing on the nomination July 28. He is expected to easily be confirmed by the committee and the full Senate.

— Ninth Circuit nomination vote. Senators agreed to hold as long as 10 minutes of debate before voting on confirmation of the nomination of Roopali H. Desai to be a judge for the U.S. Court of Appeals for the Ninth Circuit.

— China under pressure on slow response to Pelosi visit to Taiwan. China fired 11 missiles into the sea around Taiwan on Thursday in response to House Speaker Nancy Pelosi’s (D-Calif.) visit, even as Taipei played down the impact on flights and shipping. After House Speaker Nancy Pelosi landed safely, stayed the night in Taipei, and hailed U.S. ties with Taiwan in a meeting with President Tsai Ing-wen, China’s tone shifted from belligerent to defensive. At a briefing Wednesday, Foreign Ministry spokesperson Hua Chunying asked the public to give the government more time to follow through on threats to punish Washington and Taipei. “We will do what we have said,” she said. “So please have some patience about that.”

The volume of comments on the trip was so heavy it partially crashed Weibo, China’s main social media platform, for several hours. Most online comments, even before censorship kicked into high gear, were aggressive in their support of harsh measures and even war with Taiwan. One particularly common message was “When do we start bombing?”

— Beijing is preparing live-fire military exercises from Thursday through Sunday in areas encircling Taiwan and in the Taiwan Strait. While the designated zones mainly lie in international waters, some of them are close to Taiwan’s major ports. Beijing has issued warnings for ships to avoid the areas of the exercises and Fujian, the mainland Chinese province along the Taiwan Strait, said ships won’t be allowed to enter the area.

“The Taiwan Strait is one of the most busy straits in the world. So, obviously, if it were to close, it would have a dramatic impact on shipping capacity,” said Soren Skou, chief executive of A.P. Moller-Maersk, on an earnings call Wednesday. “But I also have to say that there seems to be no suggestion that that’s where we’re going.”

— Fallout from Pelosi’s trip to Taiwan has begun. China’s leading electric-vehicle battery maker is putting on hold plans to announce its first North American plant, the Wall Street Journal reports (link). The move by Tesla supplier Contemporary Amperex Technology is one of the first business actions following a visit that has roiled trade tied to the region and complicated relations between the U.S. and China. Beijing’s military drills have also raised concerns about commercial shipping traffic in the Taiwan Strait, but companies haven’t reported significant disruptions. CATL was aiming to announce a plan as early as this month for a plant in North America. In Taiwan, Pelosi met with executives from contract chip maker Taiwan Semiconductor Manufacturing and with Apple supplier Pegatron.

— Summary:

• Global Covid-19 cases at 580,686,557 with 6,409,997 deaths.
• U.S. case count is at 91,794,887 with 1,032,097 deaths.
• Johns Hopkins University Coronavirus Resource Center says there have been 603,693,871 doses administered, 223,245,563 have been fully vaccinated, or 67.75% of the U.S. population.

— Eli Lilly said it plans to begin commercial sales of its Covid-19 monoclonal antibody treatment, as the federal government’s supply of the drug is nearly depleted.

— Rep. Walorski dies in car crash. Rep. Jackie Walorski (R-Ind.), 58, was killed in a car crash Wednesday afternoon in Indiana, according to a statement from her office. The Republican Study Committee said that two staffers also died in the crash. “It is with a heavy heart that I am sharing this statement from the Office of Congresswoman Jackie Walorski,” House GOP leader Kevin McCarthy (R-Calif.) said in a tweet citing confirmation of Walorski’s death. The crash took place on Route 19 in Elkhart County. The cause of the accident remains under investigation. She has been the top Republican on the House Ethics Committee and was a member of the House Ways and Means Committee. Walorski served on the House Agriculture Committee in the 114th Congress from 2015 to 2016. During that term, she chaired the House Agriculture Nutrition Subcommittee.

