EPA Administrator Regan says he’s sensitive to concerns about high gasoline prices
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Today’s dispatch is abbreviated as I am in Chicago to speak to a Fastmarkets conference.
Russia says it has sent 900 Ukrainian soldiers to a former prison colony in a Russia-controlled part of Donetsk. Meanwhile, the war in Ukraine is likely to continue throughout the summer and possibly beyond, despite signs that parts of the country are returning to some normalcy, Ukraine’s presidential advisor Oleksii Arestovych said, according to NBC News. Also, the U.S. reopened its embassy in Kyiv on Wednesday, having closed it for three months before and during Russia’s invasion of Ukraine.
U.S. equities notched their worst session Wednesday in almost two years. Asian equities are following. Now all the bad-news bear analysts and traders who have been bearish for five years are saying I told you so. Cable shows have some touting another 30% leg down. The NYT notes an estimated 20 million people started trading on their own during the pandemic. As stocks tumble, some are shifting their strategies, while others are getting out.
Inflation is behind the latest move down for equities. Higher sticker prices for products are boosting company revenue, but expenses were up even more, crimping profit margins and weighing on earnings. Example came from Target. “Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time,” Target CEO Brian Cornell said on an earnings call.
Now comes the headline-grabbing quotes for inflation predictions. $6 gas is here for Californians, and a nationwide average of $6 is a real possibility this summer, JPMorgan said this week. Milk could cost 50% more this year. The gas national average just went to $4.
Russia’s economy slowed down more than expected in the first quarter. Gross domestic product rose 3.5% from a year ago, down from a gain of 4% in the previous three months, the Federal Statistics Service said Wednesday, citing preliminary numbers. That was less than the median forecast of economists polled by Bloomberg for an increase of 3.7%, which matched an estimate from the Economy Ministry. Most of the latest results were recorded before Putin sent troops into Ukraine on Feb. 24, triggering sweeping sanctions from the U.S. and its allies.
World economy doldrums as rising costs, shortages of food and other commodities and the war in Ukraine threaten to slow economic growth. Finance ministers from G7 nations will this week meet in Bonn, Germany, to find ways to avoid a slowdown while continuing to exert pressure on Russia for its war in Ukraine.
India will allow more wheat exports once the country is more confident of its new-crop projection, sources advise. No timing was given for the possible wheat export turnaround decision.
NATO membership developments. Sauli Niinisto, the president of Finland, said yesterday that the Turks “have communicated to us from many sources that Turkey would not block membership in NATO.” Jens Stoltenberg, the NATO secretary-general, made a similar statement about Turkey’s intentions on Sunday. Turkey is demanding Sweden “cut ties” with Kurdish militia to join NATO. Meanwhile, President Biden formally endorsed Finland’s and Sweden’s applications to join NATO.
Some political analysts have upped their estimates of GOP House wins following Nov. 8 elections. Most are in the net gain of 30 to 40 seats. Analysts remain split on the Senate, with most seeing a Republican net gain of 2 to 4 seats, enough to win control of the chamber. Meanwhile, Tesla’s Elon Musk says he’s given up on Democrats, will vote for Republicans.
Chatter continues regarding whether the U.S. the tariff on soybean oil or other fats and oils entering the U.S. will be lowered. Any reduction could result in imports, bringing down U.S. prices some, but analysts are unclear by how much. One former U.S. government official says, “Tariffs are statutory so unless there is some Congressional authority that has been granted to the Executive Branch possibly in a previous trade agreement, I would think a change would require some kind of congressional action—- so low probability?” But if any lawmaker just submits a bill regarding the tariffs, markets could take notice.
Another Covid-19 warning. Health officials in the U.S. warned that in areas where a third of Americans live, the threat of Covid-19 is now so high that they should consider wearing a mask in indoor public settings.
The Shanghai government reports that it has brought its Covid-19 outbreak under control, with community spread eliminated. Officials say the city will fully reopen in June. Meanwhile, outbreaks are also hitting hard in some towns across China.
President Biden agreed to invoke the Defense Production Act to ensure that U.S. baby formula producers can acquire the material they need and launched an airlift of formula from abroad — Biden directed HHS and USDA to use military commercial aircraft to pick up overseas infant formula to get it on store shelves faster. Meanwhile, Sen. Kirsten Gillibrand (D-N.Y.) plans to file legislation authorizing the president to declare a U.S. infant formula shortage and temporarily reduce or suspend tariffs on imports from Canada, the European Union, Japan or the United Kingdom to fill the gap. The legislation would deem infant formula a critical supply and subject to the Defense Production Act.
