How U.S. Ag Sector Could Be Impacted by Any U.S. Recession

News/Markets/Policy Updates: Aug. 12, 2024

— Equities today: Asian and European stock indexes were mixed but mostly firmer overnight. U.S. Dow opened around 80 points higher but then turned lower. In Asia, Japan closed. Hong Kong +0.1%. China -0.1%. India -0.1%. In Europe, at midday, London +0.4%. Paris flat. Frankfurt +0.3%. The big event this week is Wednesday’s inflation data. Economists forecast that the Consumer Price Index will show a slight uptick — more details below.

U.S. equities Friday: All three major indices notched modest gains Friday but were unable to erase losses for the week after the steep fall that opened the week. For the first full week of August, the Dow was down 0.61%, the Nasdaq eased 0.18%, and the S&P 500 was off 0.05%. On Friday, the Dow was up 51.05 points, 0.13%, at 39,497.54. The Nasdaq advanced 85.28 points, 0.51%, at 16,745.30. The S&P 500 rose 24.85 points, 0.47%, at 5,344.16.

— The second quarter earnings season reports this week include retail behemoths Walmart and Home Depot, networking giant Cisco, Chinese e-commerce major Alibaba, and the world’s largest maker of farm equipment, John Deere.

— Ag markets today: Corn, soybeans and wheat faced price pressure during most of the overnight session and are near their lows this morning. As of 7:30 a.m. ET, corn futures were trading mostly a penny lower, soybeans were 3 to 4 cents lower and wheat was 6 to 9 cents lower. The U.S. dollar index was around 100 points higher, and front-month crude oil futures were about 90 cents higher.

Wholesale beef prices firm. Choice boxed beef prices firmed 59 cents to $312.71 and Select rose 56 cents to $298.59 on Friday, ending a three-day skid in wholesale prices. Movement slowed to 108 loads. Packer margins remain solidly in the red, which is likely to limit their willingness to bid up for cash cattle.

Cash hog index decline accelerates. The CME lean hog index is down 90 cents to $91.90 as of Aug. 8. That’s the fifth straight daily decline and the biggest drop since September of last year. The pork cutout value firmed 43 cents on Friday to $98.66, ending a four-day skid.

— Agriculture markets Friday and for the week:

• Corn: December corn futures fell 2 cents to $3.95, nearer the session low and hit a 3.5-year low today. For the week, December corn lost 8 1/4 cents.
• Soy complex: November soybeans fell 5 3/4 cents to $10.02 1/2, marking a weekly loss of 24 3/4 cents. December soymeal fell $5.70 to $310.40 and is down $14.20 from a week ago, while September soyoil rose 25 points to 42.42 cents and gained 74 points week-over-week.
• Wheat: December SRW wheat futures rose 4 1/4 cents to $5.65 3/4, near mid-range and hit a two-week high. For the week, December SRW gained 3 1/2 cents. December HRW futures closed up 1 3/4 cents to $5.70 1/2 and nearer the daily low. For the week, December HRW fell 5 3/4 cents. December spring wheat futures rose 3 1/2 cents to $6.08 1/2, which represented a weekly rise of 13 1/2 cents.
• Cotton: December cotton rose 110 points to 68.34 cents and gained 9 points on the week.
• Cattle: Despite widely anticipated cash weakness cattle futures rebounded strongly Friday. Expiring August live cattle jumped $2.20 to $184.25, while most-active October leapt $3.125 to $181.15. The latter marked a weekly decline of 92.5 cents. August feeder futures spiked $4.125 to $246.50, while the September contract surged $4.175 to $241.60. The September contract close represented a weekly dive of $6.55.
• Hogs: Expiring August hog futures dipped 22.5 cents to $89.80, while most-active October futures climbed 35 cents to $73.975. That represented a weekly decline of $2.60.

— Quotes of note:

• Fed Governor Michelle Bowman said she still sees upside risks for inflation and continued strength in the labor market, signaling she may not be ready to support a rate decrease. Money markets have fully priced a rate cut in September and about 100 basis points of easing for the year. That implies there could be a half-point cut coming at one of the three remaining policy meetings the Fed has this year. Nearly half of traders see that coming in September, CME’s FedWatch tool said.

