Mexico: U.S. Corn Export Levels Undermine U.S. USMCA Case

Summit Carbon Solutions pipeline | SAF | Bird flu testing pilot programs | Food prices | Primary results

Abbreviated report today as I am en route to California to speak to the Cotton Warehouse Association of America annual meeting.

— U.S. equities yesterday: The Dow lost 299.05 points, 0.76%., at 39,112.16. The Nasdaq rose by 220.84 points, 1.26%, at 17,717.65. The S&P 500 increased by 21.43 points, 0.39%, at 5,469.30.

— Crude oil prices fell by 1% on Tuesday due to weak U.S. consumer confidence data, raising concerns about the economic outlook and fuel demand. Brent futures for August settled at $85.01 a barrel, down 1.2%, while U.S. crude futures settled at $80.83, down 1%. U.S. crude stocks increased by 914,000 barrels, while gasoline inventories rose by 3.843 million barrels and distillates fell by 1.178 million barrels, according to the American Petroleum Institute.

— Agriculture markets yesterday:

• Corn: December corn futures closed down 8 3/4 cents to $4.43 and nearer the session low.
• Soy complex: November soybeans fell 19 cents to $11.11 1/2, a near three-year-low close, while August soymeal fell $6.20 to $352.10, closing nearer the session low. August soyoil fell 76 points to 43.03 cents.
• Wheat: December SRW futures sunk 11 1/2 cents to $5.82 3/4 and settled on session lows. December HRW futures fell 5 1/2 cents to $5.96 and closed nearer session lows. September HRS futures closed 9 1/4 cents lower at $6.03 1/2.
• Cotton: December cotton rose 168 points to 75.07 cents, marking a high-range and near one-month-high close.
• Cattle: August live cattle futures fell 40 cents to $184.425 though deferred contracts posted gains. August feeder cattle futures firmed 15 cents to $259.05.
• Hogs: August lean hogs rose 2 1/2 cents to $86.75 though closed nearer the session low.

— Mexico: U.S. corn export levels undermine U.S. USMCA case. The ongoing dispute between the United States and Mexico over genetically modified (GM) corn imports has reached a critical juncture, with Mexico arguing that rising levels of U.S. white corn exports undermine Washington’s claims that Mexico’s restrictions on genetically engineered corn are harming trade. This dispute is being addressed under the United States-Mexico-Canada Agreement (USMCA).

Background. In 2020, Mexican President Andrés Manuel López Obrador issued a decree to phase out the use of GM corn and the herbicide glyphosate by 2024, citing concerns over public health, environmental protection, and the preservation of native corn varieties. This move has been met with strong opposition from the U.S., which argues that Mexico’s restrictions are not based on scientific evidence and violate the USMCA.

Mexico’s position. Mexico defends its stance by highlighting the precautionary principle, which prioritizes safety and environmental protection in the absence of scientific consensus on the safety of GMOs. Mexican officials argue that GM corn poses potential health risks, particularly due to the presence of glyphosate residues, and threatens the biodiversity of native corn varieties. Mexico’s unique dietary reliance on corn, especially in minimally processed forms like tortillas, amplifies these concerns.

U.S. position. The U.S. contends that Mexico’s ban on GM corn is unscientific and economically damaging. U.S. officials and agricultural groups argue that GM corn has been proven safe through rigorous scientific evaluations and that the ban disrupts trade and harms American farmers. The U.S. has requested a dispute settlement panel under the USMCA to address these issues.

Recent developments. Despite the dispute, U.S. corn exports to Mexico have remained robust. In 2022, Mexico imported a record volume of U.S. corn, primarily yellow corn used for livestock feed and industrial purposes. However, the ban specifically targets GM corn for human consumption, which constitutes a smaller portion of U.S. exports to Mexico.

Mexico’s argument on export levels. Mexico argues that the continued high levels of U.S. corn exports, including white corn, undermine the U.S. claim that the restrictions are significantly harming trade. This point is central to Mexico’s defense in the USMCA dispute settlement process, suggesting that the impact on trade is not as severe as the U.S. claims.

The other factor in the dispute that bears watching is the incoming Mexican administration. The new president is viewed as being more favorable toward GMOs even though they come from the same party. Like with a regulation in the U.S., a decree like the one deployed in Mexico could easily be reversed or removed by a subsequent administration.