There are now 220 Democrats and 210 Republicans in the House, however the margin is likely to shrink again after special elections for other seats are held this month.

A special election to complete Walorski’s unexpired term will be held because the vacancy occurred more than 74 days before the general election, according to Indiana election law. That election almost certainly will coincide with the regularly scheduled Nov. 8 election for a full term. GOP leaders in the solidly Republican 2nd District will select a nominee to replace Walorski on the ballot.

— Senate meets today on a resolution to rescind the Biden administration’s changes to the nation’s environmental permitting rules under the National Environmental Policy Act (NEPA). This is a big deal to getting more energy and resources faster.

Summary: SJRes 55 is a Congressional Review Act (CRA) resolution sponsored by Sen. Dan Sullivan (R-Alaska) that disapproves of the Council on Environmental Quality’s (CEQ) final rule to update implementing regulations under NEPA. If Congress passes the CRA resolution and the president signs it, the CEQ rule would be overturned.

Facts and figures: A 2018 review by CEQ found that from 2010 through 2017, it took federal agencies an average of 4.5 years to complete an environmental impact statement (EIS). In a separate analysis, CEQ found that final EISs published between 2013 and 2018 averaged 661 pages.

Of note: When Sen. Manchin announced his support for the reconciliation package, he received a “commitment” from Democratic leaders to advance permitting reforms for infrastructure projects by the end of September. While Manchin has yet to release any details further than a framework, SJRes 55 offers an immediate path for improving review processes.

Process: The CRA provides fast-track procedures for Congress to consider a joint resolution to overturn an agency’s rule. In the Senate, a motion to proceed to the resolution is non-debatable and has a simple majority vote threshold. There may be up to 10 hours of debate on the resolution. Passing the resolution also requires a simple majority vote.

Outlook: Even if the Senate passes the measure, it faces long odds against Democrats’ majority in the House.

— The Senate ratified the membership of Sweden and Finland in NATO on a 95-to-1 vote, with Sen. Josh Hawley (R-Mo.) voting no. Hawley argued that the European security alliances were a distraction from the U.S.’ biggest rival — China. All 30 members of NATO must approve new memberships. Italy’s parliament also just approved the accession of Finland and Sweden to NATO. Both countries applied for membership to the alliance following Russia’s invasion of Ukraine. Seven NATO members, including skeptical Turkey, have yet to ratify the move.

— Iran, U.S. resume talks to save nuclear deal. Diplomats from the U.S., Europe and Iran are set to return to Vienna after months of deadlock for another bid to salvage their moribund nuclear deal, as high energy prices continue to stalk the global economy. Robert Malley, the U.S. special envoy for Iran, said in a tweet that he’s headed to the Austrian capital to discuss a European Union proposal to rescue the landmark 2015 agreement.

— EPA signals it will not meet court-ordered Oct. 1 deadline on glyphosate; wants deferred until 2026. EPA said in court filings this week that it will not meet the court-ordered deadline for the agency to review its cancer assessment and to conduct an Endangered Species Act (ESA) review of the herbicide glyphosate. EPA asked the U.S. Court of Appeals for the Ninth Circuit to give the agency more time, indicating it would be unable to issue a new interim decision or final registration decision for glyphosate until 2026 because of the complexity of the issues involved and the lengthy timeframe needed to complete its ESA review and consultation with the federal wildlife agencies. The court is not expected to rule until the petitioners in the case file their response to EPA’s request. EPA said at most by Oct. 1 it could only provide a partial analysis of some of the issues in the case and that such an analysis would have “no regulatory or real-world effect.”

— Eleven golfers on the Saudi-financed LIV Golf series challenged their suspensions from the PGA Tour yesterday in an antitrust lawsuit that reflects growing pressure to give athletes more autonomy. The suit argues that the PGA Tour is unfairly controlling players with anti-competitive restraints to protect its longstanding monopoly on professional golf.