Fed’s Powell to Talk About Economic Outlook

CFAP 1 payouts pass $10.2 bil.; no tally yet for CFAP 2 despite farmers receiving payments

In Today’s Updates

Market Focus:
* Fed Chairman Powell speaks on the economic outlook at NABE event this morning
* Trump returned to White House for further treatment for Covid-19
* Fed’s Evans: new inflation framework would have limited earlier rate hikes
* ECB’s Legarde: Bank stands ready to inject fresh stimulus into Eurozone economy

Policy Focus:
* No new developments regarding a new aid package
* FSA clarifies who is a ‘contract grower’ for CFAP 2
* Sen. Hoeven comments on WHIP+ issues
* CFAP 1 payouts pass $10.2 billion; no data yet on CFAP 2
* Perspective on gov’t payments as a percent of farm income

U.S./China update:
* China accelerating its imports of U.S. crude oil
* NYT: USTR Lighthizer has become a defender of Beijing
* Pompeo warns counterparts from Japan, Australia and India re: China
* China wants its domestically produced Covid-19 vaccines assessed by WHO

U.S. food & beverage industry update:
* JBS official: Another wave of Covid-driven closures of meatpacking plants unlikely
* Food makers: huge demand during pandemic taught them to focus on bolstering supplies

Update on re-opening America… and around the world:
* Gov. Andrew Cuomo blocks neighborhood lockdowns in New York City

Coronavirus update:
* CDC releases new guidelines
* Europe’s second Covid wave is spreading

Politics & Elections:
* Trump and Biden campaigns pouring money into eastern Nebraska
* Wall of plexiglass will be erected between Mike Pence and Kamala Harris at debate
* Political implications of D.C./Puerto Rico statehood

Other Items of Note:
* Officers of Facebook, Google and Twitter agree to testify
* U.S. & Mexico expanding cross-border food safety cooperation
* ITC teleconference meeting on economic impact of trade agreements
* IRS reportedly investigating NRA’s chief for criminal fraud


Equities today: U.S. stock futures edged down, ahead of Federal Reserve Chairman Jerome Powell’s scheduled talk about the economic outlook and data on the trade deficit. President Donald Trump returned to the White House for further treatment for Covid-19. His doctor said he had met the benchmarks for discharge. He tweeted a video of himself in which he declared that he was already “better” and that “maybe I’m immune, I don’t know.” Trump urged other Americans: “don’t be afraid” of the virus. Officials in the White House announced measures to control access to the president and are offering protective gear to those who meet him. Trump promised he would be back on the campaign trail soon. Meanwhile, Trump’s press secretary, Kayleigh McEnany, tested positive, along with two of her deputies (and three correspondents). More than a dozen people in the president’s circle have been diagnosed with the disease in recent days.

In Asia, stock markets posted modest gains by the close of trading. Japan’s Nikkei 225 ended trading up 0.5%, while Hong Kong’s Hang Seng Index climbed 0.9%. China’s Shanghai Composite Index remained closed for a holiday. European shares were down slightly.

U.S. equities yesterday: The Dow shot up 465.83 points, 1.68%, at 28,148.64. The Nasdaq gained 257.47 points, 2.32%, at 11,332.49. The S&P 500 gained 60.19 points, 1.80%, at 3,408.63.

On tap today:

International Monetary Fund Managing Director Kristalina Georgieva speaks ahead of next week’s annual IMF and World Bank meetings at 8 a.m. ET.
• The U.S. trade deficit in August, due at 8:30 a.m. ET, is expected to widen to $66.2 billion from $63.56 billion a month earlier.
• European Central Bank President Christine Lagarde speaks via videoconference on a panel about the European Stability Mechanism at 9 a.m. ET, and speaks at the online WSJ CEO Council Summit at 9:35 a.m. ET.
• U.S. job openings and labor turnover survey for August is out at 10 a.m. ET.
Federal Reserve Chairman Jerome Powell speaks on the economic outlook at the National Association for Business Economics annual meeting at 10:40 a.m. ET, Philadelphia Fed President Patrick Harker speaks on machine learning at 12 p.m., Atlanta Fed President Raphael Bostic joins an online conversation with Broward College’s president at 2 p.m., and Dallas Fed President Robert Kaplan discusses economic issues with Banco de México Gov. Alejandro Díaz de León Carrillo at 6 p.m. ET.

