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Kitco daily macro-economic/business digest - May 24

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Debt-limit Talks to Go into Next Week as Market, Policy Implications Surface

U.S./China update | Putin challenged | G.T. Thompson on farm bill funding | China & Covid

In Today's Digital Newspaper

House Speaker Kevin McCarthy (R-Calif.) and his negotiators repeatedly have warned the White House that a deal won't be possible unless they agree to cut spending next year… not just freeze spending. White House officials offered a spending freeze at FY 2023 levels. McCarthy said that's not a compromise he's interested in. One of McCarthy's chief negotiators added there are no more meetings planned. The impasse means it's likely the House and Senate will both have to vote on any deal next week. A new CNN poll released Tuesday showed that 60% of respondents thought Congress should cut spending while increasing the debt limit. Just 24% said Congress should hike the limit no matter what. We take an in depth look at the debt-limit talks in the Policy section.

China's new ambassador to the U.S., Xie Feng, arrived in Washington Tuesday to start his job. He wants to help ease tensions between the U.S. and China following the spy balloon drama that unfolded earlier this year. More in China section.

Commerce Secretary Gina Raimondo is scheduled to meet today with her Chinese counterpart, Wang Wentao, to "thaw" relations. The dinner would be the first Cabinet-level meeting in Washington between the two countries during the Biden administration. It would also be the first test of whether the two sides are able to restore high-level exchanges.

A high-ranking Republican congressman is calling on the Commerce Department to introduce trade curbs on a Chinese chip maker, ChangXin Memory Technologies, in retaliation for Beijing's move against Micron.

One week after Sam Altman, CEO of ChatGPT creator OpenAI, told a Senate committee that the technology "can go quite wrong," the Biden administration Tuesday announced plans to seek public input on AI issues such as "standards, regulations, investments, and improved trust and safety practices," the Wall Street Journal reports. The public input will be used by the White House Office of Science and Technology Policy to forge a strategy aimed to help guide federal agencies as use of new artificial intelligence tools such as ChatGPT spreads, the White House said.

Ron DeSantis to announce presidential run on Elon Musk's Twitter. The Republican governor of Florida is set to declare his 2024 campaign in a conversation with the platform's billionaire owner. It will be moderated by David Sacks, a tech entrepreneur, Musk confidant and DeSantis supporter, according to NBC. Musk, speaking virtually at WSJ's CEO Council Summit in London, said he isn't planning to endorse any particular candidate but is interested in using Twitter as a kind of public town square. DeSantis is expected to have a formal public kickoff the week of June 1. DeSantis says that with eight years in office, he could "fortify" the Supreme Court's conservative majority.


Equities today: Asian and European stock markets were mostly lower overnight. U.S. Dow opened around 40 points lower with losses then going over 100 points. In Asia, Japan -0.9%. Hong Kong -1.8%. China -1.3%. India -0.3%. In Europe, at midday, London -1.8%. Paris -1.8%. Frankfurt -1.7%.

PacWest: The regional bank's shares gained more than 6% in premarket trading after PacWest struck a deal to sell a real-estate lending arm.

The world's 1,200 biggest publicly listed companies collectively issued dividends worth a record $327 billion in the first quarter of 2023, a year-on-year jump of 12%, according to a study released by Janus Henderson, a fund manager. The banking and oil sectors were among the biggest payers. One-off special dividends also boosted payouts.

Some 61% of U.S. adults say they have money invested in the stock market, the highest percentage Gallup has measured since 2008. Stock ownership fell during the Great Recession and stayed depressed for more than a decade, including lows of 52% in 2013 and 2016. Most Gallup surveys prior to 2008 found 60% or more of U.S. adults owning stock.

How do we stop more bank failures? "Our financial system has required three massive government interventions in 15 years, starting with the Global Financial Crisis in 2008, followed by a near-collapse of markets in 2020 as the Covid-19 crisis erupted, and now, yet again, in 2023 when Silicon Valley Bank, Signature Bank and First Republic collapsed, triggering strains in the regional banking sector. Can't we do better as a nation? Instead of doubling down on a complex system of rules for banks that provide the illusion of stability, we should adopt a far simpler and more effective solution: more equity capital," Minneapolis Fed President Neel Kashkari writes.

U.S. equities yesterday: The Dow closed down 231.07 points, -0.69%, at 33,055.51. The Nasdaq closed 160.53 points lower, -1.26%, at 12,560.25. The S&P 500 fell 47.05 points, -1.12%, at 4,145.58.

SEC's Gary Gensler calls for more disclosure, transparency in alts space. The head of the Securities and Exchange Commission argues that private funds for accredited investors are so large, complex, and far-reaching that more investor protections are needed.

Agriculture markets yesterday:

  • Corn: July corn futures rose 6 1/2 cents to $5.77 ½, near the session high.

  • Soy complex: July soybeans fell 18 3/4 cents to $13.22 1/2, ending nearer the session low, while July meal fell $5.80 to $406.40. July soyoil ended 101 points lower at 47.76 cents.

