Debt-limit Bill on Way to Passage in House & Senate, But Not Without More Drama

CBO issues surprise re: SNAP changes | Xi involved in crackdown on statistical fraud

The dollar index hit its highest level since mid-March, with the European inflation news and China demand picture knocking the euro to its lowest in two months too. China’s Composite PMI fell to 52.9 in May down from 54.4 in April which confirmed that the economic recovery in the world’s second largest economy is underwhelming investor expectations which were admittedly lofty coming into the year.

Chinese leader Xi Jinping appears to be personally involved in a crackdown on statistical fraud, indicating the seriousness of the issue. More in China section.

Crude oil prices are now falling at an annual rate of more than 40% for the first time since the depth of the pandemic in June 2020. Eurozone natural gas prices are at their lowest in almost two years.

The Congressional Budget Office (CBO) estimates the debt-limit bill would reduce budget deficits by $1.5 trillion over the next 10 years, and reduce discretionary spending by a projected $1.3 trillion from 2024 to 2033.

A CBO score on the bipartisan debt-limit deal released last night found that new work requirement changes via SNAP would actually expand spending on federal nutrition programs. But GOP leaders dispute that assessment. The increases would be modest, amounting to an additional 78,000 people and from $200-$400 million a year in a program with 42.5 million participants at latest count. More in Policy section.

U.S. interest rates could push higher in the short-run, and taxes rise in the long run, says former Treasury Secretary Lawrence Summers, who sees risks from inflation and government debt.

Starting with deliveries that arrive Thursday, oil drilled near Midland, Texas, will factor into calculations for the price of Brent crude. It is the first time that a non-European grade will be used to help compute the global pricing standard, an acknowledgment of how the shale revolution made the U.S. an energy superpower. More in Markets section.

JPMorgan’s annual Global China Summit is going ahead in Shanghai, and the bank’s CEO Jamie Dimon told Bloomberg TV that they would be in China through the good times and the bad, reiterating a commitment to do business in the country even as political tensions with the U.S. rise. “Over time there’ll be less trade,” Dimon said. “It’ll take years for this thing to take place, but it won’t be a decoupling and the world will go on.”

Russia’s war on Ukraine is increasingly spilling into Russian territory. The governor of Russia’s Belgorod region, which borders Ukraine, said four people were recently injured in a “massive strike” there. This is the latest in a series of strikes against Russian targets by Ukrainian forces. Russian President Vladimir Putin addressed the spate of attacks, saying Ukraine “chose the path of intimidation,” and is provoking Russia to “mirror actions.” Meanwhile, Ukraine, with the help of its allies, is planning a peace summit that will exclude Russia. More in Russia & Ukraine section.

Mexico continues to argue it is within its right to ban GMO corn for food use. More in Trade Policy section.

California’s state Assembly has passed a bill that proposes banning five chemical additives used in food products, including a coloring agent used in Skittles and Red 3, which is found in various snacks. More in Food section.

Democrats push meatpackers for change after child labor findings. More in Livestock section.

Chris Christie to join 2024 presidential race after months of campaigning against Trump.

Equities today: Asian and European stock markets were mostly weaker overnight. U.S. Dow opened around 130 points lower. In Asia, Japan -1.4%. Hong Kong -1.9%. China -0.6%. India -0.5%. In Europe, at midday, London -0.1%. Paris -0.5%. Frankfurt -0.3%.

U.S. equities yesterday: The Dow ended down 50.56 points, 0.15%, at 33,042.78. The Nasdaq rose 41.74 points, 0.32%, at 13,017.43. The S&P 500 edged up 0.07 point, 0.00%, at 4,205.52.

The major U.S. stock indices are in a mixed state as May ends. The tech-heavy Nasdaq is up more than 6% heading into the final session of the month, driven in large part by the explosion of artificial intelligence. The Dow is down more than 3%. And the broad S&P 500 has risen only slightly in May.

