Scalise Drops Speaker Bid as House GOP Chaos Accelerates, Next Step Uncertain

Brent nears $90 as the U.S. signals stricter sanctions enforcement | China looks for wheat

Jim Wiesemeyer

•

October 13, 2023 09:15 AM

Brent nears $90 as the U.S. signals stricter sanctions enforcement | China looks for wheat

Today’s Digital Newspaper

MARKET FOCUS

USDA daily export sales:
— 181,000 MT SRW wheat to China, 2023-2024 marketing year (MY)
— 117,300 MT soybeans to unknown destinations, 2023-2024 MY
— 100,000 MT soybean cake and meal to unknown destinations, 2023-2024 MY
JPMorgan posts big earnings beat
Microsoft’s $69 billion offer to acquire Activision Blizzard clears U.K. regulators
WSJ columnist: Fed Is putting too much faith in markets
Brent crude surges to $89 per barrel amid Middle East tensions, sanctions
European natgas futures surge to 8-month high on supply concerns, geopolitical risks
U.S. oil production hits weekly record
Global diesel shortage looms as refineries struggle amid OPEC+ cuts & Ukraine war
Ford says it can’t raise its contract offer to striking workers without damaging business
$668 billion — Estimated amount Americans failed to pay in taxes in 2021
U.S. import cargo slows faster than expected
Ag markets today
India is expected to impose restrictions on its sugar exports
U.S. soybean and corn crops could be more profitable this season
Ag trade update
NWS weather outlook
Pro Farmer First Thing Today items

CONGRESS

Scalise withdraws from House speaker race

ISRAEL/HAMAS CONFLICT

Israel’s 24-jour ultimatum for 1.1 million Palestinians to relocate sparks U.N. concern
Israel/Hamas war stokes global slowdown fears
Biden administration will block Iran from getting access to $6 billion in Iranian fund

RUSSIA & UKRAINE

Another sharp increase in Russian wheat export tax
Big premiums for underwriters offering war insurance for Ukrainian cargo ships
Biden administration slapped sanctions on two tanker owners

POLICY

Clarifying reference prices: A critical element in the farm bill debate
USDA modifies FY 2023 sugar allotments, sets FY 2024 levels
EPA requests info on pesticide-treated seeds amid consideration of more regulation

CHINA

Higher U.S. tariffs on Chinese imports could cost consumers $31 billion: NRF study
China’s consumer prices remained unexpectedly flat in September
China’s exports show slight improvement in September 2023, down 6.2% YoY
China’s soybean imports drop sharply in September
China’s meat imports decline in September
China scouring the globe for wheat, with annual imports on track to hit record levels

ENERGY & CLIMATE CHANGE

SCOTUS rejects GOP states’ challenge to rule estimating social cost of carbon
White House to unveil $7 billion in grants to fuel clean hydrogen production
Japan launches its own carbon trading scheme

LIVESTOCK & FOOD INDUSTRY

Iowa joins pork producers in legal challenge against Mass. pork sale restrictions

HEALTH UPDATE

Over 7 million Americans receive updated Covid-19 vaccines targeting current variants
Medicare Part B premiums to rise by $10 in 2024, impacting seniors’ Soc Sec. benefits
Kaiser Permanente has reached a tentative agreement with unions

OTHER ITEMS OF NOTE

Cotton AWP falls
Today’s calendar of events

MARKET FOCUS

— Equities today: Asian and European stocks were mostly lower overnight. U.S. Dow opened up around 100 points higher and at this writing is up around 150 points. In Asia, Japan -0.6%. Hong Kong -2.3%. China -0.6%. India -0.2%. In Europe, at midday, London -0.7%. Paris -1%. Frankfurt -1%.

U.S. equities yesterday: All three major indices closed with losses following the CPI data that came in a little higher than expected in some areas. The Dow ended down 173.73 points, 0.51%, at 33,631.14. The Nasdaq lost 85.46 points, 0.63%, at 13,574.22. The S&P 500 fell 27.34 points, 0.62%, at 4,349.61.

— JPMorgan posts big earnings beat. JPMorgan Chase‘s third- quarter earnings soared past analysts’ estimates as the bank benefited from a continued surge in net interest income and its acquisition of First Republic Bank in May. Profit at JPMorgan climbed 35% — or 24% excluding First Republic — to $13.2 billion. That amounted to earnings of $4.33 a share on revenue of $39.9 billion. Analysts surveyed by FactSet projected JPMorgan would post earnings of $3.95 a share on revenue of $39.6 billion.

JPMorgan Chief Executive Jamie Dimon celebrated the results but also urged caution amid a challenging macroeconomic and geopolitical backdrop. “This may be the most dangerous time the world has seen in decades. While we hope for the best, we prepare the firm for a broad range of outcomes so we can consistently deliver for clients no matter the environment,” Dimon said.

