U.S./China Trade/Geopolitical/Strategic War Ramps Up

News/Markets/Policy Updates: Dec. 4, 2024

— Equities today: Asian and European stock markets were mixed overnight. In Asia, Japan +0.1%. Hong Kong flat. China -0.4%. India +0.1%. In Europe, at midday, London -0.3%. Paris +0.4%. Frankfurt +1%. U.S. stock indexes are pointed toward mixed openings. Federal Reserve Chairman Jerome Powell will be one of the speakers today at DealBook Summit 2024, beginning at 1:40 p.m. Eastern time. One question he may be asked: How will tariffs and new immigration policy affect the Fed’s mission to bring down inflation? Futures traders put the probability of a quarter-point rate cut this month at nearly 73%, according to the CME’s FedWatch tool. That is up from 59% just a week ago. Another cut would be the third consecutive one and would lower the Fed’s benchmark rate by a full percentage point for the year.

U.S. equities yesterday: Tech stocks again propelled the Nasdaq and S&P 500 to record finishes while the Dow declined. The Dow was down 76.47 points, 0.17%, at 44,705.53. The Nasdaq was up 76.96 points, 0.40%, at 19,480.91. the S&P 500 rose 2.73 points, 0.05%, at 6,049.88.

— Ag markets today: Corn, soybeans and wheat faced price pressure during the overnight sessions. As of 7:30 a.m. ET, corn futures were trading 1 to 2 cents lower, soybeans were 7 to 8 cents lower and wheat futures were 2 to 4 cents lower. The U.S. dollar index was more than 150 points higher, and front-month crude oil futures were anchored near unchanged.

Wholesale beef prices dropped $2.18 to $310.83 for Choice and $1.67 to $275.33 for Select on Tuesday. Spot movement jumped to 154 loads amid the sharp price declines, signaling strong underlying retailer demand as they acquire supplies for year-end holiday features.

The CME lean hog index is down another 30 cents to $84.06 as of Dec. 2. The index has declined each day but one since Nov. 6 but remains 22 cents above the October low. The pork cutout fell $3.05 on Tuesday to $89.61, pressured mostly by a $14.59 plunge in primal belly prices, though hams, ribs and butts were also lower.

— Agriculture markets yesterday:
• Corn: March corn futures fell 1/4 cent to $4.31 1/4, nearer the session low.
• Soy complex: January soybeans rose 6 1/2 cents to $9.91 3/4, while January soymeal rose $2.50 to $290.40, each forging near mid-range closes. January soyoil rallied 72 points to 42.12 cents.
• Wheat: March SRW futures settled 1/4 cent higher to $5.47 1/2 but settled nearer session lows. March HRW futures climbed 1 1/4 cent to $5.41 3/4. March HRS futures rose 2 1/4 cents to $5.90.
• Cotton: March cotton fell 22 points to 71.27 cents, ending the session above the 20-day moving average.
• Cattle: February live cattle futures climbed $1.15 to $189.075 and settled nearer session highs. January feeder cattle futures surged $2.45 to $259.30 and closed near session highs.
• Hogs: February lean hogs fell 10 cents to $87.85 and near the daily low.

— OECD economic outlook: Steady growth amid trade tensions. The OECD projects steady global GDP growth of 3.2% in 2024, rising slightly to 3.3% in 2025 and 2026. This positive outlook is driven by lower inflation, continued job creation, expected interest rate cuts, and rebounding trade volumes. However, concerns over trade tensions and protectionist policies could dampen these prospects. Country-specific highlights:

United States: Revised growth forecast of 2.8% in 2024, tapering to 2.4% in 2025 and 2.1% in 2026.
China: Growth expected to moderate from 4.9% in 2024 to 4.4% by 2026, despite easing measures.
Eurozone: Projected improvement from 0.8% growth in 2024 to 1.5% by 2026, supported by easing monetary policies.
Japan: After a contraction of 0.3% in 2024, a rebound to 1.5% growth in 2025 is forecast, before moderating to 0.6% in 2026.

Trade tensions and economic risks. President-elect Donald Trump’s proposed tariffs — 25% on imports from Canada and Mexico and an additional 10% on Chinese imports — raise concerns about global trade disruptions. These measures could:
• Reduce U.S. GDP by 0.4%.
• Lead to job losses of approximately 344,900.
• Increase consumer prices, particularly in groceries and automobiles.
• Spark retaliatory measures, exacerbating global economic uncertainty.

