China’s Inflation Rate Eases to Zero; Most Expect Stimulus Measures; Deflation Ahead?

Wagner chief Prigozhin met with Putin after attempted rebellion | EU working on FTAs

Treasury Secretary Janet Yellen said the world is big enough for both the United States and China to thrive. As she wrapped up a visit to Beijing aimed at stabilizing the relationship between the world’s two largest economies, Yellen said she had “direct, substantive, and productive” talks with China’s new economic leadership, including Premier Li Qiang and Pan Gongsheng, the newly appointed Communist Party chief of China’s central bank. “No one visit will solve our challenges overnight. But I expect that this trip will help build a resilient and productive channel of communication,” Yellen told a news conference in Beijing. She said she had brought U.S./China ties closer to a “surer footing” by her visit. She sought to reassure Beijing that diversifying supply chains isn’t decoupling, and that expected U.S. action limiting investment into China will be “highly targeted.”

China’s Deputy Finance Minister Liao Min said in a statement Sunday the two sides held “long and candid” meetings and would “maintain communication” in the future. Following Yellen’s meeting with China’s Vice Premier He Lifeng Saturday, a report from the official Xinhua news agency wrote: “China believes that generalizing national security is not conducive to normal economic and trade exchanges. The Chinese side has expressed concerns about U.S. sanctions and restrictive measures against China.”

Treasury Secretary Janet Yellen said a recession is “not completely off the table” even as the U.S. economy remains strong, in an interview with CBS News Sunday. She remarked that slower-than-expected job gains last month were “appropriate and normal,” but also said inflation remained too high.

President Joe Biden traveled to Britain before heading to the NATO summit scheduled on Tuesday in Vilnius, Lithuania. While some Western allies are pushing for Biden’s support for Ukraine’s potential NATO membership, the president has labeled such a move as “premature” at this stage. Concurrently, Biden conveyed to Recep Tayyip Erdogan, the President of Turkey, his desire for Sweden to become a NATO member as soon as feasible. However, Turkey has been a roadblock in Sweden’s pursuit of alliance membership. During a phone conversation on Sunday, Erdogan informed Biden that Sweden has yet to adequately address issues related to pro-Kurdish groups, a key reason for their objections.

Russia’s war in Ukraine reached the 500-day mark this weekend, a grim milestone for a conflict that rages with no end in sight. We have updates on the conflict in the Russia & Ukraine section.

Kremlin says Wagner chief Prigozhin met with Putin after attempted rebellion. Kremlin spokesman Dmitry Peskov confirmed that Wagner private military company chief Yevgeny Prigozhin met with Russian President Vladimir Putin in the Kremlin after his short-lived mutiny at the end of June. Putin held a meeting with more than thirty military commanders on June 29, and Prigozhin also attended, said Peskov during his daily call with the media.

Kremlin spokesperson Dmitry Peskov stated on Monday that no new information related to the Black Sea Grain Initiative was available. More in Russia & Ukraine section.

USDA initiated an aid program for victims who have faced discrimination in farm lending programs. This initiative targets those who were discriminatively treated before Jan. 1, 2021, or those still in debt from discriminatory USDA farm loans. More in Policy section.

To tackle bureaucratic inefficiency, the Biden administration is working to simplify federal forms related to various government programs. These include forms for disability benefits, farm loans, passports, and other services. Details below.

What is going on with China’s economy. We have the latest plus some analysis in the China section. Meanwhile, China’s customs agency will now require importers to stage imported soybeans at specific warehouses before they get quarantine permission for the shipments to enter the domestic market. And, Taiwan is one of the world’s most energy-insecure economies, relying on imports for almost 97% of its power.

President Biden is facing a key decision point regarding the balance between union jobs and affordable consumer goods, specifically canned products such as diced tomatoes. More in the Trade Policy section.

Australia’s Trade Minister, Don Farrell, will travel to Brussels for discussions with European Union officials with the aim of reaching a free trade agreement. Meanwhile, the EU signed a free trade agreement with New Zealand.

A research group at Princeton University, led by Prof. Jesse Jenkins, is playing a crucial role in directing U.S. gov’t spending to address climate change. More in Energy section.

In food-related news:

• Forget farm-to-table — they’re bringing the table to the farm.
• $85 billion U.S. beef industry is currently challenged by a strong preference for chicken.
• Supermarket items seeing increased prices are not perishable goods like chicken breasts or pork chops, but rather those found in the “center store.”

Airports around the world have lifted bans on liquids in carry-on luggage, but it’ll be some time before the U.S. follows suit. The TSA is spending more than $1 billion to procure advanced 3D scanners that can detect potentially harmful objects and liquids. When the technology is widely deployed, you’ll be able to pass through airport security with 1-liter bottles of soda and full tubes of toothpaste, aviation experts say.

Near record heat will spread from the US Southwest across Texas and the Great Plains this week, with temperatures of 100F (38C) and above straining electricity networks.