— Microsoft’s revised $69 billion offer to acquire Activision Blizzard has passed muster with U.K. regulators, clearing the way for the technology sector’s biggest-ever acquisition. The U.K.'s Competition and Markets Authority granted consent for the revised deal today, which excludes Activision’s cloud streaming rights that will be sold to French firm Ubisoft.

— Agriculture markets yesterday:

Corn: December corn futures jumped 8 cents before ending the session at $4.96, nearer the session high.
Soy complex: November soybeans rose 37 1/2 cents to $12.90, the highest close since Sept. 28, after reaching a near four-month low overnight. December meal futures rose $15.80 to $392.90, the largest daily gain since June 30. December soyoil rose 65 points after notching a four-month low early on.
Wheat: December SRW wheat rose 15 1/2 cents to $5.71 1/2. December HRW wheat gained 7 3/4 cents at $6.75. Both markets closed nearer their session highs, with HRW hitting a more-than-two-year low early on. December spring wheat rose 5 1/4 cents to $7.23 1/2.
Cotton: December cotton fell 13 points to 84.92 cents and traded the lowest level since Aug. 22 early on.
Cattle: December live cattle rose 82 1/2 cents to $187.80. November feeder cattle gained $1.575 to $253.575. Both markets closed nearer their session highs.
Hogs: Expiring October hog futures slipped 5 cents to $82.10 Thursday, while most-active December edged up 12.5 cents to $70.10.

— Ag markets today: Corn, soybean and wheat futures are mildly firmer and near their overnight highs this morning as tensions in the Middle East intensify. As of 7:30 a.m. ET, corn futures were trading a penny higher, soybeans were 6 to 7 cents higher and wheat futures were mostly 6 to 8 cents higher. Front-month crude oil futures were more than $3.00 higher, and the U.S. dollar index was modestly weaker this morning.

Cash cattle prices strengthen. Cash cattle trade turned active Thursday as packers raised bids, with cattle moving at mostly $1.00 higher prices, though some traded as much as $3.00 higher. The strength in the cash market allowed futures to extend Wednesday’s strong gains. Meanwhile, Choice boxed beef prices firmed 91 cents, again proving there’s solid retailer buying around the $300.00 level.

Cash hog index firms a little more. The CME lean hog index is up 2 cents to $82.42, marking consecutive daily gains for the first time since Sept. 19-20. While the cash index has temporarily stabilized, wholesale pork prices continue to fall, with the cutout down 25 cents on Thursday to the lowest level since June 15.

— Quotes of note:

$668 billion — The estimated amount Americans failed to pay in taxes in 2021, the IRS said yesterday. The shortfall is the largest ever and includes $542 billion in underreported income. The disclosure comes as the agency is stepping up audits of high-income individuals.
“If you see smoke, it’s not a speaker, someone just set the place on fire.” — Rep. Ronny Jackson (R-Texas), about the House Republican Conference’s struggle to select a speaker.
“Geopolitical risks are the most significant risk for the world economy now,” French Finance Minister Bruno Le Maire told reporters before discussing the matter with Group of Seven counterparts late Thursday.

— WSJ columnist: Fed Is putting too much faith in markets. The Federal Reserve has a new theory: The bond market is doing its job for it, so it can sit back and watch rather than raise rates again this year. The theory contends that the recent increase in the gap between Treasury yields and the future path of interest rates — known as the term premium — tightens monetary conditions, slowing the economy much the same way that a rate bump would. It seems obvious that higher bond yields and mortgage rates ought to slow the economy. But WSJ columnist James Mackintosh says that theory has some serious flaws (link for details).

Market perspectives:

— Outside markets: The U.S. dollar index was slightly weaker, with the British pound gaining ground against the greenback. The yield on the 10-year U.S. Treasury note fell to around 4.61%, with a mixed-to-negative tone in global government bond yields. Crude oil futures are moving higher, rebounding from recent lows. US crude was around $86.40 per barrel and Brent around $89.45 per barrel. Gold and silver were up, with gold around $1,909 per troy ounce and silver around $22.45 per troy ounce.

— Brent crude surges to $89 per barrel amid Middle East tensions and sanctions on Russian oil tankers. Brent crude futures saw a significant surge, reaching $89 per barrel on Friday, marking a nearly 6% increase for the week. This uptick in oil prices comes as the conflict in southern Israel and Gaza unfolds, intensifying geopolitical risks in the Middle East. Iran’s foreign minister issued a stark warning, suggesting that Tehran-backed militants may potentially open a new front in the ongoing Israeli-Hamas conflict if the blockade of Gaza persists. Additionally, the U.S. imposed its first sanctions on owners of tankers carrying Russian oil priced above the G7’s designated price cap of $60 per barrel, to enforce measures designed to penalize Russia for its invasion of Ukraine. Despite these geopolitical tensions, official data revealed a substantial increase in U.S. crude inventories, with a jump of 10.176 million barrels last week, the highest since February. However, there was a contrasting decrease in supply at the storage hub located in Cushing, Oklahoma, highlighting the complex dynamics affecting global oil markets.

