GOP Senators Want Guard Rails on USDA Tapping of CCC

CPI report | USDA WASDE | Australia warns China | $300 mil. for carbon sequestration, GHG emissions

Abbreviated report today as I will be traveling to the Lake of the Ozarks for our annual family event over the next few days.

— Big new-crop soybean balance sheet changes coming today. USDA’s updated balance sheets in the July 12 Supply & Demand Report will reflect adjustments to old-crop demand forecasts based on June 1 stocks. There will be major changes on the new-crop soybean balance sheet to reflect the sharp drop in planted acreage in the June 30 Acreage Report. An expected cut to the projected corn yield is anticipated to absorb the higher planted acreage estimate.

— Equities: Asian and European stock markets were mixed to firmer in overnight trading. U.S. stock indexes are pointed toward slightly higher openings. Key U.S. financial report is the consumer price index report for June this morning. Headline CPI is expected up 0.3% from May which saw an increase of 0.1%, while the core rate is seen rising 0.3% from May after a 0.4% boost that month. On an annualized basis, headline inflation is expected at 3.1%, down from 4% in May.

— Markets: The U.S. dollar index lower. Nymex crude oil prices are near steady and trading around $75.00 a barrel. The benchmark 10-year U.S. Treasury note yield is presently fetching 3.948%.

— $1.4 trillion deficit first 9 months of FY 2023. The Congressional Budget Office (CBO) estimates that the federal budget deficit for the first nine months of fiscal year (FY) 2023 reached $1.4 trillion. This represents an increase of $875 billion from the same period the previous year. This rise in deficit is attributed to an 11% decrease in revenues and a 10% increase in outlays from October to June, compared to the same timeframe in fiscal year 2022.

Payment timings played a role in affecting the deficit: payments due on weekends caused a net increase in outlays for fiscal year 2023 by $23 billion. Specifically, the deficit saw an increase in June 2023 due to July 1 being a Saturday. Without these timing shifts, the nine-month deficit would have been slightly lower at $1,367 billion instead of the recorded $1,390 billion.

— Chinese hackers intent on spying breached email accounts linked to government agencies in Western Europe, Microsoft said. The group, Storm-0558, was able to remain undetected for a month after gaining access to email data from around 25 organizations in mid-May.

— Today, the People’s Liberation Army (PLA) of China reportedly dispatched 32 warplanes into sensitive regions surrounding Taiwan. This action marks the largest show of force since April, a period when Beijing similarly utilized large-scale military drills in the region. The previous drills were a response to the meeting between Taiwanese President Tsai Ing-wen and House Speaker Kevin McCarthy (R-Calif.), which Beijing did not approve of. The PLA often deploys jets near Taiwan, but the magnitude of today’s sortie indicates that this move is likely intended to convey a political message to Taipei, particularly concerning its interactions with foreign officials.

— To counteract negative market commentary, China’s financial regulator has urged banks to respond to a pessimistic research report on the country’s economy by Goldman Sachs. China Merchants Bank Co. responded by issuing a statement on Friday, refuting the Goldman report. The bank accused the report of misleading investors and being illogical. Prior to this, the state-run Securities Times newspaper had also rebutted the report. This public objection to Goldman’s research, which is somewhat uncommon, highlights the ongoing attempts by officials to combat negative investor sentiment related to China’s markets and economy.

— Australia has issued a stern warning to China over its ongoing review of import tariffs on Australian barley. Despite having agreed to a 90-day review period in April, China has sought a one-month extension. If the delay prolongs further, Australia threatens to restart its dispute settlement case at the World Trade Organization (WTO). In a joint statement from Foreign Minister Penny Wong, and Trade Minister Don Farrell, the Australian ministers expressed their aspiration for the tariffs to be removed soon. They warned that, should these duties remain in effect beyond the four-month period, Australia would reignite the dispute at the WTO. This disagreement traces back to 2020, when China leveled an 80.5% import tariff on Australian barley imports for a five-year span. As a result, Australia decided to take their case to the WTO. The clear messaging from the Australian ministers suggests the country’s determination to protect its interests and its readiness to resume the debate on a global level if required.

— The European Union (EU) and Australia hit a deadlock in their ongoing negotiations for a free-trade agreement, putting the future of such an accord in jeopardy. The central disagreement appears to revolve around access to the European market for certain Australian agricultural products, notably beef. These disagreements complicate efforts to consolidate crucial supply chains, potentially impeding trade between the two parties. As these contentious issues are yet to be resolved, the outcome of the free trade deal currently hangs in the balance.