• Traders are positioning for the S&P 500 to move 1.2% in either direction when CPI data is released, according to Citi. Economists expect July’s CPI to rise 3% from one year ago and 0.2% from the prior month. The 3% would be the same as June’s rise, while the monthly gain compares to a 0.1% drop in June. Without food and fuel, annual inflation is expected to rise 3.2%.

• Inflation watch. Brian Weinstein, head of global markets at Morgan Stanley Investment Management, told MarketWatch inflation is going to stay higher than the Fed’s 2% target. It is rare for CPI to stay stable below 2%, he said. Economic plans embraced by the candidates for President could keep it above 2%.

• Interest rates are a concern for consumers, too. If the central bank doesn’t “start taking them down relatively soon, you could dispirit the American consumer,” Brian Moynihan, the CEO of Bank of America, warned in a CBS News interview yesterday (link).

• The Bank of Mexico’s recent decision to cut its benchmark interest rate by 25 basis points to 10.75% was a close call, with a 3-2 vote among its policymakers. Economists at BBVA suggest that this indicates more split decisions are likely in the future, as the central bank remains open to further rate cuts. Despite concerns such as a recent spike in inflation and the depreciation of the peso, the central bank chose to proceed with the rate cut, focusing instead on the easing of core inflation. Following the decision, the peso strengthened slightly, trading at 18.89 to the U.S. dollar compared to 18.87 the previous day.

• McDonald’s spent $5.7 million on lobbying in California last year, a significant increase in its political engagement in the state. This amount is more than 23 times what the company spent in California from 1999 through 2022, according to state records. The fast-food giant began ramping up its lobbying efforts in 2022 after recognizing that it had fallen behind other companies in influencing local policymaking, according to Michael Gonda, who oversees McDonald’s domestic government relations. Link to WSJ for details.

— Consumer spending remains robust, despite a growing mountain of credit card debt. Credit card debt in the U.S. reached $1.14 trillion in Q2, a 5.8% increase from the previous year, averaging about $6,500 per person. This surge follows a pandemic-era lull, with many consumers now relying on credit cards to offset reduced purchasing power. The trend may continue if the Federal Reserve begins cutting interest rates, potentially starting at the Sept. 17-18 FOMC meeting.

— European Central Bank (ECB) expected to accelerate rate cuts. The ECB is now expected to cut its deposit rate once a quarter through the end of 2025, concluding its easing cycle earlier than previously anticipated. According to a Bloomberg survey of economists, the ECB’s benchmark rate is projected to hit 2.25% by December 2025, following six consecutive quarter-point reductions. This is a faster timeline than earlier predictions, which had the rate reaching this level by the second quarter of 2026. This shift reflects a more aggressive approach to easing monetary policy, possibly in response to evolving economic conditions in the Eurozone.

— Malanga on Fed decisions ahead. The Federal Open Market Committee (FOMC) recently decided to maintain its benchmark interest rate, awaiting more evidence of progress toward its economic goals. This decision comes amid contrasting monetary policies globally, with Europe reducing rates and Japan increasing them. Dr. Vince Malanga, president of LaSalle Economics, says the lack of coordinated monetary policy among major economies can lead to unintended consequences, which is why some analysts believe the FOMC should have eased credit earlier in the year.

The market’s reaction to the FOMC’s decision has been swift and negative, with both interest rates and equities declining. Malanga says the consensus now is not about whether the Fed will cut rates, but rather when and by how much. He notes that Federal Reserve Chair Jerome Powell is expected to outline a path for lower rates at the upcoming Jackson Hole conference, with a potential rate cut of 25-50 basis points anticipated in September.

Inflationary pressures appear to be diminishing, according to Malanga. Unit labor costs increased by less than 1% annually in the spring quarter, and both aggregate hours worked and wage pressures moderated in July. Commodity prices have also been falling due to concerns over weak global demand and promising supply prospects. With mortgage rates declining, Malanga says there is hope that the mortgage market will revive, potentially stabilizing or reducing housing prices.

However, immediate progress on inflation may not be evident due to challenging year-over-year comparisons for July, Malanga details. These comparisons will become more favorable for the August and September reports, potentially bringing several price measures close to the Fed’s 2% inflation target.