— European natural gas futures surge 40% to 8-month high amid supply concerns and geopolitical risks. In the second week of October, European natural gas futures experienced a surge, soaring over 40% to reach €55 per megawatt-hour. This price level marked an eight-month high, primarily driven by expectations of cooler temperatures boosting demand. However, supply concerns were further exacerbated by ongoing strikes at liquefied natural gas (LNG) facilities in Australia, along with safety-related shutdowns in Israel, which could potentially impact liquefied natural gas exports from Egypt. The situation was further complicated by an investigation into a Baltic pipeline leak, which raised concerns about winter infrastructure security and resulted in its temporary closure. Negotiations between Chevron and unions concerning a pay and conditions deal at its Australian LNG facilities showed some progress but did not reach a final agreement. As winter approaches, the anticipation of colder temperatures is expected to further increase the demand for natural gas, intensifying the challenges facing the European natural gas market.

— U.S. oil production hits weekly record. U.S. crude-oil production rose to a record high early this month. The Energy Information Administration said weekly crude output climbed to 13.2 million barrels a day in the week ended Oct. 6, beating the previous record of 13.1 million barrels set in March 2020. The production data, alongside a larger-than-expected increase in inventories, pushed crude prices lower.

— Global diesel shortage looms as refineries struggle amid OPEC+ cuts and Ukraine war. Refineries worldwide are facing challenges in meeting the rising demand for diesel, exacerbated by disruptions in global oil flows caused by OPEC+ output reductions and the conflict in Ukraine. According to Wood Mackenzie Ltd., the proportion of diesel in global refinery production is expected to decrease by 1.5% during this quarter compared to the same period a year earlier. This reduction equates to approximately 1.2 million barrels per day, a quantity roughly equivalent to the combined diesel output of Germany and the U.K. A shortage of diesel could pose significant challenges as demand increases in preparation for the upcoming northern winter.

Perspective: Distillate inventories in the U.S., Europe, and Singapore have increased month-on-month in September, although the U.S. is 21 million barrels below the seasonal average and Europe is 25 million barrels below the seasonal average as diesel cracks outperform all other products.

— Ford says it can’t raise its contract offer to striking workers without damaging its business. The carmaker said it was “at the limit” after the UAW union expanded its strike to the company’s biggest factory and talks broke down on Wednesday.

— U.S. import cargo slows faster than expected, impacted by supply chain shifts and economic factors. Import cargo volume at major U.S. container ports is experiencing a faster-than-anticipated slowdown, with the peak already reached and expectations of gradual moderation leading into the holiday season, as reported by the National Retail Federation (NRF). NRF Vice President for Supply Chain and Customs Policy, Jonathan Gold, stated that while cargo volumes are expected to remain robust for the rest of the year, they won’t reach the levels previously anticipated just a month ago.

Retailers had proactively increased their stock levels earlier in the year to mitigate potential supply chain labor disruptions, ensuring they are well-prepared to meet consumer demand. However, Gold noted that while consumers are spending more than the previous year, the growth rate has slowed, prompting retailers to carefully manage the balance between supply and demand.

The challenges faced by the industry include inflationary pressures and high interest rates, particularly affecting groceries, automobiles, and mortgages, which are impacting discretionary spending. Hackett Associates Founder Ben Hackett emphasized that operational decisions made by carriers reflect these challenges. Carriers have opted to slow down their ships to reduce capacity, avoiding the necessity to take vessels out of service, especially as larger vessels ordered during a period of higher demand are being delivered.

Despite these measures, ships are not sailing at full capacity, leading to a decline in freight rates. This shift in the import cargo landscape was not initially foreseen, as inbound volume at U.S. ports had initially been projected to remain at 2 million Twenty-Foot Equivalent Units (TEU) from August through October, but these forecasts have now been revised downwards.

— USDA daily export sales:

181,000 MT SRW wheat to China, 2023-2024 marketing year (MY)
117,300 MT soybeans to unknown destinations, 2023-2024 MY
100,000 MT soybean cake and meal to unknown destinations, 2023-2024 MY

— India is expected to impose restrictions on its sugar exports after dry weather parched cane crops in the world’s second-biggest grower, a move that will tighten global supplies of the sweetener. Link to details via Bloomberg.

— U.S. soybean and corn crops could be more profitable this season, as flagging crop prices may be upstaged by an even steeper tumble in production costs, Bloomberg Intelligence says.

