In First Forecast for FY 2025, USDA Projects Ag Trade Deficit Bulging to $42.5 Billion

News/Markets/Policy Updates: Aug. 28, 2024

— The U.S. agricultural trade deficit is expected to continue growing in fiscal year (FY) 2025, with significant implications for the agricultural sector. USDA provided forecasts indicating that agricultural exports are projected to decrease, while imports are expected to rise, leading to a widening trade deficit. FY 2024 forecasts • USDA raised its forecast for agricultural exports by $3 billion to $173.5 billion, largely due to increased exports of horticultural and grain products. • However, agricultural imports are also expected to increase by $1.5 billion, reaching $204 billion. This results in a projected trade deficit of $30.5 billion, which is a slight improvement from the $32 billion deficit projected earlier in May. • For FY 2024, U.S. ethanol exports are now seen at a record $4.3 billion, an increase of $800 million over the previous year and $400 million higher than the previous record set in FY 2022. USDA said the volume is seen at 1.9 billion gallons with U.S. ethanol “generally more price competitive with Brazilian product, helping to boost global U.S. sales.” But there are essentially no shipments to Brazil due to the 18% import duty. The U.S. supplies all of Canada’s imports with that country being the world’s top ethanol importer. • Canada is still expected to be the top U.S. agricultural export destination in FY 2024 at $29.3 billion with Mexico in the number two spot at $28.9 billion, with China in third at $27.0 billion. FY 2025 projections • Looking ahead to FY 2025, which begins on October 1, 2024, USDA forecasts a decline in agricultural exports by $4 billion, bringing the total to $169.5 billion. This decline is primarily attributed to lower unit values of key commodities such as soybeans, corn, and cotton, as well as reduced volumes of beef exports. The decrease in exports to China, projected at $24 billion, is particularly notable and is driven by reduced import demand, strong international competition, and lower unit values of U.S. exports. • On the import side, agricultural imports are expected to reach a record $212 billion, up $8 billion from the revised figure for FY 2024. This increase is largely due to rising imports of horticultural products, sugar, and tropical products. • USDA’s initial outlook for FY 2025 anticipates a record agricultural trade deficit of $42.5 billion, up $12 billion from the current fiscal year. This trend reflects ongoing challenges in the U.S. agricultural trade landscape, including strong competition from international markets, fluctuating commodity prices, and changes in global demand patterns. • A factor in the FY 2025 export outlook is the value of the U.S. dollar which USDA expects will increase another 0.8% in calendar 2025 after a 2.2% rise in 2024. • “Labor talks at U.S. ports on the East Coast and Gulf of Mexico are another risk for shippers already grappling with longer transit times and higher costs,” USDA noted. • For FY 2025, Canada retains the top spot with forecast exports at $29.2 billion while exports to Mexico are seen holding at $28.9 billion but China is seen falling to $24.0 billion, still holding down the third spot. “Uncertainty still looms as China’s economy shifts from growth based, mainly on production and exports, to domestic demand with slowing population growth leading to reduced production capacity,” USDA noted. Bottom line: With these forecasts, concerns will increase about the outlook for the U.S. ag sector, with the updated U.S. farm income forecast due Sept. 5. It will also continue to generate criticism of the Biden/Harris administration’s lack of new free trade agreements. USDA has introduced the $1.2 billion Regional Agricultural Promotion Program (RAPP) to support and diversify U.S. ag exports, particularly targeting markets beyond the top buyers. While the program aims to expand export markets, its impact on reversing the current export slump remains uncertain in the short- to medium-term. (U.S. gov’t agencies) — Vice President Kamala Harris and Minnesota Governor Tim Walz are set to participate in their first joint interview with CNN, which will be aired on Thursday, Aug. 29, 2024, at 9 p.m. ET. This interview, conducted by CNN anchor Dana Bash, marks Harris’ first in-depth, on-the-record conversation with a journalist since she became the Democratic presidential nominee following President Joe Biden’s withdrawal from the race. The interview will provide Harris with an opportunity to clarify her views and differentiate her platform from that of her predecessor. Harris is likely to face questions about policy areas — including her purportedly evolving positions on a range of issues, such as, according to her staff, disavowed support for single-payer health care, decriminalizing illegal border crossings and banning fracking for oil and natural gas. — Trump and Harris agree to debate Sept. 10 on ABC, but some debate rules murky, particularly regarding the rules about microphone usage. Donald Trump announced on Truth