Agriculture markets yesterday:

• Corn: July corn futures fell 10 cents to $5.94, nearer the session low.
• Soy complex: July soybeans fell 40 3/4 cents to $12.96 1/2, the lowest close since Dec. 20, 2021. July meal fell $9.60 to $392.60, while July soyoil ended 262 points lower at $46.20 cents.
• Wheat: July SRW wheat fell 25 cents to $5.91, nearer the session low and hit a more-than-two-year low. July HRW wheat dropped 35 1/2 cents at $7.83 3/4, near the session low and hit a three-week low. July spring wheat fell 25 cents to $7.93.
• Cotton: July cotton rose 64 points to 83.99 cents, nearer the session low after trading as high as 86.54 cents.
• Cattle: June live cattle futures rose $1.525 to a contract high close at $168.875. August feeder futures rallied $3.85 before closing at $237.775, a record high close for the contract.
• Hogs: Futures rocketed higher Tuesday as traders seemingly adjusted their views of the summer outlook over the weekend. June futures soared the daily limit of $4.75 to $80.825.
  

Ag markets today: Corn, soybeans and wheat actively extended Tuesday’s losses during overnight trade. As of 7:30 a.m. ET, corn futures were trading 7 to 10 cents lower, soybeans were 16 to 20 cents lower, winter wheat futures were 12 to 14 cents lower and spring wheat was mostly 9 cents lower. Front-month crude oil futures were more than $1.75 lower and the U.S. dollar index was about 275 points higher.

Market quotes of note:

• Richmond Fed President Tom Barkin said at National Association of Business Economics event Tuesday that he hasn’t “backed off” from his rate forecast, which he said is among the higher ones within the central bank.
  

• Japan said it’ll intervene if necessary after the yen dropped. “It’s important that currency markets reflect fundamentals and move in a stable manner. Excessive moves aren’t desirable,” top currency official Masato Kanda told reporters after the first meeting of Japan’s Ministry of Finance, the Bank of Japan and Financial Services Agency since March. “The government will continue to closely monitor market moves, and will take appropriate responses if necessary.” The unscheduled meeting came after the yen softened beyond 140 per dollar. Japan intervened in both September and October last year to prop up the currency, after a slump that at one point took it past the 150 level.

  
  

• AI industry leaders warned about the existential threat posed by the technology. “Mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks, such as pandemics and nuclear war,” the Center for AI Safety said. The document was signed by over 350 execs and researchers, including the CEOs of OpenAI and DeepMind.
  
• Dimon on U.S./China business ties. Joining the business executive tour in China, JPMorgan CEO Jamie Dimon had his own comments to say about his relationship with the country, as well as company policy going forward. “We tend not to leave unless there is war or a civil war, and we’re not predicting any of that here. There’s always going to be risk,” he told Bloomberg at the bank’s annual Global China Summit in Shanghai. “Obviously, it’s been a far more complex situation and national security will trump all other issues. Over time, there’ll be less trade [in China, but] it’ll take years for this thing to take place. This is not de-coupling, this is de-risking. The world’s changed a little bit.”
  
• “It’s like toilet paper during the pandemic.” — Sharon Zhou, co-founder and CEO of Lamini, on the shortage of graphics chips used for AI.
  

On tap today:

• Chicago Business Barometer is expected to fall to 47.0 in May from 48.6 one month earlier. (9:45 a.m. ET)
• U.S. job openings are expected to fall to 9.5 million in April from 9.6 million one month earlier. (10 a.m. ET)
• Federal Reserve speakers: Governor Michelle Bowman at a Fed Listens event at 8:50 a.m. ET, Boston’s Susan Collins at a Fed Listens event at 12:20 p.m. ET, Philadelphia’s Patrick Harker on the economic outlook and monetary policy at 1:30 p.m. ET, and governor Philip Jefferson on financial stability and the economy at 1:30 p.m. ET.
• Federal Reserve releases its Beige Book report at 2 p.m. ET.
• President Biden has an annual briefing on extreme weather preparedness. In the afternoon, he travels to Colorado, where he will deliver the U.S. Air Force Academy’s commencement address on Thursday.

The Indian economy expanded 6.1% year-on-year in Q1 2023, higher than an upwardly revised 4.5% in Q4 2022 and well above market forecasts of 5%. The expansion was mainly boosted by private consumption, services exports and manufacturing amid easing input cost pressures. Also, services have emerged as a major driver, comprising more than half of GDP.

