China: Big Boost in Soymeal Exports | Blocks Beef from Two U.S. Facilities | Lifts Ban on More Aussie Beef Exporters

U.S. GDP downgraded for Q1 2024 | Bird flu: potential actions on milk testing | SAF credit no show for ethanol? | Even bigger U.S. ag trade gap forecast

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May 30, 2024 08:46 AM

U.S. GDP downgraded for Q1 2024 | Bird flu: potential actions on milk testing | SAF credit no show for ethanol? | Even bigger U.S. ag trade gap forecast

Today’s Digital Newspaper

MARKET FOCUS

U.S. GDP Q1 2024 growth revised lower
Dimon says there’ll be ‘hell to pay’ in private credit risks
Key points from Fed’s Beige Book
Ag markets today
USDA raises forecast for ag imports; exports unchanged; ag trade deficit of $32 bil.
Beige Book: Higher commodity prices ease anticipated decline in farm income for 2024
Ag trade update
NWS weather outlook
Pro Farmer First Thing Today items

ISRAEL/HAMAS CONFLICT

Israel has military control of a buffer zone on border between Gaza and Egypt
Israel expects to continue war in Gaza until end of year

RUSSIA & UKRAINE

Russia proposes tax increases to generate more revenue to fund war in Ukraine
EU agrees to hike tariffs on Russian grain imports from July
Sharp drop in Ukrainian grain exports expected in 2024-25

PERSONNEL

Cleveland Fed announces new chief

CHINA

China blocks beef shipments from two U.S. facilities
China exporting unusual amounts of soymeal
China lifts ban on more Aussie beef exporters, allows some Russian beef imports
Chinese developer in advanced talks with banks for significant loan
Blacklisted Chinese companies rebrand as American to dodge crackdown

TRADE POLICY

Trump’s tariff threat could delay Fed rate cuts: Deutsche Bank
USTR extends Section 301 tariff exclusions

ENERGY & CLIMATE CHANGE

Reuters: Little to no ethanol will qualify for SAF
Republicans warn Biden against using strategic oil reserve to lower gas prices
Germany and France urge EU to halt fraudulent biofuel imports
VCMs are complex, especially when gov’t issues guidance
Dems urge DOJ to investigate oil and gas companies for potential collusion
White House supporting development of large-scale nuclear reactors

LIVESTOCK, NUTRITION & FOOD INDUSTRY

Reuters: USDA proposing to allow bulk testing of milk
APHIS Reports H5N1 bird flu detections in mammals and wild birds
Major retailers reducing prices to woo shoppers cutting back on spending re: inflation
Rising demand for bargains in grocery aisle boosting store-directed products

HEALTH UPDATE

U.S. nears deal to fund Moderna’s H5N1 vaccine trial

POLITICS & ELECTIONS

Biden’s advantage with young voters disappears
2024 presidential election will have significantly changed electorate since 2020

OTHER ITEMS OF NOTE

EPA union secures first-ever scientific integrity protections

MARKET FOCUS

— Equities today: Asian and European stock indexes were mostly weaker overnight. U.S. Dow opened around 370 points lower. In Asia, Japan -1.3%. Hong Kong -1.3%. China -0.6%. India -0.8%. In Europe, at midday, London +0.2%. Paris +0.2%. Frankfurt flat.

U.S. equities yesterday: All three major indices opened with losses and remained lower the entire session. The Dow fell 411.32 points, 1.06%, at 38,441.54. The Nasdaq lost 99.30 points, 0.58%, at 16,920.58. The S&P 500 was down 39.09 points, 0.74%, at 5,266.95.

— Ag markets today: Wheat futures faced active followthrough selling overnight, while corn and soybeans favored the downside in two-sided trade. As of 7:30 a.m. ET, corn futures were trading 1 to 2 cents lower, soybeans were narrowly mixed, SRW wheat futures were 7 to 8 cents lower, HRW wheat was mostly a nickel lower and HRS wheat was 2 to 3 cents lower. The U.S. dollar index was down more than 200 points, and front-month crude oil futures were trading just above unchanged.

Cash cattle hopes soften. Feedlots remain focused on trying to secure higher cash cattle prices for a sixth consecutive week. But the pattern has been for a brief (three to five week) period of price pressure after the cash market has posted previous record highs. Any active followthrough to Wednesday’s sharp losses in futures would add another hurdle to feedlots’ hopes of higher cash prices. Most cash sources expect weaker cash trade to eventually surface.

