Washington Insider -- Monday

Trade and Market Complexity

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

Trump Pulls Back from Declaring China a Currency Manipulator

The U.S. Treasury Department in a report released Friday sharply criticized China’s exchange-rate policies, but stopped short of labeling the country a currency manipulator, as President Donald Trump said he would do while running for office, but signaled last week a pullback from that campaign position.

“China has a long track record of engaging in persistent, large-scale, one-way foreign-exchange intervention,” the Treasury Department said in its semiannual report on foreign exchange policies of major U.S. trade partners. Although Beijing has allowed the yuan to slowly appreciate in recent years and actively fought depreciation recently, its past interventions “imposed significant and long-lasting hardship on American workers and companies,” the Treasury said.

Trump is counting on Chinese President Xi Jinping for support in a confrontation with North Korea. After the visit, Trump told the Wall Street Journal he would not name China a currency manipulator.

“Treasury will be scrutinizing China’s trade and currency practices very closely, especially in light of the extremely sizable bilateral trade surplus that China has with the United States,” the Treasury report said. “Treasury is committed to aggressively and vigilantly monitoring and combating unfair currency practices,” the report added.

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EPA Solicits Feedback on Regulations for Elimination, Modification

Suggestions on regulations should be eliminated or modified are being solicited by the Environmental Protection Agency (EPA), according to a notice published April 13 in the Federal Register.

Businesses, non-profit groups and others are urged to submit comments on what rules disproportionately impose costs, hurt job creation, are outdated or otherwise are inconsistent with this administration’s recent actions. It is part of Trump’s regulatory reform executive order directing agencies to reduce “unnecessary” federal rules through their newly created task forces.

“Through this notice, EPA is soliciting such input from the public to inform its Task Force’s evaluation of existing regulations,” the notice said. “Although the agency will not respond to individual comments, the EPA values public feedback and will give careful consideration to all input that it receives. EPA will also be conducting outreach on this same topic.” Comments are due to the agency by May 15, 2017.


Washington Insider: Trade and Market Complexity

While it seems that the administration has softened at least a little on its anti-trade stance, Bloomberg is reporting today that trade tensions between the U.S. and China have claimed “a little-known grain market” that has fallen into the doldrums. The discussion concerns U.S. distillers dried grains, a corn byproduct that comes mainly from the production of ethanol and is a valuable animal feed.

Bloomberg reports that DDGS prices have tumbled to the lowest levels in a decade for this time of year. The cause, it says, is that “China moved earlier in 2017 to impose import tariffs.” This, it says, has significantly slowed American exports to this market, which is the world’s largest.

Bloomberg suggests that the current woes of DDGs sellers highlight the risk President Donald Trump’s tough stance on trade poses to farmers. Bloomberg suggests that this is serious, especially as protectionist policies could threaten crop shipments at a time when American grain inventories are piling up.

In the case of DDGs, the Chinese market is vital, and while other importing countries have stepped in to make purchases, there’s still enough excess supply that U.S. prices continue to slump since there is no “home run like China sitting out there,” according to Kurt Shultz, senior director of global strategies at U.S. Grains Council, an export development group. U.S. agriculture depends on trade. If we don’t have all of the doors open on trade that we can, “we put our farm economy at risk,” he said.

DDGs are the dried, yellow flakes left over after the corn kernel’s starch is extracted during ethanol production. In January, China set anti-dumping duties and anti-subsidy tariffs on imports, both higher than rates imposed in a provisional decision in September.

Trump has long criticized China for exporting more to the U.S. than it imports and vowed during his campaign to be tough on the country in trade negotiations. Retaliation by China in the agriculture markets could jeopardize U.S. exports of soybeans, pork and dairy, Bloomberg says. In the six months through February, American shipments to China fell 69% from the same period last year.

Now spot prices for DDGs in Iowa plunged 47% from a peak last June to $92.50 per short ton, the lowest for the time of year since at least 2007, USDA data show.

Prices are also falling at a time when U.S. ethanol output is running at “a seasonal record-high pace.” A drop in crude oil helped cheapen gasoline, spurring consumers to take more road trips and increasing the demand for biofuels in blends. That’s increased supplies of DDGs as a byproduct of ethanol making, especially as ample corn supplies make the ingredient cheap for fuel producers.

Still, falling prices for DDGs are attracting some buyers other than China. In the marketing year that began in September, shipments more than doubled to Turkey and climbed 10-fold to New Zealand. Mexico has now emerged as the top buyer and upped purchases by 9 percent, Bloomberg notes. “There’s certainly incremental growth in a lot of the markets that have not used DDGs in the past,” Shultz of the U.S. Grains Council said.

Those purchases are putting U.S. shipments ahead of last year’s pace. Exports in both January and February posted monthly records and domestic consumption also appears to be on the rise. Eamonn Byrne, chief operations officer and director of Lakeview Energy LLC, a Chicago-based company that owns ethanol plants in Iowa and Ohio noted that DDGs are especially cheap relative to corn, a factor that is boosting sales somewhat.

In addition, Bloomberg says it notes possible signs of improved relations between the U.S. and China—especially since President Trump in an interview with the Wall Street Journal, retreated from a core campaign promise to label China a currency manipulator.

And, Chinese President Xi Jinping in the meeting with President Trump in Florida recently was reported to be “poised to offer a series of trade sweeteners that include agriculture and automobile sectors,” Bloomberg said. This led one Shanghai intelligence analyst to speculate that Chinese feeds mills may seek more U.S. DDGs “amid gains in domestic corn costs.”

All of this emphasizes the complexity of agricultural trade with its overall positive balance of payments and importance to a sector now burdened with excess stocks. This suggests that new Secretary Sonny Perdue may well face an initial task of offering remedial courses in ag trade values and complexity when he finally is sworn in, Washington Insider believes.


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