— Ag trade update: Egypt purchased 470,000 MT of wheat, including 300,000 MT Russia, 120,000 MT Romanian and 50,000 MT Bulgarian.

— NWS weather outlook: Potent low-pressure system continues to spread heavy rain and severe weather across the north-central Plains to the Midwest today... ...Some heavy rain and embedded thunderstorms expected to slide across the Pennsylvania and northern Mid-Atlantic on Saturday/early Sunday as the low re-intensifies near the Mid-Atlantic coast Saturday night/early Sunday.

Items in Pro Farmer’s First Thing Today include:

• Followthrough buying in grains
• Middle East conflict intensifies
• Eurozone industrial output rose in August but sharply lower than last year

CONGRESS

— Scalise withdraws from House speaker race. Rep. Steve Scalise (R-La.), who won his party’s nomination to be speaker of the House of Representatives, withdrew from the race after failing to secure broad support from his party. “There are still some people that have their own agendas,” he said. Winning the speakership on the full House floor requires 217 votes, a feat some observers say may be impossible for any Republican to garner. The House cannot consider legislation without a permanent speaker. This will throw the chamber into further chaos.

Possible candidates include House Majority Whip Tom Emmer (R-Minn.), House Judiciary Committee Chair Jim Jordan (R-Ohio), Speaker Pro Tempore Patrick McHenry (R-N.C.) and House Republican Conference Chair Elise Stefanik (R-N.Y.).

“We really need to get our act together. This is a continuation of a pretty dysfunctional disease of the 118th [Congress],” Rep. Dusty Johnson (R-S.D.) said Thursday.

House Republicans are meeting this morning to discuss next steps.

Interim step for interim leader? Rep. David Joyce (R-Ohio) said Thursday that members of the conference have discussed the possible mechanics of granting additional authority to an interim speaker for a brief period.

Who’s on first? A long-shot strategy being considered by some Republican members: asking Democrats for help. House Minority Leader Hakeem Jeffries (D-N.Y.) late Thursday called for Republicans to “get their act together” and elect the next speaker while slamming the “extremists” within their party. Jeffries said on PBS NewsHour that Democrats are ready, willing and able to move forward on a bipartisan agreement on who would become the next speaker — with Republican support. Rep. Mike Rogers (R-Ala.) the chairman of the House Armed Services Committee, said it should be up to Democrats to come to them and make an offer, and currently “they haven’t offered jack.” But Democrats say the GOP should make the first move. Asked whether hard-right Republicans support such a plan, Rep. Byron Donalds (R-Fla.) bluntly said “no” and that many lawmakers would not allow that to happen. “No, not going to worry about that right now,” he said about working with Democrats.

Of note: Can Jordan get the needed 217 votes? He only got 99 votes in the House Republican Conference’s internal speaker election Wednesday — 118 votes shy of the 217 needed to be speaker. It will be very difficult for Jordan to get there, observers note. There are already five GOP lawmakers who say they’re prepared to vote against Jordan on the floor: GOP Reps. Austin Scott (Ga.), Carlos Giménez (Fla.), Ann Wagner (Mo.), Mike Simpson (Idaho) and Mario Diaz-Balart (Fla.). Some of these members are close Scalise allies. There are expected to be more naysayers. Unlike Scalise, Jordan will seek a House floor vote. Jordan is a favorite of former President Donald Trump and the GOP rebels. Unlike Scalise, Jordan has offered a plan for how he wants to govern. Jordan told Republicans how he’d handle a shutdown threat and what his demands are when it comes to immigration policy. Moderate members note that Jordan and then Rep. Mark Meadows (R-N.C.) convinced Trump to plunge the federal government into the longest shutdown in history in 2018. And they got nothing for it.

Bottom line: There is a sense of desperation among House Republicans, who have now effectively frozen the chamber at a time when major international and domestic crises loom, from Israel’s war against Hamas to a potential government shutdown in November. Additionally, with no indication there is any viable candidate who could secure the 217 votes needed to win the Speaker role, questions are being raised about how long the standoff will last and at what cost.

ISRAEL/HAMAS CONFLICT

— Israel’s 24-jour ultimatum for 1.1 million Palestinians to relocate sparks U.N. concern and Hamas denial. The Israel Defense Forces issued an ultimatum, instructing approximately 1.1 million Palestinians to relocate from the northern to the southern region of Gaza within a 24-hour period. Israel cited the presence of “Hamas terrorists” allegedly using “human shields” as the reason behind this move. The United Nations has swiftly urged Israel to withdraw this “impossible” order, while Hamas dismissed it as “fake propaganda” and advised the affected populace to ignore it.