— Fed’s December rate cut remains uncertain: Mary Daly. Federal Reserve Bank of San Francisco President Mary Daly indicated that a December FOMC interest rate cut is uncertain but remains under consideration. Speaking to Fox Business, Daly emphasized the need for ongoing policy adjustments to support the economy, though she acknowledged that the timing of further cuts will be debated at the upcoming Federal Open Market Committee (FOMC) meeting on Dec. 17-18. While Daly’s stance aligns with other policymakers advocating gradual rate reductions, she stressed that monetary policy remains restrictive to curb inflation. Daly noted progress toward balancing supply and demand and achieving inflation targets but warned against hasty moves, suggesting the neutral rate may now hover closer to 3%. Daly is a voter this year on the rate-setting FOMC.

— Eurozone business activity contracts in November. Business activity in the Eurozone slowed in November, with S&P Global’s purchasing-managers index dropping to 48.3 from 50 in October, signaling contraction. The services sector experienced its first output decline since January, while major economies like Germany, France, and Italy also registered downturns.

Market perspectives:

— Outside markets: The U.S. dollar index was higher, with the euro and yen weaker against the greenback. The yield on the 10-year U.S. Treasury note rose, trading around 4.27%, with a mixed-to-positive tone in global government bond yields. Crude oil futures were higher, with U.S. crude around $70.05 per barrel and Brent around $73.80 per barrel. Gold and silver futures were down, with gold around $2,660 per troy ounce and silver around $31.16 per troy ounce.

— USDA daily export sale:
• 30,000 MT soybean oil to South Korea, 2024-2025 marketing year

— Ag trade update: Thailand tendered to buy 120,000 MT of optional origin feed wheat. Jordan tendered to buy up to 120,000 MT of optional origin milling wheat. Turkey made no sales in its tender to sell 100,000 MT of durum wheat.

— NWS outlook: Heavy snow for the Upper Peninsula of Michigan and the northern Lower Peninsula on Wednesday... ...Heavy lake-enhanced snow downwind from Lakes Erie and Ontario on Wednesday and Thursday; Heavy snow over parts of Northern New England; light to moderate snow over parts of the Central Appalachians on Wednesday... ...Temperatures will be 10 to 15 degrees below average over parts of the Mid-Atlantic and the Southeast.

(NWS)

Items in Pro Farmer’s First Thing Today include:
• Grains weaker overnight
• Wholesale beef prices drop but movement increases
• Cash hog index, pork cutout decline

— Congress aims to extend government funding with CR deal. House and Senate leaders are working toward a continuing resolution (CR) to prevent a government shutdown and extend funding until late March 2025. Speaker Mike Johnson (R-La.) expressed optimism that appropriators would finalize fiscal year (FY) 2025 spending bills well before the proposed deadline. The CR, expected to include disaster aid and a one-year farm bill extension, aims for agreement this week, as government funding expires on Dec. 20.

— Thune sets aggressive agenda for first 100 days of GOP Senate. Incoming Senate Majority Leader John Thune (R-S.D.) aims to pass a sweeping reconciliation package within the first 30 days of Donald Trump’s presidency, focusing on border security, defense, and energy. At a GOP retreat, Thune outlined his plan to separate these policy items from a later package extending Trump-era tax cuts set to expire in 2025. Thune cautioned Republicans about the challenges of adhering to reconciliation rules and warned of longer Senate work weeks, including Friday voting, to counter potential Democratic delays on nominations and legislation. Immediate priorities include passing a government funding bill, defense authorization, and disaster relief by Dec. 20.

Of note: Trump briefly addressed the meeting via a phone call, underscoring the GOP’s focus on 2025’s legislative goals. Latest word is that there could be two budget reconciliation packages in 2025. Some House Republicans argue that tackling a border-related bill first sweetens the pot for conservatives who are expected to reject the price tag of extending the 2017 Trump tax cuts. Still others see merit to quickly moving a clean extension of those cuts and leaving the rest of the year to hash out a broader tax bill.

