Washington Insider-- Monday
Global Economic Pressure Growing
Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.
DOJ Argues Against Supreme Court Taking Up RFS Case
The issue of small refinery exemptions (SREs) under the Renewable Fuel Standard (RFS) continues to percolate, with the Department of Justice (DOJ) weighing in on whether the Supreme Court should review the 10th Circuit Court of Appeals decision that found three SREs granted were invalid as they were not continuations of prior SREs.
DOJ opted not to appeal the 10th Circuit ruling, but the two companies that were affected by the decision are pursuing an appeal. “The decision below does not meet this Court's ordinary criteria for granting certiorari,” DOJ said. “The government agrees with petitioners that the question presented has important implications for the renewable fuel standard program. This case, however, would be an unsuitable vehicle for addressing the question because a decision favorable to petitioners would not change the judgment.”
DOJ also argued that other “pending proceedings provide an additional reason to deny the petition in this case.” The court case could be one factor in why EPA has yet to decide on the 17 gap year SREs still pending and on 41 SREs for the 2019 and 202 compliance years combined.
USDA Publishes Final Rule On Undue Preference In Packer Relationships With Growers
USDA has completed its rulemaking on an “undue preference” rule related to meat packers' business relationship with the livestock growers. The final rule, published in Friday's Federal Register, sets criteria for USDA to consider when determining whether an undue or unreasonable preference or advantage has been given to a poultry or livestock grower by any meatpacker, contractor or dealer as described under Section 202(b) of the Packers and Stockyards Act (P&SA).
The rule will become effective 30 days from Friday.
Under the P&SA, meatpackers, contractors or live poultry dealers are barred from making or giving “any undue or unreasonable preference or advantage to any particular person or locality in any respect.” USDA is responsible for determining whether actions constitute a violation of the P&SA. The final rule, which includes some changes from the proposed rule published in January, defines unfair treatment of producers as giving any preference or advantage that cannot be justified based on cost savings, meeting a competitor's prices, matching a competitor's terms or as a reasonable business decision.
Besides those four criteria, the rule allows the USDA Secretary to “take other factors into consideration as appropriate on a case-by-case basis.” Only modest changes to the proposed rule were made in the final version. The issue has been a long-running one dating back to the Obama administration.
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Bloomberg is reporting this weekend that the “Fed's Nightmare Year isn't over yet” as U.S. job numbers “soured somewhat.” As a result, the U.S. Federal Reserve will start confronting the case for more stimulus to support the U.S. economy on Wednesday as it holds its final policy meeting of a truly momentous year.
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The central bank in Washington is one of at least 16 monetary institutions worldwide scheduled for important decisions this week – as the Fed “now has the specter of a marked slowdown in the labor-market's rebound to consider after the latest jobs data for November.”
The recent surge in U.S. COVID-19 cases is hitting workers and curbing the broader economic recovery, Bloomberg emphasizes. Resumed stay-at-home advisories in some of the biggest U.S. cities, such as Los Angeles and Chicago are seen as blows to businesses still reeling from lockdowns imposed at the start of the pandemic.
That may push the Federal Open Market Committee to debate changes to its bond-buying program or alter its guidance for future purchases, Bloomberg notes. Officials will also update quarterly forecasts for economic growth, unemployment, inflation and for their target interest rate, which is expected to stay near zero through 2023.
These developments also could bring new focus on the U.S. Treasury Department's request that the Fed wind down several emergency lending programs—and even highlight those actions as another reason to consider providing more support to the economy in other forms. Without some of those facilities, officials may view growth risks to be worse, especially as Congress wrangles over more government aid to people and companies.
“The confluence of the trajectory of the virus, the possible shape of a Biden stimulus package (if a passable version arises) and the behavior of financial markets – particularly treasury yields – could create the need for a QE adjustment in the first quarter of 2021. Recent guidance from Fed officials prior to the communications blackout period suggests they are content with policy for now, but by no means complacent,” the report said.
In a scan of global economic policy trends, Bloomberg says that the Bank of England could be forced to expand its stimulus if a post-Brexit trade deal still eludes the UK while central banks in Japan, Russia and Switzerland will also face a number of other decisions. Flash PMIs in Japan, Europe and the U.S. will also provide an early glimpse of how economies weathered December.
A Flash Manufacturing PMI is an estimate of manufacturing for a country, based on about 85% to 90% of total Purchasing Managers' Index survey responses each month. Any reading above 50 indicates improving conditions, while readings below 50 indicate the opposite, Bloomberg said.
Ahead of the Fed decision, policy makers will get November data on industrial production and retail sales. Thursday sees jobless claims, which surged to a three-month high last week, suggesting that widening business shutdowns to curb the pandemic are spurring fresh job losses.
Bloomberg emphasizes a collapse in post-Brexit trade talks could turn the BOE's Thursday decision from a policy non-event to a blockbuster must-watch. Some economists expect the central bank's first response to be accelerating the pace of quantitative easing before considering other steps.
Bank of Russia Governor Elvira Nabiullina says the country is nearing the end of its monetary easing cycle after cutting interest rates to a record low. Russia has kept the market divided on whether it will cut again or hold on Friday, against the backdrop of rising inflation and remarks from Governor Elvira Nabiullina suggesting caution should prevail. Policy makers in the Czech Republic and Hungary also deliver monetary decisions next week.
China's data dump on Tuesday is seen as particularly important, and Bloomberg expects that it likely will provide more evidence of the economy's strong rebound, with industrial production, retail sales and investment expected to have strengthened in November.
In addition, the Bank of Japan will issue its closely watched Tankan business survey on Monday amid growing gloom among smaller firms. On Friday, the BOJ announces its policy decision, with rates likely to stay unchanged despite CPI data set to show a steeper fall in prices. The BOJ is also likely to extend special pandemic support measures for businesses.
Three other Asian central banks – in Indonesia, the Philippines and Taiwan – also announce rate decisions, with economists predicting no change. In India, data at the start of the week will show inflation remains elevated, well above the central bank's target band.
On Tuesday, Brazil's central bank posts the minutes of last week's meeting where it kept its key rate at a record-low 2%. Many observers expected some shift in language given a recent rise in prices – but were still surprised by the post-decision statement's hawkish tone.
Mexico's ever-cautious central bank has signaled it will hold at 4.25% on Thursday and adopt a data-dependent stance with inflation again in its target range.
Argentina, which was facing a third year of recession in 2020 even before the pandemic hit, will release inflation, third-quarter output and unemployment. GDP is set to show a jump from the April-June period – but price readings are likely to remain elevated and roughly 20% of registered workers have dropped out of the market.
So, we will see. Amid the intense anxiety surrounding the final steps in the U.S. election, much of the world's economy is adding new worries of its own. Governments are widely engaged in intense policy fights large and small—clearly interventions and trends that producers should watch closely as they emerge, Washington Insider believes.
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Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.
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