The Senate is in today; the House returns tomorrow. There are just 12 legislative days left until the August recess starts, and congressional leaders have a hefty agenda. Link to The Week Ahead and check out the Congress section below.

Republicans continue their criticism of Environmental, Social, and Governance (ESG) policies amid an increasing focus on these policies by businesses and federal agencies. Details below.

In the Politics & Elections section:

• On Monday, Jan. 15, 2024, Iowa Republicans will hold their presidential nominating caucuses.
• Despite hitting the campaign trail for President Joe Biden, Democratic California Gov. Gavin Newsom is making moves that have many wondering if he’s planning a presidential run.
• Republican Florida Gov. Ron DeSantis said he will participate in GOP presidential debates this fall, even if former President Donald Trump is not on the stage.
• Mark Rutte, the Dutch prime minister, announced that he is leaving politics.

Equities today: Asian and European stock markets were mixed to weaker in overnight trading. U.S. Dow opened around 20 points lower and at this writing is up about 100 points. In Asia, Japan -0.6%. Hong Kong +0.6%. China +0.2%. India +0.1%. In Europe, at midday, London +0.2%. Paris +0.5%. Frankfurt +0.5%. Hong Kong’s Hang Seng Index closed 0.6% higher Monday, as Chinese economic data detailed in this dispatch raised the probability of further stimulus. Chinese tech stocks also rose on hopes that Beijing’s near-$1 billion fine against Alibaba affiliate Ant Group, announced Friday, may signal the end of a regulatory crackdown on the sector. U.S.-listed Alibaba stock jumped 8% Friday as investors cheered a brighter future for Chinese tech, but pointed lower Monday as economic fears mounted.

U.S. equities Friday/week: All three major indices registered losses for the week as they finished lower on Friday. For the week, the Dow was down 2%, the Nasdaq was 0.9% lower, and the S&P 500 declined 1.2%. On Friday, the Dow was down 187.38 points, 0.55%, at 33,734.88. The Nasdaq fell 18.33 points, 0.13%, at 13,660.72. The S&P 500 lost 12.64 points, 0.29%, at 4,398.95.

The average U.S.-stock fund rose 6.3% for the second quarter, according to Refinitiv Lipper data, to push their year-to-date gain to 12.4%. And specifically for large-cap growth funds, which are full of the large techs, the quarter’s gains averaged 12.3%, to push the year-to-date gain to 27.7%. International-stock funds rose 2.7% in the quarter, to push their year-to-date gain to 11.4%. Bond funds eased in the quarter. Funds focused on investment-grade debt (most common type of fixed-income fund) fell an average of 0.8%, to trim their year-to-date gain to 2.2%.

This week marks the beginning of the earnings season for big banks; however, analysts’ expectations are notably pessimistic with estimates down by 16% over the last half-year. Concerns have been raised regarding loan volumes and a stagnant deal-making environment which are affecting revenue. Despite these concerns, statements from bank CEOs may alleviate some of the negativity. The SPDR S&P Bank exchange-traded fund has seen a decrease of 19% this year, contrasting with the S&P 500’s 14% increase and the tech-heavy Nasdaq’s 31% rise. The banking sector took a hit after the failure of three major banks in the spring. Forecasts for individual banks are as follows:

JPMorgan Chase: Expected to report earnings of $3.96 per share and revenue of $39 billion. Anticipated to report a nearly 50% rise in revenue from its consumer division compared to last year’s Q2, which could balance out the dip in investment banking activity.

Citigroup: Expected to report earnings of $1.37 per share on $19 billion revenue, with a predicted decline in investment banking revenue due to continued slow deal activity.

Wells Fargo: Anticipated to report earnings of $1.18 per share on $20 billion revenue. This bank has also recently disclosed a plan to increase its dividend by 17% to 35 cents per share, starting in Q3.

Interestingly, the financial sector is expected to experience an almost 8% Q2 revenue growth from last year, the highest growth rate among all 11 S&P sectors according to FactSet Earnings Insight. It is predicted that banks will reflect a 14% revenue growth.

The Securities and Exchange Commission (SEC) is gearing up to introduce new regulatory measures on money-market mutual funds this Wednesday. This step could potentially trigger opposition from major players in this $5.5 trillion industry. The main purpose of these changes is to avoid a scenario like the heavy outflows witnessed in March 2020 when the pandemic initially disrupted financial markets. The SEC, Wall Street’s primary regulator, is planning to finalize these changes in a meeting soon.

