Washington Insider -- Monday

Still More Chinese Trade Policy Concerns

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

USDA Ups FY 2018 Export, Import Forecasts

Forecast U.S. exports for Fiscal Year (FY) 2018 are now seen at the highest level since FY 2014 while agricultural imports are expected at a record mark.

Stronger exports of corn and cotton are factors in the increased value of forecast U.S. agricultural exports of $142.5 billion, up $3 billion from USDA's February outlook. USDA now expects corn exports to total $10.3 billion on larger volumes and higher unit values "as weather-reduced crop prospects in South American improve US export opportunities into the summer," the agency said in its Outlook for U.S. Agricultural Exports. Cotton exports are expected to rise to $6.2 billion, up from $800 million previously on strong foreign demand.

The impact of the China antidumping investigation earlier this year that has now been ended on U.S. sorghum appears to have had an impact. "Sorghum exports are lowered, but unit values are revised higher, reflecting strong foreign demand earlier this year, supported by trade data," USDA said.

China also factors into the soybean export situation. "Soybean prices have risen sharply in response to crop losses in Argentina, but export volumes are down due to slower exports to China, which will bring total soybean exports down $100 million to $21.9 billion," USDA detailed.

Record agricultural imports of $121.5 billion are expected, up $3 billion from the February outlook. "Horticultural products and the livestock, dairy and poultry categories have significant upward adjustments," USDA said, "but higher-projected imports of grains and feed and oilseed products also contributed to the change."

The resulting shifts keep the forecast U.S. ag trade surplus at $21.0 billion, just slightly under the FY 2017 result of $21.3 billion. Exports are seen $2 billion above the FY 2017 mark and imports are expected up $2.4 billion from the FY 2017 mark of $119.1 billion which was a record level.

USDA Restarts Continuous CRP Signup; No General Signup on Tap

USDA will resume allowing continuous Conservation Reserve Program (CRP) signups, opening a signup period from June 4 through August 17. Producers with CRP contracts that are maturing September 30 that that have a contract term of 14 years or less will also be able to enroll for a one-year extension during the same signup period. Those with contracts where a one-year extension would take the contract term beyond 15 years are not eligible. Those not eligible for the one-year extension can offer the ground for continuous signup, but USDA cautions that "if enrollment demand is high, some offers may not be accepted because of the 24-million-acre cap."

USDA has not allowed continuous signups under CRP so far in Fiscal Year (FY) 2018 as it sought to keep CRP acres under the cap of 24 million acres; it did allow signups under the Conservation Reserve Enhancement Program and CRP Grasslands. USDA said that limited priority practices are available for continuous enrollment, including grassed waterways, filter strips, riparian buffers, wetland restoration and others. The limited practice availability and short signup period will help "ensure that landowners with the most sensitive acreage will enroll in the program and avoid unintended competition with new and beginning farmers seeking leases," USDA said in announcing the signup.

Current CRP enrollment is about 22.7 million acres. USDA has not published the level of acres in the CRP since September 2017 when there were 23.43 million acres in the program. There were 2.51 million acres scheduled to expire as of September 30 while the FY 2017 continuous signup resulted in 1.185 million acres to be enrolled in the program with contracts to start October 1, 2017. USDA said it would use updated soil rental rates to make annual payments and would not issue any incentive payments.

Washington Insider: Still More Chinese Trade Policy Confusion

Well, last week Commerce Secretary Wilbur Ross met China’s Liu He in Beijing and reported that “progress was made in agriculture, energy sectors,” Bloomberg reported.

However, that does not appear to have been the last word. On Sunday, Chinese sources said that “all commitments made so far in talks with the U.S. over trade will be withdrawn if President Donald Trump carries out his threat to impose tariffs.”

Bloomberg said that both sides had emphasized progress in last week’s discussions about how to reduce China’s $375 billion goods-trade surplus with the U.S. But, it also said that the President’s revival last week of a plan to slap tariffs on $50 billion of Chinese imports has cast the talks into turmoil.”

“If the U.S. rolls out trade measures including tariffs, all the agreements reached in the negotiations won’t take effect,” state-run Xinhua News Agency reported Sunday, citing a statement from the Chinese team that met with a U.S. delegation led by Commerce Secretary Ross.

The Xinhua report came after Ross met Sunday with Chinese Vice Premier Liu He for talks that Ross called “friendly and frank, and covered some useful topics about specific export items.” At the same time as negotiators focus on technical steps to reduce the U.S. deficit, Trump’s swerve has “rattled Beijing as it raises the possibility that any agreement made could be simply torn up by the president.”

“China is concerned over the U.S.’s unpredictability, especially after Trump turned an about-face on tariffs,” said Gai Xinzhe, an analyst at Bank of China’s finance institute in Beijing. “Trump needs to give out more goodwill in exchange for really productive negotiations. Bluff, threat, and willful moves might work in business bargaining, but they could backfire in talks among nations.”

A commentary by state-run China Radio International said that the government’s stance on canceling any agreements reached in the talks if Trump’s tariffs go into effect was a “red line.”

The U.S. delegation, which was in Beijing for two days, included energy and agriculture experts, reflecting the U.S. desire to increase exports of natural gas and food. On the Chinese side, officials including Commerce Minister Zhong Shan, Central Bank Governor Yi Gang, Vice Agricultural Minister Han Jun, and Li Fanrong, vice minister of national energy administration, accompanied Liu in the talks, according to a media pool report.

During his visit, Ross has been looking to build on a vague joint statement released May 19, after negotiations in Washington. China pledged then to take steps to “substantially” reduce the U.S. trade deficit, including by buying more American farm goods and energy, though it didn’t commit to a dollar amount.

In addition to tariffs, Ross is under pressure from U.S. lawmakers to stay tough on Chinese telecom-equipment maker ZTE Corp. China pressed the U.S. to give ZTE a break after the Commerce Department cut off the company from U.S. suppliers to punish it for allegedly lying to American officials in a sanctions case.

Last month, Trump said he would allow ZTE to stay in business once it pays a $1.3 billion fine, shakes up its management, and provides “high-level security guarantees.” Republican Senator Marco Rubio, R., Fla., and other lawmakers from both parties have questioned Trump’s leniency toward ZTE, arguing the company represents a security risk.

Bloomberg noted that the stakes are especially high for the global economy, which is cruising at its fastest pace of growth in seven years — but noted that the International Monetary Fund has warned that a trade war could threaten the recovery and that policy makers are contending with a growing list of geopolitical risks, from a political crisis in Italy to the rocky progress of peace talks with North Korea.

Against that background, China is expressing increasing frustration with the tactics deployed by the White House.

“The U.S. can’t have its cake and eat it too,” an editorial published by the state-run Global Times on Sunday said. The U.S. “needs to choose between tariffs and exporting more to China.”

While the trade policy debates with China and with NAFTA partners have become increasingly difficult to evaluate, a new level of criticism is being heard among stakeholders — complaints that the lack of transparency throughout the recent trade negotiations has been damaging to the policies themselves. The recent approach to important trade policies also is seen as causing confusion in light of the approaching talks with North Korea — as well as the approaching fall elections.

As the Congress continues to struggle with its need to reauthorize the expiring farm bill, producers are finding themselves on the front lines of increasingly critical policy debates of nationwide importance which should be watched closely as they emerge, Washington Insider believes.

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