As for political and fiscal implications, Malanga says the Fed aims to remain apolitical, but its delayed rate cuts could entangle it in political debates. If the Fed cuts rates this fall, he says, it might be perceived as aiding Democrats; if it doesn’t, it could face criticism for neglecting its full employment mandate. Thus, by waiting, the Fed risks deeper political involvement.

On the fiscal front, the U.S. economy is operating at full employment, yet the federal deficit is nearly $2 trillion. In a recession, according to Malanga, this deficit could easily increase as unemployment rises and tax revenues fall. The political response would likely involve increased spending or tax cuts. With long-term interest rates declining, the immediate focus is on the mortgage market and the rate level needed to stimulate demand. A weak response could jeopardize the economy further, concludes Malanga.

Bottom line: The FOMC’s decision to hold rates steady has sparked significant market reactions and raised questions about the timing and magnitude of future rate cuts. Inflation appears to be easing, but political and fiscal challenges loom large, potentially complicating the Fed’s path forward.

— A U.S. recession can have varied impacts on the ag sector, influenced by factors such as commodity prices, input costs, and consumer demand. Here are some key points to consider:

Impact on farm income and commodity prices

1. Decline in farm income: Farm income is expected to decrease significantly, with projections indicating a decline of $43.1 billion in 2024 compared to 2023. This decline is attributed to lower commodity prices and higher production expenses.
2. Commodity price fluctuations: Recessions often lead to decreased demand for certain agricultural products, particularly those considered discretionary, such as cotton, dairy, specialty meat products and vegetables (more on this below). This can result in lower prices for these commodities, affecting farmers’ revenues.
3. Input costs: Despite potential reductions in fuel prices, other production costs, such as labor, marketing, and transportation, are expected to rise. This increase in expenses can further squeeze farm profitability.

Consumer demand and market stability

1. Stable demand for essentials: The demand for essential food items tends to remain stable during recessions, as consumers still need to purchase basic food products. This can provide some stability to the agriculture sector, particularly for staple crops like corn and soybeans.
2. Shifts in consumer spending: While overall food demand remains stable, there may be shifts in consumer spending patterns, such as reduced spending on higher-end food products and dining out, which can impact certain segments of the agriculture market.

Financial and economic considerations

1. Credit and loan challenges: With declining farm incomes and high input costs, farmers may face difficulties in meeting loan obligations, leading to increased credit risk for agricultural lenders.
2. Impact on rural economies: Reduced farm income can have a ripple effect on rural economies that depend on agricultural spending. This can lead to economic challenges for businesses in these communities, potentially resulting in business closures and job losses.
3. Risk management: Farmers may need to adopt risk management strategies such as crop insurance or revenue protection programs to mitigate the impact of lower commodity prices on their income.

During a recession, certain ag commodities are more vulnerable due to changes in consumer spending and economic conditions. Here are the commodities that in the past have been most susceptible:

Vulnerable commodities

1. Cotton: Cotton is particularly vulnerable during a recession because it is considered a discretionary item. Consumers tend to cut back on non-essential purchases, which affects the demand for cotton and cotton-related products. As a result, cotton prices often decline during economic downturns.
2. Specialized meat and vegetables: Niche products, such as specialized meat products and high-end vegetables, also face greater recessionary pressures. These items are often sold at higher prices and are more likely to be purchased when consumers have disposable income. During a recession, consumers may opt for more affordable alternatives, reducing demand for these specialized products.
3. Dairy: Dairy farms are among those that could experience financial stress if farm income declines further. The dairy sector’s vulnerability is linked to its reliance on stable commodity prices and the ability to manage production costs effectively.

Of note: Commodities tied to discretionary spending are more vulnerable to the impacts of a recession.

Resilient commodities

Conversely, some commodities are less affected by recessions due to their status as staple goods:

• Poultry, eggs, wheat, and peanuts: These commodities are considered staples and tend to maintain stable demand even during economic downturns. As essential food items, they are less likely to experience significant drops in demand.