— Graves granted waiver for T&I Committee chair bid. Rep. Sam Graves (R-Mo.) received a waiver from House Republicans on Tuesday, enabling him to seek another term as chair of the House Transportation and Infrastructure Committee. Despite term limits, the GOP Steering Committee’s decision allows Graves, who previously served two terms as ranking member before becoming chair, to run again for the position in the 119th Congress. Rep. Rick Crawford (R-Ark.), who declared his candidacy earlier, plans to challenge Graves regardless of the waiver.

— Senate Democrats restructure leadership amid GOP Senate takeover. In a closed-door election Tuesday, Senate Democrats elected new leaders, elevating Sen. Amy Klobuchar (D-Minn.) to the No. 3 position as chair of the Steering and Policy Committee, replacing retiring Sen. Debbie Stabenow (D-Mich.). Sen. Cory Booker (D-N.J.) assumed a newly created No. 4 role as chair of the Strategic Communications Committee.

Current Senate Majority Leader Chuck Schumer (D-N.Y.) was unanimously re-elected as the Dem’s leader, with Sen. Dick Durbin (D-Ill.) continuing as party whip. Schumer emphasized a bipartisan approach, despite Democrats losing their Senate majority after Republican gains in Montana, Ohio, Pennsylvania, and West Virginia.

Klobuchar highlighted Democratic wins in key states like Arizona and Michigan, attributing them to Schumer’s efforts, and expressed optimism about connecting with voters nationwide. Booker pledged to focus on advancing the party’s national agenda.

The revamped leadership also includes Sens. Elizabeth Warren (D-Mass.) and Mark Warner (D-Va.) as co-vice chairs, Tammy Baldwin (D-Wis.) as secretary, and Catherine Cortez Masto (D-Nev.) as vice chair of Outreach. Sen. Bernie Sanders (I-Vt.) will continue as chair of Outreach.

— Bipartisan deal reached on water resources legislation (WRDA). House and Senate lawmakers have struck a deal on the Water Resources Development Act (WRDA), a biennial measure supporting water conservation, development, and navigation projects managed by the Army Corps of Engineers. The agreement follows negotiations between chambers after both passed their versions of the bill. House Transportation and Infrastructure Chair Sam Graves (R-Mo.) confirmed the deal to Bloomberg, marking a rare instance of bipartisan consensus on Capitol Hill. The WRDA typically avoids controversy due to its wide-ranging scope of projects.

— Sen. Boozman voices concern over farm bill extension talks. Efforts to secure an extension of the 2018 Farm Bill have intensified, but Senate Ag Committee Ranking Member John Boozman (R-Ark.) expressed concern about the progress. Talks are “not well,” he said, as lawmakers aim to finalize details before key components expire on Dec. 31. Boozman emphasized the need for enhanced risk management tools and crop insurance provisions, though these have yet to be resolved. Meanwhile, outgoing Senate Ag Committee Chair Debbie Stabenow (D-Mich.) is optimistic, asserting, “We’ll have it done.” The extension is expected to be linked to a short-term spending bill required by Dec. 20.

— Breaking down U.S. tariffs: Trade shifts amid escalating duties. “When it comes to how the U.S. wields tariffs, there is China and then the rest of the world.” – Hannah Miao, WSJ, Dec. 3, 2024 (link). The U.S. has seen significant shifts in trade patterns as tariffs, particularly on China, reshape the landscape. Beginning in 2018 under Trump, the effective tariff rate on Chinese imports soared from 3% to 11%, while duties on imports from all other countries rose modestly. These policies have reduced China’s share of U.S. imports, with increases from other countries such as Vietnam and Mexico. However, disentangling from China remains challenging due to integrated global supply chains. Key developments include:
• Semiconductors: Tariffs on Chinese imports exceeded 20%, with a planned increase to 50% by 2025 under Biden’s directives.
• Furniture: Chinese imports dropped from over 50% to less than a third due to high tariffs (average 18%), prompting diversification.
• Potential Impacts: If Trump’s proposed 2025 tariffs — 25% on Mexican and Canadian imports and 10% across all Chinese goods — are enacted, average tariff rates could climb to historic highs, potentially increasing consumer prices by 0.7% next year.

Bottom line: Amid threats of inflation and trade tensions, further duties, including 100% tariffs on BRICS nations, loom large, signaling more upheaval in global trade dynamics.