Federal Reserve officials have been leaning towards a hawkish stance on monetary policy this week, with inflation being a key consideration. Richmond Fed President Thomas Barkin stated that inflation appears to be more persistent than many had hoped for. He mentioned that while U.S. monetary policy is “restrictive”, consumer activity has not significantly slowed down. He expressed uncertainty about where interest rates should go in the future.

Cleveland Fed President Loretta Mester said there was no strong reason to delay an increase in interest rates. She suggested that raising interest rates and then maintaining them for a while might be a viable approach, given the uncertainties about the economy’s future trajectory. She also mentioned that the debt limit agreement has removed a significant uncertainty about the U.S. economy. Mester mentioned that pausing rate increases would be appropriate if there was extreme market volatility or other unexpected shocks. However, she felt the current economic conditions necessitate further tightening of monetary policy.

The views expressed by Barkin and Mester represent the more hawkish side of the Federal Reserve. However, there is another group within the Fed that favors a pause in the rate-increase cycle at the upcoming meeting. Incoming data, especially concerning inflation, will play a key role in determining whether Fed officials decide to pause or continue with rate increases at the June 13-14 meeting.

The Conference Board’s closely watched index of consumer confidence fell to a six-month low this month, declining to 102.3 from a revised 103.7 reading in April. But economists had expected the index, which can be a signal for the direction of the US economy, to dip even lower than that. The survey was conducted prior to Biden and McCarthy announcing their debt-ceiling deal.

Home prices rose in March for the second straight month as a shortage of houses for sale spurred competition among buyers. The S&P CoreLogic Case-Shiller National Home Price Index, which measures prices across the nation, climbed 0.4% in March compared with February on a seasonally adjusted basis. On a year-over-year basis, the index rose 0.7% in March, the smallest annual increase since May 2012.

Mortgage demand in the United States has hit a three-month low due to various factors, as reported by the Mortgage Bankers Association. Firstly, mortgage rates have been increasing, almost reaching 7%, as it becomes evident that the Federal Reserve does not intend to reduce its benchmark interest rate in the near future. This rise in rates can deter potential homebuyers, thus dampening the demand for mortgages.

Moreover, the supply of homes available for sale continues to be limited, which could be driving up home prices further. This limited supply, coupled with high prices, can make it more challenging for potential buyers to find affordable homes, which in turn reduces the demand for mortgages.

Upshot: As noted by Michael Fratantoni, the chief economist at the Mortgage Bankers Association, while refinance demand is primarily driven by the level of interest rates, the volume of purchase continues to be restricted by the scarcity of homes on the market.

Former Treasury Secretary Lawrence Summers sees U.S. rates headed higher in the short-run and U.S. taxes rising in the longer run. Lawrence Summers, currently Harvard University professor attributes this forecast to persistent inflation and growing government debt. Currently, the U.S. seems to be dealing with an underlying inflation rate of around 4.5% to 5%, which is over twice the Federal Reserve’s target of 2%.

In a dinner speech at the Peterson Institute for International Economics on Tuesday, Summers suggests the Federal Reserve may need to raise the federal funds rate further to manage inflation, potentially 50 basis points or more from its current level. The Fed has been giving mixed signals about its plans for the June 13-14 meeting. It has already raised rates 5 percentage points over the past 14 months, to a target range of 5% to 5.25% for the overnight interbank federal funds rate.

Summers describes the recent debt deal between President Joe Biden and House Speaker Kevin McCarthy as a “reasonable outcome.” This agreement outlines federal spending through 2025 and suspends the debt ceiling until Jan. 1, 2025. In exchange for Republican support, Biden agreed to cap federal spending for the next two years. However, Summers doesn’t believe this pact significantly alters the long-term fiscal outlook.

He warns that the fiscal challenges ahead for the U.S. are potentially worse than those projected by the Congressional Budget Office (CBO). The CBO forecasted a U.S. budget deficit of 7.3% of GDP in fiscal year 2033, but Summers believes it could be as high as 11% under different assumptions. As a result, he predicts significant increases in revenue will be necessary, likely through higher taxes.

Summers remains optimistic about the dollar, despite these fiscal challenges, due to the U.S.'s attractiveness to foreign capital and issues with potential alternative currencies like the euro, yen, and yuan.