Bottom line: Overall, while the ag sector can act as a buffer during economic downturns due to stable demand for essential products, it is not immune to the broader economic challenges posed by a recession. Farmers and agribusinesses may need to navigate these challenges through strategic planning and risk management. This is why Title I of the farm bill is so important and why some lawmakers stress the current safety net will prove woefully short of helping farmers in any significant price downturn.

Market perspectives:

— Outside markets: The U.S. dollar index was firmer, even as most foreign rival currencies were higher against the greenback. The yield on the 10-year U.S. Treasury note was weaker, trading around 3.94%, with a mixed-to-lower tone in global government bond yields. Crude oil futures were higher, with U.S. crude around $77.60 per barrel and Brent around $80.35 per barrel. Gold and silver futures were higher, with gold around $2,483 per troy ounce and silver around $28 per troy ounce.

— OPEC revised its global oil demand growth forecast for 2024 downward, now estimating growth at 2.11 million barrels per day (bpd), a reduction from the previous estimate of 2.25 million bpd. The organization also lowered its outlook for 2025, forecasting demand growth at 1.78 million bpd, down from 1.85 million bpd. OPEC attributed these adjustments to updated data from the first quarter of 2024 and, in some cases, the second quarter, as well as weaker-than-expected oil demand growth in China. Despite a slower start to the summer driving season compared to the previous year, OPEC expects transport fuel demand to remain strong due to continued road and air mobility. The organization maintains a relatively optimistic view of crude demand growth for 2024, even as the global shift towards renewable energy sources introduces varying perspectives on current crude demand.

— A labor strike that could halt cargo-handling operations at ports from Houston to Boston just weeks before the U.S. presidential election appears increasingly likely, according to Bloomberg. The United States Maritime Alliance (USMX), representing terminal operators and ocean carriers, and the International Longshoremen’s Association (ILA) issued conflicting statements, indicating significant differences remain. USMX expressed willingness to continue bargaining, highlighting “industry-leading wage increases” in their latest offer, while ILA’s Executive Vice President Dennis Daggett criticized shipping CEOs for taking home large bonuses and ocean carriers for profiting from global conflicts and natural disruptions.

ILA President Harold Daggett has warned of a potential strike if no agreement is reached by the deadline, scheduling a meeting in early September to discuss wage demands and strike strategies.

Some importers are rerouting cargo and stockpiling goods in anticipation of potential disruptions ahead of the holiday season. Despite USMX’s readiness to negotiate, the ILA stated that the two sides are “very far apart, particularly on the economic issues,” signaling an impasse. Charles van der Steene, Maersk’s North America president, noted that a week of disruption could have long-lasting effects on the industry, and U.S. industry groups, including the Retail Industry Leaders Association, are urging the White House to intervene to prevent a strike.

— A recent ruling by the Canada Industrial Relations Board (CIRB) has opened the door for a potential strike at Canada’s two major railways, CN Rail and Canadian Pacific Kansas City (CPKC), as early as Aug. 22. The CIRB determined that a strike or lockout would not pose a serious threat to public health and safety, and that rail service is not deemed “essential” under the Labour Code. Consequently, the CIRB imposed a 13-day cooling-off period before any strike or lockout can occur.

The Teamsters Canada Rail Conference, representing nearly 10,000 workers at CN Rail and CPKC, supported the ruling and stated that they would provide 72 hours’ notice before initiating any strike action. The union had been temporarily barred from striking while awaiting the CIRB’s decision, which they argue weakened their bargaining power, as the companies were unwilling to compromise without the threat of a work stoppage.

CPKC has stated that it will issue a lockout notice on Aug. 22 if a negotiated settlement or agreement on binding interest arbitration cannot be reached. This potential work stoppage is concerning for Canada’s agricultural sector, as it coincides with the harvest season when newly harvested grain needs to be transported to export positions. The Grain Growers of Canada have urged for a swift resolution to avoid disruptions, while the Canadian Manufacturers and Exporters warned that a national rail stoppage would have a devastating impact on manufacturers and their workers.

The union and railways agreed last week to resume contract negotiations with the assistance of a government mediator. The primary issues in the negotiations revolve around crew scheduling, rail safety, and fatigue management. Comments from CN Rail were not yet available.