Fed’s Evans says new inflation framework would have limited earlier rate hikes. The Chicago Fed leader said holding off on rate hikes between 2015 and 2018 may have left the economy stronger. Evans did not indicate the rate increases deployed by the Fed starting in December 2015 were a mistake but said “it’s highly likely that this strategy would have forestalled raising rates in 2015 and 2016,” Evans told the National Association of Business Economists (NABE). It is not clear that inflation would have reached the Feds’ 2% target and justified a rate increase sometime in 2017, he noted. Had the Fed not raised rates, Evans said, “A looser policy would have made the real economy more resilient to headwinds that hit in 2018 and 2019.” Under the current policy, Evans noted the inflation data in 2018, which saw it touch 2%, “would have been turned into a meaningful overshoot, providing a buffer to keep inflation from falling as much below target as it did with the disinflationary shock in 2019.”

Meanwhile, Evans predicted the first “test” of the Fed’s new strategy could arrive in the spring as inflation expectations looked to be “temporarily” above 2% as large drops in price that took place this year fall out of the annual equation. “I want to emphasize ‘for some time,’” Evans said, referring the Fed’s statement that it would maintain the current Fed funds rate target range until it has reached 2% and moderately exceed 2% “for some time.” However, Evans indicated he did not expect a temporary rise in inflation would push the Fed to raise rates.

ECB’s Legarde: Bank stands ready to inject fresh stimulus into Eurozone economy. An economic recovery that appears “a little bit more shaky” as a second wave of Covid-19 infections have hit countries like France and Spain has the European Central Bank (ECB) ready to deploy additional stimulus, ECB President Christine Legarde told the Wall Street Journal. “We are prepared to use all the tools that will produce the most effective, efficient, and proportionate outcome,” Legarde said. As for what form that could take, Legarde said the ECB is not yet at the point where another interest-rate cut would do more harm than good. “We stand ready to address the situation as it develops, and to calibrate and recalibrate what should be calibrated or recalibrated as needed,” Legarde told the WSJ. She noted that unlike the financial crisis, Legarde noted that governments have deployed massive spending efforts and that meant the ECB was “not the only game in town anymore.” She warned output in the Eurozone will not return to pre-Covid levels until the end of 2022 and that global central banks would need to continue their stimulus efforts in tandem with government spending.

Market perspectives:

Outside markets: The yield on the benchmark U.S. Treasury 10-year note is trading around 0.76% today. The U.S. dollar index is slightly weaker. Nymex crude oil prices are higher and trading around $39.50 a barrel.

• The yield on the 10-year Treasury note settled at 0.760%, according to Tradeweb, up from 0.694% Friday and its highest close since June 9. Helping fuel the climb were increasing hopes for a stimulus deal from Washington ahead of November’s presidential election after leaders from both parties signaled progress in talks.

Crude oil futures are higher as supply issues are in focus via the strike in Norway and Hurricane Delta in the Gulf of Mexico that is prompting some actions to shut-in Gulf oil and natural gas production. US crude is trading above $39.90 per barrel and Brent above $42 per barrel. Futures were narrowly mixed in Asian activity with U.S. crude down two cents at $39.20 per barrel and Brent crude up three cents at $41.32 per barrel after both contracts surged in Monday activity.

California here we don’t come and may leave. Given the virus, wildfires and high cost of living, companies ask: Is California worth it? Link to NYT article. Meanwhile, the number of people who moved to Texas from California increased 36%, according to a 2020 Texas Relocation Report published earlier this year by Texas Realtors. The report is based on 2018 data. In all, 86,164 California residents moved to Texas in 2018, according to the report. While nearly 500,000 people moved from California to Arizona between 2010 and 2018, just over 308,000 people were moving in the other direction, according to state-to-state migration flow data released last fall by the Census Bureau.