Market perspectives:

• Outside markets: The U.S. dollar index was firmer, with the euro and British pound both weaker against the greenback. The yield on the 10-year U.S. Treasury note was lower, around 3.64%, with a lower tone in global government bond yields. Pressure on crude has built, with U.S. crude falling to around $67.55 per barrel and Brent around $72 per barrel. Gold and silver were nearly unchanged ahead of US trading, with gold around $1,978 per troy ounce and silver around $23.40 per troy ounce.

• Treasury yields continue to fall as a debt ceiling deal continues to advance on Capitol Hill. With a default nearly off the cards, the yield on the 10-year dropped 13 basis points on Tuesday to end the session at 3.69%, and slipped another 4 bps overnight to 3.65%.

• Turkey’s local currency fell to a record low on Tuesday amid concerns that President Recep Tayyip Erdogan would stick to his unusual approach to managing the country’s strained finances following his re-election over the weekend. Turkey’s economic imbalances, including the sliding lira, a shortage of foreign currency and galloping inflation, are shaping up to be Erdogan’s biggest challenge as he enters his third decade of rule.

• Starting with deliveries that arrive Thursday, the U.S. is set to become a part of the world’s leading oil benchmark, Brent crude, marking the first time a non-European grade has been incorporated into this global pricing standard. This significant move is a testament to the U.S.'s ascendancy as an energy superpower, largely driven by the shale revolution.

Oil produced near Midland, Texas, will start to factor into Brent crude price calculations for deliveries beginning Thursday. This inclusion of the relatively cheaper American barrels is likely to bring down average prices internationally, which could, in turn, enhance profits for U.S. oil exporters.

Impact: By incorporating more oil into the Brent benchmark, its value should become less susceptible to price manipulation or squeezes, thus potentially enhancing its stability and reliability as a global pricing reference.

• 2.031: The Baltic Airfreight Index for worldwide spot prices the week ending May 29, according to TAC, down 9.6% since the start of the month to the lowest level since the first week of March 2020.

• Glencore Plc is getting closer to increasing its offer for Teck Resources Ltd. in a move aimed at ending weeks of limbo in the battle over the Canadian miner’s future. A sweetened bid could be announced in the coming weeks, Bloomberg reports (link), citing people familiar with the situation.

• The world demand has taken over the ag markets, says grain trader and analyst Richard Crow. “Brazil’s corn prices remain under U.S, and Russia’s wheat prices are cheap enough for wheat to work to Mexico. Also, additional wheat from Europe is rumored to have traded to the U.S. Export sales report on Friday will not be looking for much new business.”

• Georgia peaches decimated. Horticulturists at the University of Georgia say roughly 90 percent of the Peach State’s crop has been destroyed by bad weather and a warming climate. Link for details

• Ag trade: South Korea purchased 55,000 MT of optional origin feed wheat.

• Wildfires are raging across Canada. Fires in Nova Scotia have forced thousands to evacuate, and smoke has drifted into the northeastern U.S. The largest fire is still burning out of control. Canada is in the midst of a mega fire season, fueled by abnormally hot and dry weather. Five million acres have already burned, with many months to go.

• NWS weather outlook: Widespread scattered showers and thunderstorms continue across large portions of the central U.S., the northern Rockies and northern Great Basin... ...Watching the potential for low pressure to develop in the eastern Gulf and bring increasing chance of thunderstorms across southern Florida next few days... ...Much above average temperatures along the northern tier of the nation but cooler than normal across the southern tier and along the West and East Coasts.

Items in Pro Farmer’s First Thing Today include:

• Active followthrough selling in grains overnight
• Corn CCI rating starts lower than last year
• Crop Progress Report highlights
• Cattle futures remain well below cash market
• June hog futures back above cash index

— Hungary wants Ukraine import curbs extended. Hungary asked the EU to extend import curbs on Ukrainian grains and oilseed crops for five eastern European states at least until the end of 2023, Ministry of Agriculture State Secretary Zsolt Feldman said.

Hungary also asked Brussels to grant financial support to local farmers to facilitate the transport of grain stocks stuck in domestic storage before this year’s harvest.