— August crop reports out at noon ET. USDA’s Crop Production Report at noon ET will feature the first survey-based corn and soybean crop estimates, based primarily off farmer responses and satellite imagery, along with the initial cotton crop estimate and updated wheat production. NASS will also incorporate FSA certified acreage data into its crop estimates. While USDA will also update old- and new-crop usage forecasts, the production estimates will be the focal point.

— USDA daily export sales:
• 165,000 metric tons corn to unknown destinations during 2024-2025 marketing year
• 300,000 metric tons soybeans to unknown destinations. Of the total, 100,000 metric tons is for delivery during the 2023-2024 marketing year and 200,000 metric tons is for delivery during the 2024-2025 marketing year.

— Southern Ag Today looks at storing corn or soybeans and asks, what is the futures market incentivizing? As harvest approaches, producers must decide how much of their corn and soybean production can be stored, either on-farm or in commercial storage, particularly when storage space is limited. An SAT article (link) notes the futures market provides insight into whether it’s more advantageous to store corn or soybeans by analyzing the price spreads between nearby and deferred futures contracts, along with the associated interest costs.

Details: According to SAT, assuming an interest rate of 8.0%, the cost of carrying corn is $0.026 per bushel per month, while for soybeans, it’s $0.067 per bushel per month. Comparing the May futures contracts for both commodities, the spread between the September and May corn contracts is $0.46 per bushel, with an interest cost of $0.20 per bushel over eight months, yielding a net benefit of $0.26 per bushel for storing corn. In contrast, the soybean spread between the September and May contracts is $0.54 per bushel, but the interest cost over eight months is also $0.54 per bushel, resulting in no net benefit for storing soybeans.

SAT says this analysis suggests that the futures market is currently incentivizing the storage of corn over soybeans. However, this assessment does not account for potential changes in basis, which could vary by location and might influence the storage decision.

— NWS outlook: Unsettled weather with chances for scattered flash flooding and damaging wind gusts stretches from the Intermountain West to the Mid-Mississippi Valley... ...Dangerous heat builds across the Southern Plains and Gulf Coast this week... ...Critical Fire Weather and poor air quality remains throughout parts of the Great Basin and Northwest.

(NWS)

Items in Pro Farmer’s First Thing Today include:

• Grains weaker to open the week
• Rains return to western Corn Belt this week
• Argentine oilseed worker strike extended

— A barrage of rockets fired by Hezbollah into Israel on Sunday night has further heightened tensions in the Middle East. The latest salvo was fired in support of the Palestinian people in Gaza and in retaliation for Israeli strikes in southern Lebanon, the militant group said in a statement.

Meanwhile, the U.S. has bolstered its military presence in the Middle East by deploying the USS Abraham Lincoln carrier group, equipped with F-35C fighters, and the USS Georgia guided-missile submarine. This move aims to support Israel against further attacks from Iran and its allied militias.

Of note: It’s a rare public disclosure by the Pentagon about advance military movements and comes after Defense Secretary Lloyd Austin told his Israeli counterpart, Yoav Gallant, that the U.S. was committed to Israel’s defense as tensions with Iran increased.

The U.S., Qatar, and Egypt have called for new Gaza cease-fire negotiations scheduled for Aug. 15. While Israel has agreed to participate, Hamas has expressed reservations, emphasizing the need to implement previous agreements. Key discussion points include:

• Israel’s stance: A desire to resume military actions post any cease-fire to ensure the complete dismantling of Hamas.
• Hamas’s demands: A total Israeli withdrawal from the Gaza Strip.
• Hostage negotiations: The number of hostages Hamas is willing to release, and the Palestinian prisoners Israel might exchange in return.

— Russia’s defense ministry reported that Ukrainian troops advanced inside the Kursk region, prompting the regional governor to accelerate the evacuation of tens of thousands of civilians. The purpose of this offensive remains unclear, though it might be intended to divert Russian forces from their strongholds in Kharkiv and Donbas. Meanwhile, Ukraine and Russia exchanged accusations over a fire at the Zaporizhia nuclear power plant, which has been under Russian control for more than two years.