Agriculture markets Friday:

• Corn: December corn futures plunged 12 cents as back and forth trade continues to plague the market, settling at $4.94 1/2, although price was just 1/4 cent lower on the week.
• Soy complex: November soybeans fell 21 3/4 cents to $13.17 3/4 and lost 25 1/2 cents on the week. August meal closed $5.40 lower to $402.80 and is down $11.10 week-over-week. August soyoil fell 41 points but gained 87 points on the week.
• Wheat: December SRW wheat futures fell 10 cents to $6.66 1/2 and for the week lost 2 3/4 cents. December HRW futures dropped 25 1/4 cents to $8.19 1/2 and on the week rose 19 1/4 cents. December HRS wheat fell 10 1/4 cents to $8.54 1/2, marking a 28-cent week-over-week loss.
• Cotton: December cotton rose 116 points to 81.04 cents, gaining 67 points on the week.
• Cattle: Cattle futures rebounded sharply Friday, with August live cattle futures jumping $2.425 to $177.00 and August feeders leaping $3.15 to $245.425. These closing quotes represented weekly losses of 17.5 cents and $2.15, respectively.
• Hogs: August lean hogs fell $1.975 to $95.15 but for the week gained $2.55.
  

Ag markets today: Soybeans posted strong gains overnight, while corn and wheat followed to the upside. Corn futures traded mostly just over 6 cents higher, soybeans 20 to 28 cents higher, winter wheat futures down slightly and spring wheat was mixed. Front-month crude oil futures were around 50 cent lower, and the U.S. dollar index is about 135 points higher.

Market quotes of note:

• Yellen on her China visit. “My purpose is to make sure that we don’t engage in a series of unintended escalatory actions that will be harmful to our overall economic relationship with one another.” —Treasury Secretary Janet Yellen
  
• The world is experiencing a “geopolitical supercycle,” geopolitical strategist Tina Fordham said Friday in an interview on Barron’s Live. Geopolitical disruptions aren’t new, Fordham said, but they are now having more of an impact on markets than they used to. That is because some of the buffers that kept politics out of the boardroom have been weakened, particularly because of the end of easy money from central banks. “When we did see dislocation in geopolitics, it just simply didn’t have much of an impact on markets,” said Fordham. “Therefore, it’s logical to expect in a time of less liquidity, these kinds of events will matter more.”
  

• Mexico’s president and the peso and dollar. During a press event last week, Mexico President López Obrador’s mood lightened when he was informed that the value of the U.S. dollar had dipped below 17 pesos. He instructed his team to display the exchange rate on the screen behind him and asserted that the appreciation of the peso during his term in office is something that “hadn’t happened in decades.” AMLO declined to make a prediction about whether the peso would continue to strengthen but declared that he was “very happy” with the current exchange rate. “It helps us. We have a percentage of public debt contracted in dollars. So, when the peso strengthens, our debt goes down,” López Obrador said. In another pressure, he asserted that the “transformation” of Mexico won’t end when he leaves office in late 2024. A president can’t be re-elected in Mexico, but “the transformation will continue,” López Obrador said.

  
  

• Progress on reducing U.S. inflation. Dr. Vince Malanga, president of LaSalle Economics, Inc., says: “Overall inflation is currently running at about half its peak rate of last year, and in June calendar effects alone will make the improvement even better. This is progress; the published price indexes may well be understating the degree to which inflation is dissipating; and annualizing the past several months’ price changes shows the rate is approximating the Fed’s 2% target. Favorable calendar effects will end with publication of June data, and it is possible the yearly rate could then actually tick up because last summer’s rates of change were very slow. This we suspect is one reason the FOMC feels it must stay the course with further policy tightening being more likely than not. However, this could be dangerous if underlying inflation is fundamentally dissipating, which is our view. Price changes further back in the production pipeline are easing, and China for one is most recently exporting deflation rather than inflation. Oil struggles to exceed $70 per barrel, and with weather improving agricultural prices are moving down measurably.”
  
• High households’ savings is one of the reasons it is taking so long for the Fed to slow down the economy, but there are others, Apollo’s Torsten Slok says in a note. They include the fact that corporations extended the maturity of their loans during the pandemic, making them less vulnerable to higher interest rates. Moreover, low-interest mortgage holders are keeping their homes off the market, constraining supply, while government programs create a boom in energy transition and manufacturing, Slok says. “As a result, the Fed will continue to step on the brakes until they get...slower growth and slower inflation.”
  

Treasury Secretary Janet Yellen acknowledged the possibility of a recession, while also pointing out the continued strength of the U.S. economy in a CBS interview aired on Sunday. This follows the release of June’s jobs report, which showed fewer jobs added compared to previous months — a trend Yellen considers “normal” after years of rapid growth. During CBS News’ Face the Nation, Yellen confirmed that the job market remains robust, but projected a slow-down in job growth after 209,000 jobs were added in June, fewer than previous months. While praising the return of more workers to the job market and the corresponding decrease in unemployment, Yellen stated that it was “appropriate and normal” for economic growth to now moderate.

The issue of inflation was also discussed, with Yellen acknowledging that it remains “too high.” Although, she also highlighted that it has started to ease, after prices rose by 4% year-over-year, marking the lowest inflation rate in over two years, but still double the Federal Reserve’s 2% target.