Background. The EU restricted imports of Ukrainian wheat, corn, rapeseed and sunflower seeds until June 5 in Bulgaria, Hungary, Poland, Romania and Slovakia, but said that could be extended if oversupply situations in those countries still existed at that time.

— Ukraine, with the help of its allies, is planning a peace summit that will exclude Russia. The primary objective of the proposed summit is to rally support for Ukraine’s terms for ending the ongoing conflict. This information comes from Andriy Yermak, the top advisor to Ukrainian President Volodymyr Zelenskyy, and European diplomats. Yermak stated that direct negotiations with Russia are not feasible as long as Russian troops continue to occupy Ukrainian territory.

European officials have recently been reaching out to global powers, including Brazil, India, and China, to secure their support, a strategy that shows an intention to include non-Western countries in the process. Western diplomats are planning to meet before the NATO summit scheduled for July. This meeting will center around providing military support for Ukraine and discussions on Kyiv’s future relations with NATO.

— House leaders are set to pass a bipartisan bill to suspend the debt ceiling until after the 2024 elections, confident that they have the votes necessary. The bill cleared its first major hurdle by passing the House Rules Committee with a 7-6 vote Tuesday evening. The legislation is expected to be debated on the House floor today.

Despite some bipartisan criticisms, both House Speaker Kevin McCarthy (R-Calif.) and President Joe Biden appear confident that the bill will pass in both chambers of Congress and become law before June 5. This date is significant as the Treasury Department estimates that the government will run out of money to pay its bills by then.

The House vote is expected to take place around 8:30 p.m. ET.

— Changes to food aid in debt limit bill would cost money, not save: CBO. A Republican attempt to expand work requirements for federal food aid in debt legislation moving through Congress would increase federal spending by $2.1 billion over 10 years — far from the cuts GOP lawmakers had promised. An estimate from the nonpartisan Congressional Budget Office (CBO) released late Tuesday said that while the new work requirements in SNAP would save money, the added benefits pushed by Democrats would cost more — and add almost 80,000 people to the rolls in an average month.

Details: CBO said that the new work rules on their own would reduce SNAP spending by $6.5 billion over 10 years. But the exemptions added by Democrats for veterans, homeless people and others would cost $6.8 billion over the same period. The agency said the bill would cost another $1.2 billion because the changes would overlap somewhat as they were phased in.

House Speaker Kevin McCarthy (R-Calif.) dismissed the estimates. “Come see me in a year, and I’ll show you how much we actually saved,” McCarthy said as he left a late-night meeting Tuesday with his members. “You watch — a lot of people are going to get jobs now.” McCarthy and House Agriculture Committee Chairman G.T. Thompson (R-Pa.) said they believe that the CBO estimate is incorrect and that some recipients who are already exempted from the work requirements may have been double counted.

The overall bill negotiated by McCarthy and Biden would still cut spending over the next two years. CBO said (link):

“In CBO’s estimation, if HR 3746 was enacted and appropriations that are subject to caps on discretionary funding for 2024 and 2025 were constrained by the limits specified in section 101(a) of the bill, the agency’s projections of budget deficits would be reduced by about $1.5 trillion over the 2023–2033 period relative to its May 2023 baseline projections. Reductions in projected discretionary outlays would amount to $1.3 trillion over the 2024–2033 period. Mandatory spending would, on net, decrease by $10 billion, and revenues would, on net, decrease by $2 billion over the 2023–2033 period. As a consequence, interest on the public debt would decline by $188 billion.”

— Changes to nutrition programs, including the Supplemental Nutrition Assistance Program (SNAP), will be “settled” after the debt ceiling legislation passes, according to Senate Ag Chair. Debbie Stabenow (D-Mich.). This indicates that the farm bill will likely avoid debates over work requirements for SNAP. These disagreements over proposed cuts to nutrition aid by Republicans have stalled previous farm bills and until the debt-limit bill were expected to delay the 2023 farm bill reauthorization.

Stabenow and other Democrats have been pushing back against cuts to food aid in the debt ceiling discussions and resisted stricter work requirements for SNAP, the largest nutrition program in the U.S. The agreement between President Joe Biden and House Speaker Kevin McCarthy (R-Calif.) would extend the existing work requirements rule for able-bodied SNAP recipients aged 18-49 to those aged 54 and younger, with certain exemptions.