— APK-Inform raises Ukraine grain production, export forecasts. APK-Inform increased its forecast for Ukraine’s grain production by 2.24 MMT to 55 MMT, citing larger wheat and corn crops. The consultancy raised its 2024-25 grain export forecast by 2.64 MMT to 38.8 MMT, including 23 MMT of corn and 13.4 MMT of wheat.

— Foreign investors withdrew a record amount of money from China last quarter, highlighting significant pessimism about the country’s economic prospects. China’s direct investment liabilities fell by nearly $15 billion from April to June, marking only the second time this figure has turned negative, according to data from the State Administration of Foreign Exchange. This decline is notable, as it was down by about $5 billion for the first half of the year. If this trend continues, 2024 could see the first annual net outflow of foreign investment from China since at least 1990, when comparable data began.

The Ministry of Commerce reported that new foreign direct investment in China during the first half of 2024 was the lowest since the pandemic began in 2020. Meanwhile, Chinese firms increased their outbound investments, reaching a record $71 billion in the second quarter, up more than 80% from the same period last year. This surge in outbound investment is largely driven by projects such as electric vehicle and battery factories.

The data also revealed growing discrepancies in China’s trade surplus measurements, with a record $87 billion surplus in the second quarter according to the State Administration of Foreign Exchange, bringing the total to nearly $150 billion for the first half of the year. This discrepancy, which the U.S. Treasury has called on China to clarify, is primarily due to different methodologies used to record exports and imports, as highlighted in a recent International Monetary Fund report. The gap has widened over the past two years, exacerbated by increased production in bonded zones by foreign firms.

Of note: China investors face a big week. More focus will be on the Chinese consumer with Beijing scheduled to release retail sales and housing data on Thursday. A slowdown in both pivotal sectors has triggered concerns about growth

(Bloomberg)

— China raises 2023-24 soybean import forecast. China’s ag ministry raised its 2023-24 soybean import forecast by 2.27 MMT to 98.37 MMT, as falling global soybean prices spurred importers to book more arrivals for the final months of the marketing year. The ministry left its 2024-25 import forecasts for corn and soybeans unchanged this month. Corn imports are expected to plunge 10 MMT (43.5%) to 13 MMT, while soybean imports are forecast to decline 3.77 MMT (3.8%) in 2024-25.

— China’s milk producers target adults as population ages. Intense competition forces companies to seek out new areas of growth in one of world’s biggest dairy markets. Link to more via the Financial Times.

— U.S. officials to visit China for economic talks as trade tensions rise. The recently established U.S./China Financial Working Group is set to meet for discussions about financial stability and curbing the flow of fentanyl. Link to details via the New York Times.

— Strikes hit China’s property, manufacturing sectors as growth slows. Labor disputes reflect disparities in the country’s social safety net. Link for more via Nikkei Asia.

— China regulators tell some rural banks to renege on bond trades. Regulators told commercial banks in China’s Jiangxi province not to settle their purchases of government bonds, taking some of the most extreme measures yet to cool a market rally that has alarmed Beijing.

— U.S. lawmakers move to restrict trade provision favored by China’s E-commerce giants. A bipartisan group wants to make it harder for companies such as Shein and Temu to ship their products stateside. Link for details.

— On Tuesday, USDA Undersecretary Alexis Taylor leads an agricultural trade mission to Colombia, through Thursday, Bogota. Colombia is the largest South American market for U.S. food and ag exports with purchases forecast at $3.3 billion this fiscal year.

— DOE claims 40-million-barrel SPR refill, critics call it misleading as reserve remains 40% below 2021 levels. The Department of Energy (DOE) announced it replenished the Strategic Petroleum Reserve (SPR) with 40 million barrels of oil, raising questions since the SPR held over 630 million barrels when President Biden took office and now has less than 376 million barrels. Critics argue the DOE’s claim is misleading. The DOE combined the 40 million barrels it purchased with 140 million barrels from canceled sales that Congress had authorized, giving a total of 180 million barrels. However, the SPR is still 40% below its level when Biden took office, and the DOE’s claim does not account for the significant drawdowns made during Biden’s term, particularly in response to the Ukraine crisis.

