Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.
Vilsack Discusses China Phase One Progress
While China is purchasing large amounts of many US ag commodities, USDA Secretary Tom Vilsack said Friday (March 26) he thinks they could “be doing more” in some areas to meet their commitments under the US-China Phase One agreement.
For corn, soybeans and many other commodities, Vilsack said China is “purchasing fairly significant amounts to the point where we're probably back to where we were pre-tariff and pre-pandemic.”
However, China could ramp up imports of biofuels, distiller's dried grains with solubles (DDGS) and dairy, Vilsack said during an appearance at the National Press Club. Beyond those products, he said “there's still work to be done on the relationship,” noting overall US ag market share in China “has suffered as a result of the trade and tariff war.”
Asked whether there was the need for any additional trade aid for farmers, Vilsack said no, noting high commodity prices and the rapid clip of purchases by China.
EIA Details New Biofuel Information To Be Released
The US Energy Information Administration (EIA) said it will start publishing additional biofuels data in a monthly report to account for the increase in biofuel production.
The report to be released March 31 will include expanded information on production capacity for biodiesel, fuel alcohol and renewable fuels along with expanded information on feedstocks used to produce those biofuels. Reuters previously reported the change was coming and could possibly be added to the WASDE report in May, the first 2021/22 forecasts from USDA.
Washington Insider: US Manufacturing Momentum Grows
Bloomberg is reporting this week that American manufacturing “continues to pour on the momentum” as the first quarter draws to a close, despite some supply-chain woes and rising materials costs that are inflaming the inflation debate.
Freshly released March data show that an increasing number of factory purchasing managers are reporting faster expansion, Bloomberg says. The Federal Reserve Bank of Philadelphia's index of general business activity soared to an almost five-decade high, while the IHS Markit's preliminary gauge of U.S. manufacturing was the second-strongest in data back to 2007.
Orders continue to grow as the economy gathers steam, while inventories of finished goods and stockpiles of materials remain lean, a combination that should fuel even quicker production growth in the months ahead, Bloomberg says. Yet, challenges remain.
Producers are struggling with some bottlenecks in the form of shipping and port delays as importers battle over a limited number of available containers. Those strains existed even before a ship stuck in the Suez Canal last week raised more questions about the potential for future delays or price increases.
What's more, steady demand and shortages of supplies needed to manufacture goods have sparked price pressures for inputs.
In February, the share of manufacturers who signaled slower delivery times approached 50%, according to Institute for Supply Management data. Excluding the period that followed the nation's shutdown to control the spread of COVID-19, that's the largest share since oil imports from Iran were disrupted in 1979.
Meantime, producers are paying up for everything from copper and aluminum to crude and iron ore. The latest Philadelphia, New York and Richmond Fed surveys highlight growing materials inflation that risks filtering through to higher prices of finished goods for households and businesses.
Fed Chair Jerome Powell told lawmakers this week, however, that he views the current supply-chain bottleneck pressures on input prices as temporary. “We have been living in a world of strong disinflationary pressures, around the world really, for a quarter of a century,” Powell told the House Financial Services Committee on Tuesday. “We don't think a one-time surge in spending leading to temporary price increases would disrupt that.”
New York Fed President John Williams, in a Wednesday event, noted that “we're still about 9 million jobs lower than we were a year ago in the U.S. economy, so I think that that's going to keep inflation pressures pretty low for some time.”
Recent manufacturing figures for March support Powell's forecast. While regional Fed prices received indexes have been increasing, they're not keeping pace with prices paid.
The Richmond Fed's latest manufacturing survey showed the region's manufacturers aren't expecting much more room to raise prices on their products.
Respondents said they expected prices received to rise an annualized 3.57% six months from now. That compares with the 3.52% increase they're currently receiving, the smallest difference in seven months.
A March survey from the Kansas City Fed showed that while nearly half of manufacturing firms were able to pass through a majority of materials price increases, just 8% said they could fully pass them through.
In the meantime, the press took a dark view of the impacts of last week's accidental blockage of the Suez Canal. NYT said the event “called into question the global reliance on globalization.”
Of course, the ship involved is not just any vessel, it is one of the world's largest container ships, with space for 20,000 metal boxes. And the Suez Canal is not just any waterway. It is a vital channel linking the factories of Asia to the affluent customers of Europe, as well as a major conduit for oil.
The fact that one mishap could sow fresh chaos from Los Angeles to Rotterdam to Shanghai underscored the extent to which modern commerce has come to revolve around truly global supply chains—and their fairly recent dependence on “so-called just-in-time manufacturing.”
Some experts have warned for years that short-term shareholder interests have eclipsed prudent management in prompting companies to skimp on stockpiling goods. The report cited Ian Goldin, a professor of globalization at Oxford University who said, no one could predict a ship going aground in the middle of the canal, just like no one predicted where the pandemic would come from. Just like we can't predict the next cyberattack, or the next financial crisis, but we know it's going to happen.” The canal's blockage, he says, affects roughly one-tenth of the world's trade—and has intensified the strains on the shipping industry, which has been “overwhelmed by the pandemic and its reordering of world trade.”
If the Suez remains clogged for more than a few days, the stakes likely will rise drastically. Ships now stuck in the canal will find it difficult to turn around and pursue other routes given the narrowness of the channel.
Those now en route to the Suez may opt to head south and navigate around Africa, adding weeks to their journeys and burning additional fuel — a cost ultimately borne by consumers. And, whenever ships again move through the canal, they are likely to arrive at busy ports all at once, forcing many to wait before they can unload—an additional delay.
“This could make a really bad crisis even worse,” said Alan Murphy, the founder of Sea-Intelligence.
So, there is a lot of uncertainty regarding the implications of this accident—and what it might mean—and its implications for future US inflation. These are developments producers should watch very closely as they emerge, Washington Insider believes.
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