Cash hog fundamentals weaken. The CME lean hog index is down another 47 cents to $90.79 as of May 28, marking the seventh straight daily decline. During that span, the cash index has dropped $1.50. That pork cutout fell $1.66 on Wednesday as most cuts that posted gains the previous day declined, led by a $4.08 drop in bellies and a $3.95 loss in loins.

— Agriculture markets yesterday:

Corn: July corn fell 7 1/4 cents to $4.55 1/4, ending the session below the 20- and 10-day moving averages.
Soy complex: July soybeans fell 15 1/2 cents to $12.14 and near the session low. July soybean meal lost $7.50 at $369.10 and near the session low. July soybean oil gained 36 points at 45.88 cents and nearer the session high.
Wheat: July SRW wheat closed 7 1/2 cents lower at $6.92 3/4, while July HRW fell 11 1/2 cents to $7.19 3/4. Both closed nearer session lows. July HRS futures fell 5 1/2 cents to $7.52.
Cotton: July cotton futures fell 133 points to 81.10 cents and near mid-range.
Cattle: Concerns about a short-term cash market top seemed to undercut cattle futures Wednesday, with June live cattle falling $1.20 to $183.35 and August feeder futures plunging $4.35 to $260.25. As noted previously, the cash price of fed steers set an all-time high of $190.09 last week.
Hogs: July lean hog futures fell 20 cents to $96.325 and scored a fresh for-the-move low, while nearby June futures slipped 2.5 cents to $93.775.

— Quotes of note:

Dimon says there’ll be “hell to pay” in private credit risks, especially as retail investors gain access to the asset class and encounter its risks. The industry hasn’t yet been tested by bad markets, which tend to expose the “weaknesses of new products.” Meanwhile, Goldman has put together a $21 billion war chest for private credit wagers.
“Chinese firms take a blow but then adjust business strategy and are able to move in another direction.” — Derek Scissors, a former member of the U.S./China Economic and Security Review Commission.

— USDA raises forecast for ag imports; exports unchanged. USDA projects U.S. agricultural exports at $170.5 billion in fiscal year (FY) 2024, unchanged from the February outlook. Ag imports are now forecast at $202.5 billion, a $1.5-billion increase from the February projection. That would result in a record ag trade deficit of $32.0 billion, up from $30.5 billion indicated in February and nearly double the FY 2023 red ink of $16.7 billion. Link to USDA report.

Details: Higher exports of livestock and dairy, as well as increased ethanol sales largely offset reductions in grains and feeds, oilseeds and horticultural products.

At $27.7 billion, China is projected to fall below Mexico and Canada to the third largest U.S. agricultural market. The export forecast for China was cut $1.0 billion from the previous quarter, largely due to continued strong competition on soybeans and corn. Exports to Mexico are forecast to rise by $300 million to $28.7 billion, whereas shipments to Canada are forecast up $400 million to $28.4 billion, both record highs.

Of note: The increase in projected ag imports was predominantly driven by higher horticultural products as well as livestock and dairy imports. Imports of horticultural products are now forecast at $99.6 billion, accounting for nearly half of all agricultural imports, and are seen $2.8 billion higher (3%) than FY 2023. The U.S. horticultural exports are forecast at $39 billion, a $500 million trim reduction from USDA’s prior outlook.

As for the U.S. dollar, USDA said it “remains strong against many currencies and is forecast to appreciate moderately” into calendar year 2024, but is expected to weaken against currencies in major trading partners. The slowing of the increase in the greenback “is expected to ease some of the pressure that has been bolstering imports and challenging exports in recent years.”

USDA also cited ocean transportation costs have risen this year on low Panama Canal levels and the situation in the Red Sea.

Bottom line: The updated outlook does not alleviate concerns about U.S. ag exports or the ag industry’s worries regarding the Biden administration’s lack of new free trade agreements to remove barriers for U.S. goods in foreign markets. Midway through FY 2024, U.S. ag exports are at 55% of the USDA forecast, while imports are at 50% of the updated level. This coming period typically sees little expansion in the value of U.S. agricultural exports, further heightening concerns.

— Federal Reserve’s Beige Book, released on May 29, 2024, provides an anecdotal recap of economic conditions across the 12 Federal Reserve districts. Here are the key points related to inflation and consumer pushback:

Inflation and Consumer Pushback

Price increases: The Beige Book noted that prices continued to rise modestly since the previous report. However, there has been significant consumer pushback against these price increases, leading some businesses to offer discounts and accept smaller profit margins.
Inflation mentions: The term “inflation” appears 11 times in the May report, down from the April version. Despite this, Federal Reserve officials have emphasized that inflation remains too high and is not yet on a sustainable path toward the 2% target.