Social that he and Kamala Harris have agreed to follow the same debate rules he used with President Biden during the June 27 CNN debate, which included no live audience and muted microphones when not speaking. However, the Harris campaign has pushed for a different approach, advocating for microphones to remain unmuted throughout the debate. The Harris campaign argues that the muted microphone rule inadvertently benefits Trump by allowing him to project a more composed demeanor than he might otherwise. — Amid a debate within the Republican Party over how to respond to climate change, Republicans plotting the post-election policy agenda have a tricky decision to make: What to do with Dems’ 2022 climate law (IRA), now that the clean energy tax breaks included in it are drawing growing GOP support? Of note: Not one Republican voted for the IRA/Climate bill, but the law is undeniably bringing federal money, private investments and jobs into communities around the country overwhelmingly represented by Republicans — and the once-united opposition is fraying. — Vice President Kamala Harris’ lead over former President Donald Trump remains unchanged after the Democratic National Convention last week, according to a new Morning Consult survey that found the majority of voters didn’t pay attention to most of the major speeches and events — though more voters see Democrats as unified. The survey is one of the first taken since the convention and among multiple over the past month that show Harris has erased Trump’s lead over Biden. • Harris leads Trump by four points, 44% to 48%, with 4% of voters undecided and 4% saying they support another candidate, according to the Aug. 23-25 poll of 7,829 registered voters (margin of error 1), the same findings as an Aug. 16-18 poll. • Despite the DNC reaching about 14% more viewers than the Republican National Convention in July, only three major events from the convention captured the attention of a majority of voters: the speeches by Harris, former First Lady Michelle Obama and former President Barack Obama. • Less than half of voters surveyed said they heard “a lot” or “some” about five other speeches and events, including President Joe Biden’s and vice-presidential candidate, Minnesota Gov. Tim Walz’s. — The Hill and Decision Desk HQ adjusted their House-Senate forecast for Nov. 5 elections. They have been tracking the chances that each party will win in November (link). • White House: Harris has a 55% chance of defeating Trump. In July, Biden had a 44% chance of winning. • Senate: Republicans have a 67% chance of winning the Senate, down from 78% when Biden was at the top of the ticket. • House: Republicans have a 56% chance of keeping the House, down from 61%. — Trump campaign stokes China fears to lure Michigan voters. JD Vance, the Republican vice-presidential nominee, waded into a fight over plans by Gotion, a Chinese battery plant, to build a factory in Michigan. Gotion’s $2.4 billion investment targets IRA subsidies, vice presidential candidate says. Link to details via the New York Times. — U.S. corn prices hit a 4-year low amid record crop prospects, economists warn of potential ag recession. U.S. corn prices have fallen to a four-year low as forecasts for the 2024 corn and soybean crops suggest potential record yields. The declining outlook has sparked concerns among economists, with nearly 60% believing U.S. agriculture is either in or on the brink of a recession, according to the August Ag Economists’ Monthly Monitor (link). Economists highlight falling crop prices, decreased farm incomes, and financial pressures on leveraged producers, though higher cattle prices offer some relief. USDA is expected to revise its 2024 net farm income forecast lower in September, with many experts anticipating a significant downward adjustment. (Farm Journal ) — What to watch ahead. From geopolitics to the evolving situation in supply and demand across all commodities, the Monthly Monitor asked economists to outline the factors not being covered enough in the media. • “Deterioration in liquidity.” • “Growing gap between the situation for crop and livestock producers.” • “Impact of a Trump vs. Harris win and misconceptions around who is better for the farm economy.” • “Continued high cost for many ag inputs.” • “I’m frustrated by the continued pressure on U.S. farmers to be more sustainable which often results in higher farm costs and could lead to more regulation or hoops to jump through or reduced production. At the same time, South American producers continue to rapidly expand production in a less sustainable way. I’m also concerned that this will lead to vertical integration in crop farming.” • “The cataclysmic risk of rising tariffs.” • “Will Congress set in to support farm incomes at these levels? ARC/PLC are ineffective at this point. Ad hoc spending has been rampant.” • “Inflation.” • “Possible government farm program payments this fall (last year’s crop year).” • “Fund manager use of Algo computers.” Note: Pro Farmer’s Updates will be commenting on some of the above topics in the days and weeks ahead.