Israel has deployed tanks along Gaza’s borders, with a focus on targeting underground tunnels believed to be used for storing supplies, housing fighters, and potentially holding hostages.

— Israel/Hamas war stokes global slowdown fears. Finance officials at the IMF’s annual meeting in Marrakesh, Morocco, say that they’re increasingly worried about consequences for the global economy. “Geopolitical risk has become the most significant risk for growth, for development and for common prosperity,” Bruno Le Maire, France’s finance minister, said at the IMF gathering. So far, the consensus, shared by Treasury Secretary Janet Yellen, is that the war’s economic impact will be contained. But the effects of a widening conflict — particularly a spike in energy prices — are weighing heavily on policymakers. “We are very closely monitoring how the situation evolves, how it is affecting especially oil markets,” said Kristalina Georgieva, the IMF’s managing director.

A sharper escalation could bring Israel into direct conflict with Iran, a supplier of arms and money to Hamas, which the US and the European Union have designated a terrorist group. In that scenario, Bloomberg Economics estimates oil prices could soar to $150 a barrel and global growth drop to 1.7% — a recession that takes about $1 trillion off world output.

— Biden administration will block Iran from getting access to the $6 billion in Iranian funds that was transferred to Qatar last month in exchange for the release of imprisoned Americans. Republicans have slammed President Joe Biden for making money available to Iran — even with strict restrictions — since Hamas’s attack on Israel. American officials said no evidence tied Iran to the operation, but it has historically supported the terrorist group.

RUSSIA/UKRAINE

— Another sharp increase in Russian wheat export tax. Russia’s wheat export tax for Oct. 18-24 will be 5,734.7 rubles ($58.98) per metric ton based on an indicative price of $251.20. That’s up from a rate of 5,224.0 rubles per metric ton the previous week and the highest since the week of April 19-25.

— Underwriters offering war insurance for Ukrainian cargo ships under a new facility for Black Sea grain exports are charging premiums that imply 17/1 to 33/1 odds of total loss, rates similar to the 1980s Iran-Iraq war, according to Bloomberg Intelligence.

— The Biden administration slapped sanctions on two tanker owners that allegedly carried Russian oil above the G7 price cap of $60 per barrel, one based in Turkey and the other in the UAE, seeking to close loopholes in its sanctions mechanisms.

POLICY UPDATE

— Clarifying reference prices: A critical element in the farm bill debate. A Southern Ag Today article (link) provides insights into the complexities of reference prices and their significance in the context of the farm bill debate. It explains how reference prices, specifically Effective Reference Prices (ERPs), affect the farm safety net and outlines key points to consider.

Background. The 2018 Farm Bill brought cotton back into the farm safety net, maintaining the statutory reference prices (SRPs) from the 2014 Farm Bill. However, it introduced Effective Reference Prices (ERPs) due to House Republican negotiators’ insistence. ERPs can replace SRPs if certain conditions are met, potentially increasing to 115% of the SRP.

The issue: The Southern Ag Today (SAT) item notes that a recent article (link/FarmDoc) highlighted that the Congressional Budget Office (CBO) projects ERPs higher than SRPs for nine of the 19 program crops, covering over 90% of all base acres in the U.S. This could lead to higher Reference Prices without requiring Congress to take additional action. While the FarmDoc article expressed surprise at the ERP’s lack of attention, the SAT authors write, “We have been covering it since Southern Ag Today’s inception. The article appears to question the need for higher SRPs, a request from many state and national commodity organizations.”

The SAT notes that first, ERPs are projected to affect certain crops but not others like cotton, rice, and peanuts. While the author referenced in the prior FarmDoc article on the topic acknowledged this, the SAT authors said “it was wrongly used as a reason not to adjust SRPs for these crops. Increased SRPs are justified due to production costs and potential lower prices.”

Second, ERPs offer more protection for some crops, but this protection diminishes if prices fall in the future, the SAT analysis adds. The authors say the focus should be on how the farm safety net handles unforeseen market fluctuations. They add that an analysis of 64 crop farms revealed that 33 of them would face a significant likelihood of a cash shortfall in the event of a price decrease, indicating the current safety net may not suffice.

Bottom line, according to the SAT authors: The farm bill debate should serve all U.S. growers, not just one region. To ensure meaningful support in times of economic downturn, relying solely on existing ERPs or modest SRP increases may not be enough. The federal farm safety net should adapt to the higher cost environment in which producers operate. The substance of the farm bill is paramount, considering the significant investments American producers make.

Of note: The SAT article underscores the complexity of reference prices in the farm bill debate and the need for a comprehensive and regionally balanced approach to ensure the effectiveness of the farm safety net.