From a tight to surplus soybean situation? The ag sector is well known for its major ups and downs on the production and price scales. Efforts to boost oilseed plantings in the U.S. could be far greater than expected, some analysts note. Reason: Winter wheat farmers with a much below average crop may well take up the offer to double-crop soybeans, especially if some crop insurance changes are made. Also, analysts are starting to think Brazil will not have three consecutive years of a below-average soybean crop.
China lifts bans on Canadian canola from Richardson’s and Viterra. Richardson and Viterra were banned from shipping canola seed to China more than three years ago. Both companies are listed as approved for exporting canola to China in a government document that was published on the Chinese General Administration of Customs’ website on May 18, 2022. Link for details.
EPA Administrator Michael Regan says he’s sensitive to concerns about high gasoline prices as he makes decisions about the federal renewable fuel mandate (RFS). “I’m trying to stay on the right side of the law” while also “being sensitive to the prices that we’re facing now and how we can do that to the alleviate the burdens of just average, everyday people,” Regan told a Senate appropriations subcommittee Wednesday. Upcoming decisions on annual biofuel-blending requirements and refinery exemptions from them are aimed at “getting that program on a much stronger footing” and aren’t being made in isolation. EPA is seeking to provide certainty to both the agricultural and refining industries, Regan said. “With the prices we’re looking at now and some of the pressure that refiners are facing, this war doesn’t help,” Regan added. Sen. Bill Hagerty (R-Tenn.) warned Regan of significant “economic implications on the American consumer” if more refineries are denied exemptions since that “puts upward pressure on prices.” EPA by June 3 will finalize biofuel-blending quotas for 2022 and 2021 while also retroactively revising 2020 requirements. The agency also has proposed denying more than 60 pending refinery exemptions from 2019, 2020 and 2021 biofuel-blending quotas, after already rescinding 31 previously granted waivers from 2018 requirements.
EPA’s Regan appealed to senators for funding to hire more staff, in part because “we have a lot of laws and rules on the books that just aren’t being enforced.” EPA’s enforcement funding has stayed flat over time, largely because payroll costs and costs of living adjustments have increased, Regan said. That flat funding has led to a 22% drop in the agency’s enforcement capacity over the past decade, he said. Compounding the problem is the fact that 43% of the agency’s workforce will be eligible to retire within the next five years, according to Sen. Jeff Merkley (D-Ore.), the panel’s chair. Regan said 25% of the staff is retirement-eligible now. President Biden’s fiscal 2023 budget asks for $104 million to hire 122 more enforcement personnel. Overall, the budget seeks to increase the EPA’s staffing level from the current 14,824 to some 16,200.
More U.S. food aid. Secretary of State Antony Blinken told a U.N. Security Council meeting on food security the U.S. was donating an additional $215 million in humanitarian assistance to address the world’s worsening food crisis. Countries benefiting from the aid include Burkina Faso, Cameroon, Kenya, Nigeria, Zimbabwe and Yemen.
House panel clears WRDA bill. The House Transportation and Infrastructure Committee voted to send to the full chamber a water policy bill (WRDA/HR 7776) that would authorize the completion of dozens of Army Corps of Engineers projects and studies. The legislation was approved unanimously by voice vote after the committee considered 53 amendments.
House panel approves USDA special competition investigator. The House Agriculture Committee favorably reported out legislation Wednesday that would establish a special investigator for competition at USDA, with one Republican joining Democrats backing the measure. The vote was 27-21 on the bill (HR 7606). Ranking member Glenn “GT” Thompson (R-Pa.) said committee Republicans planned to file dissenting views outlining their concerns in a report accompanying the bill. Rep. Dusty Johnson (R-S.D.) broke with other GOP members to vote for the bill as amended on Tuesday. Major pork, poultry and cattle groups said the proposed changes would undermine their industries. Even if the measure clears the full House, the Senate will not likely have the votes for passage.
Price gouging charges are now a frequent refrain from the White House (Biden, etc.) and congressional Democrats. The latest is House Appropriations Committee Chairwoman Rosa DeLauro (D-Ct.). During a hearing Wednesday with Federal Trade Commission Chairwoman Lina Khan, DeLauro accused meatpackers of “price gouging.” Chiming in was Rep. Mark Pocan (D-Wis.), who said consumers “are paying more than they need to” due to meat industry concentration.