Economic Activity and Outlook

Economic expansion: The U.S. economy continued to expand slightly from early April to mid-May, with conditions varying across industries and districts. Most districts reported slight or modest growth, while two noted no change in activity.
Consumer spending: Retail spending was flat to slightly up, reflecting decreased discretionary spending and heightened consumer sensitivity to price increases. Auto sales were roughly flat, with some manufacturers offering incentives.
Business sentiment: Businesses have grown somewhat more pessimistic about the economic outlook due to rising uncertainty and greater downside risks. This sentiment is influenced by persistent inflation, high interest rates, and political uncertainty.

Labor Market and Wages

Employment: Employment rose slightly overall, with eight districts reporting modest job gains and four reporting no change. Labor availability improved, though some shortages remained in select industries. Wage growth continued at a moderate pace, with some districts reporting normalization to pre-pandemic levels.

Upcoming Economic Data

PCE Price Index: The Personal Consumption Expenditures (PCE) Price Index update, due on May 31, 2024, will be a critical input for Federal Reserve officials as they prepare for the June 11-12 meeting. This index is the Fed’s preferred measure of inflation.
CPI data: The Consumer Price Index (CPI) data for May, arriving on the morning of the meeting’s conclusion, will also be closely watched. The wholesale inflation update is scheduled for June 13.

Fed’s Stance on Inflation

High inflation concerns: Despite some signs of easing, Fed officials remain concerned that inflation is still too high. They are not yet convinced that inflation is sustainably headed toward their 2% goal, which is the threshold for considering a reduction in the target range for the federal funds rate.

Bottom line: The May 2024 Beige Book highlights ongoing modest price increases and significant consumer pushback, leading to smaller profit margins for businesses. While the economy continues to expand slightly, persistent inflation and high interest rates contribute to a more pessimistic business outlook. Upcoming PCE and CPI data will be crucial for the Fed’s decision-making process as they assess whether inflation is moving toward their 2% target.

— Higher commodity prices have softened the anticipated decline in farm income for 2024, according to Federal Reserve regional banks in the Beige Book report. Corn, soybean, and wheat prices rose in the spring, improving the agricultural sector’s outlook despite expectations of lower farm income compared to 2023. The Chicago and Dallas banks noted concerns over bird flu in dairy cattle.

The Chicago Fed reported a slight increase in prospects for 2024 farm income but still below 2023 levels. Livestock prices rose, although egg prices fell.

The Dallas Fed mentioned that avian influenza in dairy cows could affect milk supply but not food safety due to pasteurization. Cotton production is expected to rise with easing drought conditions, but cotton prices have decreased.

The Kansas City Fed observed that the agricultural economy softened, with increased crop prices but narrow profit opportunities.

The Minneapolis Fed reported weak agricultural conditions despite some positive developments like reduced production costs. The St. Louis Fed cited higher labor costs as an additional stressor.

The Atlanta Fed indicated that row crop farmers struggled with low demand and excess supply, with many not expecting to turn a profit this year. Poultry producers saw revenue improvements from domestic sales due to reduced supply from avian influenza.

The San Francisco Fed noted some sawmills closed due to sluggish demand.

Market perspectives:

— Outside markets: The U.S. dollar index was firmer, with the yen weaker against the U.S. currency. The yield on the 10-year U.S. Treasury note was weaker, trading around 4.59%, with a lower tone in global government bond yields. Crude oil futures shifted lower ahead of U.S. gov’t inventory data that was delayed a day by the Monday U.S. holiday. U.S. crude was trading around $78.85 per barrel and Brent around $82.95 per barrel. Gold was higher ahead of US economic data, trading around $2,355 per troy ounce, with silver weaker around $31.34 per troy ounce.

— Ag trade update: Taiwan purchased 96,850 MT of U.S. milling wheat. Thailand purchased 60,000 MT of optional origin feed wheat. South Korea tendered to buy up to 132,000 MT of optional origin feed wheat, excluding Brazil, Argentina, Denmark, China, India, Pakistan, Russia and Ukraine.

— NWS weather outlook: More active weather across the mid sections of the nation, with additional rounds of thunderstorms, heavy rains, flash flooding and severe weather... ...Heat to continue across the Southwest to South Texas and much of Florida, while building across the inland valleys of California... ...Cooler than average temperatures for the Plains and large portions of the eastern U.S. through early this weekend.