— NATO leaders extended an equivocal invite to Ukraine to join the military alliance at a recent summit held in Vilnius, Lithuania. The alliance was not explicit on the timeline or methodology for this inclusion, terms championed by President Biden who asserts that Ukraine is not adequately prepared to join NATO. This statement, however, drew criticism from European countries nearest to Russia, who argue for more urgent backing. The position outlined by the 31 NATO member states emphasized that Ukraine would be welcomed “when allies agree and conditions are met.” Included in this preparation are routine evaluations of Ukraine’s progress aligning with NATO’s standards for democracy and military integration. This vague commitment lacks the more confirming language sought by Volodymyr Zelenskyy, Ukraine’s president. Zelensky critiqued this lack of decisive clarity amidst the implications of Russia’s invasion, calling it “absurd.” Later, he moderated his criticisms, expressing trust in NATO and its partners and voicing his desire for a stronger and more decisive alliance.

Of note: President Joe Biden will meet Volodymyr Zelenskyy and address the NATO summit in Vilnius today.

— President Biden and G7 leaders are set to declare a “substantial” aid package for Ukraine. This assistance is targeted at bolstering Ukraine’s military capabilities and thus addressing the ongoing challenges faced by the country due to conflicts. The development was confirmed by a U.S. official at the NATO Summit in Lithuania.

— European Union policymakers are set to cast their votes on the debated Nature Restoration Law today. The legislation has become a point of contention for climate activists and critics alike. Activists and proponents of the law argue that nature restoration can go hand in hand with economic prosperity. The Meuse river project serves as a key example of how nature restoration can coexist with economic expansion. However, critics of the law believe that the EU’s ambitious nature restoration goals are not feasible due to the fierce competition for land. They point out that it’s unclear whether the EU can generate sufficient funds to compensate farmers who will end up losing their land due to this initiative. Link to more via Bloomberg.

— USDA will spend $300 million on enhancing the measurement, monitoring, reporting, and verification of greenhouse gas emissions and carbon sequestration within climate-smart agriculture and forestry. This decision aims to encourage more confidence and participation from the private sector. The funding for this venture will be sourced from the Inflation Reduction Act.

The program, part of a broader Federal Strategy for Greenhouse Gas Measurement and Monitoring within the agriculture and forestry sectors, will be open for public comment.

In a bid to intensify accuracy and lessen uncertainty in greenhouse gas estimates, other agencies, such as EPA, the Energy Department, and NASA, have been asked to collaborate with the USDA. This collective action aligns with President Biden’s goal of cutting 50% to 52% of greenhouse gas emissions by 2030, relative to initial 2005 levels.

The strategy, developed by several federal agencies including USDA, EPA, NASA and more, centers on five areas, involving enhanced greenhouse gas and soil carbon monitoring, research alignment and advancement, usage of updated models and tools, and quick and accurate conservation data collection through remote sensing data. USDA asserts that this will result in more precise estimates and confidence in these figures, driving continuous improvement in their climate-smart agriculture and forestry initiatives.

USDA has also outlined seven key areas of focus on climate and carbon sequestration, which underpin the federal strategy and were constructed based on substantial input from stakeholders. These key areas range from advancing the Soil Carbon Monitoring and Research Network to strengthening the USDA’s Greenhouse Gas Inventory and Assessment Program. To discuss these plans further, a webinar for stakeholders and technical experts has been scheduled on July 21 at 1 p.m. ET.

USDA published a request for information (RFI) in today’s Federal Register (link) that seeks public comment “broadly” from individuals, U.S. industry, universities and others to inform the Greenhouse Gas Monitoring and Measurement Interagency Working Group and government agencies on implementing “an agriculture and forestry monitoring, measurement, reporting, and verification framework and near-term activities, including discussions on potential partnerships.” Comments are due Aug. 11.

— Push to restrict tapping of CCC funds. Republican Sens. Chuck Grassley (Iowa), Roger Marshall (Kan.), and Mike Braun (Ind.) introduced a bill, the USDA Spending Accountability Act, seeking to restrict USDA’s access to the Commodity Credit Corporation’s (CCC) funds. Currently, the Agriculture Secretary has discretion to utilize funds from the CCC to support farmers with various issues. However, this proposed legislation would only allow the Agriculture Secretary to disburse funds when authorized by Congress, with hopes part of the saved money will fund the forthcoming farm bill.

According to a Congressional Budget Office cost estimate, this restriction could save $8 billion over a decade.

Of note: Half of the savings from the bill, as suggested by Grassley, should be dedicated to long-term agricultural research and expanding foreign market development, which will likely earn bipartisan support. Braun emphasized that reductions in unauthorized, wasteful spending will support programs farmers rely on, while Marshall affirms the bill would guard against undermining the role of Congress.

The senators expressed dissatisfaction over the misuse of discretionary spending, especially on spending linked to climate-related projects and trade dispute compensations. They argue this unilateral spending often lacks congressional input and oversight, allowing room for potential abuse. The senators insist that government spending should be accountable, transparent, and judicially conducted, ensuring U.S. dollars are utilized for programs that have been explicitly authorized by Congress.

