China Announces Anti-Dumping Investigation into Canadian Canola Exports

Trump on China | Koch | Trump & Harris tax proposals | U.S. farm income | CR | Ukraine caps wheat exports

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September 03, 2024 07:14 AM

News/Markets/Policy Updates: Sept. 3, 2024

— Trump confident in future U.S./China relations despite contradictory trade stance. During a two-part interview this weekend with Mark Levin on his Fox News program (link), former President Donald Trump expressed confidence in maintaining a “good relationship” with China if he wins a second term, even as he continues to advocate for increased tariffs on Chinese imports. This reflects the complex and often contradictory nature of Trump’s approach to U.S./China relations during his previous administration. While he initially fostered a positive relationship with Chinese President Xi Jinping, Trump’s imposition of significant tariffs on Chinese goods led to a trade war, straining economic ties and complicating diplomatic relations. Despite the economic costs, Trump’s hardline trade policies resonated with his voter base, highlighting the political dimensions of his stance on China.

“I think there is no greater critic of China than me,” Trump said. “But I respected China, and I respected President Xi and I had a great relationship with them… “They took advantage of us. And why shouldn’t they? I mean, if we were stupid enough to let them do it, they made hundreds of billions of dollars a year, $507 billion. And most years over that and now it’s more, and I had them down to a much smaller,” he said. “And I put massive tariffs on them. Nobody got any money from China, but I got hundreds of billions of dollars from China.”

Bottom line: Trump has consistently argued for higher tariffs, saying they’re a good tool for negotiating leverage. Vice President Kamala Harris has yet to lay out her trade policy vision in detail.

— Koch acquires $3.6 billion fertilizer plant in Iowa amid antitrust concerns. Koch Ag & Energy Solutions (KAES) successfully completed the acquisition of a major fertilizer plant in Wever, Iowa, from OCI Global for $3.6 billion. This acquisition, announced in December 2023, gives KAES full ownership of the state-of-the-art facility, which has the capacity to produce 3.5 million metric tons of nitrogen fertilizers and diesel exhaust fluid annually. The plant, which opened in 2017, is a significant addition to KAES’s existing operations, which include several nitrogen production facilities in the U.S., Canada, and other regions.

The deal faced significant opposition from local farmers and advocacy groups due to concerns about increased market consolidation in the fertilizer industry. These groups argued that the acquisition could lead to higher fertilizer prices and reduced competition, as Koch Industries is already one of the dominant players in the market, controlling a substantial share of the U.S. nitrogen-based fertilizer market. Farmers and policymakers expressed fears that the acquisition would exacerbate the already high costs of fertilizers, which are crucial for agricultural production in Iowa and beyond.

The Federal Trade Commission (FTC) and the Department of Justice were urged to investigate and potentially block the merger due to these antitrust concerns. However, the acquisition proceeded, marking a significant expansion of Koch’s presence in the fertilizer market. The acquisition also involved the transfer of approximately 300 employees to Koch Fertilizer, a subsidiary of KAES.

— The impacts of Trump’a and Harris’ tax proposals were the topic of a New York Times article (link). Trump’s plan would add $5.8 trillion to the debt over 10 years, according to the Penn Wharton Budget Model. Harris’ plan would add $1.2 trillion to the debt over 10 years, according to the same model.

— USTR set to formally approve China Tariffs increase soon. The office of the US Trade Representative is set to formally approve tariff increases on billions of dollars in Chinese goods in the coming days, paving the way for them to go into effect two weeks later, according to a spokesperson.

MARKET FOCUS

— Equities today: Asian and European stock indexes were mixed to weaker overnight. U.S. stock indexes are pointed to lower openings. In Asia, Japan flat. Hong Kong -0.2%. China -0.3%. India flat. In Europe, at midday, London -0.5%. Paris -0.2%. Frankfurt -0.3%.

U.S. equities Friday: The Dow closed up 228.03 points, 0.55%, at 41,563.08. The Dow rose 1.8% on the month, which is its fourth monthly gain in a row. The S&P 500 also rose for its fourth month in a row. The market benchmark was up 56.44 points, 1.01%, on Friday, at 5,648.40. It rose 2.3% in August. For the year, the S&P 500 is up 18%. The Nasdaq rose 0.6% on the month and was up 197.19 points on Friday, 1.13%, at 17,713.62.

For the week, the S&P climbed +0.2%, while the Dow advanced +0.9%. The Nasdaq slipped -0.9%.

— Kamala Harris, during her visit to Pittsburgh on Labor Day, emphasized that U.S. Steel should remain “American owned.” This stance is likely to be disappointing for Nippon Steel, a Japanese company that is looking to acquire U.S. Steel for $15 billion. Harris’ comments align with her efforts to appeal to workers, particularly in key states like Michigan and Pennsylvania, which are crucial in her campaign trail. Notably, Donald Trump has also expressed opposition to the potential deal, indicating bipartisan concern over foreign ownership of such a significant American company.