No bull about this story. Vorayuth Yoovidhya is the heir to the Red Bull fortune. He’s also sought by Interpol. Link for details from the NYT.


No new developments regarding a new aid package. Significant gaps remain between the Democrat’s $2.2 trillion proposal and a $1.6 trillion offer backed by the White House, but both sides have reported progress. Despite President Trump recently calling for both parties to “get it done” on stimulus, it is unclear if a deal struck by Treasury Secretary Steven Mnuchin would have sufficient Republican support in the Senate, or even time to complete the legislation ahead of the election.

FSA clarifies who is a ‘contract grower’ for CFAP 2. For the Coronavirus Food Assistance Program 2 (CFAP 2), the Farm Service Agency (FSA) has issued guidance to further clarify who is considered a “contract grower” relative to eligibility for the program. “For CFAP 2, ‘contract grower’ is a person or legal entity who grows or produces an eligible commodity or livestock under contract for someone else,” FSA said. “The contract grower’s income is dependent upon the successful production of a crop or livestock or offspring from livestock.” FSA further noted that a contract grower “does not have ownership in the commodity or livestock and is not entitled to a share from sales proceeds of the commodity or livestock.” Using that definition FSA said, “A person or legal entity that raises or grows an eligible commodity under contract and has both ownership and risk of production loss in the commodity or livestock is eligible for CFAP 2.” That definition is key, FSA noted as those signing a CFAP 2 application are “certifying that they have both an ownership share and risk in the commodity or livestock included on the application.”

Sen. Hoeven comments on WHIP+ issues. Sen. John Hoeven (R-N.D.) provided the following statement regarding the WHIP+ (link to special report).

“As chair of the Agriculture Appropriations Committee, I worked to secure additional funding for WHIP+, along with expanded eligibility to cover more producers, given the challenges North Dakota producers faced from excess moisture, early season snowfall and other natural disasters last year. I have voiced my concerns to USDA about the slow signup and delay in dispersing funds, and they have assured me that the program remains a priority. In fact, FSA Administrator Richard Fordyce joined a virtual roundtable I conducted with commodity groups on Friday and told us he felt USDA was close to providing funding on the quality loss program. Covid-19 has placed tremendous demands on the department and we appreciate their work to support farmers and ranchers during these difficult times. We continue working to get USDA to distribute these much-needed disaster relief funds as soon as possible.”

A USDA official on Monday said, ““Disaster programs like WHIP require more information from the producer and consumes more time in the county office because they are based on individual producer records. We intentionally designed CFAP 2 to make the process to enroll as fast as possible. The Further Consolidation Appropriations Act signed December 20, 2019, added drought and excessive moisture as additional qualifying disaster events for WHIP+. Signup for those perils did not begin until March 23, 2020.”

CFAP 1 payouts pass $10.2 billion while no data yet on CFAP 2 despite producers reporting they are receiving CFAP 2 funds. Payouts under the Coronavirus Food Assistance Program 1 (CFAP 1) moved up to $10.2 billion as of Oct. 4, according to the Farm Service Agency (FSA). That includes $4.97 billion for livestock, $2.63 billion for non-specialty crops, $1.76 billion for dairy, $743.7 million for specialty crops and $103.8 million for aqua, nursery and flora crops.

Iowa continues to lead all states with $968.7 million followed by Nebraska at $715.1 million. California has moved up to the third post at $662.4 million followed by Texas at $629.7 million, Minnesota at $608.6 million and Wisconsin at $522.9 million.

No CFAP 2 payments were provided, even as farmers are reporting already receiving payments under CFAP 2 where enrollment started Sept. 21 “CFAP 2 data will be available in the coming weeks,” FSA said.

Perspective on gov’t payments as a percent of farm income. You likely have seen reports that U.S. gov’t payments this calendar year will be 36% to 40% or more of net farm income. Others say federal support represented 8% of gross income in 2020. Farmers have emailed saying their revenue in no way includes government payments totaling those percentages, but that is because depending on the year, payments by crop, livestock, dairy or other sectors can vary greatly. USDA’s farm income details are aggregated for the entire U.S. ag sector.

