Washington Insider-- Friday

Fed Survey Warns of Tepid Recovery

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

Livestock Organic Equivalence Agreement Takes Effect for US, Japan

The existing U.S.-Japan organic equivalence agreement was expanded to cover livestock products, with the changes taking effect Thursday.

The new agreement will reduce costs and streamline the process for businesses across the organic livestock supply chain, requiring them to secure just one organic certification instead of two for products exported to Japan, the Office of the US Trade Representative (USTR) said.

Technical experts from the U.S. and Japan “conducted thorough on-site audits to ensure that the regulations, quality control measures, certification requirements and labeling practices are compatible” leading up to the agreement, USTR said.

With the updated agreement in place, U.S. organic livestock products may exported to Japan if they secure certification under either Japan Agricultural Standards (JAS) or from USDA. An organic equivalence for plant-based products has been in place between the U.S. and Japan since 2014.

EPA Now Considering 58 Gap-Year SRE Requests

At least 58 retroactive small refinery exemption (SRE) requests have been received by the Environmental Protection Agency (EPA), according to the latest update from the agency.

The push by refiners for the retroactive “gap-year” exemptions stems from a 10th Circuit Court ruling that held they are only eligible for future SREs, hardship exemptions from Renewable Fuel Standard (RFS) blending requirements, if they have maintained a continuous string of the waivers since 2011. The previous update on June 18 listed 52 requests for compliance years 2011 through 2018. Separately, refiners have submitted another 27 waiver applications for the 2019 compliance year and one for 2020.

Biofuel proponents including the Renewable Fuels Association (RFA) and National Biodiesel Board (NBB) have criticized the gap-year requests as an effort to circumvent the 10th Circuit ruling and have argued EPA policy and the court decision compel the agency to reject the petitions.

Controversy over the gap-year requests has led lawmakers to hold up the Senate confirmation of an EPA official and delayed EPA's proposal setting RFS 2021 blending volumes for biofuel and 2022 mandates for biodiesel.

Washington Insider: Fed Survey Warns of Tepid Recovery

This week, Bloomberg commented on a federal survey that shows a tepid recovery by early July. “Economic activity increased in almost all Districts,” it says, but remained “well below where it was prior to the COVID-19 pandemic.”

The report was based on its Beige Book survey released Wednesday in Washington. “Outlooks remained highly uncertain, as contacts grappled with how long the COVID-19 pandemic would continue and the magnitude of its economic implications.”

The report, prepared by the Chicago Fed, was based on anecdotal information collected by the 12 regional reserve banks on or before July 6.

Although economic activity may have picked up at the end of May and beginning of June as businesses reopened, a resurgence in coronavirus cases in many states is driving fears of a new slowdown. California has again imposed lockdown measures, and Texas and Florida have curbed certain activity. Businesses in the Fed's survey reported uncertainty about future demand amid the resurgence.

Fed Governor Lael Brainard pointed to a highly uncertain economic outlook on Tuesday, saying the central bank should turn its focus to providing accommodative monetary policy to support a full recovery. Officials held interest rates near zero at their meeting last month and signaled in their quarterly forecast that they expect to keep them there through 2022.

“A late June resurgence in COVID-19 cases slowed or reversed the reopening process, jeopardizing further recovery in consumer spending,” the San Francisco Fed noted.

The words “uncertain” or “uncertainty” appeared 16 times in the report, Bloomberg noted.

“In comparison with our previous report, the outlook among contacts is slightly more pessimistic while also much more uncertain,” the St. Louis Fed said. Activity in most sectors remained subdued, and even in industries that saw an increase in demand, such as manufacturing, the jump up was from a very low level, or was a meager one. Energy activity continued to fall on the back of low demand and oversupply.

Employers across the Fed system reported new hirings, but levels remained subdued. Businesses cited both renewed layoffs and difficulty in bringing back workers amid safety concerns, a lack of childcare and higher-than-usual unemployment benefits. The Philadelphia Fed reported net employment gains “masked a small, steady stream of permanent layoffs.”

Several Fed districts reported evidence of ongoing pay cuts, reduced hours and unpaid leave. Cuts to earnings, coupled with the already-high unemployment rate, could further weigh on consumer demand and damp down inflation, which is already well below the Fed's 2% target. Consumers make up 70% of the U.S. economy.

Prices were little changed across the 12 districts, though some reported higher costs for food and beverages. Supply chain issues have driven up the cost of food and are leading to rising food insecurity. Grocery prices rose 5.6% in June from a year ago, the largest increase since 2011, Labor Department figures showed Tuesday.

Also this week, POLITICO is reporting that “as lawmakers return to work next week to debate a new stimulus package with a price tag in the trillions, the summer COVID-19 sequel is playing a lot like the spring original. The urgency this time isn't so much to cushion the economic blow, but to keep the nascent economic recovery on track.” And, the report notes that “worrying data points are accumulating.”

Senate Majority Leader Mitch McConnell has said a new package will come together in the next three weeks. With the new signs of economic trouble, Republicans have signaled they may be willing to expand that package to include more federal jobless aid.

McConnell said Monday that the next package would have a "continued emphasis on jobs, meaning unemployment insurance for those who are unable to get back to work."

Mark Zandi, chief economist of Moody's Analytics, predicts job growth will be weaker in July than in June and May. “The economy took a huge body blow and it's still reeling,” he said in an interview. “And if the virus continues to intensify and we don't get some support from Congress and the administration soon, we will go back into recession,” Zandi warned.

So, we will see. The most recent new health uncertainties are significantly affecting the outlook—trends that producers should watch especially closely as the season progresses, Washington Insider believes.

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