  • Wheat: July SRW wheat rose 16 cents to $6.22 1/4. Prices closed near the session high and hit a two-year low early on. July HRW wheat gained 15 3/4 cents at $8.41 1/2 and near the session high. July spring wheat rose 11 1/4 cents to $8.20 3/4.

  • Cotton: July cotton fell 97 points to 84.35 cents, nearer the session low.

  • Cattle: June live cattle futures fell 77.5 cents before settling at $164.275. August feeder cattle lost $1.425 to $233.475 and closed near the session low.

  • Hogs: June hog futures led the deferred contracts lower Tuesday but rebounded late in the day and closed ‘just $1.15' lower at $80.675.

Ag markets today: Soybeans faced followthrough selling during overnight trade, while corn and wheat pulled back from Tuesday's gains. As of 7:30 a.m. ET, corn futures were trading fractionally to 3 cents lower, soybeans were 5 to 8 cents lower and wheat futures were 6 to 11 cents lower. Front-month crude oil futures were more than $1.00 higher, and the U.S. dollar index was around 150 points higher.

Market quotes of note:

  • The European Central Bank needs to continue raising interest rates to tame the highest inflation in decades, Deutsche Bank CEO Christian Sewing said on Tuesday. "This poison must go out," he said, referring to inflation at an event in Berlin. He warned that inflation weakens consumption and hinders growth in the long term.

  • "This is generally a world where U.S. Treasury bonds rally on a fear of a default by the U.S. government over that horrendous debt ceiling debate, so the fact that bonds have sold off and yields have risen is at least driven in part by hopes and expectations that a deal on that is near," said Jim Leaviss, chief investment officer for public fixed income at M&G Investments.

  • The JPMorgan surprise index, which compares investors' perceptions of economic growth against the reality in the data, has jumped significantly in the past few weeks.

  • Talk of further Federal Reserve tightening is back. Fed hawks are in full voice and senior bankers, such as JPMorgan boss Jamie Dimon, this week mulled risks that rates could get above 6% before peaking, a level some had feared they might reach before the banking stress hit in March. "Five percent's not high enough for Fed Funds —I've been advising this to clients, and banks, you should be prepared for six, seven," Dimon said on Monday. Minutes of the Fed's most recent policy meeting are due out later and will be scoured for clues about where the center of gravity among policymaking lies.

  • You always learn more when errant forecasters give explanations for their prior projections. Whether it's Goldman Sachs Group Inc.'s admission that expectations for major rises in raw materials this year haven't panned out or the Bank of England's (BOE) failure to predict the persistence of UK inflation, it's clear the models aren't working, say observers. The BOE has struggled to anticipate the impacts of Brexit, the Covid-19 pandemic and Russia's invasion of Ukraine — all coming in quick succession to batter the U.K. economy. Goldman says the most likely reason commodity prices haven't soared is an unprecedented clearing out of stockpiles as demand picks up. Commodities have tumbled over the past year. The Bloomberg Commodity Spot Index has fallen by almost 30% from its peak in June to hit the lowest since 2021. The declines in energy and metals have been driven largely by China's weaker-than-expected emergence from Covid Zero and concerns that the US is headed for a recession. Goldman expects that commodities will come roaring back if recession is avoided. It takes "comfort in the fact that end-use demand across the commodity complex has not shown recessionary signs and investment in supply remains elusive."

On tap today:

• WSJ CEO Council Summit: U.S. Treasury Secretary Janet Yellen, U.K. Treasury Chief Jeremy Hunt, Bank of England Gov. Andrew Bailey and UBS Chair Colm Kelleher will take the stage on day two of the summit.

• Federal Reserve governor Christopher Waller speaks on the economic outlook at 12:10 p.m. ET.

• Fed releases minutes from its May 2-3 meeting at 2 p.m. ET.

U.S. growth touches fastest monthly rate in more than a year. U.S. economic activity rose in May to the highest pace in 13 months, showing persistent resilience to rising interest rates and high inflation ahead of a debt-ceiling deadline that threatens to bring the expansion to a halt. Data firm S&P Global's surveys of purchasing managers showed economic gains were led by service-providing businesses, which reported stronger demand for travel, dining out, and other leisure activities. The improvement was offset by cooling activity among U.S. manufacturers.

Other S&P Global surveys released Tuesday showed European business activity slowed in May while it picked up in Japan.

The kiwi tumbled after the RBNZ increased its key rate by 25 bps to 5.5% — in line with consensus — and then surprised traders by saying it expects the Official Cash Rate to go no higher than that. Its forecasts showed cuts beginning in the third quarter of 2024. The currency dropped as much as 1.9% to 61.31 cents, the lowest since April 28.

U.K. inflation slows less than forecast. The inflation rate in the U.K. fell to 8.7% in April, the lowest since March 2022, due to a sharp slowdown in electricity and gas prices. Still, it exceeded market expectations of 8.2% and remained well above the BoE's target of 2%. The core rate, which excludes food and energy, jumped to 6.8%, the highest since 1992 and above forecasts of 6.2%. Impact: This puts pressure on the Bank of England to hike by another 25bp in June.