She also mentioned the unemployment rate for June, which was at 3.6%. Yellen expressed hope and belief in a plan to reduce inflation while maintaining a healthy labor market, based on the current data.

Market perspectives:

• Outside markets: The U.S. dollar index was higher, with the euro and British pound weaker against the greenback. The yield on the 10-year U.S. Treasury note was weaker but still above 4% at 4.04%, with a mixed tone in global government bond yields. Crude oil futures were under pressure, but up from levels seen in Asian trading. U.S. crude was trading around $73.40 per barrel and Brent around $78 per barrel. Gold and silver were weaker ahead of US trading, with gold around $1,929 per troy ounce and silver around $23.26 per troy ounce.

• The Biden administration announced Friday it’s purchasing 6 million more barrels of crude oil for the Strategic Petroleum Reserve, scheduled for October and November, as it continues to slowly refill the emergency stockpile.

• Petroleos Mexicanos said it lost production capacity for about 700,000 barrels of oil, more than a third of its daily output, after a massive platform explosion Friday that left at least two people dead.

• Aluminum companies say a loophole in the carbon border adjustment mechanism may incentivize exporters to flood the European Union with cheap, emissions-heavy metal, the Financial Times reports. Link/paywall.

• Brazil is shipping large amounts of soybeans, and China is taking large amounts, says grain analyst and trader Richard Crow. He adds that in Wednesday’s WASDE report, “USDA should also increase the export shipment number to China. The offset may be slower U.S. exports in the new crop.”

• Major airlines are grappling with disruptions to flight operations due to heavy rain and severe thunderstorms. Over 2,000 flights were cancelled on Sunday, with New York City area airports being particularly affected. Weather conditions led to LaGuardia Airport cancelling around 50% of its flights, while the figures for Newark Liberty, JFK, Philadelphia, and Boston Logan airports ranged from 16% to 30%. United Airlines, American Airlines, JetBlue Airways, and Delta Air Lines were all affected, cancelling between 4% and 22% of their flights, respectively.

This weather disruption follows operational difficulties over the July Fourth weekend, during which record numbers traveled via airports. Despite these challenges, domestic airfares and hotel demand are declining, while international travel continues to flourish.

The New York City area exists under a flood watch, likely leading to further flight disruptions. This susceptibility to flash flooding is due to an already-wet summer and saturated ground conditions, according to NWS meteorologist Adrianna Kremerin.

Despite this situation, the travel site Hopper has reported the highest U.S. airfares to Europe in five years, with the average round trip costing $1,200. Also noteworthy is the robust performance of airline stocks, with Shares of United, Delta, and American each climbing over 40%. Analysts predict further rises of 19% for Delta and 18% for United.

• NWS weather outlook: Heavy rain is likely to produce the potential for significant flash flooding throughout parts of New England on Monday... ...Additional rounds of severe weather and flash flooding persist across the Central/Southern Plains and Midwest... ...Anomalously hot weather continues for portions of the Florida Peninsula, central and southern Plains, and the Southwest.

Items in Pro Farmer’s First Thing Today include:

• Soybeans lead overnight price gains
• Generally favorable weather expected this week
• Mixed cash cattle outlook
• Another big jump in cash hog index

— Ukraine’s deputy defense minister made what appears to be the clearest admission yet that Ukrainian forces were responsible for an attack last October on the bridge connecting Russia and occupied Crimea. The attack on the Kerch bridge represented a psychological blow for Moscow and a major propaganda victory for Kyiv.

— President Biden told CNN that it was a “difficult decision” to provide Ukraine with cluster munitions for the first time, but that he was ultimately convinced to send the controversial weapons because Kyiv needs ammunition in its counteroffensive against Russia.

— CNN: Biden says war with Russia must end before NATO can consider membership for Ukraine. President Joe Biden told CNN in an exclusive interview that Ukraine is not yet ready for NATO membership, saying that Russia’s war in Ukraine needs to end before the alliance can consider adding Kyiv to its ranks. Biden told CNN’s Fareed Zakaria that while discussion of Ukraine’s imminent membership in NATO was premature, the U.S. and its allies in NATO would continue to provide President Volodymyr Zelenskyy and his forces the security and weaponry they need to try to end the war with Russia.

— Kremlin spokesperson Dmitry Peskov stated on Monday that no new information related to the Black Sea Grain Initiative was available. This comes as the initiative is set to expire next week, and despite Turkish President Tayyip Erdogan’s suggestion on Saturday that he would meet with Russian President Vladimir Putin to discuss the matter. However, Peskov clarified that President Putin currently has no plans to meet with Erdogan.