Implications. The outcome of this dispute has significant implications for North American trade relations and agricultural biotechnology policies. If the dispute panel sides with the U.S., Mexico may be compelled to lift its restrictions on GM corn, potentially affecting its domestic agricultural policies and food sovereignty efforts. Conversely, a ruling in favor of Mexico could set a precedent for other countries seeking to impose similar restrictions based on precautionary principles.

— Iowa Utilities Board approves Summit Carbon Solutions pipeline. The Iowa Utilities Board approved the Summit Carbon Solutions pipeline on Tuesday (link), allowing the company to use eminent domain to acquire land. Construction is slated to begin next year, aiming for operation by 2026. The pipeline, the largest of its kind, will transport liquified carbon dioxide from ethanol plants in Iowa and neighboring states to North Dakota. The approval is contingent on securing necessary permits in South Dakota and North Dakota. Link to order.

The pipeline will span over 2,000 miles, including nearly 700 miles in Iowa, with 75% of the Iowa route’s landowners signing voluntary easement agreements. However, Iowa House Speaker Pat Grassley emphasized the need for a comprehensive review of the state’s eminent domain laws to protect landowners’ rights.

The project has faced significant opposition from farmers, environmentalists, and safety advocates. Critics argue the pipeline benefits corporations at the expense of rural communities and poses safety risks without significantly reducing climate pollution.

Summit Carbon Solutions hailed the approval as a significant milestone, anticipating continued progress with permit reconsiderations in North Dakota and new applications in South Dakota. The Iowa Utilities Board’s decision included dissent from board members Erik Helland and Joshua Byrnes over conditions related to interstate approvals and specific route justifications. Summit must submit revised exhibits and secure a $100 million insurance policy before construction can commence.

— United Airlines exec stresses need for oil industry cooperation for sustainable jet fuel viability. United Airlines’ chief sustainability officer, Lauren Riley, emphasized the critical need for cooperation with the oil industry to make sustainable aviation fuel (SAF) economically viable, citing the lack of infrastructure as a major hurdle. In an interview with the Financial Times (link/paywall), Riley noted, “They don’t have access to the pipelines. They don’t have the traditional logistics support. We’re going to need access to pipelines. Oil companies are a critical part of the solution.”

SAF, mainly made from recycled cooking oil and other sources like household waste, currently costs at least twice as much as traditional jet fuel. United Airlines aims to achieve net zero carbon emissions by 2050, but only 0.1% of its annual fuel usage is currently sustainable. Riley highlighted that there are only a few producers of SAF, such as Finland’s Neste and California-based World Energy.

Riley pointed out the inefficiency and higher costs associated with transporting SAF by barge compared to using the existing infrastructure for traditional aviation fuel, such as the Colonial Pipeline network on the U.S. east coast. She also noted the challenges SAF manufacturers face in securing investment and support to scale up production. Last year, global SAF production was 150 million gallons, while United Airlines alone used 4.2 billion gallons of conventional jet fuel.

Expressing optimism about future innovations, Riley mentioned the potential of “power to liquid” fuels or e-fuels, which are produced using electricity to extract hydrogen from water and carbon from the air to create synthetic hydrocarbons. Despite their higher costs and low production levels, she believes these innovations are promising.

Riley acknowledged the urgency of transforming technology by 2050, stating, “I think the biggest risk today is the timeline,” but remained confident, saying, “Personally, I believe we’ll do it. The level of innovation I’ve seen so far is just incredible.”

— USDA lowers 2024 grocery price increase forecast. USDA reduced its 2024 grocery price increase forecast, now predicting a 1.0% rise, down from the 1.2% forecast in May. Overall food prices are still expected to increase by 2.2%, and restaurant prices by 4.2%, for the third consecutive month. These forecasts are below the 20-year average increases of 3.0% for all food and 2.7% for grocery prices, though restaurant prices remain higher than their 20-year average of 3.4%.

USDA narrowed the forecast range for grocery prices to a decline of 0.4% to an increase of 2.5%. The only grocery categories expected to see price declines are fish and seafood, and dairy products, both down by 1.1%. Eggs are expected to see the smallest increase at 0.1%, though the situation with avian influenza could affect this.

Meat, poultry, and fish prices are expected to rise by 1.8%, with pork prices now forecast to increase by 1.1%, up from a previous forecast of a decline. Pork prices have risen 2.6% since May 2023. The other foods category, accounting for 12.2% of food prices, is now forecast to increase by 0.8%, down from 1.3% in May.