Despite opposition from some progressives, who criticized the nutrition aid concessions in the debt ceiling bill, Republicans proposed even broader changes to food aid. However, the deal agreed upon by Biden and McCarthy is slightly milder, with exemptions for homeless individuals and other adults seen as safeguarding the program from major cuts.

According to Sen. Joni Ernst (R-Iowa, the SNAP work requirements are unlikely to be revisited in the farm bill if the provisions pass in the debt bill.

— The Biden administration has withdrawn the nomination of Ann Carlson for the position of the head of the National Highway Traffic Safety Administration (NHTSA) due to opposition from Republicans and various oil and energy groups. These opponents argued that Carlson’s stance on climate issues was problematic, expressing concern that she might transform the NHTSA into a body primarily concerned with enforcing climate change regulations.

— Chinese leader Xi Jinping appears to be personally involved in a crackdown on statistical fraud, indicating the seriousness of the issue, according to China watchers at Trivium. During a study session on the campaign in Zhifu District, Shandong province, a quote from Xi was cited, stating that statistical fraud not only misleads decision-making but also undermines the government’s credibility, hence it is “extremely harmful.” The motivation behind statistical fraud is often local officials inflating economic data to impress their superiors in Beijing and to demonstrate their ability to grow the economy. However, fraudulent economic data can be a major hindrance to policymakers who need accurate economic pictures to design effective policies.

Trivium says Xi’s strong criticism suggests he might have ordered the crackdown or is directly overseeing it. This crackdown is expected to expand beyond Zhifu and become a widespread investigation.

Of note: Trivium says implications of this campaign include potential difficulties in year-over-year comparisons of economic data in the coming months. Additionally, economic policy may experience changes as policymakers strive to obtain a more accurate understanding of the economy.

— China’s factory activity contracted for a second straight month while growth in the services sector slowed, the latest signs that the country’s reopening growth momentum is fading. China’s official purchasing managers index for manufacturing activity slipped to 48.8 in May, below the 50-mark that separates expansion from contraction. Services activity expanded but at a slower pace than the previous month. Taken together, the weaker-than-expected numbers point to a tepid and short-lived post-Covid economic rebound.

The yuan, now down more than 3% from its early May peaks, skidded to its lowest level of the year against the dollar as investors considered the possibility of further credit easing by the Chinese central bank.

— Suspected Chinese spies disguised as tourists tried to infiltrate Alaskan military bases. Chinese citizens posing as tourists but suspected of being spies have made several attempts in recent years to gain access to military facilities in this vast state studded with sensitive bases, according to U.S. officials. In one incident, a vehicle with Chinese citizens blew past a security checkpoint at Fort Wainwright in Fairbanks, several soldiers told USA Today. The vehicle was eventually stopped, and a search found a drone inside the vehicle. The occupants claimed they were tourists who had gotten lost.

— China trying to salvage damaged wheat. China’s ag ministry urged local authorities to speed up harvesting and drying of damaged grain, after heavy rain flooded fields of ripe wheat in Henan, the country’s largest growing region. Authorities should send emergency teams to drain water from fields, speed up access by harvesters and mobilize drying machinery to save as much of the crop as possible, the ministry said. It also urged buyers to purchase sprouted wheat that can still be used for feed or industrial purposes, while making sure it does not go to food.

— Mexico on banning imports of GMO corn for food use. Mexico continues to argue that its recent decree banning imports of genetically modified (GMO) corn for food use does not violate its commitments under the U.S.-Mexico-Canada Agreement (USMCA). Mexico’s Agriculture Minister Victor Villalobos stated that the issue is not suitable for the USMCA dispute resolution process. He argues that with the new decree, there is no longer any subject for debate in the bilateral agricultural terms.

In February, Mexico published a decree softening its stance. It still bans GMO corn for human consumption but permits yellow corn imports for livestock feed, which makes up most of what Mexico brings in from the United States. “The issue of agriculture in bilateral terms, with this new decree, no longer has any topic for discussion,” Villalobos said in an interview with Mexican newspaper Milenio. “That potential threat (from the panel) existed before the second decree came out.”