Calls for an end to rate hikes are mounting in capitols from Nairobi to Bogotá, but nowhere is the tension more palpable than Brazil. A public feud between President Luiz Inácio Lula da Silva and the country's central bank governor is highlighting the risks of undermining central bank autonomy. Bloomberg.

Some retailers are making a U-turn on return policies. They're replacing once liberal guidelines with shorter return windows, higher mail fees and discount offers to dissuade customers from bringing merchandise back. The Covid-19 pandemic sent return rates surging as more consumers shifted to online shopping — and frequently bought multiple sizes of the same item because they were unsure of the fit. Return rates in 2022 were roughly 14% higher than in 2019, according to returns-management company Narvar. The cost to process $100 of returned merchandise is, on average, about $26.50 (due to shipping, warehousing, labor and, in some cases, re-selling out-of-season items at hefty markdowns). Cutting the number of returns in half could increase profits by about 25%. Wall Street Journal.

Market perspectives:

• Outside markets: The U.S. dollar index was slightly higher despite the euro being firmer against the greenback. The yield on the 10-year U.S. Treasury note is weaker, trading around 3.67%, with a mixed tone in global government bond yields. Crude oil is higher ahead of U.S. government inventory data due later this morning, with U.S. crude around $74 per barrel and Brent around $77.85 per barrel. Gold and silver are mixed, with gold higher around $1,984 per troy ounce and silver weaker around $23.60 per troy ounce.

• The price of copper is showing signs of a sudden weakening in global demand, with the largest discount against its futures equivalent in nearly two decades. This drop indicates concerns over China's stalled economic rebound and faltering industrial activity. The spot price for copper, a metal often used as a gauge for the health of the global market due to its widespread use, has seen a rapid decrease as stockpiles outside China increase in London Metal Exchange warehouses. This is amid a slowdown in U.S. and European industrial activity after a year of quick interest rate rises. Natalie Scott-Gray, a base metals analyst at StoneX, suggested that the copper prices were increasingly being influenced by real-world indicators of weak demand rather than large macroeconomic factors such as the U.S. dollar or sentiment towards China's reopening. She added, "It's the first physical evidence we're seeing that demand is being impacted worse than expected in the west... It's the pace of change that has caused the gap."

• The market for hay is overshadowed by wheat and other crops hit by a drought in the Great Plains, but it can have a similar impact on food prices, the Wall Street Journal reports. This year's average seasonal price for all types of alfalfa and grass hay was pegged at $235 a ton, up nearly 22% from last year.


— Mikhail Mishustin, Russia's prime minister, signed several agreements with China during a trip to Beijing. Mishustin said relations between the two countries are "at an unprecedented high level" amid "sensational pressure from the collective West." He is the highest-ranking official to visit China since Russia invaded Ukraine Feb. 24, 2022. The deals included commitments to strengthen trade in agriculture and services.

— Russian President Vladimir Putin's image of control is cracking. An escalating conflict between the owner of Russia's Wagner paramilitary organization, Yevgeny Prigozhin, and the country's top military leadership represents the first significant crack in the country's establishment since the invasion of Ukraine more than a year ago, the WSJ reports. The extent to which it has become public in recent weeks, affecting military operations, shows that Moscow's setbacks on the front line are putting under strain the mighty leadership structure Putin has built.

Other brief updates:

  • Russian forces are still fighting for control of parts of the border region of Belgorod.

  • Some NATO members are rearming and preparing for war, but most of the alliance's biggest members aren't.

  • A Russian court extended the pretrial detention of WSJ reporter Evan Gershkovich, deemed by the U.S. to be wrongfully held.


— Debt-limit talks:

  • Another day, another shift of tone in negotiations/talks. This time negative, but… House Speaker Kevin McCarthy and his top GOP allies said the two sides aren't close to an agreement. White House negotiators met with McCarthy's team today in the Capitol for more than two hours of talks. However, late in the day, Republican negotiator Garret Graves said progress had been made. The two sides are "very close" in some areas, he said.

  • McCarthy said President Joe Biden is trying to add provisions on prescription drug prices to the talks, something Republicans oppose. "You don't add something like that and taxes at the end of negotiation," McCarthy said this afternoon. "To me that's a tactic to try to blow up the negotiation." "We're trying to make progress," McCarthy said midday Tuesday. But he noted Democrats still "want to spend billions of more dollars than they've spent this year, which is not going to happen."

  • "Everybody needs to relax," said Senate Minority Leader Mitch McConnell (R-Ky.). "The president and the speaker will reach an agreement. It will ultimately be passed on a bipartisan vote."

  • Upshot: McCarthy Biden are mulling compromises that would likely result in losing the votes of both the hard left and right flanks in Congress, meaning they would need to assemble a coalition of Republicans and centrist Democrats to back any final deal to avert a default. Another complication: An unwritten rule adhered to by speakers of both parties that any legislation they bring up must win at least a majority of their members. Most are watching to see if McCarthy can negotiate an agreement that his most conservative lawmakers, many of whom had never before voted to raise the debt ceiling, might oppose but will not attack. "I firmly believe what we're negotiating right now, a majority of Republicans will see that it is a right place to put us on the right path," McCarthy said.