Erdogan expressed his intent to advocate for a three-month extension of the initiative, which is a change from the previous two extensions, each of which was valid for two months. Nevertheless, Russia continues to express pessimism about the extension prospects, citing reasons such as the non-implementation of terms intended to broaden Russian agricultural and fertilizer exports.

— USDA initiated an aid program for victims who have faced discrimination in farm lending programs. This initiative targets those who were discriminatively treated before Jan. 1, 2021, or those still in debt from discriminatory USDA farm loans. The department also issued a warning about fraudulent practices, as there have been reports of misleading information being circulated by some groups and attorneys about the assistance process. Despite these scams, USDA confirms the application process, open until October 31, is entirely gratis and does not require an attorney’s involvement. Funding for the program, totaling $2.2 billion, is provided by the IRA, with individual assistance capped at $500,000. Link to details.

— To tackle bureaucratic inefficiency, the Biden administration is working to simplify federal forms related to various government programs. These include forms for disability benefits, farm loans, passports, and other services. Many of these forms are characterized by their excessive length, confusing language, repetitive inquiries, as well as time-consuming requests for additional documents. Over recent months, government departments have made strides in making these forms more user-friendly. The White House is expected to present nearly 100 measures they have implemented to alleviate paperwork and other administrative burdens across federal agencies.

However, this initiative does come with certain risks. Namely, the potential for people who are not eligible for these programs to gain access to them. In response to this concern, the White House has assured that it will remain vigilant to avoid any misuse of the newly streamlined systems.

— The Senate Banking Committee will hold an executive session on Wednesday to vote on Biden’s latest Federal Reserve nominees. Fed board member Philip Jefferson has been tapped to be the central bank’s next vice chair. Board member Lisa Cook was nominated to a full 14-year term. Adriana Kugler, a new Fed nominee, currently serves as U.S. executive director of the World Bank.

— President Joe Biden is expected to nominate Mike Whitaker, who served as the FAA’s deputy chief during the Obama administration, to be the agency’s next permanent leader, people familiar with the matter said, the Wall Street Journal reports.

— Deflation risk in China. China’s consumer inflation rate was flat in June while factory-gate prices fell further, fueling concerns about deflation risks and adding to speculation about potential economic stimulus.

The consumer price index was unchanged last month from a year earlier — the weakest rate since prices fell in February 2021, according to data released by the National Bureau of Statistics on Monday.

Producer prices fell 5.4% from a year earlier, faster than May’s drop.

Both gauges add to evidence that the recovery is weakening, with concerns about deflation weighing on confidence.

Bottom line: China’s economy is showing signs of a notable slowdown, with effects expected to ripple globally. After an initial boost following the end of Covid lockdown, the growth has been falling. This is a significant concern given China’s influential role in worldwide commerce.

Several warning signs are apparent, such as the contraction of China’s factory sector due to a reduction in global demand for its goods. Consumer inflation is also leading to a decrease in nonessential items purchases. Also, there’s a downward trend in services and construction activities, as well as retail sales and business investments. Perhaps the greatest concern is China’s housing market, which has significantly slowed since its peak in May 2021. Home sales are down drastically, there’s weak price gains, and the existence of many empty apartments points to overbuilding. Despite having the funds, Chinese consumers are choosing to save rather than spend due to below pre-Covid levels consumer sentiment. The potential economic growth from channeling credit into the property market seems to have hit a limit, with lenders coping with the problem of bad debt.

Looking ahead, China confronts population decline, which corresponds with a decrease in potential GDP contributors and fewer sales of goods and services. In response to these challenges, Beijing might explore different types of stimulus, such as less expensive credit and expanded infrastructure spending. However, such approaches raise the risk of accumulating more bad debt and will not solve the underlying structural issues.

China’s economic slowdown signifies various implications for the U.S. and other countries. A relatively cheaper yuan due to loosened credit may offer more competitively priced Chinese exports, while other countries’ products might become higher priced in China. An easing in worldwide commodity demand may slightly dampen global inflation, and there’s unlikely to be a reduction in Western sanctions and tariffs aimed at discouraging Beijing’s unfair trade practices or coercive acts toward Taiwan.

— China increases soybean inspections process. China’s customs agency will now require importers to stage imported soybeans at specific warehouses before they get quarantine permission for the shipments to enter the domestic market. The increased inspections process will slow clearing times on soybeans arriving at Chinese ports.

— Taiwan is one of the world’s most energy-insecure economies, relying on imports for almost 97% of its power, the Atlantic Council says, arguing the situation may pose a security risk. Link for details.

— President Biden is facing a key decision point regarding the balance between union jobs and affordable consumer goods, specifically canned products such as diced tomatoes. The Wall Street Journal reports (link) that regulatory bodies have begun investigations into allegations that inexpensive imports are negatively impacting domestic steel manufacturers. The inquiry is particularly focused on those involved in the production of tinplate, a key material used in the manufacturing of canned goods, including products like Bush’s baked beans.