— Equities today: Asian and European stock indexes were mixed overnight. In Asia, Japan +0.2%. Hong Kong -1%. China -0.4%. India +0.1%. In Europe, at midday, London -0.1%. Paris +0.5%. Frankfurt +0.7%.U.S. Dow opened slightly lower.

U.S. equities yesterday: All three major indices registered modest to small gains Tuesday, with the Dow reaching another record finish with a gain of 9.98 points, 0.07%, at 41,250.50. The Nasdaq rose 29.05 points, 0.16%, at 17,754.82. the S&P 500 was up 8.96 points, 0.16%, at 5,625.80.

— High interest rates have led hedge funds and physical oil traders to pull up to $100 billion from oil futures and inventories, shifting investments into U.S. money markets, according to Jeff Currie of Carlyle Group. While investors have been betting on declining oil prices, Currie warns that a future rate cut by the Federal Reserve could make oil more attractive again, increasing the risk of a price spike.

— Nordstrom surpasses Q2 earnings expectations, shares jump 8%. Nordstrom exceeded second-quarter earnings expectations, reporting adjusted earnings of 96 cents per share, above the anticipated 71 cents. Revenue slightly surpassed estimates at $3.89 billion. The company raised its fiscal year guidance, now expecting adjusted earnings per share between $1.75 and $2.05. Strong sales from its “Anniversary Sale” and growth in beauty, active, and home categories contributed to the positive results. Additionally, sales at Nordstrom Rack, its off-price brand, increased by 8.8%, reflecting consumer preference for value during economic uncertainty.

— Nvidia’s earnings awaited amid stock surge and market jitters. Investors are closely watching Nvidia as it prepares to release its quarterly results after the bell, with the stock nearing its all-time high. Despite earlier volatility, Nvidia’s market cap has surged ninefold since the end of 2022, briefly making it the world’s most valuable public company. Analysts expect the company to continue its streak of triple-digit growth, projecting a 112% increase in revenue to $28.7 billion. A strong performance is crucial, as any disappointment could significantly impact the broader market.

— On Tuesday, oil prices fell around 2% due to concerns over slower economic growth in the U.S. and China, which could reduce energy demand, following a 7% surge over the prior three days. Brent crude dropped $1.88, 2.3%, to $79.55 a barrel, while U.S. West Texas Intermediate (WTI) crude declined $1.89, 2.4%, to $75.53.

— Ag markets today: Corn and soybeans pulled back from Tuesday’s corrective gains overnight, while the wheat market traded narrowly on either side of unchanged. As of 7:30 a.m. ET, corn futures were trading mostly 2 cents lower, soybeans were around 7 cents lower, SRW wheat was fractionally higher, HRW wheat was fractionally to 3 cents lower and HRS wheat was 1 to 2 cents lower. The U.S. dollar index was around 450 points higher, and front-month crude oil futures were about $1.30 lower.

Limited packer demand for cash cattle. Cash cattle negotiations are off to an expected slow start, with packers showing limited willingness to establish bids. While cutting margins are in the black, packers have purchased a lot of cattle with time, will be working with a holiday-shortened schedule next week and will have fresh contract supplies available with the flip of the calendar. That all points to lower cash cattle prices for a fifth consecutive week. But big discounts to the cash market have helped fuel corrective buying in futures the first two days this week.

Cash hog decline slows, pork cutout firms. The CME lean hog index is down another 4 cents to $87.82 as of Aug. 26 — the smallest daily decline since a one-day uptick Aug. 14. The pork cutout firmed $1.07 to $96.05 on Tuesday, recouping a portion of Monday’s plunge, while movement improved to 300.6 loads.