Recall that some lawmakers have also urged that a portion of the $20 billion in IRA funds be redirected to other programs under the next farm bill, something which USDA Secretary Tom Vilsack pushed back on. “It is important and necessary that we create multiple ways for farmers and ranchers to generate revenue and income,” he said of suggestions to move climate funding to other areas.

— The Senate confirmed Xochitl Torres Small as the Deputy Secretary of Agriculture in an 84-8 vote, filling the second-highest position at USDA after several months of vacancy. Formerly a House member from New Mexico who converted a traditionally red seat to blue, Torres Small previously helmed the USDA’s Rural Development branch. President Joe Biden nominated her for the position in February following the resignation of her predecessor, Jewel Bronaugh. Bronaugh, the first Black woman and woman of color to fill the position, stepped down earlier this year due to family reasons.

— Senators Michael Bennet (Colo.), Jerry Moran (Kan.), and Martin Heinrich (N.M.) introduced the Voluntary Groundwater Conservation Act, a legislation aiming to provide family farmers and ranchers with more flexibility to protect groundwater resources while maintaining their agricultural lands. This act will establish a voluntary groundwater easement program within the Agriculture Department’s Natural Resource Conservation Service (NRCS). It will take inspiration from Colorado Open Lands, which pioneered the first groundwater easement in 2022 for the Rio Grande River Basin.

The Act aims to:

1. Set up a Groundwater Conservation Easement Program at USDA, encouraging voluntary reductions in groundwater use on agricultural land to meet local, regional, or state groundwater goals.
2. Enable the NRCS to refund transaction costs up to 5% and mandate advance payment for limited resource producers for covering these expenses.
3. Provide farmers with long-term management flexibility to continue farming, giving them the liberty to decide how to reduce water use, as long as they meet their annual commitment to conserve.
4. Guarantee fair compensation for farmers, basing the payment on the market value of the water right instead of a per-acre payment.
5. Proposes that easement funds should not affect a farm’s adjusted gross income, and producers earning an adjusted gross income above $900,000 should be eligible for a waiver to partake in groundwater conservation easements from the secretary.
   

Sen. Bennet emphasized that this legislation draws from the experiences of Colorado’s San Luis Valley inhabitants who first implemented voluntary easements to uphold groundwater conservation, thus sustaining local agriculture and wildlife habitats. This provides a fresh instrument for farmers to voluntarily minimize groundwater usage while continuing with farming operations.

— Passport backlog noted. The House’s State and Foreign Operations appropriations bill highlights the issue of an increasing backlog in passport requests. The committee is urging the Secretary of State to take immediate measures to mitigate this issue, such as temporarily increasing consular personnel to shorten waiting times. The report attributes this backlog to a sudden spike in demand for passports this year due to increased interest among Americans in traveling abroad. The committee not only stresses expediting the passport and visa process, but also directs the comptroller to research and develop solutions for the heavy workload related to passport processing times.

Another point of concern raised by the lawmakers pertains to the supply of passport stock. They specifically noted issues related to the transition to new passports and the need for electronic chips that necessitate a surplus of passport covers. Lawmakers are requesting a detailed report on the plan for the transition to new passports.

— Decreasing water levels on the Rhine, Europe’s paramount river, pose risks of a supply chain crisis like last year and could result in increased transportation costs for firms dependent on the river for commerce. Water level measurements at Kaub, a crucial point west of Frankfurt, fell below 1 meter earlier this Wednesday for the first time since March, as reported by German government data compiled by Bloomberg. This figure is significantly lower than the usual seasonal average, and fuel barge transportation to certain areas of inland Europe has already been limited.

With a length of around 800 miles from its source in the Alps, the Rhine was used to carry approximately 170 million tons of commodities like oil products, coal, chemicals, metals, and iron ore in 2021. In August last year, the measured level at Kaub dropped below 40 centimeters, making barge navigation through the waypoint economically unfeasible for numerous vessels.

There is no immediate expectation of water levels dropping back to the shallow depths seen in 2022, yet the cost of shipping on the Rhine has been rising. The current price per ton for transporting fuel between the Netherlands and Karlsruhe, Germany, is notably higher than the five-year seasonal average. Maersk, the container behemoth, has alerted its customers to “low water surcharges” for Rhine shipments.

In terms of weather predictions, there’s little relief expected, with Germany’s national forecaster warning of “extreme heat stress on the Upper Rhine.” As Europe grapples with repeated severe weather incidents due to climate change, this adds stress on infrastructure while the region is still bouncing back from an energy supply crisis. The strain on shipping contributes to the challenges faced by the area’s industries which are already facing diminished global demand and difficulty in obtaining raw materials. The downturn in Germany’s industrial production, disclosed in a recent report, may be further extended due to these challenges.

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