Items in Pro Farmer’s First Thing Today include:

• Wheat paces mostly weaker overnight price action
• Weekly export sales data pushed back to Friday
• Eurozone economic sentiment hits four-month high

ISRAEL/HAMAS CONFLICT

— Israel says it has military control of a buffer zone on the border between Gaza and Egypt. The Israel Defense Forces said Wednesday that it had gained “tactical control over the Philadelphi corridor,” a narrow strip of land separating Gaza from Egypt, and a key target of Israel’s offensive.

Meanwhile, Israel expects to continue the war in Gaza until the end of the year to achieve its goal of “destroying” Hamas’s rule in the besieged Palestinian territory, a top security official has said. Tzachi Hanegbi, the country’s national security adviser and a confidant of Prime Minister Benjamin Netanyahu, said Israel’s original war plan against Hamas defined “the year 2024 as a year of combat. We’re now in the fifth month of 2024, which means that this year we are expecting another seven months of fighting.”

“What’s needed is patience and to know how to stand strong,” Hanegbi said. “This is what has allowed this nation to survive for 75 years, and before that for 3,000 years. Not to stand there with a stopwatch for ourselves or set . . . ultimatums.”

RUSSIA/UKRAINE

— EU agrees to hike tariffs on Russian grain imports from July. The European Union agreed to hike tariffs on imports of Russian grain to curb the Kremlin’s revenues and prevent those shipments from destabilizing the region’s farm sector. The tariffs, which also apply to Belarusian grain, will be in place from July 1, EU trade chief Valdis Dombrovskis said.

— Sharp drop in Ukrainian grain exports expected in 2024-25. Ukraine’s grain exports are forecast to fall to around 38 MMT to 40 MMT in 2024-25 compared with around 50 MMT in the current marketing year, acting Ag Minister Taras Vysotskiy told Reuters. The expected sharp decline in exports is due to smaller production.

— Russia launched plans to sharply raise taxes on high earners and companies to fill state coffers and fund what it sees as a long war in Ukraine. Russia is moving away from its flat income tax system, which has been in place since 2001. The new tax structure will introduce progressive income tax rates, significantly increasing the tax burden on high earners. These changes are expected to affect around 2 million people, or approximately 3.2% of the workforce. The majority of Russians, who currently pay a flat rate of 13%, will not be affected by these increases.

The corporate tax rate will be raised from 20% to 25%. This increase is expected to generate significant additional revenue for the government, estimated at 1.6 trillion rubles ($18 billion) in 2025 and 11.1 trillion rubles ($125.3 billion) by 2030. The Finance Ministry explained that the increase is due to the growing share of profitable companies in the economy. The government aims to ensure that these companies contribute more to the state budget, especially given the increased military spending.

The proposed tax amendments also include increases in the mineral extraction tax for iron ore, potash, and phosphate fertilizer producers. These changes are expected to bring in additional revenue from the natural resources sector.

Soldiers fighting in Ukraine will be granted tax exemptions, and families with two or more children will receive rebates, as part of the government’s efforts to support certain groups while raising overall tax revenue.

PERSONNEL

— Cleveland Fed announces new chief. The Federal Reserve Bank of Cleveland announced Wednesday that Beth Hammack, a Goldman Sachs executive and longtime finance industry leader, will be the next president and CEO. Starting Aug. 21, Hammack will succeed Loretta Mester, who steps down June 30. First Vice President Mark Meder will serve as the interim president. As the Cleveland Fed chief, Hammack will have a vote on the Federal Open Market Committee (FOMC), which will weigh when and if to cut interest rates in the coming months. Hammack was most recently as co-head of global financing at Goldman Sachs, which she joined as an analyst in 1993 and became a partner and co-head of U.S. cash interest rates trading in 2010. A Stanford University graduate, Hammack holds degrees in quantitative economics and history.

CHINA UPDATE

— China blocks beef shipments from two U.S. facilities, according to USDA’s Food Safety and Inspection Service (FSIS). The affected facilities are Swift Beef Company in Greeley, Colorado, and Cool Port Oakland in Oakland, California. The delisting, effective May 27, is reportedly due to traces of ractopamine found in beef from the Greeley plant, as stated by JBS. JBS, the world’s largest meat processor, said it is cooperating with U.S. and Chinese authorities to resolve the issue. No other JBS beef plants in the U.S. have been affected. Ractopamine is a controversial feed additive used to promote lean muscle growth in animals, but it is banned in many countries including China due to food safety concerns.

In conjunction with the JBS suspension, USDA also reported that meat and poultry products originating from Cool Port Oakland, a cold storage facility in Oakland, California, were barred from export to China effective May 27. Cool Port Oakland is a major hub for storing and shipping perishable goods like meat and pharmaceuticals.