— Agriculture markets yesterday:

• Corn: December corn futures rose 6 1/4 cents at $3.92 3/4 and nearer the session high.
• Soy complex: November soybeans rose 5 3/4 cents to $9.86 1/2 and nearer the daily high. September soybean meal closed up $5.20 at $317.30, nearer the session high and hit a more-than-two-week high. September soybean oil fell 55 points at 41.15 cents and near the session low.
• Wheat: December SRW futures rallied 10 1/2 cents to $5.35 1/2 and settled nearer session highs. December HRW futures climbed 9 1/2 cents to $5.46 3/4 and closed nearer session highs. December HRS futures gained 9 1/2 cents to $5.46 3/4.
• Cotton: December cotton futures sunk 28 points to 69.98 cents and settled near mid-range.
• Cattle: October live cattle futures surged $2.425 higher to $179.40 and settled near session highs. September feeder cattle futures climbed 57.5 cents to $241.925 and settled near mid-range.
• Hogs: October lean hogs rose $1.675 to $82.075, nearer the session high and hit a nearly three-month high.

— Quotes of note:

• Fed signals gradual rate cuts amid economic uncertainty. The Federal Reserve is leaning towards a gradual approach to rate cuts, likely reducing rates by 25 basis points at a time, as officials assess the economy’s response, Bloomberg reports (link). While inflation hasn’t fully reached the 2% target, the labor market shows signs of fragility, leading the Fed to favor a cautious strategy. Fed Chair Jerome Powell remains open to more aggressive cuts if necessary, but the overall stance reflects a preference for a slow and measured adjustment to avoid reigniting inflation while supporting economic stability.

• “The German economy is increasingly falling into crisis.” — Clemens Fuest, president of the Ifo Institute, as confidence at German companies fell for a fourth straight month. (See details below.)

— 30-year mortgage rates drop to 6.44%, lowest since April 2023. The average interest rate for 30-year fixed-rate mortgages with conforming loan balances fell to 6.44% for the week ending Aug/ 23, the lowest since April 2023. This decline, influenced by falling Treasury yields and expectations of Federal Reserve rate cuts, reflects a broader trend where mortgage rates move in tandem with 10-year Treasury yields. While current rates remain higher than the historic lows of 2020-2021, they are significantly lower than the peaks of late 2023. The drop is partly due to economic factors like low inflation and a weakening labor market.

— U.S. home prices hit record high despite rising mortgage rates. The S&P CoreLogic Case-Shiller U.S. National Home Price Index reached its highest level ever in June 2024, with home prices 5.4% higher than the previous year. Despite the record, the annual gain was slightly lower than May’s 5.9% increase. Rising mortgage rates, which exceeded 7% during the period, did not prevent the surge in prices. New York led the 20-city composite with a 9% annual increase. The report also highlighted that lower-priced homes in major markets are appreciating faster than higher-tier homes, with New York’s low-tier homes rising nearly 20% above the overall market in the past five years.

Bottom line: Houses are on average twice as expensive now as they were 50 years ago, adjusted for inflation, Brian Luke of S&P Dow Jones Indices said.

— Germany’s economy contracts 0.1% in Q2, reflecting persistent stagnation. Germany’s economy shrank by 0.1% in the second quarter of 2024, driven by a 2.2% drop in capital investment and a 0.2% decline in private consumption. Despite a 1% increase in government spending, the overall economic outlook remains bleak, with manufacturing facing challenges from weak foreign demand, high borrowing costs, and political uncertainty. Business sentiment is deteriorating, with key indicators pointing to stagnation, raising concerns that Germany’s economy is struggling to recover and could see minimal growth this year.

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, trading around 3.82%, with a mixed tone in global government bond yields. Crude oil futures were lower ahead of U.S. gov’t inventory data due later this morning, with U.S. crude around $74.35 per barrel and Brent around $77.45 per barrel. Gold and silver were under pressure, with gold around $2,533 per troy ounce and silver around $29.27 per troy ounce.