  • Rep. Patrick T. McHenry (R-N.C.), one of the Republicans participating in talks on behalf of McCarthy, said negotiators have yet to agree to anything and are not any closer to a deal after their late-night talks on Monday. "It's a slow walk," he said Tuesday morning. "There's a lack of urgency that is problematic, deeply problematic." McHenry said although he felt the Monday evening meeting at the White House between McCarthy, Biden and their proxies was "productive," the fundamental issue is that the White House has not accepted the key GOP demand that spending be cut from the current fiscal year's level. "The White House still has this expectation that they can spend more money next year," he said.

  • House Democrats say Republicans' demands on spending cuts go too far, especially since they want to protect defense accounts and solely cut nondefense programs. "The speaker insists that there won't be draconian cuts and yet continues to say that spending levels must go down," House Democratic Caucus Chairman Pete Aguilar (D-Calif.) said. "His position is simply untenable. Based on what Republicans have shown us with their appropriations bills, we are looking at a 30% cut across the board to the remaining domestic programs." Aguilar said Democrats are not willing to cut spending by $131 billion to go back to fiscal 2022 levels but are open to "holding the line" at the fiscal 2023 level. "That is a completely reasonable position in exchange for a two-year increase in the debt limit," he said.

  • Both sides remain open to rescinding unspent pandemic funding and overhauling energy and infrastructure permitting rules but have yet to officially agree to anything. And Republicans are continuing to press for expanded work requirements on low-income benefit programs, while Democrats try to keep those out of the talks.

  • Democratic Leader Hakeem Jeffries (D-N.Y.) provided his caucus with a "pretty detailed" synopsis of where negotiations stand during a Tuesday morning meeting, according to Ways and Means ranking member Richard Neal (D-Mass.). Republicans are still pushing for a decade of spending caps, Neal said. "Who knows what's going to happen in the next 10 years?" he said, noting the possibility of another pandemic or 9/11-type event.

  • Some hardline House GOP conservatives don't accept the June 1 deadline timeframe Treasury Secretary Janet Yellen has laid out, CNN reports. Rep. Matt Gaetz (R-Fla.): "I don't believe that the first of the month is a real deadline. I don't understand why we're not making Janet Yellen show her work." House Minority Leader Hakeem Jeffries (D-N.Y.) told reporters this morning that "the June 1 date is a real one… Secretary Yellen continues to make that clear, and unfortunately, extreme MAGA Republicans are taking us down the dangerous road of default for ideological reasons," Jeffries said.

  • GOP lawmakers believe the Treasury Department has a backup plan to prioritize payments on U.S. debt in the event of default.

  • The Treasury asked federal agencies if they can delay upcoming payments, the Washington Post reported. In a memo obtained by the WaPo, David A. Lebryk, fiscal assistant secretary for Treasury, ordered agency officials to notify Treasury at least two days in advance of all "deposits and disbursements" between $50 million and $500 million. Payments above $500 million require five days notice, the memo said. With a big influx of quarterly tax payments expected to arrive in Treasury's coffers on June 15, administration officials are looking for ways to hoard cash and eke out a few more days, the article noted. If they can make it to June 15, the surge in revenue might give Treasury enough funding to push the X-date into July, when a fresh round of accounting measures would become available, perhaps allowing them to push the prospect of default even further into the future.

Of note: The law requires contractors and those owed money by the federal government to be to paid promptly. Otherwise, the government would face repayment penalties, which could include an additional 4.6% in interest, Brian Riedl, a policy analyst at the Manhattan Institute, a libertarian-leaning think tank, told the WaPo. Federal agencies also could resist attempts to slow or stop payments, citing a 1974 law that bars the executive branch from substituting its own spending priorities for decisions by Congress.

  • The House is supposed to go home for a weeklong recess Thursday evening. If there is no deal, the House Republican leadership will allow lawmakers to leave town, although likely telling them they would need to come back quickly if needed.

  • Even if a deal is reached, House leaders promised members would have three days to view the accord.

  • The Senate is currently on recess, scheduled to return May 30.

  • Some White House officials are complaining about the press coverage of the debt-limit talks. They don't like when some, including the Wall Street Journal, say that President Biden is trapped in a lose-lose situation. If Democrats and Republicans fail to make a deal to raise the debt limit and the government is unable to pay its bills — an outcome expected as early as June 1 — he'll have a possible recession and the potential for global financial chaos hanging over his head as he runs for re- election. If Biden comes to an agreement with McCarthy, critics will accuse the president of backtracking on his refusal to bargain over the borrowing limit.

  • Market impacts: A U.S. default would almost certainly be very painful for Americans. There would also be major consequences abroad. For one, foreign demand for Treasurys could take a permanent hit, writes the WSJ's Heard on the Street's Nathaniel Taplin.

    Meanwhile, citing the deadlocked talks, analysts at JPMorgan Chase suggested that investors dump stocks for cash. In a further sign of uncertainty, investors are offering more for Microsoft corporate bonds that come due in August than they are for Treasury bills that mature in the same period, a sign they see the government debt as more risky.