— China exporting unusual amounts of soymeal. China is sending record quantities of soymeal abroad, as a shrinking number of pigs and weak demand for pork force processors to export their surplus animal feed. Bloomberg (link) says cash-strapped Chinese consumers aren’t spending like they used to, and farmers have reduced their hog herds because prices are too low, limiting demand for feed. That’s dropped domestic soymeal prices to near three-year lows. China’s soymeal exports climbed to almost 600,000 MT in the first four months of 2024, which is nearly five times the level of the previous year.

— China lifts ban on more Aussie beef exporters, allows some Russian beef imports. China lifted bans on imports from five major Australian beef processing facilities, the Australian government said. China has removed restrictions for eight Australian beef plants, while two are still banned from making shipments. China was Australia’s second biggest beef export market last year, receiving 240,000 MT worth around $1.6 billion, according to Australian trade data. China will also allow imports of Russian beef from cattle under 30 months of age, while permitting shipments of by-products including frozen beef tendons and hoofs, stomach and cartilage.

— Chinese developer in advanced talks with banks for significant loan. China Vanke Co., the Chinese state-backed developer that’s become the latest flashpoint in the nation’s property crisis, is in advanced talks with major banks for a loan of about 50 billion yuan ($6.9 billion), people familiar with the matter told Bloomberg. If signed, it would be the largest loan in Asia Pacific, excluding Japan, since 2022. China’s second largest developer, once considered a sound player in the sector, particularly given the state backing, has been raising funds to calm investors’ concern over its liquidity strains.

— Blacklisted Chinese companies rebrand as American to dodge crackdown. To circumvent Washington’s anti-China policies, blacklisted Chinese companies are rebranding as American entities and creating U.S.-domiciled businesses, the Wall Street Journal reports (link). This strategy allows them to continue selling their products in the U.S. despite expanded government entity lists that restrict their business dealings. Policymakers and national-security experts highlight this trend, noting that the blacklisting also creates opportunities for American entrepreneurs to collaborate with popular Chinese firms. Derek Scissors, a former commissioner on the U.S./China Economic and Security Review Commission, stated that Chinese firms adapt their business strategies to mitigate the impact of these restrictions.

Policymakers and national security experts have highlighted this emerging trend, with a House aide warning that “the shell game is going to intensify” as the U.S. increasingly relies on blacklists to identify problematic Chinese entities. While allowing blacklisted firms to continue operations, this rebranding strategy also creates opportunities for American entrepreneurs and businesses to collaborate with popular Chinese technology companies. But other experts suggest a more effective approach would be to impose broader sanctions on entire Chinese technology sectors rather than targeting individual firms, which can exploit loopholes through rebranding tactics.

TRADE POLICY

— Trump’s tariff threat could delay Fed rate cuts: Deutsche Bank. Deutsche Bank warns that potential trade restrictions under a Donald Trump administration could negatively impact the U.S. economy by increasing inflation and delaying Federal Reserve interest rate cuts until 2025.

Inflation impacts: Proposed tariffs could increase headline personal consumption expenditure (PCE) by 120 basis points and core PCE by 140 basis points. With inflation already high, these tariffs could further delay rate cuts by the Federal Reserve, according to the analysis.

Chief among the trade-related policy proposals from the Trump campaign cited by Deutsche Bank are:

A universal 10% minimum tariff on all imports.
Removal of China’s most favored nation status and higher tariffs on Chinese imports.
Reciprocal tariffs on U.S. exports.
Additional tariffs on imports like autos from Europe.

Market expectations: While some traders anticipate a rate cut by December, Deutsche Bank expects only one 25 basis point reduction this year.

Economic risks: Increased tariffs could counteract positive supply dynamics, raising inflation pressures and hindering growth.

Bottom line: These trade policies could complicate the Federal Reserve’s efforts to manage inflation and economic growth.

— USTR extends Section 301 tariff exclusions. The Office of the US Trade Representative (USTR) published a notice (link) in the Federal Register that will extend Section 301 tariff exclusions for 432 products (352 that were previously reinstated and 77 COVID-related exclusions) on imports from China that were to expire May 31 with all extended through June 14 to provide a “transition period” and certain others will be extended through May 31, 2025.