— USDA modifies FY 2023 sugar allotments, sets FY 2024 levels. USDA’s Commodity Credit Corporation (CCC) has published a notice in the Federal Register (link) outlining revisions to the fiscal year (FY) 2023 state cane sugar allotments and allocations to sugarcane processors; reassigning FY 2023 cane sugar marketing allocations to raw cane sugar imports already anticipated; and announce the FY 2024 overall sugar marketing allotment quantity (OAQ), state cane sugar allotments, and sugar beet and sugarcane processor allocations.

For FY 2023, USDA is transferring FY 2023 allocations from sugarcane processors with surplus allocation to those with deficit allocation.

For FY 2024, USDA said it was setting the initial OAQ at 10,667,500 short tons, raw value (STRV), equal to 85% of 12,550,000 STRV, the estimated quantity of sugar for domestic human consumption for FY 2024 as forecast in the September 2023 WASDE with 54.35% of the OAQ distributed among beet processors and 45.65% is distributed among the sugarcane states and cane processors. USDA noted that mainland U.S. sugarcane producing states will be allocated the 325,000 STRV that by law is for “offshore states” as those states — Puerto Rico and Hawaii —have permanently exited sugarcane production.

— EPA requests information on pesticide-treated seeds amid consideration of increased regulation. The Environmental Protection Agency (EPA) initiated a request for information regarding pesticide-treated seeds as part of a broader effort to assess the need for enhanced regulation in this area. On Thursday, Oct. 12, the agency issued an Advanced Notice of Proposed Rulemaking in response to a court settlement that required the EPA to address a petition from environmentalists advocating for increased regulation of treated seeds. While the EPA denied the petition, it committed to re-evaluating the underlying concerns.

EPA is soliciting input on various aspects, including the extent of pesticide-treated seed usage in the United States, how growers handle these treated seed products (including storage, planting, and disposal), the adequacy of labeling for treated seed products, and whether additional regulation is necessary to ensure safe use. The agency has opened a comment period of at least 60 days to gather input from stakeholders and experts.

CHINA UPDATE

— Higher U.S. tariffs on Chinese imports could cost consumers $31 billion, NRF study warns. A new report by the National Retail Federation (NRF) indicates that if the U.S. raises tariffs on common household products imported from China, such as microwaves and T-shirts, American consumers could face a spending power reduction of $31 billion. The study (link), titled “Estimated Impacts of Changes to China’s Tariff Status,” assesses the potential consequences of ending China’s permanent normal trade relations (PNTR) status. This trade status grants China the same tariff rates applied to other U.S. trading partners.

Key Points:

Policymakers are exploring changes to trade policy and practices with China, including the possible revocation of China’s PNTR status. This status was granted in 2000 when China joined the World Trade Organization.
NRF and other industry organizations are evaluating the potential effects on businesses, consumers, and the economy. Eliminating China’s PNTR status would subject imports from China to significantly higher tariff rates, affecting both finished goods and production inputs.
Higher tariffs on Chinese imports resulting from the loss of PNTR status could result in American consumers paying $31 billion more, equivalent to $240 per household, for commonly used products.
The study indicates that toy prices could surge by over 21%, resulting in an additional cost of $93 per household.
Prices of other consumer goods are also expected to rise, including household appliances by nearly 7%, shoes by nearly 5%, furniture by 4%, and apparel by nearly 2%.
Low-income households, which allocate a higher proportion of their incomes to these products than high-income households, would bear the greatest impact.
These increased costs could hinder efforts to reduce inflation for households overall.

Bottom line: The NRF’s report highlights the potential economic consequences of changes to China’s tariff status and their potential impact on American consumers.

— China’s consumer prices remained unexpectedly flat in September. Analysts had predicted a 0.2% increase from a year earlier. A slowdown in the property sector may be dampening household demand — food prices, for instance, dropped by 3.2%. Core inflation, excluding food and fuel prices, climbed 0.8% year-on-year. On Tuesday the IMF lowered its growth forecast for China for the rest of this year and next.

— China’s exports show slight improvement in September 2023, down 6.2% year over year. In September 2023, China’s exports recorded a year-on-year decline of 6.2%, amounting to $299.13 billion. This figure represented an improvement compared to the previous month’s 8.8% drop and exceeded market expectations, which had predicted a 7.6% decrease. While this marked the fifth consecutive month of declining exports, it was the least severe decline in this series. Lu Daliang, spokesperson for the General Administration of Customs, acknowledged the challenges that China’s trade still faces in an intricate and demanding external environment.

Among specific export categories, rare earths declined by 9.1%, unwrought aluminum and related products dropped by 5%, and refined product sales decreased by 3.6%.

Examining major trading partners, China’s exports dwindled to countries such as the United States (-9.3%), ASEAN (-15.8%), the European Union (-11.6%), Japan (-6.4%), South Korea (-7.0%), Taiwan (-4.1%), and Australia (-17.8%). In contrast, there was a notable 21% growth in exports to Russia, showcasing a mixed performance in China’s global trade landscape.