The Biden administration has asked for technical consultations under USMCA about the decree, contending that although Mexico allows GMO corn for animal feed, the ban on GMO corn for food use contradicts Mexico’s USMCA commitment to base biotechnology decisions on scientific evidence. The U.S. maintains that GMO corn is safe for both food and feed use.

Mexico claims that as it is self-sufficient in GMO corn for food use, the decree does not cause any trade issues with the U.S. However, the U.S. insists that Mexico’s decision is not scientifically based and has dismissed Mexico’s proposition to conduct a study on the safety of GMO corn for food use.

USDA Secretary Tom Vilsack argues that there’s no need for such a study as numerous studies already prove the safety of GMO corn for food and feed use.

Bottom line: Given the firm stances of both countries, it appears likely that this situation will lead to a USMCA dispute settlement action.

— Update on restoring WTO dispute settlement system. Members of the World Trade Organization (WTO) are working towards fulfilling a mandate from the June 2022 12th Ministerial Conference to restore a fully functioning dispute settlement system by 2024.

Background. Since the U.S. has blocked the appointment of new judges to the Appellate Body since December 2019, appeals of dispute panel rulings have been unable to be adjudicated, leaving outcomes unresolved and trade sanctions unimposed. Many members have agreed to an alternative arbitration arrangement while the Appellate Body remains non-operational, but cases involving members outside this arrangement remain stalled.

WTO Deputy Permanent Representative of Guatemala, Marco Molina, has been leading an informal process aimed at reforming the dispute settlement system. He reported to WTO’s Dispute Settlement Body (DSB) that 57 meetings have been held, involving substance-based and highly technical discussions. Over 70 proposals have been refined, with members identifying potential options for consideration and consensus building. The process is expected to continue intensively in June and July, with the drafting stage due to start after the WTO’s summer break.

Some members have voiced concerns about the pace and volume of meetings and the challenge for least-developed countries to participate effectively. They also called for more inclusivity, transparency, and suggested folding the effort into the work of the DSB. Other members praised the current process as inclusive and transparent and emphasized the need for an ambitious timetable to meet the 2024 deadline.

The U.S. continues to block new appointments to the Appellate Body until its concerns with WTO dispute settlement are addressed.

The next DSB meeting is scheduled for June 30.

— RFS update. There are now 32 meetings that have either occurred or are planned at the Office of Management and Budget (OMB) regarding the final rule from the Environmental Protection Agency (EPA) for levels under the Renewable Fuel Standard (RFS) for 2023 and beyond.

The newly added meetings involve firms such as Mead & Hunt, which specializes in developing waste-to-energy solutions (June 12), Coalition of Massachusetts Anaerobic Digestion Facilities and CommonWealth New Bedford Energy LLC (June 13); and EVgo (June 13).

Many of the scheduled meetings are with groups that concentrate on renewable energy for electricity generation. There are reports suggesting that the EPA is delaying the part of their proposed RFS plan for 2023, 2024, and 2025, that deals with renewable electricity generation. The concern is that potential court action might slow this component of the plan down. However, expectations suggest that even if the renewable electricity section is not part of the final rule due by June 14, it is likely to be released within this year.

— A Chinese island is showing the way to an all-electric future. Hainan’s 75,000 charging points are part of a plan by the provincial government to end fossil-fuel car sales by 2030 and have EVs and hybrids make up 45% of the island’s fleet — the first and only place in China to set such a goal. Link to more via Bloomberg.

— As Texas grapples with power grid issues, the state is experiencing an increase in interest and investment in battery storage projects, Reuters reports (link). Battery storage projects in Texas are yielding returns of about 20%, more than double that of solar and wind projects, according to Rhett Bennett, CEO of Black Mountain Energy Storage. The surge in battery storage deployment follows the collapse of Texas’ energy grid due to an ice storm in February 2021.

Texas accounted for 31% of new U.S. grid-scale battery storage, coming in second only to California, according to data from energy research firm Wood Mackenzie. Over the next five years, the firm projects that Texas will account for nearly a quarter of new battery storage deployment. Despite the promising returns, some developers are rushing to take advantage of the situation before these high returns start to decline.