Of note: Harris’ running mate, Tim Walz, told a Nippon official in June that he supported the deal, but this was before he joined the Democratic presidential ticket.

— Oil prices fell on Friday as investors weighed expectations of an increase in OPEC+ supply starting in October and dwindling hopes for a significant U.S. interest rate cut. Brent crude futures for October delivery dropped $1.14 (1.43%) to $78.80 a barrel, ending the week down 0.3% and the month down 2.4%. U.S. West Texas Intermediate (WTI) crude fell $2.36 (3.11%) to $73.55, down 1.7% for the week and 3.6% for August. Meanwhile, U.S. active oil rigs remained unchanged at 483 this week, with a slight increase in August, according to Baker Hughes.

— Ag markets today: Soybeans are mildly firmer this morning after light, two-sided trade overnight, while corn and wheat are weaker. As of 7:30 a.m. ET, corn futures were trading a penny lower, soybeans were mostly around a penny higher and wheat futures were 4 to 6 cents lower. The U.S. dollar index was around 150 points higher, and front-month crude oil futures were more than $1.00 lower this morning.

Post-Labor Day retailer beef demand in focus. With the passing of Labor Day, the summer “beef” holidays have ended. That will put a focus on retailer beef demand, as they gear up for pork features during October, which is national pork month.

Hog traders’ attention will shift to cash index. After actively narrowing the discount nearby lean hog futures hold to the cash hog index last week, buyer interest is likely to pause unless the index stabilizes. With the discount in October hogs down to $4.245 as of last Friday’s close, it’s unlikely traders will narrow it much more without signs of the cash index temporarily halting the seasonal slide.

— Agriculture markets Friday and for the week:

• Corn: December corn futures climbed a nickel to $4.01 and closed nearer session highs. That marked a 10-cent gain on the week.
• Soy complex: November soybean futures rose 7 1/2 cents to $10.00, nearer the daily high and hit a three-week high. For the week, November soybeans rose 27 cents. December soybean meal gained $2.10 to $313.00, near mid-range and hit a three-week high. On the week, December meal rose $8.50. December soybean oil futures fell 12 points to 42.01 cents, near mid-range and hit a five-week high early on today. For the week, December bean oil rose 163 points.
• Wheat: December SRW futures rose 2 3/4 cents to $5.51 1/2, gaining 23 1/2 cents on the week. December HRW futures closed 4 3/4 cents higher at $5.65 1/4, a 30 1/4 cent gain on the week.
• Cotton: December cotton futures rose 7 points to 69.99 cents and near mid-range. For the week, December cotton lost 92 points.
• Cattle: August live cattle went off the board at $185.85, up 97.5 cents, at noon today. October live cattle rose 70 cents to $178.60, thereby marking a weekly rise of $2.90. October feeder futures advanced $1.075 to $237.75, which represented a weekly gain of $3.375. Cash cattle prices fell for the sixth straight week, with the four-day average for the five-market area dipping to $183.74 from the prior week’s average of $185.54.
• Hogs: Nearby October gained edged up 5 cents to $82.225. The settlement price represented a weekly advance of $1.675 .

— Quotes of note:

• Economist warns inflation fight may soon shift to rising unemployment. Gauti Eggertsson, an economist at Brown University, introduces the “Beveridge threshold,” a concept explaining why inflation has fallen without a significant rise in unemployment. Eggertsson argues that while the economy has achieved a “soft landing,” the risk of rising unemployment may now surpass that of inflation. His analysis suggests that as the labor market cools, further reductions in inflation could become more painful, with unemployment potentially increasing beyond current levels. Eggertsson’s insights add a new layer of caution to current economic optimism. Link for more details via the New York Times.

• September has historically been a challenging month for equity markets, particularly for the S&P 500. According to Deutsche Bank, the S&P 500 has experienced declines in each of the last four Septembers. This historical trend suggests that September could be less promising for equity prices once again this year. The performance of equity markets in September may be significantly influenced by the August jobs report coming Friday morning.

— Three key changes to Social Security coming in 2025. In 2025, Social Security will see three significant changes that will affect both retirees and current workers. First, the Cost-of-Living Adjustment (COLA) is expected to be lower than in 2024, with a projected increase of 2.57% due to easing inflation. Second, the Full Retirement Age (FRA) will increase to 66 years and 10 months for those born in 1959, pushing it closer to the eventual age of 67 for those born in 1960 or later. Finally, the amount required to earn Social Security credits and the wage cap subject to Social Security taxes will both increase, reflecting ongoing adjustments for inflation.