— China’s soybean imports drop sharply in September. China imported 7.15 MMT of soybeans in September, down 2.21 MMT (23.6%) from the previous month and 570,000 MT (7.4%) less than last year as hefty stocks at ports slowed arrivals. Through the first nine months of this year, China imported 77.8 MMT of soybeans, up 14.4% from the same period last year.

— China’s meat imports decline in September. China imported 595,000 MT of meat during September, down 32,000 MT (5.1%) from August. Through the first nine months of this year, China imported 5.71 MMT of meat, up 5.6% from the same period last year.

— China is scouring the globe for wheat, with annual imports on track to hit record levels, as buyers scoop up cheap supplies after heavy rains damaged the domestic crop. “China’s wheat imports will be strong going forward, and for sure they will exceed the annual quota,” said Darin Friedrichs, co-founder of Sitonia Consulting Co. told Bloomberg (link). “It seems like China’s bought up all of the easily exported supplies from Australia and is now needing to go further afield.”

Beijing uses quotas to manage imports of staples like wheat. It allows 9.636 million tons a year of the grain at a 1% tariff, with 90% of the allocation going to government firms. Above that cap, the tariff rises to 65%, a level usually out of reach for private buyers but not for the state-owned giants.

ENERGY & CLIMATE CHANGE

— SCOTUS rejects GOP states’ challenge to rule estimating social cost of carbon. The U.S. Supreme Court (SCOTUS) has declined to hear a lawsuit from Republican-led states challenging the Biden administration’s attempt to assign a social cost to carbon. No explanation was given and SCOTUS merely listed Missouri v. Biden on Tuesday as one of the petitions for writ of certiorari that were denied. SCOTUS similarly refused earlier this year to hear another challenge to the estimates.

Besides Missouri, 10 states requested SCOTUS take up the issue: Tennessee, Utah, Ohio, Oklahoma, South Carolina, Kansas, Indiana, Arkansas, Nebraska and Montana.

— White House to unveil $7 billion in grants to fuel clean hydrogen production. The White House is set to make a substantial investment in the burgeoning field of hydrogen production as a key element of the United States’ transition away from fossil fuels. In an announcement scheduled for today, the Biden administration will unveil a $7 billion grant program aimed at establishing seven regional hubs dedicated to clean hydrogen production. This energy source has the potential to replace oil and gas in industries such as shipping, steelmaking, and chemical production.

Established through the 2021 infrastructure law, this grant program is designed to jumpstart clean hydrogen production within the U.S., aligning closely with the administration’s climate and economic objectives. It complements forthcoming regulations concerning energy producer eligibility for significant tax credits, which are intended to enhance the competitiveness of clean hydrogen production costs compared to hydrogen derived from natural gas.

The grants will be distributed to regional hubs comprising state and local collaborators, hydrogen suppliers, industrial consumers, and energy infrastructure firms, all of whom will contribute supplementary funding alongside the government grants. Additionally, the Energy Department is engaged in discussions with companies like Occidental Petroleum for an additional $1.2 billion in grant funding to support projects focused on carbon removal from the atmosphere.

Currently, the majority of hydrogen production relies on natural gas, a cost-effective but emissions-intensive process. However, emerging technologies can capture carbon emissions from this process. Alternatively, green hydrogen, produced by splitting water with the use of clean energy sources, holds the promise of emitting no greenhouse gases when generated from entirely clean power. This significant investment signals a major step toward a more sustainable and environmentally friendly energy future.

— Japan launches its own carbon trading scheme. The Tokyo Stock Exchange started trading Japanese carbon credits this week, combining emissions trading starting next year and a carbon levy starting in 2029, with the world’s fifth-largest carbon emitter seeking to achieve net zero by 2050. Link for details.

LIVESTOCK, FOOD & BEVERAGE INDUSTRY

— Iowa joins pork producers in legal challenge against Massachusetts pork sale restrictions. Iowa has entered the legal fray by challenging a recently enacted Massachusetts law that prohibits the sale of pork not meeting specific hog-confinement standards, according to the Iowa Capital Dispatch (link). This legal action comes as part of an ongoing dispute involving pork producers, including Triumph Foods, who have sued the Massachusetts attorney general over the Prevention of Farm Animal Cruelty Act.