Steel industry advocates argue that implementing tariffs on imported goods will protect domestic steel manufacturing jobs. However, food producers, including companies like Campbell Soup, are concerned that such tariffs will increase costs, which in turn will be passed onto consumers.

The Consumer Brands Association, a representative body for various food brands, estimates that these new tariffs could potentially result in price hikes ranging from 19% to 30% per canned product. This could add further stress to consumers already dealing with high prices in other areas.

— Australia’s Trade Minister, Don Farrell, will travel to Brussels for discussions with European Union officials with the aim of reaching a free trade agreement. He will converse with EU’s Trade Commissioner, Valdis Dombrovskis, and the Commissioner for Agriculture, Janusz Wojciechowski. Based on Farrell’s comments, talks are proving challenging and are currently focused on key matters crucial to Australia’s national interests, according to reports.

The EU was Australia’s fourth-largest trade partner in 2022, with a total trade value of $61.6 billion, which is equivalent to 8.4% of Australia’s total trade, as per International Monetary Fund data.

Meanwhile, Australian Prime Minister Anthony Albanese will also be visiting Europe. He’s expected to meet German Chancellor Olaf Scholz in Berlin before heading to Vilnius, Lithuania, to participate in the NATO Leaders Summit. This update aligns with Australia’s aim to build stronger relationships amid global political uncertainties (see next item).

— European Union signed a free trade agreement with New Zealand. Aimed at increasing EU exports to New Zealand by €4.5 billion ($4.62 billion) annually, this marks the first EU trade agreement that also incorporates sustainability objectives. The deal is expected to increase bilateral trade by 30% and investment in New Zealand by 80% within the next decade, although trade agreement projections are usually overstated.

The pact is forecast to reduce duties for European companies by approximately €140 million ($153.5 million) per year. It has been lauded as an “ambitious and well-balanced free trade agreement” by the European Commission President Ursula von der Leyen.

The agreement will eliminate tariffs on key EU exports to New Zealand, such as pork, wine, chocolate, biscuits, and offers protection for over 2,000 products like Prosecco, Feta, and Manchego cheeses. It will also open the New Zealand market for financial services, telecommunications, maritime transport and delivery services sectors.

This agreement is unique as it includes commitments to the Paris Climate Agreement and encompasses chapters on sustainable food production, gender equality, and fossil fuel subsidies reform.

Meanwhile, the EU will also provide tariff-free access for key New Zealand products, including wine, apples, onions, and honey, generating tariff savings on 91% of the country’s current exports to the EU.

New Zealand’s Trade and Export Growth Minister, Damien O’Connor, acknowledged that while not all their wishes were accommodated, substantial progress was made, including in the sensitive areas of sheep meat, beef, and dairy.

Next step: The deal awaits ratification by the parliaments of the EU and New Zealand, which Executive Vice-President Valdis Dombrovskis expects to happen in a “reasonably short time.”

— USDA increases FY 2023 raw cane sugar TRQ. USDA has announced an increase in the fiscal year (FY) 2023 raw cane sugar tariff-rate quota (TRQ) of 125,000 metric tons raw value (MTRV), an increase from the initial FY 2023 TRQ that was set at 1,117,195 MTRV, the WTO minimum the U.S. committed to. The Office of the US Trade Representative (USTR) will allocate this increase among supplying countries and customs areas. “These actions are being taken after a determination that additional supplies of raw cane sugar are required in the US market,” USDA said in a notice in the Federal Register (link). “USDA will closely monitor stocks, consumption, imports and all sugar market and program variables on an ongoing basis and may make further program adjustments during FY 2023 if needed.”

— Driving force behind IRA/Climate Bill. A research group at Princeton University, led by Prof. Jesse Jenkins, is playing a crucial role in directing U.S. gov’t spending to address climate change. Last year, the group’s estimate that such spending could reduce emissions by 43% by the end of the decade — with significant improvements of the power grid being vital — was widely acknowledged. A Wall Street Journal article (link) notes that the group was key in developing the climate-oriented Inflation Reduction Act (IRA) using their Rapid Energy Policy Evaluation and Analysis Toolkit (REPEAT) project. However, they proclaimed that this Act would fail without significant upgrades to the power grid, a sentiment echoed by John Podesta, White House’s clean energy advisor.

Jenkins’s ZERO Lab, with a data-driven approach to studying the energy transition, has provided crucial data to support climate legislation. The Lab team is a multi-disciplinary one with expertise in energy, computer programming, high-level mathematics, and government policy. Jenkins has had significant influence on the development of clean energy components for President Biden’s Build Back Better act, and also on the Inflation Reduction Act. Despite initial setbacks, the latter received agreement from key senators and has begun directing funds towards businesses.