(Wall Street Journal )

— Chinese industry associations say U.S. chips ‘no longer safe’ as tensions mount. Chinese companies should be wary of buying U.S. chips as they are “no longer safe” and buy locally instead, four of the country’s top industry associations said in a rare, coordinated response to Washington’s curbs on Chinese chipmakers. The industry association warnings came after the U.S. on Monday launched its third crackdown in three years on China’s semiconductor industry. The Semiconductor Industry Association, a U.S. trade association representing major chipmakers, said, “Coordinated calls in China to limit procurement of U.S. chips are unhelpful, and any claims that American chips are ‘no longer safe or reliable’ are simply inaccurate.”

— USMCA GMO corn dispute decision expected by Dec. 14. Mexico expects a decision by Dec. 14 in the U.S. challenge to its ban on GMO corn imports for food use, according to Mexico Economy Minister Marcelo Ebrard. The case, brought under the U.S.-Mexico-Canada Agreement (USMCA), concerns Mexico’s restriction on white corn imports, which it claims to be self-sufficient in producing. The U.S. argues the policy could disrupt trade and potentially affect GMO yellow corn used for feed. Despite the pending ruling, Mexico may choose to maintain its policy even if the panel rules against it. Ebrard described the USMCA as the “best deal the region ever had.”

— Assessing Trump’s proposed 25% tariff on Mexico and Canada. President-elect Donald Trump’s plan to impose 25% tariffs on imports from Mexico and Canada as a strategy to curb illegal drug trafficking and immigration threatens to disrupt critical trade relationships built under the United States-Mexico-Canada Agreement (USMCA). Joshua P. Meltzer, in a Brookings commentary (link), assesses the tariff threats. While aiming to address fentanyl issues, he writes these tariffs risk significant economic fallout, undermining North American supply chains, raising costs, and jeopardizing millions of U.S. jobs dependent on cross-border trade. Such measures may also erode trust in U.S. trade commitments, particularly as USMCA faces review in 2026, complicating cooperation on global challenges like reducing dependency on China. Although Mexico and Canada’s response remains uncertain, the tariffs’ potential economic and political costs could make them unsustainable, he concludes.

Meltzer’s bottom line: Whether this tariff-first approach will yield progress on fentanyl and immigration remains unclear, but its broader consequences could hinder U.S. strategic goals.

— DOE races to finalize clean energy loans amid potential Trump-Era cuts. The Department of Energy’s (DOE) Loan Programs Office (LPO) is expediting its loan approvals, fearing significant cuts under the incoming Trump administration. On Monday, it announced up to $7.5 billion for Stellantis to build two EV battery plants in Indiana, following $12 billion in clean energy loans unveiled last week. With $41 billion in loans in progress, most may remain incomplete by Jan. 20, risking delays or cancellations under Trump, who may scale back LPO’s authority, leaving $340 billion potentially redirected toward fossil fuel projects, according to DOE insiders.

— OMB extends review of EPA biofuel waiver plan. The Office of Management and Budget (OMB) has scheduled two additional meetings as part of its review of the EPA’s proposed partial waiver of Renewable Fuel Standard (RFS) requirements for cellulosic ethanol. The process now extends into the third week of December, with sessions planned on Dec. 12 with Fuels America and Dec. 17 with the American Biogas Council. A total of seven meetings are slated, underscoring the interest from various stakeholders. The waiver is not expected to lead to significant changes in the RFS requirements.

— FDA and USDA seek input on food date labeling practices to combat waste. FDA and USDA issued a joint Request for Information (RFI) to gather insights on food date labeling, such as “Sell By,” “Use By,” and “Best By,” aiming to address consumer confusion and its contribution to food waste. The RFI seeks data on industry practices, consumer perceptions, and the economic and environmental impacts of date labeling.

Estimates suggest that confusion over labeling contributes to 20% of household food waste, costing the average family of four $1,500 annually. The RFI supports the National Strategy for Reducing Food Loss and Waste, which targets a 50% reduction by 2030.

Stakeholders have 60 days to comment, helping shape future policies or educational campaigns. Further information on how to submit a comment can be found in the Federal Register (link).

— Trump, RFJ Jr., tallow, and health. President-elect Donald Trump’s campaign visit to a Pennsylvania McDonald’s spotlighted the use of beef tallow, a past ingredient in McDonald’s fries. Critics saw the visit as at odds with his “Make America Healthy Again” promise, a slogan introduced after Robert F. Kennedy Jr. joined his campaign. In defense, Kennedy argued on X that Americans should enjoy indulgences without fearing harmful additives, highlighting a balanced approach to health.