ENERGY & CLIMATE CHANGE

— Reuters: Little to no ethanol will qualify for SAF credits. Little to no ethanol will qualify for U.S. sustainable aviation fuel (SAF) credits under a new pilot program by President Joe Biden’s administration, which toughened climate requirements, according to Reuters. A Reuters review of data from USDA suggests almost no U.S. corn farmers use no-till, plant cover crops and use high efficiency fertilizer at the same time, as required by the new guidelines. Nationally, continuous no-till is used on about 33% of cropland acres, efficient fertilizer application on about 26% and cover crops on about 6%, according to a 2022 USDA report. There was no breakdown by crop or for corn destined for ethanol production facilities. Officials at five ag and biofuel trade groups told Reuters few, if any, ethanol makers will be able to meet the standard. The pilot program covers ethanol produced in 2023 and 2024 and will be replaced by a new program in 2025 that biofuel groups hope will be less restrictive.

New SAF credit requirements

Climate-smart agriculture practices: The Biden administration’s pilot program for SAF credits requires corn farmers to use a combination of no-till farming, cover crops, and enhanced efficiency nitrogen fertilizer to qualify for the credits. These practices are aimed at reducing greenhouse gas (GHG) emissions from the production of corn ethanol used in SAF.
SAF credit details: Producers of SAF are eligible for a tax credit of $1.25 per gallon if their fuel achieves a 50% reduction in GHG emissions compared to petroleum-based jet fuel. An additional $0.01 per gallon is available for each percentage point the reduction exceeds 50%, up to a maximum of $1.75 per gallon.

Bottom line: The SAF market is seen as a significant opportunity for corn and soybean farmers, especially given the current oversupply and lower returns on these commodities. However, the stringent requirements for SAF credits pose a challenge to realizing this potential. The Biden administration aims to boost SAF production to 3 billion gallons per year by 2030, contributing to the goal of net-zero emissions by 2050.

Of note: Conjecture continues that upcoming Treasury/EPA/Energy/USDA rules/regs on the next program, 45Z or the Clean Fuel Production Credit, will be more flexible when it comes to making corn-based ethanol eligible for the credits. But even if this develops, stakeholders wonder how long it will take the U.S. gov’t to officially release regulations as it took them 21 months after the Inflation Reduction Act (Climate Bill) was signed into law to release updated GREET model and other info relative to the 40B (SAF) program.

— Republicans warn Biden against using strategic oil reserve to lower gas prices. Top Republicans have cautioned the Biden administration against using the Strategic Petroleum Reserve (SPR) to reduce gasoline prices ahead of the presidential election. In a letter to Energy Secretary Jennifer Granholm, Rep. Cathy McMorris Rodgers (R-Wash.) and Senator John Barrasso (R-Wyo.) criticized potential releases from the SPR, arguing it would compromise U.S. energy and national security.

U.S. gasoline prices have risen 15% this year, with a further spike expected in the summer. The national average price of regular gas is currently around $3.62 per gallon, with some states experiencing even higher prices.

Republicans accuse President Biden of using the SPR for political gain, especially with the recent release of 180 million barrels before the 2022 midterms. The reserve is at its lowest since the 1980s, holding about 370 million barrels, down from its capacity of over 700 million barrels. Republicans have proposed several strategies to address rising gas prices, focusing primarily on increasing domestic energy production and reducing regulatory constraints.

The Energy Department is gradually refilling the SPR, which was originally created after the Arab oil embargo in the 1970s. The Biden administration defends past SPR releases as necessary due to supply disruptions from Russia’s invasion of Ukraine and congressional mandates.

Background: The SPR was created after the Arab oil embargo in the 1970s to mitigate future supply disruptions and strengthen U.S. energy security. It is the world’s largest stockpile of emergency crude oil, stored in underground salt caverns along the Gulf Coast. There is ongoing debate over the SPR’s role and effectiveness. Some policymakers argue that the SPR should be used strictly for severe supply disruptions, while others believe it can also be used to stabilize prices during market volatility.

— Germany and France urge EU to halt fraudulent biofuel imports. Germany and France are urging the European Union to intensify measures against the import of fraudulent biofuel, particularly from China, which uses ingredients like used cooking oil (UCO). These imports are disrupting global markets and undercutting EU producers, Bloomberg reported.

France, Germany, and the Netherlands suggest stricter EU rules for verifying biofuel production facilities before imports are allowed. EU producers claim they are being undercut by Asian companies mixing cheaper feedstocks and mislabeling fuels to qualify for EU incentives aimed at promoting advanced biofuels like those made from UCO.

The European Waste-based & Advanced Biofuels Association is treating these concerns as a high priority and taking steps involving certification schemes and customs authorities.