    Also, the three major credit rating agencies would be compelled to downgrade America's debt if the government missed even a single repayment, the New York Times reports. Even the prospect of reaching the X-date with no deal could be enough for Moody's to review its outlook, said William Foster, the agency's lead U.S. analyst. Any downgrade would kick the U.S. out of an exclusive club of 12 nations with the highest credit rating, which includes Canada, Germany and Singapore.

    Some commentators fear the U.S.' fiscal reputation has already taken a hit. "We are sending a very negative signal about our ability to run our economy, let alone be an anchor for the rest of the world," Mohamed El-Erian, a usually gloomy economist and an adviser at Allianz, told CNBC.

— House panel holds hearing on conservation, climate-related funding and CRP pay rates. During a House Agriculture Conservation, Research and Biotechnology Subcommittee hearing, lawmakers discussed concerns about the ability of the Natural Resources Conservation Service (NRCS) and Farm Service Agency (FSA) to manage new climate-related funding, staffing challenges, and CRP payment rates. 

Leaders of the NRCS and FSA are tasked with addressing staffing shortfalls to deliver conservation and farm programs and implement new climate-related funding included in the Inflation Reduction Act (IRA). An analysis by the Congressional Budget Office (CBO) suggested that the NRCS might only be able to spend around $3.9 billion of the $4.95 billion allocated to it under the IRA for the Regional Conservation Partnership Program (RCPP). Terry Cosby, NRCS Chief, expressed confidence in the agency's ability to administer these funds, mentioning a recent notice of funding availability that made up to $500 million available for FY 2023. The influx of IRA money has allowed the NRCS to offer more contracts under programs such as the Environmental Quality Incentives Program (EQIP).

Lawmakers questioned the barriers to hiring new staff, to which Cosby replied that a lack of college graduates in relevant fields was a limitation. The agency is collaborating with land grant universities to address this issue. The agency has received 1,500 applications for 200 openings for soil conservationists around the country, although it is murky how many will meet all the requirements.

Questions were also raised about the current knowledge gap around carbon sequestration and its impact on current and future programs. Both Cosby and FSA Administrator Zach Ducheneaux emphasized the importance of accurate data for driving enrollment and participation in these programs. House Ag Chairman G.T. Thompson (R-Pa.) Thompson added that he also thinks lawmakers should revisit restrictions placed on the IRA funding that look to target it to climate-related efforts, saying he believes local resource concerns should guide how it is spent. "We can't prioritize one natural resource concern over all others and we shouldn't prioritize one solution above all others," he said.

Of note, Thompson raised the possibility of bringing some IRA conservation funding into farm bill baseline. He used the hearing to approach a big issue: The nearly $20 billion in funding for conservation programs contained in the Inflation Reduction Act (IRA). The funding is not currently included in the baseline for the next farm bill, and Thompson suggested that a portion of the funds should be brought into the baseline. That would make it easier for lawmakers to shift those funds to other efforts in the farm bill. Included in the funding were $8.45 billion for the cost-sharing Environmental Quality Incentives Programs; $3.25 billion for the Conservation Stewardship Program, directed toward working lands; $4.95 billion for the Regional Conservation Partnership Program, which coordinates stewardship on multiple properties; $1.4 billion for the Agricultural Conservation Easement Program; $1 billion for conservation technology assistance; and $300 million to measure carbon sequestration and greenhouse gas reductions from conservation practices.

Discussion about the Conservation Reserve Program (CRP) focused on rental rates for transitioning farmland to conservation and the competition with farmers for prime land. Both Ducheneaux and Cosby highlighted the efforts to provide data and incentives to make the best choices for land use and conservation. Some lawmakers say the CRP is paying farmers to take land out of production that competes with farmers looking to rent farmland. The rental rates were capped in the 2018 Farm Bill, but USDA has offered incentives and adjustments to CRP rents in a bid to attract more acres. Subcommittee member Brad Finstad (R-Minn.) said CRP payment rates were higher than they should be and making it hard for farmers to find additional cropland. Increasing program payments as the Biden administration did in 2021 in a bid to boost CRP enrollment "incentivizes farm country to take high-quality land out of production," Finstad said. Young farmers especially say high CRP rates have essentially "forced them to compete with the federal government" for land, Finstad said. But Ducheneaux countered that CRP incentives "give the producers a meaningful choice" about what to do with their land. He said FSA was looking at refining its use of an erodibility index to more precisely evaluate land that is being offered for enrollment. "The choice that they (landowners) make with their resources is not for us to dictate. Our job is to get the opportunity out there in front of them, so that they make the best choice," Ducheneaux said.

Background: About 23 million acres are currently enrolled in the program at the end of March, including 8.4 million in general sign-up, which is aimed at larger tracts; 8.2 million in continuous sign-up, which is focused on smaller, more environmentally sensitive tracts, and 6.4 million in the grasslands option. Two million acres enrolled through the general or continuous sign-up options are scheduled to leave the program in October unless they are re-enrolled, including 1.5 million acres enrolled via general signups and 500,000 acres enrolled via continuous CRP efforts. Contracts currently scheduled to expire in September 2024 fall to only 480,000 and rise to just shy of 1 million acres in September 2025. Through the end of March, just over 44,000 acres were enrolled via the continuous signup in FY 2023 while 888,000 acres were enrolled in FY 2022. Annual CRP enrollment is capped at 27 million acres under the 2018 Farm Bill.