— U.S. diesel prices drop to $3.651 per gallon, lowest since January 2022. The average U.S. diesel price fell to $3.651 per gallon as of Aug. 26, marking a 3.7-cent weekly decrease and an 82.4-cent drop from last year, according to the Energy Information Administration. This is the lowest price since January 2022, driven by reduced demand, stable crude prices, and seasonal changes. Regional disparities persist, with California’s diesel at $4.707 per gallon, while the Gulf Coast has the lowest at $3.317 per gallon.

— ExxonMobil predicts steady oil demand until 2050, warns of energy price shock without continued investment. ExxonMobil forecasts that global oil demand will remain above 100 million barrels per day through 2050, despite the global push for an energy transition. The company warns that reducing investment in fossil fuels could lead to a severe energy price shock. This prediction contrasts with other forecasts, such as BP’s expectation of a decline in oil consumption and the International Energy Agency’s projection of a significant drop if climate pledges are met. Exxon argues that oil and gas will remain essential to the global economy, driven by industrial demand and population growth, even as it faces criticism and legal challenges over its role in climate change.

— USDA daily export sales for 2024-25 delivery:
• 264,000 MT soybeans for delivery to China
• 100,000 MT corn for Colombia
• 165,735 MT corn for to Mexico

— U.S. grain prices are falling even more, and the lower commodity prices no longer offset higher production expenses. The situation is leading to a push to get a new farm bill when lawmakers return Sept. 9, while others signal odds are increasing for a possible ag disaster relief package by the time Congress adjourns this calendar year.

(Wall Street Journal )

— CME Group and Euronext will launch two new joint wheat spread futures contracts on Oct. 14, pending regulatory review. The two joint CME/Euronext spread contracts will allow trades on the spread between Euronext’s milling wheat futures and both the Chicago Board of Trade (SRW) and Kansas (HRW) wheat futures. The contracts will each be U.S. dollar-denominated in metric tons. In addition to the two joint contracts, Euronext will launch a third spread contract between its milling wheat futures and maize (corn) futures. The contracts will have expiration months in March, May, September, and December, with the initial launch offering five expiries from December 2024 to December 2025.

— Reuters: India may raise vegoil import taxes to protect farmers. India is considering increasing import taxes on vegetable oils to protect local farmers from declining oilseed prices, according to Reuters. The proposal, put forth by the farm ministry, is aimed at reducing imports of palm oil, soyoil, and sunflower oil. Soybean prices in India are currently below the government support price, and July’s vegoil imports reached 1.9 million metric tons, a 22.2% increase. The country imports over 70% of its vegetable oil needs. A decision is expected in the coming weeks.

— USDA has approved Bioceres Crop Solutions Corp.'s genetically modified (GMO) wheat, known as HB4, for production in the United States. HB4 wheat is designed to be drought-tolerant and resistant to herbicides, addressing key challenges in agriculture. This approval marks the U.S. as the fourth country to clear HB4 wheat for production, following Brazil, Paraguay, and Argentina. Bioceres aims to be the first to bring GMO wheat to global markets, and this approval is a significant step in that direction. However, despite USDA’s green light, commercializing HB4 wheat in the U.S. will still take several years as Bioceres completes necessary additional steps. The U.S. Wheat Associates, an industry group, supports the approval, emphasizing the potential benefits for both farmers and consumers. Its successful integration into the market will depend on regulatory approvals, consumer acceptance, and international market dynamics.

— NWS outlook: Record heat for the Mid-Atlantic today but the heat will last a couple more days for the Ohio and Tennessee Valleys into the interior Southeast... ...Active thunderstorms will bring the threats of heavy rain, flash flooding and severe weather across the northern Plains tonight and then the upper Midwest Thursday through early Friday... ...Strong to severe late afternoon thunderstorms possible across the east-central U.S for today and Thursday... ...First snowflakes of the season expected for the high elevations of northwestern Montana today while fire weather threat blankets portions of the northern Rockies.

(NWS)

Items in Pro Farmer’s First Thing Today include:

• Corn and beans weaker, wheat mixed overnight
• Poor weather causes sharp drop in German wheat production
• Consumer confidence at six-month high

— Israel launches major West Bank operation amid rising tensions. The Israeli military launched a significant air-and-ground operation across the West Bank, targeting areas believed to be sources of terrorist attacks. The assault, spanning multiple cities, resulted in at least five militants killed and five others detained, according to Israeli sources. Palestinian health authorities reported nine fatalities and 11 injuries during the overnight raids. The operation marks the West Bank as a developing third front for Israel alongside Gaza and its northern border.