Overall, grocery price inflation is easing as USDA incorporates more data. The forecasted 1.2% increase for grocery prices in 2024 would be the smallest since 2019, when prices rose by 0.9%. This is a significant change from the higher increases seen since 2020, including an 11.4% rise in 2022 and a 5.0% rise in 2023.

— USDA announces bird flu testing pilot programs for dairy farms in four states. USDA announced that Kansas, Nebraska, New Mexico, and Texas will launch voluntary pilot programs to test bulk milk tanks on dairy farms for bird flu. This initiative aims to facilitate the interstate movement of herds and help public health officials track the virus’s spread. Additional states are expected to join soon.

“This list of participating states is just the beginning,” said Eric Deeble, acting senior advisor for H5N1 response at USDA. He emphasized the importance of starting with these four states to build confidence in the program.

Farmers in the program can move herds across state lines without extra testing after three consecutive weeks of negative tests for H5N1 in bulk milk tanks. They must continue regular weekly testing.

USDA has confirmed 126 cases of bird flu in dairy herds across 12 states, with Idaho, Michigan, and Texas having the most affected herds. Three dairy farmworkers have contracted mild cases of avian flu this year. The Centers for Disease Control and Prevention (CDC) stated the risk to the general public remains low but highlighted increased risks for farmworkers.

The Food and Drug Administration (FDA) will expand its H5N1 testing to include additional dairy products like aged raw milk cheese, cream cheese, butter, and ice cream. The FDA has assured the public that the nation’s milk supply is safe, based on continuous testing since the first positive case in dairy herds. The FDA strongly advises against drinking raw milk due to the heightened risk of H5N1 spread in dairy herds.

— Lauren Boebert won the Republican primary in Colorado’s 4th Congressional District on Tuesday. This was Boebert’s first election since switching from Colorado’s 3rd District to the more conservative 4th District in December 2023. Boebert made the switch after nearly losing her 2022 re-election bid in the 3rd District to Democrat Adam Frisch. The 4th District is considered more heavily Republican than her previous district.

Boebert faced criticism and accusations of being a “carpetbagger” for switching districts. She competed against five other Republican candidates in the 4th District primary. Leading up to the primary, polls showed Boebert with a significant lead over her opponents. Her campaign focused on issues like immigration and emphasized her endorsement from former President Donald Trump.

Boebert’s win comes despite recent scandals, including an incident at a Denver theater that drew negative attention.

The primary victory puts Boebert in a strong position to win the general election in November, as the 4th District is considered solidly Republican.

Bottom line: This primary win represents a significant turnaround for Boebert, who faced political challenges in her previous district but has found success after switching to a more conservative area of Colorado.

— George Latimer defeats ‘Squad’ member Rep. Jamaal Bowman in Democratic primary. Rep. Jamaal Bowman was defeated by George Latimer in the Democratic primary, hindered by missteps and a multimillion-dollar campaign from pro-Israel groups. The Associated Press projected Latimer, Westchester’s county executive, as the winner, leading Bowman 55% to 45% with about half the votes counted. Bowman, a two-term lawmaker and outspoken member of the House’s “Squad,” is the first Democratic House lawmaker to lose a primary this year. Critics claimed Bowman was out of step with his suburban New York district, while his allies blamed unfair attacks and heavy spending from the American Israel Public Affairs Committee.

Bowman, who ousted incumbent Democrat Eliot Engel in the 2020 primary, faced backlash for various stances, including his vote against a House resolution supporting Israel after Hamas attacks and a misdemeanor plea for pulling a fire alarm during a hectic vote. Pro-Israel super PACs spent over $14 million on advertisements against him, making this the most expensive House primary in U.S. history with $24 million in ad spending.

Latimer attributed his lead to Bowman’s disconnection from local issues, despite heavy campaign spending by AIPAC. The election has deeply divided the community, particularly over issues related to Israel. Bowman’s calls for a Gaza cease-fire and criticism of Israel contrasted with Latimer’s strong support for Israel. The election has left lasting scars in the district, with differing views on the impact and future direction of local and national politics.

Bottom line: This was one of the most closely watched and expensive House primaries this election cycle. This marks the first time a member of the progressive “Squad” has been defeated in a Democratic primary, highlighting the intense political environment and divisions within the Democratic Party. Latimer is now poised to secure the House seat in the solidly blue district in the November general election.

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