Lastly, the increasing El Niño weather pattern, which potentially brings drought to the farm belt, was discussed. Rep. Eric Sorenson (D-Ill.) asked how the next farm bill could be used to address issues like drought through conservation programs. Cosby responded that the investments from the 2018 Farm Bill and other recent legislation should provide adequate resources. Sorenson noted the increasing El Niño weather pattern expected this growing season and the potential it brings for drought in the farm belt when it ends because technically it is when it shifts that the dryness can come. Sorenson mentioned the 1988 drought, which came just after El Niño shifted to La Niña.

— Hoeven holds farm bill roundtable with red river valley producers. Sen. John Hoeven (R-N.D.) met Tuesday with the Fargo Moorhead West Fargo (FMWF) Chamber of Commerce's Agribusiness Committee to discuss North Dakota's priorities for the next farm bill. As a senior member of the Senate Agriculture Committee and Ranking Member of the Senate Agriculture Appropriations Committee, Hoeven said he aims to:

  • Preserve crop insurance, a crucial risk management tool for many producers.

  • Update and enhance the counter-cyclical safety net, including the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs.

  • Ensure support for U.S. sugar policy.

  • Increase transparency and competition in cattle markets.

  • Strengthen livestock disaster programs, including the Livestock Indemnity Program (LIP), the Livestock Forage Program (LFP), and the Emergency Livestock Assistance Program (ELAP).

  • Ensure that programs are voluntary and farmer-friendly to reduce the regulatory burden on producers.

Hoeven emphasized the importance of food security to quality of life and aims to maintain effective farm policy. He has been working on these priorities as the next farm bill is being prepared and has previously discussed these matters with USDA Secretary Tom Vilsack.


— President Biden Tuesday announced his nomination of the U.S. Air Force Lt. Gen. Timothy Haugh, the No. 2 at U.S. Cyber Command, to serve as the new head of both U.S. Cyber Command and the National Security Agency.


— Covid-19 is flaring up again in China and infections will get worse before they get better, according to according a senior health adviser, who said up to 65 million new cases a day could occur in China this summer. China government officials months ago stopped giving the public information on the Covid situation. A resurgence in cases across China since late April is being noted and is expected to result in 40 million infections a week by the end of May, before peaking at 65 million a month later, local media outlet the Paper reported Monday, citing a presentation by respiratory disease specialist Zhong Nanshan at a biotech conference in the southern city of Guangzhou.

— Beijing's new ambassador the U.S. calls for increased dialogue. China's new ambassador to the United States, Xie Feng, acknowledged the serious difficulties and challenges currently facing the relationship between the world's two largest economies. In his first remarks upon landing at New York's JFK International Airport, he urged cooperation, dialogue, and management of differences between the two nations.

Background. Xie is a career diplomat who has previously held various roles at the Chinese embassy in Washington and served as Beijing's top representative in Hong Kong. He steps into this important role after a five-month vacancy left by his predecessor, Qin Gang, who was promoted to foreign minister. His appointment comes amid an unstable political environment, with recent disagreements between China and the U.S. involving spying allegations, Taiwan's sovereignty, and American technology export controls. Despite these challenges, Xie intends to engage extensively with the U.S., and handle critical and sensitive issues like the Taiwan question appropriately.

Ambassador Xie, known for his "fighting spirit" during the 2019 Hong Kong protests and his alignment with President Xi Jinping's diplomatic approach, is seen as a trusted figure within the Chinese government. In his previous role as vice foreign minister, he met with representatives from multiple U.S. companies and groups, highlighting his capacity for pragmatism or aggression as needed. Xie also played a role in negotiating the recent release of two Canadian citizens and the return of Huawei executive Meng Wanzhou to Beijing.

Big issue: The U.S. has been actively seeking to curb China's technology ambitions, including bans on the sale of semiconductor equipment. In response, China has targeted imports of Micron Technology Inc., a memory chip company it can more easily replace.

While tensions remain, President Joe Biden recently expressed optimism about a thaw in relations. However, the recent G7 summit saw member states collectively address what they termed as China's "economic coercion," raising questions about the sincerity of Biden's stance. Still, top diplomatic figures from both nations have been meeting, potentially signaling a step towards improving relations. These meetings include a recent interaction between U.S. National Security Adviser Jake Sullivan and China's top diplomat Wang Yi in Vienna.

— Commerce Secretary Gina Raimondo is scheduled to meet today with her Chinese counterpart, Wang Wentao, in an effort to "thaw" relations. It would be the first meeting of this kind at Cabinet level under the Biden administration.

— China's benchmark stock index erased all its gains for the year as a weaker yuan and developers' debt woes added to persistent worries over growth and geopolitics.

— Rep. Mike Gallagher (R-Wis.) urged Washington to strike back against Beijing for its decision to bar Micron's memory chips by placing Changxin Memory Technologies on a blacklist that effectively bars dealings with American firms.