EU producers submitted several pieces of evidence to support their anti-dumping complaint against Chinese biodiesel imports. Here are the key points:

Artificially low prices: EU producers provided evidence that biodiesel imports from China were entering the EU market at artificially low prices. These low prices were claimed to be significantly below the normal value, making it difficult for EU producers to compete.
Market impact: The complaint highlighted the serious harm these low-priced imports were causing to the EU biodiesel industry. This included a collapse in the market and the closure of production sites in several EU member states.
Mislabeling and fraud: The European Biodiesel Board (EBB) raised concerns about large-scale fraud involving the certification of biodiesel under the EU’s Renewable Energy Directive (RED). They alleged that Chinese biodiesel was often mislabeled as “advanced” or “waste-based” to qualify for higher incentives, despite not meeting these criteria.
Circumvention of duties: There were allegations that biodiesel from Indonesia was being re-exported through China to circumvent existing EU duties on Indonesian biodiesel. This practice was part of the broader structural imbalances in the trade of Chinese biodiesel to Europe.
Significant distortions: The complaint also relied on the European Commission’s findings of significant distortions in the Chinese economy, particularly in sectors like land, energy, capital, and labor. These distortions were used to argue that domestic prices and costs in China were not appropriate benchmarks for determining normal value.
Dumping margins: The dumping margins calculated based on a comparison of constructed normal values (reflecting undistorted prices or benchmarks) with the export prices of the product under investigation were found to be significant.

U.S. business groups have similarly demanded increased levies on Chinese used cooking oil, claiming it undercuts American biofuel crops.

The EU initiated an anti-dumping investigation into Chinese biodiesel in late 2023, following complaints from the European biodiesel industry about unfair pricing.

The proposal must be advanced by the European Commission and approved by a majority of EU member states to become a rule. The initiative aims to protect the integrity of the EU’s renewable energy targets and support domestic biofuel producers.

— Voluntary Carbon Markets (VCMs) are complex, but especially when the gov’t issues guidance. Tax expert Paul Neiffer was on AgriTalk Wednesday morning discussing VCMs based on the guidance issued by the Biden administration. Says Neiffer: “I am not sure who wrote the guidance, but they could have learned to use some more white space. I think I counted at least five paragraphs that were at least 14 lines long and one clocked in at 20 lines. Not an easy read.” Listen to the session and you can see why.

— Dems urge DOJ to investigate oil and gas companies for potential collusion. Senate Majority Leader Chuck Schumer (D-N.Y.) and other Democrats urged the Justice Department to investigate oil and gas companies for potential collusion or price-fixing. As the election season approaches, congressional Democrats have intensified their scrutiny of the industry, criticizing record profits and insufficient efforts to reduce greenhouse gas emissions. This call for investigation follows the Federal Trade Commission’s allegation of finding evidence of price-fixing involving American oil executive Scott Sheffield and OPEC officials.

— White House is supporting the development of large-scale nuclear reactors, introducing new measures to speed up their construction. The last commercial-scale reactor built in the U.S., Southern Co.'s Vogtle project, was significantly over budget and delayed. Despite these challenges, the Biden administration emphasizes the necessity of nuclear energy to achieve climate and clean power goals. However, since 2013, a dozen reactors have closed, unable to compete with cheaper natural gas and renewable energy sources.

LIVESTOCK, NUTRITION & FOOD INDUSTRY

— Reuters: USDA is proposing to allow bulk testing of milk, rather than testing milk from individual cows, before approving shipments. This proposal follows a requirement from late April that lactating cows test negative for highly pathogenic avian influenza (HPAI) before being transported across state lines. A pilot program for bulk testing could start in June, with officials in six states reviewing the plan.

The International Dairy Foods Association (IDFA) supports the initiative, stating it could help reduce the threat of H5N1 in dairy herds, protect farm workers, and secure the milk supply. Farmers favor bulk testing as it is more efficient for large herds.

To participate, bulk tanks must have three consecutive weeks of negative tests. Once approved, farms would then need to continue weekly bulk tank testing to maintain eligibility for interstate movement without individual animal testing.

However, some question whether three weeks of testing is sufficient before allowing bulk testing instead of individual animal testing. There are also concerns about the logistics of implementing the bulk testing program, such as how samples will be collected, shipped, and tested at approved laboratories.

— APHIS Reports H5N1 bird flu detections in mammals and wild birds. USDA’s Animal and Plant Health Inspection Service (APHIS) reported 15 new H5N1 bird flu detections in mammals across six states, with sample dates from mid-April to mid-May. This includes outbreaks in dairy cattle counties. Link

Mammal detections

States: New Mexico, Michigan, Montana, and South Dakota

Animals

Domestic cats (eight detections), red fox, and a raccoon.
Virus Strain: A reassortant between the Eurasian and North American wild bird lineages found in all cat samples and one red fox sample.