— TotalEnergies marked its first delivery of 100% used cooking oil (UCO)-based marine fuel in Singapore. The company supplied a 700-metric ton cargo of UCO methyl ester (UCOME) B100 fuel, certified under the International Sustainability & Carbon Certification (ISCC) system, to a Hyundai Glovis car carrier ship using an IMO Type II chemical bunker tanker. The UCO was sourced from Southeast Asia. TotalEnergies projected earlier this year that marine biofuel demand could reach 1 million metric tons (MMT) by 2025, which would represent only a small fraction of Singapore’s 51.8 MMT marine fuel market. However, there are growing concerns about the authenticity of UCO supplies, with suspicions that some may contain virgin palm oil. The U.S. EPA is currently investigating the UCO supply chains of two biofuel producers and is planning additional investigations.

— The European Union (EU) expressed confidence that its tariffs on Chinese electric vehicles (EVs) comply with World Trade Organization (WTO) rules, despite a complaint from Beijing. On Aug. 10, China requested a consultation with the WTO over the EU’s anti-subsidy tariffs on Chinese EVs, which were imposed following an eight-month investigation. The investigation concluded that China’s battery EV value chain benefits from unfair subsidies, posing a threat to EU producers. In response, the EU imposed provisional tariffs ranging from 17.4% to 37.6% on Chinese-made EVs, affecting brands like BYD and Western brands manufactured in China.

China’s Ministry of Commerce has criticized the EU’s findings as baseless and a violation of WTO rules, arguing that the measures undermine the global fight against climate change. Nevertheless, the European Commission has stated that the WTO complaint will not impact the ongoing anti-subsidy investigation, which is expected to conclude by November.

China has become a dominant player in the global EV and battery market, with nearly 80% of all lithium-ion batteries for EVs produced in China by 2021 and one in five EVs sold in Europe by 2023 being made in China. The EU’s tariffs follow similar measures by the United States, where President Joe Biden quadrupled the tariff rate on Chinese EVs from 25% to 100% in May. Canada is also considering tariffs on Chinese EVs, following a public consultation on the matter.

To mitigate the impact of these tariffs, Chinese EV manufacturers are exploring options to set up production facilities overseas. For instance, BYD recently signed a $1 billion investment deal to build a factory in Turkey, which is part of the EU Customs Union and enjoys zero tariffs on vehicle exports to the UK. However, to benefit from lower tariffs, Chinese companies will need to ensure that a significant portion of their vehicles is manufactured in the countries where they establish these new factories, rather than simply assembling parts made in China.

— The Department of Energy (DOE) decided to keep its gas stove rule in place, confirming that the comments received on its final direct rule regarding energy conservation standards for consumer cooking products, including gas stoves, do not justify withdrawing it. The rule, initially published on Feb. 14, will take effect on June 14, with compliance required by Jan. 31, 2028. The final rule (link) represents a more conservative approach than originally proposed and has been accepted by the industry. However, several Republican members of Congress are still unhappy with the rule, arguing that the EPA is overreaching by regulating consumer kitchens.

— USDA Secretary Tom Vilsack is the keynote speaker at the American Coalition for Ethanol annual conference on Thursday in Omaha.

— The U.S. is reportedly offering amnesty to Venezuelan President Nicolás Maduro in secret talks, in exchange for him ceding power after evidence suggests he lost the recent election, the Wall Street Journal reports (link). The U.S. has discussed pardons for Maduro and his top aides, who are facing Justice Department indictments. Maduro has indicated he’s open to talks if treated with respect, but also warned the U.S. to stay out of Venezuela’s affairs.

— Team USA taking home 126 medals in the Olympics is the most since the U.S. won 174 in 1984 — the last time the Olympics were held in Los Angeles. The Summer Olympics wrapped up on Sunday with a grand closing ceremony at the Stade de France. On Sunday, the U.S. women’s basketball team survived a scare and beat host nation France, 67-66. The victory sealed a U.S. tie with China for most gold medals at the 2024 Games. The next Games in 2028 will be held in Los Angeles.

NBC estimated its Olympics audience was its best ever, by a long distance. That included 28 million viewers on Thursday, when U.S. track athletes won three gold medals and 19.5 million tuned into the men’s basketball final on Saturday.

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