— Thousands of U.S. hotel workers strike over wages and staffing. Thousands of hotel workers in 25 cities across the U.S. went on strike, demanding higher wages and increased staffing after contract talks with major hotel chains like Hyatt, Hilton, and Marriott stalled. The strike, expected to last two to three days, highlights ongoing concerns about the industry’s failure to restore staffing levels and guest services cut during the Covid-19 pandemic. Despite reports from the American Hotel and Lodging Association that 86% of member hotels raised wages in the first half of this year, many workers claim their pay still doesn’t cover the rising cost of living, forcing them to work multiple jobs.

Of note: Nearly half of those who walked off the job were in Hawaii.

— Ag economists expect USDA to lower 2024 net farm income forecast on Thursday. Ahead of ERS providing an updated 2024 net farm income forecast this Thursday, ag economists in the Ag Economists’ Monthly Monitor were asked their expectations for revisions in the report. Even with improvements in livestock margins, the August Ag Economists’ Monthly Monitor showed the majority of ag economists expect the further deterioration in crop prices to weigh on the overall net farm income picture and force the agency to revise their forecast lower.

· Nearly 57% expect USDA to revise its forecast
· 36% think the revision will be 5% to 10% lower
· 7% think USDA will leave its forecast unchanged from February

Market perspectives:

— Outside markets: The U.S. dollar index was firmer. Nymex crude oil prices are lower and trading around $72.25 a barrel. The benchmark 10-year U.S. Treasury note is presently fetching 3.905%.

— The International Longshoremen’s Association (ILA) broke off contract talks in June with the United States Maritime Alliance over the use of automation at ports, raising the risk of a strike this fall, the New York Times reports (link) The dispute centers on an automated gate, which the union says violates its labor contract. ILA President Harold J. Daggett said, “We will never allow automation to come into our union and try to put us out of work.” Stephen Edwards, CEO of the Port of Virginia, noted, “The semi-automated operations proved themselves all the way through the pandemic.” Talks remain at a standstill, and the current contract expires on Sept. 30, prompting concerns that a strike could disrupt supply chains.

— Goldman Sachs has slashed its copper forecast for next year by almost $5,000 a ton, saying China’s increasingly disappointing economic recovery will delay an expected rebound. The same pessimism over China is also hurting iron ore, which dropped to a two-week low Tuesday after losing its hold above $100 a ton.

— Grain trader and analyst Richard Crow says “The domestic demand for corn will be good. Ethanol margins are good, and the number of cattle, hogs, and chickens is holding together — the extra export demand centers around the more minor crops in the EU, Russia, and Ukraine. In general, the crop ideas, if true, are small enough to add 4 to 5 million tons of potential export demand. The demand will show at the beginning of January. China is the counter to the demand discussed. China has yet to buy any corn for the fall shipment.”

— Stronger soy crush, corn ethanol usage figures expected for July. Analysts expect USDA to report soybean crush totaled 191.7 million bu. for July, according to a Bloomberg survey. That would be a record for the month and up 4.4% from June and 3.7% above year-ago. Corn-for-ethanol use is expected to total 462.8 million bu., which would be up 4.6% from June and 1.7% above July 2023.

— India set for above-normal September rains, boosting crop prospects. India is expected to receive above-normal rainfall in September, the final month of the monsoon season, which could lead to a bumper harvest for key crops like rice and soybeans. The India Meteorological Department predicts precipitation will exceed 109% of the long-term average, improving soil moisture and potentially lowering food inflation. This bountiful rainfall may also replenish reservoirs, benefiting winter crops such as wheat and rapeseed. However, the risk of extreme weather events, including floods, remains a concern.

Of note: Showers in August were almost 16% more than the long-term average. Rains were about 32% higher than normal in the northwestern region in August, 18% more in central areas, and 1% higher in the southern parts; and almost 3% more in eastern and northeastern states.

— “The Truth Behind Trendy Sweeteners: Are Coconut, Date, and Other ‘Natural’ Sugars Actually Healthier?” is the title of a Consumer Reports article (link). It says popular sweeteners like coconut sugar, agave syrup, turbinado sugar, and date sugar are often marketed as healthier alternatives to regular white sugar due to their “natural” origins and supposed health benefits. However, experts advise caution. The articles says that while these sugars may have slightly lower glycemic indices and trace amounts of nutrients, they are not significantly healthier than table sugar. The benefits are minimal, and overconsumption can still have negative health effects. Bottom line, according to the report: Moderation remains key, regardless of the sugar type.

— Ag trade update: Algeria purchased at least 30,000 MT of corn to be sourced from Brazil or Argentina. Thailand purchased 120,000 MT of Black Sea origin feed wheat. Japan is seeking 87,660 MT of milling wheat in its weekly tender.