— Proposed lawsuit targets “carbon-neutral airline.” A California resident filed a proposed class-action lawsuit against Delta Air Lines Inc., alleging that the airline violated state consumer protection laws and laws that prohibit unfair and fraudulent business practices over advertising that pegged the carrier as “the world’s first carbon-neutral airline” despite releasing carbon emissions into the atmosphere. Link to more via Reuters.

— California targets candy makers. California’s state Assembly has passed a bill that proposes banning five chemical additives used in food products, including a coloring agent used in Skittles and Red 3, which is found in various snacks. Supporters of the bill argue these additives pose health risks and should be removed. Critics, however, contend that it’s the responsibility of federal regulators to determine the safety of food additives, not states. This bill, nicknamed the “Skittles ban,” has sparked a nationwide debate over these additives and the potential impact on well-loved snacks if it becomes law.

The bill’s proponents note that these five additives are already largely banned in the European Union. They argue that the bill doesn’t intend to ban products like Skittles but merely to improve their safety. Candy manufacturers worry about facing different regulations from state to state and believe that any required changes should go through the U.S. Food and Drug Administration (FDA). The FDA has been petitioned to stop the use of Red 3 and titanium dioxide, both of which are listed in the California bill.

Consumer advocates argue that the FDA hasn’t adequately reviewed some of these additives since the 1970s. They point to comments from the FDA in 1992 suggesting it would revoke the use of Red 3 in food, an action that has not been taken. The FDA has responded that it continues to monitor scientific developments around the safety of Red 3 and has evaluated the safety of all the substances included in the California bill.

Should the bill become law, it could lead to national changes in ingredient usage due to California’s large market. Some companies, like Panera Bread, have already removed many of these ingredients, including all five additives targeted by the California bill.

— Democrats push meatpackers for change after child labor findings. Senate Democrats, led by Sens. Bob Menendez and Cory Booker of New Jersey, are seeking answers from meatpacking and food companies such as Cargill Inc., JBS Foods, and Tyson Foods Inc. These companies had contracts with Packers Sanitation Services Inc., a sanitation firm found guilty of employing minors in hazardous jobs, thereby violating federal labor laws. The firm had to pay fines earlier this year because of this violation.

Child labor has become a pressing issue on Capitol Hill, thanks to Labor Department investigations and media reports revealing the extent of the issue. Republicans typically attribute the problem to the Biden administration’s policies, which they argue could facilitate migrant children falling prey to labor traffickers. But many Democrats believe that private companies should be held accountable.

Menendez, Booker, and nine other Democratic senators have sent letters (link) to nine companies that the Labor Department linked to Packers Sanitation Services. They are requesting information on any modifications the companies have made to their contractor monitoring and procurement processes to prevent child labor.

Several of the companies have announced changes following the Labor Department’s investigation. For instance, Cargill decided last month to terminate its contracts with Packers Sanitation Services, and JBS started its own sanitation company to serve its facilities in response to the alarming allegations within the food sanitation sector.

— Rep. Chris Stewart, a Republican from Utah, plans to resign from Congress, according to the Salt Lake Tribune. The newspaper report, citing multiple unnamed sources, said Stewart plans to step down as early as this week due to undisclosed health issues experienced by his wife, Evie Stewart.

— Chris Christie to join 2024 presidential race after months of campaigning against Trump. Chris Christie, the former New Jersey governor who has branded himself as the only Republican willing and able to take down former President Donald Trump, will enter the 2024 presidential race next week, according to reports. He has been expected to join the race and will formally make the announcement at 6:30 p.m. next Tuesday during a town hall at Saint Anselm College in New Hampshire. The announcement was first reported by Axios and then confirmed by CNN.

— North Korea recently reported an unsuccessful attempt to put a military satellite into orbit, attributing the failure to an engine malfunction in the launch rocket. This launch attempt sparked an immediate reaction in South Korea and Japan. In Seoul, South Korea’s capital, local authorities activated sirens and issued emergency evacuation alerts, though the government later labeled this response as an “erroneous issuance.” Similarly, Japan temporarily activated its missile-alert system, specifically in the Okinawa region. Despite the failed launch, North Korea announced its intention to make another attempt soon.

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