— Ukraine deploys U.S.-made F-16s to intercept Russian attacks. Ukraine announced it has used U.S.-made F-16 fighter jets for the first time to intercept drones and missiles amid a massive Russian attack. The strikes highlight Ukraine’s ongoing challenge of defending its territory with limited air-defense systems and a shrinking stockpile of interceptor missiles.

— USDA has resumed payments under the Emergency Relief Program (ERP) 2022 after being temporarily blocked by a court ruling in June. The program initially included additional benefits for “socially disadvantaged” farmers and ranchers, such as premium refunds and payment increases. However, to comply with the court ruling, these specific benefits have been removed. The payments under Track 1 resumed on Aug. 26, and those under Track 2 are expected to resume around Aug. 30.

Under ERP 2022 Track 1, the payment calculation included a refund for underserved farmers or ranchers share of the premium and fees for crop insurance or the Noninsured Crop Disaster Assistance Program.

For Track 2, the payment calculation included an increase equal to 15% of the gross payment after progressive factoring.

To comply with the court ruling, the resumption of ERP 2022 payments will not include the refund of premiums under Track 1 or the 15% increase under Track 2 for socially disadvantaged farmers or ranchers.

— Information on crop insurance performance is now available in a new spreadsheet tool in the farmdoc FAST Tool lineup. The Crop Insurance Summary of Business Tool provides county-level summaries of the federal crop insurance program based on information from the Risk Management Agency’s publicly available Summary of Business data files.This article (link) introduces the new tool and highlights the ‘Product Use’ feature which shows users historical trends in insurance use for the major policies at the county level for corn, soybeans, and wheat. This feature of the tool provides farmers with trends in insurance use, which can serve as benchmarks as they make their own crop insurance choices.

— U.S. and China hold high-level talks as Wang Yi meets NSA Sullivan in Beijing. U.S. National Security Advisor Jake Sullivan met with China’s top diplomat Wang Yi in Beijing, marking the first visit by a sitting NSA to China in eight years. While Wang emphasized overcoming obstacles for stable bilateral relations, Sullivan reiterated the Biden administration’s commitment to managing U.S./China competition responsibly. The meetings are seen as a chance to clear the air before potential changes in U.S. leadership, with both sides managing expectations for significant shifts in relations. The discussions could lay the groundwork for a potential final summit between President Xi Jinping and President Joe Biden before Biden’s term ends, possibly during the upcoming Asia-Pacific Economic Cooperation (APEC) Forum or the G20 summit.

Key topics on Sullivan’s agenda included Taiwan and the South China Sea, both of which are major points of contention. Beijing views Taiwan as a non-negotiable issue, accusing the U.S. of promoting Taiwanese independence through arms sales and high-level visits. The South China Sea remains a flashpoint, particularly following recent clashes between Chinese and Philippine vessels, raising the possibility of U.S. military involvement to protect Philippine interests.

Other critical issues included expanding military-to-military communications to prevent regional conflicts, addressing China’s relationship with Russia — especially concerning dual-use technology — and tackling the production and export of chemicals used to manufacture fentanyl. Additionally, U.S. export controls on advanced semiconductors remain a contentious issue, with Beijing accusing Washington of attempting to stifle its technological development.

— Protests rise in China amid economic slowdown and housing crisis. Protests in China increased by 18% in Q2 2024, driven by economic grievances such as stalled housing projects and labor disputes, according to the China Dissent Monitor. The rise in dissent reflects growing dissatisfaction as the country grapples with a slowing economy and the effects of a real estate crisis. Despite intensified censorship, protests linked to economic issues, especially in manufacturing hubs like Guangdong, are becoming more frequent. While not an existential threat to the regime, these protests highlight governance challenges for the ruling Communist Party as economic growth stalls. Link to more via Bloomberg.