— Chip wars with China risk ‘enormous damage' to U.S. tech: Nvidia chief. The chief executive of Nvidia, the world's most valuable semiconductor company, has warned that the U.S. tech industry is at risk of "enormous damage" from the escalating battle over chips between Washington and Beijing. Speaking to the Financial Times, Jensen Huang said U.S. export controls introduced by the Biden administration to slow Chinese semiconductor manufacturing had left the Silicon Valley group with "our hands tied behind our back" and unable to sell advanced chips in one of the company's biggest markets. At the same time, he added, Chinese companies were starting to build their own chips to rival Nvidia's market-leading processors for gaming, graphics and artificial intelligence. "If [China] can't buy from?.?.?.?the United States, they'll just build it themselves," he said. "So the U.S. has to be careful. China is a very important market for the technology industry."

— EU chamber official warns Chine's economic prospects set to stagnate. The outgoing head of the European Union Chamber of Commerce in China, Joerg Wuttke, warns that China's economic prospects are set to stagnate over the next 10-20 years, and that necessary deep-rooted reforms are required to improve its growth outlook. Wuttke believes the country might need to abandon expectations of a 4-5% growth rate and instead adjust to a 2-3% growth rate scenario.

Though growth in the world's second-largest economy is expected to return to nearly 6% this year, this resurgence is primarily due to the weak base in 2022, following the impact of the pandemic. Beyond 2023, economists predict a slowdown to 5% or below, and the International Monetary Fund has also reduced its long-term growth forecasts for China, arguing that even 4% will be challenging after 2025.

Wuttke doesn't see China as having reached its "peak," but he anticipates the need for significant changes and reforms in the country's economic landscape. Having exhausted the "low-hanging fruits," China's focus now should be on increasing productivity, necessitating some painful reforms, such as overhauling the education system to equip people with the necessary skills for the rapidly evolving job market.

Wuttke notes that compared to previous economic downturns, China has significantly less "wiggle room" in fiscal, financial, and monetary terms. He expresses concern that China may end up emulating Japan's situation of economic stagnation but on a larger scale and with a lower level of GDP per capita. Wuttke highlights that China has been overly reliant on infrastructure expansion while neglecting social support, which could hinder its long-term economic prospects.


— U.S. reluctance on trade deals sends Latin America towards China. A Financial Times article (link/paywall) discusses how the U.S. and Western nations are losing influence in Latin America due to their reluctance to sign trade deals, allowing China to fill the void and strengthen its economic ties with the region. Some key points:

  • Latin America's increasing tilt toward China: Ecuador's President Guillermo Lasso, a pro-business conservative educated in the U.S., recently signed a trade deal with China. Similarly, countries like Chile, Costa Rica, and Peru have free trade agreements with Beijing, and Panama and Uruguay are planning treaties. China's trade with Latin America has skyrocketed from $12 billion in 2000 to $495 billion in 2022, becoming South America's top trading partner.

  • U.S.' reluctance on trade deals: The Biden administration has ruled out new trade agreements, frustrating Latin American countries. The U.S. has six free trade agreements with 12 Latin American nations, but the lack of a common framework has complicated the integration of regional value chains.

  • China's investment strategy: Beyond trade, China has been investing in infrastructure across Latin America as part of its Belt and Road Initiative. Over 20 Latin American and Caribbean nations have joined this initiative and China has lent more than $136 billion to governments and state companies in Latin America since 2005.

  • Western nations' approach to Latin America: The U.S. and the European Union have focused on issues like democracy, human rights, corruption, and the environment in their dealings with Latin America, with the EU's Global Gateway initiative pledging just $3.5 billion to the region. In contrast, China's approach focuses on economic cooperation, trade, and investment, which has been perceived as more helpful.

  • Western divestment from Latin America: Western companies, especially from the U.S. and Europe, have been divesting from Latin America, selling their assets in areas like renewable energy and critical minerals. Chinese companies have often been the buyers, further strengthening China's influence in the region.

Bottom line: The article concludes that unless the U.S. and the EU can offer better trade and investment opportunities, they risk losing further ground in Latin America to China.


— California seeks EPA approval to ban gas powered vehicles by 2035. California has asked the Biden administration to approve its plan to require all new vehicles sold in the state by 2035 to be either electric or plug-in electric hybrids, according to a letter seen by Reuters. The California Air Resources Board (CARB), which approved the plan last August, asked EPA on Monday to approve a waiver under the Clean Air Act to implement its new rules that set yearly rising zero emission vehicle rules starting in 2026 and would end the sales of vehicles only powered by gasoline by 2035. EPA spokesperson Tim Carroll said, "As with all waiver requests from California, we'll follow an open public process in considering it, as the agency routinely does."

— RFS update: The Office of Management and Budget (OMB) has scheduled 14 meetings with stakeholders to discuss the Environmental Protection Agency's (EPA) final rule for the Renewable Fuel Standard (RFS) volume requirements for 2023 and beyond.

