Washington Insider-- Friday

EU Trade Chief Departs

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

USDA Cuts FY 2020 US Ag Export Forecast, Sees Big Boost For FY 2021

U.S. ag exports to China in Fiscal Year FY) 2021 are forecast to rise to $18.5 billion, up from $14 billion in FY 2020, a forecast that USDA raised by $1 billion from its prior outlook.

China factors into increases for several commodities, including sorghum, wheat and soybeans, according to USDA.

Note that the FY basis (October/September) is not on the same as the Phase One agreement — a calendar year. U.S. ag exports to China in so far in FY 2020 (through June) were at $11.113 billion, USDA noted, up sharply from $6.753 billion at that point in FY 2019.

Overall U.S. ag exports in FY 2021 are forecast at $140.5 billion against imports of what would be a new record of $136 billion, leaving a trade surplus of $4.5 billion.

As expected, USDA lowered its outlook for FY 2020 U.S. ag exports, trimming it by $1.5 billion to $135 billion, while raising imports by $1.5 billion to a new record of $131.7 billion.

That would leave a trade surplus of just $3.3 billion, the smallest since it was $2.31 billion in FY 1972. The trade levels were considerably different in FY 1972 — ag exports totaled $8.24 billion against imports of $5.94 billion.

The updated FY 2020 forecast suggests USDA expects exports of $32.8 billion over the July-September period with imports of $31.2 billion.

Pressure Building On Administration To Take Action Against Canada Over Dairy

A group of 25 senators have become the latest to press the Trump administration to take action against Canada under enforcement provisions in the U.S.-Mexico-Canada Agreement (USMCA) over dairy.

The latest letter to U.S. Trade Representative Robert Lighthizer and USDA Secretary Sonny Perdue sounds familiar themes as raised by 104 House members in a prior letter and by the U.S. dairy industry almost immediately after USMCA took effect in July.

Their main focus continues to be the tariff-rate quotas (TRQs) on dairy announced by Canada, which “appear to run counter to numerous USMCA provisions,” the senators said in the latest letter. Plus, they called on the administration to make sure that Canada eliminates its Class 6 and 7 dairy pricing policy.

But they also are pointing at Mexico, noting the country needs to be prodded on enforcement of side letters pertaining to geographical indicators.


Washington Insider: EU Trade Chief Departs

The EU likely will struggle to find a candidate to match the stature of departing trade chief Phil Hogan who resigned late Wednesday amid a public outcry over attending an Aug. 19 dinner in his native Ireland “that broke the country's rules to fight the coronavirus," Bloomberg reports.

Known as “Big Phil” in Brussels for his 6-foot-5-inch frame, he was also a dominant policy figure in nine months as EU trade commissioner.

In a 27-member club where top jobs like his are jockeyed for and filled based on a Byzantine combination of nationality, party affiliation and experience, Hogan was proof that such a system doesn't always come at the expense of competence, Bloomberg said.

In fact, Hogan's five-year stint as EU agriculture commissioner from 2014 to 2019 was reason enough for European Commission President Ursula von der Leyen to hand him the trade portfolio when she took office in December. As farm chief, Hogan had helped the bloc forge landmark tariff-cutting agreements with Japan and the Mercosur group of Argentina, Brazil, Paraguay and Uruguay.

In political terms, Hogan also fit the bill for the broader trade portfolio because he was the first member of Europe's Christian Democrats to take on the job (other than on a caretaker basis) in 20 years, Bloomberg said. Liberals from Sweden and Belgium and Socialists from the UK and France held the post in the interim.

The Christian Democrats are the EU's biggest political family and include German Chancellor Angela Merkel. At a time of heightened global commercial tensions triggered by everything from greater U.S. protectionism to pandemic-induced shocks to supply chains, Hogan bolstered the bloc's unity and weight in trade matters.

Last week he proved icy Brussels-Washington trade relations could start to thaw with officials including U.S. Trade Representative Robert Lighthizer, whose middle name is Emmet — after the Irish patriot of the late 18th and early 19th centuries called Robert Emmet.

Hogan and Lighthizer on Friday announced a surprise deal to eliminate EU tariffs on goods including American lobster, barely a blip in the overall trade relationship in dollar terms but valuable enough politically for President Trump to “sound like a winner.” It was a long way from late 2019, when Hogan irked U.S. officials by accusing them of protectionism and criticizing Trump's “America First” trade doctrine.

Now, von der Leyen has her work cut out finding a replacement for a key member of her team. While the Irish government is responsible for nominating a new commission appointee from the country, von der Leyen will decide on the person for the trade portfolio.

Bloomberg also notes that von der Leyden could opt to give the trade role to one of the remaining 25 commissioners now handling other policy matters—but, at the moment, there's no obvious pick in that group. And, Bloomberg thinks that whoever gets the job will face serious challenges ranging from the EU's post-Brexit ties with the UK and China's commercial rise to a high-profile dispute with the U.S. over aircraft subsidies and deadlock at the World Trade Organization. So von der Leyen can't afford to pick unwisely.

At the same time the EU is searching for a replacement trade manager, the U.S. is facing also faces head winds in its efforts to achieve target levels of sales of farm products to China over the coming two years. “That's unlikely to happen, if you believe the USDA forecasts,” Bloomberg says.

U.S. farm product exports to China are expected at $18.5 billion in Fiscal Year (FY) 2021 that starts October 1, although they are expected to exceed the $14 billion reported for the prior 12 months, USDA reported on Wednesday, up $1 billion from their prior forecast. While the periods don't quite align with the annual trade deal targets, the forecasts point to a significant shortfall.

China pledged to buy $36.5 billion in U.S. agricultural goods in 2020 and $43.5 billion the following year, figures many traders and analysts have long considered ambitious. USDA's recent estimates indicate that meeting the targets for both years would require enormous purchases in the fourth quarters.

Chinese purchases have fallen behind partly because the coronavirus hurt demand and disrupted logistical operations including the functioning of ports in the Asian nation. Shipments in the first half of the year hit only 20% of the pledge, USDA data showed.

Still, the administration is touting a rosy outlook, especially after China made its biggest-ever purchase of U.S. corn in July, with cargoes set to arrive at Chinese ports in coming months.

China “got off to a slow start but boy, has the momentum picked up,” Ken Isley, administrator of USDA's Foreign Agricultural Service, said at a U.S. soybean industry conference Tuesday. “The pace of purchases is really rolling right now.”

“It's going to be difficult for them to hit that 2020 number, but we expect them to attempt to do it with very good faith,” observers said.

So, we will see. Clearly a strong U.S. export performance in China will be an important political target and certainly one producers should watch closely as the season advances, Washington Insider believes.

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