Wild Bird Detections

Locations: East Coast states including New Hampshire, Maine, Rhode Island, and Virginia.
Virus Strain: Eurasian H5N1.

— Major retailers are significantly reducing prices to attract shoppers who have cut back on spending due to inflation. Walgreens announced price cuts on 1,500 items, joining Target, Walmart, and Amazon, which have also lowered prices on thousands of household goods. Experts note that high prices are making Americans prioritize needs over wants, leading to decreased shopping. This trend has forced some retail chains into bankruptcy; for example, 99 Cents Only filed for bankruptcy in April, closing all 370 locations. Dollar Tree acquired 170 of these leases and plans to offer discount products starting in the fall.

— The rising demand for bargains in the grocery aisle is boosting business for store-directed manufacturing and distribution. As food-price inflation increases, Americans are turning to lower-cost store-brand goods, the Wall Street Journal reports (link). Private-label products now account for a record 22% of grocery store spending, following a 26% rise in food prices over the past five years. This shift is affecting companies like Campbell Soup and Mondelez, while retailers like Walmart are investing more in private-label brands. Companies specializing in store-brand goods, such as Aldi, are expanding. Henk Hartong, CEO of a private-label supplier, notes that retailers will need more manufacturing capacity to meet their private-label brand goals.

HEALTH UPDATE

— U.S. nears deal to fund Moderna’s H5N1 vaccine trial. The U.S. government is nearing an agreement to fund a late-stage trial of Moderna’s mRNA H5N1 vaccine, the Financial Times reported (link/paywall), as the outbreak spreads. Federal funding from the Biomedical Advanced Research and Development Authority (BARDA) could come as soon as next month and would include a promise to procure doses if late-stage trials are successful, the report said, citing people close to the discussions. As we previously reported, the U.S., Canada and Europe have been in active talks with CSL Seqirus and GSK to acquire or manufacture H5N1 vaccines, which could be used to protect at-risk poultry and dairy workers, veterinarians and lab technicians. The U.S. government is also in “active conversations” with mRNA vaccine makers Pfizer and Moderna on a potential H5N1 vaccine for humans.

POLITICS & ELECTIONS

— Biden’s advantage with young voters has disappeared. President Joe Biden and former President Donald Trump remained tied in April among voters nationwide, with Trump continuing to outperform his 2020 margins among voters who are under 35, Black, Hispanic or independents. Among voters 34 or under, Trump narrowly leads, 41% to 40%. When Morning Consult’s tracking of this race began in December of 2022, Biden held a nine-point advantage with this cohort. Exit polling found he won 18–34-year-olds by 21 points in 2020.

— 2024 presidential election will be the first rematch in decades, with a significantly changed electorate since 2020. Over 31 million eligible voters have been added since the last presidential election, including new residents, those who turned 18, and new U.S. citizens. This is nearly one million more than after the 2016 election, according to estimates from a Bloomberg News analysis of government and private data. While less-populous states saw more change, battleground states like Michigan, Pennsylvania, and Wisconsin also experienced significant shifts. In these Rust Belt states, at least 10% of the voting-age population has changed since the last Biden-Trump matchup.

Meanwhile, at a Philadelphia rally on Wednesday, President Biden addressed Black voters, emphasizing the importance of their support in the upcoming election to influence the Supreme Court’s balance. He highlighted issues such as student debt, voting rights, affirmative action, and abortion rights, noting how the conservative majority on the high court has negatively impacted the Black community. Biden stressed that their votes are crucial for reshaping the Supreme Court.

OTHER ITEMS OF NOTE

— EPA union secures first-ever scientific integrity protections. The EPA’s largest union, the American Federation of Government Employees (AFGE), has ratified a new contract with the agency, introducing scientific integrity protections for the first time. This move comes as a safeguard against political interference, highlighted by past issues during Donald Trump’s presidency.

Details: EPA staff can report scientific misconduct without fear of retribution. Disputes can be escalated to an independent arbiter. Employees can discuss their work at conferences, meetings, and with the press, provided they don’t misuse their titles or share non-public information. Protections apply to any EPA employee involved in scientific data, not just scientists.

The contract also includes extended remote work protections and guarantees for career advancement, supported by Democrats concerned about retaining and attracting staff.

The contract is under legal review and is set to take effect on June 19.

Upshot: These measures aim to ensure EPA employees can fulfill the agency’s mission regardless of political changes.

KEY LINKS

Policy Updates