— China is taking steps to curb the importation of barley and sorghum to support local grain prices and bolster domestic agriculture. This move is part of a broader strategy to manage the country’s grain market, which has been affected by ample supplies and weaker-than-expected demand, putting pressure on domestic prices. The Chinese government has asked domestic traders to reduce their purchases of foreign grains, particularly barley and sorghum, which are used as feed grains in China.

The new measures are expected to impact shipments arriving from November into the first quarter of the following year, although shipments that have already been booked for October and November will not be affected. This policy shift is likely to have significant implications for major exporters like the United States and Australia, as China has been a substantial market for these grains. In recent years, China has imported large quantities of sorghum and barley due to their lower prices compared to domestic corn, which has one of the highest prices globally.

The decision to curb imports is also influenced by China’s longstanding policy to support local growers and manage its grain reserves. By reducing reliance on imported grains, China aims to increase the consumption of domestic corn, thereby addressing the overhang in state reserves. This policy is part of a broader trend where China has been adjusting its agricultural import strategies, including the removal of anti-dumping tariffs on Australian barley, which led to a switch from U.S. to Australian sources for some shipments.

Bottom line: China’s move to limit barley and sorghum imports is a strategic effort to stabilize domestic grain prices and support local agriculture, while also managing its substantial grain reserves. This could lead to a decrease in global demand for these grains, affecting international prices and trade dynamics, particularly for countries heavily reliant on exporting these commodities to China.

— U.S. imports of used cooking oil (UCO) from China are anticipated to reach new record levels, driven by the demand in the biofuels market. As of June 2024, China accounted for approximately 60% of the 1 million metric tons of UCO imported into the United States, according to Reuters. This surge is largely due to UCO’s favorable carbon intensity compared to other biodiesel feedstocks like soybean and canola oil, making it a more attractive option for producers under current biofuel incentives.

However, the future of this trade is uncertain due to several factors:

• Regulatory changes: The U.S. biofuels market is expected to undergo significant changes with a shift from rewarding producers based on output volumes to a system that awards tax credits based on the carbon intensity of the fuel. This change could impact the attractiveness of UCO if other feedstocks are developed with competitive carbon intensity.
• Fraud concerns: The U.S. Environmental Protection Agency (EPA) has initiated audits of renewable fuel producers amid concerns about the authenticity of UCO imports. There are suspicions that some imports may be adulterated with cheaper, less sustainable oils such as palm oil, which could undermine the integrity of U.S. biofuel laws and trade policies. A group of U.S. farm-state senators is urging regulators to tighten controls on the rapidly increasing imports of used cooking oil, particularly from China, amid concerns over potential fraud and environmental impact.
• Trade policy uncertainty: The U.S. trade policy could shift dramatically following the upcoming presidential election in November, adding another layer of uncertainty for Chinese UCO exporters. Additionally, there are calls from U.S. senators to tighten controls on UCO imports due to potential fraud and environmental impacts, which could lead to increased tariffs or other trade restrictions.

Upshot: The combination of regulatory changes, fraud investigations, and potential shifts in trade policy creates a complex environment for the future of U.S. imports of Chinese UCO. The situation is further complicated by the broader geopolitical tensions between the U.S. and China, which could influence trade dynamics in the biofuel sector.

— Harris and Trump embrace tariffs. Both Democrats and Republicans are expressing support for tariffs to protect American industry, reversing decades of trade thinking in Washington. Link to details via the New York Times.

— 24 states ask Supreme Court to block Biden’s methane emissions rule. Republican officials from 24 states, led by Oklahoma, have asked the Supreme Court to block a Biden administration initiative aimed at significantly reducing methane emissions. The EPA rule, which went into effect earlier this year, targets an 80% reduction in methane emissions from oil and gas operations by 2038. This request is part of a broader effort by these states to challenge the Biden administration’s environmental regulations, a campaign that has found some support among the conservative majority of the Supreme Court. The Court is expected to take several weeks to decide on the request.