We asked former USDA chief economist Dr. Joe Glauber to comment on this topic. Here is what he told us:

1. “The issue is whether to express farm payments as a percent of gross or net farm income. Most… including the Farm Bureau… express payments as a percent of net farm (or net cash) income to accentuate the importance of farm payments in assessing farm profitability. The criticism of this measure is that if farm expenses also are changing year to year, a change in gov’t payments as a percent of farm income may simply reflect the fact that farm expenses went up (or down).

2. “To a degree this is true with expressing payments as a percent of gross farm (cash) income as well in the sense that the percentage can go down if receipts go up. This is particularly an issue since farm program payments tend to be concentrated among a handful of crops in MOST years. 2020 is unusual as CFAP has paid out significant sums to cattle, hog and specialty crop producers.

3. “Payments expressed as percent of gross farm (cash) income are highly correlated to payments as a percent of net farm (cash) income.

4. “Lastly, it is very misleading to subtract government payments and say this is what farming would look like without government payments. That may be true for a given year… looking at 2020 with and without Covid payments for example… but if you were to remove farm programs, cash rents and land values would be lower… and net farm incomes higher than what net income minus government payment figure might imply.”

Glauber noted a surprise: “What many are surprised about is the fact that this year’s payments as a percent of gross or net are not record high… though you have to go back to the late 1990s/early 2000s… to find levels quite this high.”

Share gov farm income

Farm income FB

Gov pay direct

Gov ag

Update on China:

  • China is accelerating its imports of U.S. crude oil, cutting into the prior market share of Mideast suppliers. The U.S. accounted for 7% of Chinese crude imports through mid-September, according to London-based market intelligence firm Vortexa Ltd — up from 0.4% in January. Market share for Saudi Arabia, China’s biggest traditional supplier, fell to 15% from 19% in the same period.

    Based on tanker data, U.S. exports to China are expected to reach as much as 700,000 barrels a day at the end of October, forecasts Virginie Bahnik, a senior analyst at Geneva-based Petro-Logistics SA, according to the Wall Street Journal (link).

    Background. As part of the Phase 1 U.S./China trade deal that took effect Feb. 14, Beijing agreed in to buy $52.4 billion worth of oil and liquefied-natural-gas from the U.S. by the end of 2021. The buying was delayed by the outbreak of the Covid-19 pandemic, but has risen recently.

    China may continue buying U.S. crude even after the trade agreement ends or there is a new Biden administration, some say, noting that Chinese refineries retooled their plants to process U.S. grades, and they may keep buying.

    China crude imports

  • U.S. Trade Representative Bob Lighthizer, one of Washington’s toughest critics of China, has become a defender of Beijing in hopes of salvaging a trade deal, the New York Times notes in an article (link). Lighthizer has pushed back on several proposed policy measures that rankled Beijing, arguing those efforts could disrupt the U.S./China trade pact that he and President Trump spent more than two years trying to forge, the article details, adding that Lighthizer has also curtailed his public criticisms of China, instead touting Beijing’s efforts to uphold the trade pact and live up to its end of the deal. Meanwhile, Lighthizer’s reluctance to begin trade talks with Taiwan, a self-governing island that Beijing claims as part of its territory, has been more controversial, the item says. “In particular, it has placed him in opposition with officials from the departments of State, Defense and Commerce and the National Security Council who support closer relations with the island to counter China’s influence.”
  • U.S./China Phase 1 tracker: China’s purchases of U.S. goods. Link.
  • U.S. Sec. of State Mike Pompeo warned counterparts from Japan, Australia and India of China’s “malign activity in the region” at a diplomatic gathering in Tokyo. As Sino-American relations continue to deteriorate, America is seeking to use the Quadrilateral Security Dialogue (Quad) as a chance to shore up alliances in the region.
  • China wants its domestically produced Covid-19 vaccines assessed by the WHO. China and the World Health Organization (WHO) are in discussions to have the WHO review Covid-19 vaccines produced by China, according to a WHO official. China has at least four experimental vaccines that are in the final stage of clinical trials. China has had preliminary discussions with the WHO on having its vaccines put on a list for emergency use, according to Socorro Escalate, the WHO coordinator for essential medicines and technologies in the Western Pacific region. Such a listing would allow unlicensed vaccines/treatments to be assessed to accelerate their availability in public health emergencies. “Potentially through this emergency use listing the quality and safety of these vaccines and efficacy could be assessed,” Escalate said, adding that could “be made available for our licensees.”