— NWS outlook: Areas of heavy rain and the potential for flash flooding continue in Texas and along the Gulf Coast the next couple of days... ...One more day of late-Summer heat for the north-central U.S. Tuesday before focus shifts to a building heat wave in the West Wednesday.

Items in Pro Farmer’s First Thing Today include:

• Beans firmer, corn and wheat weaker to start the week
• Cordonnier lowers U.S. yield, production forecasts
• Australia raises wheat crop forecast

CONGRESS

— House Speaker Johnson to propose short-term funding bill tied to controversial voting requirements. Punchbowl News reports that Speaker Mike Johnson (R-La.) is set to introduce a short-term funding bill next week that will keep federal agencies open until March, maintaining spending at levels established by the Fiscal Responsibility Act, but excluding “side deals” made between President Biden and former Speaker Kevin McCarthy. In a move to gain support from former President Donald Trump and the House Freedom Caucus, Johnson plans to attach the SAVE Act to the bill. This act, authored by Rep. Chip Roy (R-Texas), would require proof of citizenship for voter registration in federal elections. The inclusion of the SAVE Act is expected to face strong opposition from Democrats and the White House.

Of note: The SAVE Act passed the House with five Democratic votes back in July. But it will face certain defeat in the Senate, should it get there.

Outlook: More likely to occur is a continuing resolution that will extend into early December, leaving both sides to work on an omnibus package — or multiple minibuses — during the lame-duck session.

RUSSIA/UKRAINE

— Ukraine caps wheat exports. Ukraine’s ag ministry reached an agreement with exporters and farmer groups to cap wheat exports at 16.2 MMT for 2024-25. Ukraine exported 18.3 MMT of wheat in 2023-24. Through the first two months of the 2024-25 marketing year, Ukraine exported 3.59 MMT of wheat, up 2.53 MMT (239%) from the same period last year. The ministry said wheat is the only ag commodity that will have an export limit for 2024-25.

CHINA UPDATE

— China announced an anti-dumping investigation into Canadian canola exports, following Canada’s recent decision to impose 100% tariffs on Chinese electric vehicles and a 25% levy on Chinese steel and aluminum. The Chinese Ministry of Commerce claims that Canadian canola exports have significantly increased, potentially causing losses for domestic producers. This move intensifies the ongoing trade conflict between the two nations, which has seen similar measures targeting Chinese goods by the U.S. and EU.

Canada is the world’s largest exporter of canola, widely used to produce vegetable oil. The country counts China as its second-largest market for the commodity, according to the Canola Council of Canada, an industry association. Canada’s canola shipments to China were $3.47 billion (C) in 2023, up 170% from a year earlier by volume, the commerce ministry spokesperson said. The trade relationship, however, has been fraught with tensions, including past bans on Canadian canola imports due to quality disputes.

Market impacts: The most actively traded rapeseed meal and rapeseed oil futures on China’s Zhengzhou Commodity Exchange surged at least 6% on Tuesday. Canola futures in North America fell by the exchange limit in the biggest intraday loss since August 2022, on fears that lower Chinese demand could result in a glut at home. Meanwhile, palm oil futures rose 1.1% in Malaysia on speculation that the probe may spark increased demand for alternative oilseeds.

More than 90% of China’s total rapeseed/canola imports last year were from Canada, totaling 5.05 million tons, according to Chinese customs data. The variety of the crop grown in Canada is also known as canola.

— U.S. climate envoy John Podesta is visiting China from Sept. 4 to 6, for discussions on climate change issues. This visit marks the second round of formal climate talks between the U.S. and China since Podesta replaced John Kerry as the senior climate envoy. During his visit, Podesta is scheduled to meet with his Chinese counterpart, Liu Zhenmin, to discuss ways to enhance cooperation on climate change.

One of the key topics on the agenda is the New Collective Quantified Goal (NCQG) on climate finance. This initiative aims to set a new financial target to support developing countries in their climate actions post-2025. The NCQG is designed to build on the previous commitment made at the Copenhagen Climate Summit in 2009, where developed countries pledged to mobilize $100 billion per year by 2020. The goal of the NCQG is to significantly ramp up international financial support for climate action, potentially increasing the target to $1 trillion per year.

The U.S. is pushing China to set more ambitious climate targets and contribute to the NCQG, which aims to deliver billions of dollars to help developing countries boost their climate ambitions. This effort is particularly important as a deadline approaches for countries to submit new “nationally determined contributions” to the United Nations. The discussions between Podesta and Chinese officials are expected to focus on how both nations can collaborate to improve emissions reductions, particularly in areas like methane and hydrofluorocarbons, despite existing trade disagreements.

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