Key Points:

Massachusetts’ Prevention of Farm Animal Cruelty Act restricts the sale and transportation of pork within the state, imposing strict hog-confinement standards.
The law goes beyond California’s similar legislation by also banning the transport of non-compliant pork through Massachusetts to other states.
The law aims to prevent animal cruelty and improve food safety but has faced opposition from pork producers, who argue that the confinement standards are inconsistent with industry practices and could impose costly burdens.
Iowa, the leading pork producer and exporter in the United States, filed an amicus brief supporting the pork producers’ challenge. The brief emphasizes the potential negative economic impact on the state’s pork industry.
The amicus brief argues that the Massachusetts law sets a dangerous precedent by allowing states to disrupt markets based on political agendas and asserts that the law violates the U.S. Constitution’s commerce clause and import-export clause.
Lawyers for Massachusetts contend that some of these legal arguments have been rejected in previous court cases, including a Supreme Court ruling involving California’s similar legislation.

Bottom line: The legal battle centers on whether states have the authority to enact laws affecting interstate commerce, potentially impacting the pork industry and the sale of pork products across state lines.

HEALTH UPDATE

— Over 7 million Americans receive updated Covid-19 vaccines targeting current variants. The Department of Health and Human Services has reported that more than 7 million Americans have received a dose of the updated Covid-19 vaccine since its availability in September. The Centers for Disease Control and Prevention (CDC) endorsed the use of vaccines from Moderna and Pfizer/BioNTech for all individuals aged 6 months and older, effective September 12. Furthermore, an updated vaccine from Novavax, approved for individuals aged 12 and above, has also become available this month.

Comparatively, last year’s bivalent Covid-19 booster witnessed over 18 million people receiving doses by Oct. 12, 2022, approximately six weeks after CDC approval. The latest Covid-19 vaccines have been specifically modified to target the currently circulating coronavirus variants, reflecting ongoing efforts to adapt and enhance vaccine effectiveness against evolving strains of the virus.

— Medicare Part B premiums to rise by $10 in 2024, impacting seniors’ Social Security benefits. The Centers for Medicare and Medicaid Services announced that Medicare enrollees will face an increase of approximately $10 in their monthly Part B premiums for the year 2024. The standard monthly premium for Medicare Part B will climb to $174.70, up from $164.90 in the current year. This premium hike translates to retirees receiving a monthly Social Security benefit increase of less than $50, on average, in the upcoming year.

This increase in Medicare premiums comes at a time when many seniors are expressing concerns about their personal finances. Analysts note that inflation has eroded the buying power of Social Security payments, with a study from earlier this year by The Senior Citizens League indicating a 36% loss in purchasing power since 2000. To restore the same buying power as in 2000, monthly benefits would need to rise by $517, highlighting the financial challenges facing older Americans.

— Kaiser Permanente has reached a tentative agreement with the unions representing 75,000 employees, bringing an end to the largest-ever healthcare strike in U.S. history. “The frontline healthcare workers of the Coalition of Kaiser Permanente Unions are excited to have reached a tentative agreement with Kaiser Permanente,” stated the union coalition, expressing gratitude for the crucial support of Acting U.S. Labor Secretary Julie Su.

The strike, which occurred last week and lasted for three days as originally scheduled, concluded with the tentative deal. However, the coalition of unions had previously threatened an eight-day strike next month, involving even more workers if a new agreement was not reached by Oct. 31.

While specific details of the agreement were not immediately available, the unions had been advocating for improved pay and staffing levels at Kaiser hospitals and other facilities.

OTHER ITEMS OF NOTE

— Cotton AWP falls. The Adjusted World Price (AWP) for cotton fell to 71.05 cents per pound, effective today (Oct. 13), down from 72.36 cents per pound the prior week and the lowest since it was at 69.06 cents per pound for the week of Aug. 25. Meanwhile, USDA said that Special Import Quota #26 would be established Oct. 19 for 39,634 bales of upland cotton, applying to supplies purchased not later than Jan. 16 and entered into the U.S. not later than April 15.

— Calendar of events today include:

Friday, Oct. 13:

Federal Reserve. Philadelphia Fed President Patrick Harker scheduled to speak.
World Bank/IMF meeting events. Atlantic Council virtual discussion with European Commission Executive Vice President Valdis Dombrovskis and European Commissioner for Financial Stability Mairead McGuinness, as part of the 2023 annual meetings of the World Bank and International Monetary Fund.
International issues. Brookings Institution discussion on “Competing visions? American, Chinese, and European perspectives on the future of the international system.”
Multilateral development banks. Center for Global Development virtual discussion on “Strengthening Multilateral Development Banks: The Triple Agenda.”
Economic reports. Import & Export Prices | Consumer Sentiment

Energy reports. ICE weekly Commitments of Traders report for Brent, gasoil | Baker-Hughes Rig Count | CFTC Commitments of Traders | Shell 3Q update | Holiday: Thailand; Argentina.
USDA reports. FAS: Export Sales ERS: Season-Average Price Forecasts | Feed Grains Database | Wheat Data NASS: Peanut Prices

KEY LINKS

Policy Updates