Beef tallow is making a comeback, championed for its potential health benefits and versatility in cooking and skincare. Once a staple in kitchens and fast-food chains like McDonald’s, this rendered beef fat was replaced by vegetable oils in the mid-20th century due to health concerns over saturated fats. However, experts now argue that tallow may be healthier than previously believed. Consider:
Nutritional benefits: Tallow is rich in fat-soluble vitamins (A, D, K) and contains conjugated linoleic acid (CLA), which may help prevent certain diseases.
Cooking advantages: With a high smoke point and stable saturated fats, it’s a safer choice for frying compared to seed oils, which oxidize and form harmful compounds.
Health debate: Some experts criticize the vilification of saturated fats, linking modern health issues to processed foods and seed oils instead. Others caution moderation for those with cardiovascular risks.
Cultural spotlight: Renewed interest was sparked by political campaigns and social media, with advocates calling for a return to beef tallow in frying oils.

Beyond cooking, tallow’s emollient properties make it a useful ingredient in skincare. While its resurgence stirs debate, advocates argue it honors traditional practices and reduces waste, aligning with holistic health trends.

— Walmart CEO on food inflation, e-commerce, and future trends. Walmart CEO Doug McMillon projects continued food inflation into 2025, driven by pressures on eggs, dairy, cocoa, and other inputs. Speaking at the 2024 Morgan Stanley Global Consumer and Retail Conference, McMillon expressed optimism about consumer resilience despite climbing prices. He noted that egg and milk prices might stabilize faster than processed foods, which could remain elevated next year.

Walmart’s pricing strategies and supply chain upgrades have bolstered its market position, with strong food unit volume growth and leadership in consumer-packaged goods (CPG) market share. The retailer’s e-commerce business, particularly Walmart Marketplace, continues to grow, achieving double-digit gains for six consecutive quarters.

Looking ahead, McMillon emphasized investments in automation, social commerce, and personalization as key drivers for Walmart’s evolving retail strategy.

— Federal judge overturns a 2020 USDA rule exempting certain GE plants from regulation, impacting biotech oversight and crop approvals. A federal judge in California vacated USDA’s 2020 rule that exempted certain genetically engineered (GE) plants from regulation. This ruling could have significant implications for the approval process of crops engineered with herbicide-resistant traits.

Background. In 2020, USDA finalized a rule known as the SECURE (Sustainable, Ecological, Consistent, Uniform, Responsible, Efficient) rule. This rule aimed to update the USDA’s biotechnology regulations by:
• Exempting certain GE plants from regulatory review if they could be produced through conventional breeding methods.
• Allowing biotech developers to self-determine whether their products qualified for exemption.
• Maintaining non-regulated status for crops developed using gene-editing techniques like CRISPR-Cas9, if they did not pose a plant-pest risk.

Critics of the rule raised several concerns:
• Lack of scientific basis: The exemptions were not supported by scientific evidence showing that these categories of GE plants do not pose risks.
• Reduced oversight: Many GE plants that historically required containment for field trials would no longer be subject to substantive regulation.
• Environmental risks: Without USDA oversight, there was an increased likelihood of GE plants escaping from field trials and potentially entering the food supply before being deemed safe for human consumption.

The ruling could have several significant impacts:
• Delayed approvals: The approval process for crops engineered with herbicide-resistant traits could be significantly slowed down, as they may now require more thorough regulatory review.
• Increased scrutiny: GE plants that were previously exempt may now need to undergo more rigorous environmental, health, and economic impact assessments.
• Potential changes to field trials: The ruling might reinstate stricter containment measures for GE plant field trials.
• Reassessment of gene-edited crops: The status of crops developed using gene-editing techniques may need to be re-evaluated.

WASDE | Crop Production | USDA weekly reports | Crop Progress | Food prices | Farm income | Export Sales weekly | ERP dashboard | California phase-out of gas-powered vehicles | RFS | IRA: Biofuels | IRA: Ag | | Russia/Ukraine war, lessons learned | | SCOTUS on WOTUS | SCOTUS on Prop 12 pork | New farm bill primer | | Gov’t payments to farmers by program | Farmer working capital | USDA Ag Outlook Forum |