— Indonesia plans mandatory B50 biodiesel by early 2025. Indonesia president-elect Prabowo Subianto hopes to implement mandatory 50% palm oil-based biodiesel blending by early next year. Indonesia said last week it planned to raise the blending to 40% in January 2025, from 35% now, to reduce fuel imports and lower emission from fossil fuels. Prabowo takes over in October from incumbent Joko Widodo, whose administration has ordered the palm oil industry to prepare for B50. Tests have already started on the higher blending. Indonesia biofuel producer association APROBI said producers would need time to test the B50 fuel and increase their production capacity to meet demand. The biodiesel industry may need to improve quality of its products to ensure the fuel will remain stable for higher mandatory blending, said Tatang Hernas Soerawidjaja, a biofuel expert at Bandung Institute of Technology.

— Ex-Obama advisor proposes “Clean Energy Marshall Plan” to counter China’s dominance. Brian Deese, a former top economic advisor to Presidents Obama and Biden, suggests in an interview with Semafor that the U.S. should counter China’s dominance in clean energy supply chains by supporting middle-income countries’ purchases of U.S.-made clean energy hardware. Deese advocates for a “clean energy Marshall Plan,” which would shift U.S. strategy from tariffs to taxpayer-backed loans and guarantees for developing countries, making U.S. exports more competitive and diversifying global supply chains. Although Vice President Kamala Harris has not yet endorsed the plan, it could shape her approach if elected.

— Survey shows rising concerns about economic impact of U.S. climate action. A recent survey conducted by Stanford University and Resources for the Future (RFF) reveals a nuanced perspective among Americans regarding government climate action and its perceived economic impact. While a majority of Americans still support government-led initiatives to address climate change, there is a growing segment that views these actions as potentially harmful to the U.S. economy. Specifically, 36% of Americans now believe that climate action could negatively impact the national economy, an increase from 29% in 2020.

The survey, part of the Climate Insights 2024 series, highlights a decline in support for certain climate policies. For example, support for government measures to increase fuel efficiency in vehicles has decreased from 72% in 2020 to 62% in 2024. Similarly, support for tax incentives for companies to produce electric vehicles has dropped from 60% in 2015 to 46% in 2024. This cooling of support is also evident in renewable energy sectors, with a notable decline in public backing for solar and wind energy over the past decade.

Despite these trends, a significant majority of Americans (84%) still favor taxing foreign companies for importing goods associated with higher greenhouse gas emissions compared to U.S. products. This suggests that while there is skepticism about the economic impact of domestic climate policies, there remains strong support for measures that level the playing field internationally.

— Senators urge USDA to resolve food distribution issues for tribal and senior programs Senate Ag Committee leaders, Debbie Stabenow (D-Mich.0 and John Boozman (R-Ark.), have urged USDA Secretary Thomas Vilsack to address supply chain disruptions affecting the Food Distribution Program on Indian Reservations (FDPIR) and the Commodity Supplemental Food Program (CSFP). These programs, serving tribal and senior households, have faced inventory shortages and delayed or expired food deliveries. The Senators demand an explanation, immediate action to resolve the crisis, and steps to prevent future disruptions. USDA is working to restore regular, on-time deliveries but more action is needed. Link to letter.

— EPA warns Chesapeake Bay states are “off track: on stormwater pollution goals. EPA has warned Chesapeake Bay states that they are significantly behind in meeting stormwater pollution reduction goals, which threatens the Bay’s health. EPA may increase oversight if states fail to accelerate progress, particularly in issuing and strengthening stormwater permits. The warning comes as pollution from developed lands continues to rise, complicating efforts to meet the 2025 deadline for reducing nutrient pollution. Despite some progress in agricultural runoff, stormwater management remains a persistent challenge, with Delaware especially lagging behind in its targets.

— Iranian-backed Houthis attack oil tanker in Red Sea, raising environmental disaster fears. The Greek-flagged oil tanker MV Sounion, carrying 150,000 tons of Iraqi crude oil, was attacked by Iran-backed Houthi rebels in the Red Sea on Aug. 21. The attack caused fires on board and immobilized the vessel, raising concerns of a potential oil spill that could lead to a major environmental disaster in the region. The tanker crew was safely evacuated, but the incident has disrupted maritime traffic and heightened geopolitical tensions. While reports of an oil spill are conflicting, the environmental impact could be catastrophic if confirmed.

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