Newly added sessions include meetings with Vanguard Renewables (May 25), BP (May 31), American Petroleum Institute (June 1), Mainspring Energy (June 1), Bridge to Renewables (June 5), and the Renewable Natural Gas Coalition (June 7).

More meetings are expected to be scheduled, particularly with the Renewable Fuels Association, Growth Energy, and the National Corn Growers Association, all of whom are anticipated to discuss the final RFS plan with the OMB and have already met with the agency during the review of the proposed rule.

— The Energy Department decided not to award a $200 million grant to Texas-based battery manufacturer Microvast Holdings Inc. to build a plant in Tennessee amid backlash from Republican lawmakers who have scrutinized the company's alleged ties to China. The agency did not provide a specific reason for canceling the preliminary grant, which was announced in October. Associated Press.

— A software upgrade could improve the efficiency of wind turbines by ensuring they face the breeze more often. Rolled out worldwide, it could boost electricity production by about the same amount consumed by 1.7 million U.K. homes, according to New Scientist.


— Europe goes from energy to food shock. Fresh out of an energy crisis, Europeans are facing a food-price explosion that is changing diets and forcing consumers across the region to tighten their belts — literally. This is happening even though inflation is falling thanks to lower energy prices. New data on Wednesday showed inflation in the U.K. fell sharply in April as energy prices cooled, following a similar pattern around Europe and in the U.S. But food prices were 19.3% higher than a year earlier. The continued surge in food prices has caught central bankers off guard and pressured governments to come to the rescue. Link to more via the WSJ.

— U.S. contemplating bird flu vaccination strategy for turkeys. The U.S. is working on a bird flu vaccination scenario focusing on turkeys in the few states with the largest number of turkey farms, a move that would best meet a benefit-cost strategy, its chief veterinary officer said on Tuesday. However, no decision to vaccinate has yet been made, Rosemary Sifford, who is also deputy administrator of the Veterinary Services program at the Department of Agriculture (USDA), told Reuters. "Any vaccination strategy would need to be a very focused strategy... I would certainly not expect to do a widespread vaccination if we were to choose that path," Sifford said.


Tainted syrup medicine imported from India was the cause of an outbreak of kidney failure that killed more than 60 children in Gambia last year, according to a team of international experts. The report contradicts the official position of Indian authorities, who insist that the country's products weren't to blame.

— U.S. surgeon general warns that social media may harm children and adolescents. The report by Dr. Vivek Murthy cited a "profound risk of harm" to adolescent mental health and urged families to set limits and governments to set tougher standards for use.

— The Federal Trade Commission (FTC) is investigating baby formula manufacturers, including Abbott Laboratories, Nestlé, and Reckitt Benckiser, for possible collusion regarding bids for state contracts. The FTC is also examining whether the alleged collusion impacted sales beyond the Women, Infants and Children (WIC) formula-supply program. Abbott Laboratories, which sells the Similac formula, and Nestlé, which provides Gerber formula via WIC, have both stated that they are cooperating with the FTC investigation. Reckitt Benckiser, another major formula supplier for WIC, declined to comment on specific government investigations, but stated it adheres to requests from regulatory and enforcement agencies as a standard practice.


— SpaceX Founder Elon Musk will help launch Florida Gov. Ron DeSantis' presidential campaign with an event on Twitter. Musk, the CEO of Twitter, will hold a Twitter Spaces event with DeSantis at 6 p.m. ET Wednesday. DeSantis also is expected to formally file his presidential paperwork with the Federal Election Commission on Wednesday and put out a campaign launch video.

DeSantis's publicly known business supporters include David Horowitz, a real-estate magnate, and the financier Hal Lambert, according to CNBC. But so far they don't include stalwart Republican donors like Ken Griffin and Steve Schwarzman, some of whom have taken issue with DeSantis's social policies.

Here's a handy graphic from NBC News:


In a 221-203 vote, the House passed a Congressional Review Act resolution to overturn the Biden administration's heavy-duty truck pollution rule that aims to reduce emissions of nitrogen oxides by half by 2045, as Republicans contend the rule would mean higher costs for the industry and customers. The measure, which was passed earlier by the Senate, now heads to President Joe Biden for an expected veto.


— 'Broken promise' case dismissed. A judge at the U.S. Court of Federal Claims dismissed a class-action lawsuit that contended the government was obliged to provide debt relief to farmers of color, although Congress repealed the $4 billion program. 

— Netflix finally moves to crack down on password-sharing in the U.S. The streaming giant announced that American subscribers would need to start paying $8 a month to add users to their accounts. It's a push for more revenue, reversing Netflix's yearslong indifference to shared accounts.

— Ford has announced its decision to continue including AM radios in its 2024 Ford and Lincoln vehicles, a move which follows discussions with policy leaders about the significance of AM broadcast radio within the emergency alert system. This decision is a shift in Ford's previous stance on the issue. However, other automobile manufacturers have not yet confirmed similar decisions, due to the interference between electric vehicle (EV) power plants and AM radio signals. Given the emergency functionality and the dependence on AM radio stations in rural areas, lawmakers have proposed legislation compelling car manufacturers to persist in providing AM radio in their vehicles.

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