The team’s new analysis suggests a possible reduction in carbon emissions of 37% to 41% by 2030 from 2005 levels. However, Jenkins warns that unless improvements to the power grid accelerate significantly, emissions could worsen by 2030. He highlights that increased power demand from the incentives on electric vehicles and other electronic devices will need substantial improvements in transmission capacity. Without it, much demand could still be powered by fossil fuel plants.

As a result, efforts to meet transmission demands have taken priority, with proposals like the Big Wires bill aiming to speed up transmission construction. However, Jenkins believes that a two-and-a-half-year long study on regional transfers, agreed upon during recent debt-ceiling talks, will likely hinder efforts to expand transmission capacity.

Of note: The WSJ item says: “The lasting impact of Jenkins’s research may be the importance of upgrading the power grid.”

— Forget farm-to-table — they’re bringing the table to the farm. Chatham Bars Inn, a renowned property in Cape Cod, not only provides accommodations but also extends its offerings to an intriguing culinary experience. The Inn boasts an 8-acre farm that yields a wide assortment of unique produce, including black tomatoes, Fairy Tale eggplants, Cape gooseberries, and cucamelons. These ingredients can be found in dishes served at the inn or purchased from their public farmstand for guests to use in their own recipes. Link to article that appears in the Boston Globe.

Guests are invited to partake in the weekly farm dinners held during the season. Situated among lush fields of growing crops, these dinners highlight the farm’s fresh produce alongside locally sourced meats and seafood, offering a unique farm-to-table dining experience, lauded by attendees for its freshness and commendable service. The culinary events are organized and managed by farm manager Josh Schiff and executive chef Andrew Chadwick, both taking pride in creating menus that vary each week based on the farm’s recent harvest.

The farm is impressive not only for its unique produce but also for the sheer volume of vegetables it grows. For instance, the farm cultivates 125 varieties of vegetables including 30 types of tomatoes, harvesting an astounding 100,000 pounds of tomatoes in the previous year. It also sows around 3,800 heads of lettuce every 10 days. Chef Chadwick appreciates the versatility and freshness the farm brings to their cuisine, referring to it as an amazing attribute to have “in our own back pocket.”

— $85 billion U.S. beef industry is currently challenged by a strong preference for chicken. A recent Bloomberg article (link) The fear of competition from plant-based meat alternatives proved to be misplaced as they hold a small market share. The real competition comes from chicken, which overtook beef in per-person consumption in 1993, and the gap continues to widen.

Chicken’s affordability, three times cheaper than beef, and versatility give it an edge over beef. Its popularity has increased greatly due to its use in home cooking, processed foods, and restaurants. Despite health and environmental concerns linked to beef, the beef industry has struggled to rebrand and innovate.

David Maloni, a supply-chain consultant, suggested that reversing this declining trend would be challenging given its long-standing nature. The sector faces multiple issues including increasing feed costs, drought, and competition, reducing profits and threatening more hardships with a cooling economy.

The preference for chicken is particularly apparent in fast food and takeout, which strongly influences teens’ and young adults’ eating habits. In 2022, chicken featured in four of the top 10 items ordered on Grubhub, while beef only appeared in cheeseburgers.

The chicken rage is significant within the nearly $1 trillion U.S. restaurant market. Chains like Chick‑fil‑A and Popeyes have thrived, even causing non-chicken chains to bolster their chicken strategies. In a Morning Consult poll, 41% of U.S. adults claimed to eat more chicken compared to 16% for beef, with chicken favored across all demographics.

Of note: Although chicken is consumed more, when asked which meat they prefer, Americans drew beef even with chicken. A dominant 75% cited taste as their primary reason for choosing beef, presenting an opportunity for the industry. However, strategies must be swift as people return to their pre-Covid routines.

Stats:

• According to Technomic, Chick-fil-A locations average $6.8 million in annual revenue, almost double burger-centric McDonald’s $3.6 million.
• The Beef Board spent $1.8 million last year running “It’s What’s for Dinner” ads. Mega chicken producer Perdue Farms dedicated almost 20 times as much to marketing its birds.

— Supermarket items seeing increased prices are not perishable goods like chicken breasts or pork chops, but rather those found in the “center store.” The term refers to products found in the middle of a supermarket, typically non-perishable goods such as potato chips, ketchup, crackers, cereals, cookies, paper towels, and even dish soap. These essential items that have a longer shelf life, and are not easily skipped by consumers, prove to be getting more expensive. Link to more via the Wall Street Journal.

— Senate Majority Leader Chuck Schumer (D-N.Y.) wants the FDA to investigate Prime Energy drinks over high caffeine content and alleged marketing toward children. A single can of the viral beverage from YouTube stars KSI and Logan Paul contains caffeine equivalent to roughly six cans of Coke or nearly two Red Bulls.

— On Monday, Jan. 15, 2024, Iowa Republicans will hold their presidential nominating caucuses. “We remain committed to maintaining Iowa’s cherished first-in-the-nation caucuses and look forward to holding a historic caucus in the coming months and defeating Joe Biden come November 2024,” Republican Party of Iowa Chairman Jeff Kaufmann said in an emailed statement. Jan. 15 is the Martin Luther King Jr. Day Monday holiday. Kaufmann told reporters that the date fit best with other early states — although he said Republicans were “certainly very pleased” that people may have more availability to attend a caucus on the holiday. “We see this as honoring the legacy of Martin Luther King, in terms of having a caucus here,” he said. Link to more via the Des Moines Register.

The New Hampshire primary will likely be Tuesday, Jan. 23, the date officials there have been targeting. The Nevada contest’s timing remains under litigation, but a primary is currently set for Tuesday, Feb. 6. The GOP’s South Carolina primary is confirmed for Saturday, Feb. 24, with Super Tuesday 10 days later on March 5.

— Despite hitting the campaign trail for President Joe Biden, Democratic California Gov. Gavin Newsom is making moves that have many wondering if he’s planning a presidential run — including sparring with GOP candidate Ron DeSantis, sitting down with Fox News host Sean Hannity, and setting up a political action committee. Newsom has rejected suggestions he is weighing a 2024 presidential run.

— Republican Florida Gov. Ron DeSantis said he will participate in GOP presidential debates this fall, even if former President Donald Trump is not on the stage. It’s unclear whether the commitment means that DeSantis will also support the party’s eventual nominee, which the Republican National Committee requires to debate.

— Mark Rutte, the Dutch prime minister, announced that he is leaving politics. He has led the Netherlands since 2010, making him both the second longest-serving current European head of government and longest in Dutch history. Rutte’s coalition government collapsed last week over an immigration row after which a vote of no confidence was threatened in parliament.

— Schumer details Senate agenda. According to a recent letter (link/pdf) penned by Senate Majority Leader Chuck Schumer (D-N.Y.), the key focus areas of the Senate’s work session in July will be appropriations, the National Defense Authorization Act (NDAA), discussions related to artificial intelligence, and judicial confirmations. He stated these priorities are ahead of the August recess and echoes comments we made in our The Week Ahead (link).

Schumer also outlined several of bipartisan bills that the Senate aims to make progress on. These include prescription drug pricing, permitting reform, rail safety, banking for the marijuana industry, Federal Aviation Administration (FAA) reauthorization and “institute common-sense farm policy.” However, he did not guarantee that these topics would necessarily make it to the floor for consideration.

Schumer emphasized that the passage of these bills will not be a straightforward process and will require the cooperation of Republican counterparts.

— The House Ways and Means Committee will hold a field hearing on agricultural trade issues at the Minnesota farm of former National Cattlemen’s Beef Association President Don Schiefelbein.

— The Senate’s Agriculture-FDA bill includes 225 earmarks totaling $290 million. In that total are 146 Democratic projects adding up to $142.5 million, 48 Republican projects totaling $113.5 million, and 31 bipartisan projects totaling $34 million. Access that Excel doc here.

Sen. Deb Fischer (R-Neb.) stands to bring home the biggest pot of money: $25 million for Agricultural Research Service work on precision agriculture.

— Republicans continue their criticism of Environmental, Social, and Governance (ESG) policies amid an increasing focus on these policies by businesses and federal agencies. With ESG becoming an issue for the 2024 campaign, the House Financial Services Committee plans to ramp up its scrutiny through two hearings this week.

The first hearing, slated for Wednesday, will investigate the impact of ESG on financial regulation. The Committee will consider nearly 20 bills, including one that would let shareholders remove any ESG-related proposals. Another proposed law aims to limit the authority of the SEC on specific topics, while advocating for research on sustainability instructions and the impact of environmental disclosures upon the municipal bond market. Republicans on the Committee argue that the influx of climate policies from the Biden administration and Democratic states is being used to enforce ESG-related initiatives and other policy priorities on the private sector. They express concerns about corporate boardrooms being polarized by political agendas, potentially compromising effective financial management.

Later in the week, a Financial Services subcommittee will evaluate how ESG and similarly structured policies affect market dynamics and escalate costs for insurance and housing.

Simultaneously, House Judiciary Chair Jim Jordan of Ohio, along with two other House Republicans, sent letters to major financial firms last week. These letters expressed concerns that commitments to decarbonize assets may have “potentially harmful effects on Americans’ freedom and economic well-being,” and could possibly infringe upon antitrust laws.

— North Korea alleged that American spy planes breached its airspace, warning that future violations may result in the aircrafts being shot down. The North Korean defense ministry further accused the U.S. of engaging in “unabashed nuclear blackmail.” This accusation comes amid U.S. plans to deploy a nuclear-armed submarine to the Korean peninsula, escalating tensions. In response, the South Korean President, Yoon Suk-yeol, plans to appeal for support from leaders at the forthcoming NATO summit. His objective is to solicit assistance in curtailing North Korea’s nuclear goals.

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