Food and beverage industry update:

  • Another wave of coronavirus-driven closures of meatpacking plants is unlikely because worker testing and safety practices have improved since the spring, the chief executive of beef and pork giant JBS USA Holdings Inc. said. Meat companies have installed automated temperature checkpoints, distributed safety gear to plant workers and installed partitions between some work stations to catch Covid-19 symptoms and prevent its spread in plants. “I’m pretty confident we are not going to have the size of the disruption we saw in April and May,” said JBS CEO Andre Nogueira at the Wall Street Journal’s Global Food Forum, held remotely on Monday.

    In the back of our minds, we all know there’s a potential for a second wave,” said Mark Lauritsen, head of food processing, packing and manufacturing for the United Food & Commercial Workers Union, which represents JBS plant workers, in an interview with the WSJ. “What we know about Covid-19 is that one case…can rapidly expand to hundreds.”

    The number of positives over the last two or three months in the plants has been pretty low,” Nogueira said. In some cases, he added, JBS is bringing back older workers the company had sent home with pay earlier this year due to their elevated risk of infection and serious complications from the illness.

    If cases surge in a community around a plant and closing the facility would help to control the impact, JBS could again shut sites down, Nogueira said.

    Meanwhile, JBS, Tyson and other meat companies are ramping up investment in automated meat-processing systems that could make plant workers more productive, or eventually reduce reliance on human meat cutters. Nogueira said JBS expects to invest around $200 million annually in developing such systems over the next several years. “There’s no question more automation is coming,” he said.

  • Food makers said huge demand during the pandemic has taught them to focus on bolstering supplies of their most popular products.

    Food industry changes

Update on reopening America… and around the world:

  • Gov. Andrew Cuomo blocks neighborhood lockdowns in New York City. The New York governor said Mayor Bill de Blasio’s plan to shut nonessential businesses where infection rates were rising would have been ineffective. It’s the latest conflict between the governor and the mayor.

Coronavirus update:

  • Summary: Global cases of Covid-19 are now at 35,511,291 with 1,044,490 deaths, according to data compiled by the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU). The U.S. case count is at 7,458,549 with 210,195 deaths.

    Link to Covid Case Tracker

    Link to Our World in Data

  • Centers for Disease Control and Prevention (CDC) released new guidelines on Monday affirming that the coronavirus is transmitted through the air. But the new language stopped short of what the CDC had put forward last month. That original language had said the virus could be spread by “aerosols, produced when an infected person coughs, sneezes, sings, talks, or breathes.”
  • Europe’s second coronavirus wave is spreading, and rising hospitalizations and deaths are prompting governments to impose more restrictions, from travel bans in Madrid to the closure of bars in Paris. Confirmed cases in France, Spain, and the U.K. are now higher on an average day than at the peak of this spring’s emergency, although the trend also reflects better detection of the virus. European governments, anxious to sustain the continent’s economic recovery from its sharp contraction this spring, continue to rule out a return to full-blown lockdowns and are relying on lighter restrictions on socializing and movement, the WSJ reports.

    EU second wave


  • Links
    2020 Presidential Election Interactive Map
    The Green Papers
    Real Clear Politics
    2020 Political Atlas
    2020 Demographic Swingometer
    — Presidential debates: Scheduled to occur Sept. 29, Oct. 15 and Oct. 22.
    — VP debate: Scheduled for Oct. 7.
    Days until election
  • Trump and Biden campaigns are each pouring money into digital ads aimed at voters in eastern Nebraska, which aportions a single electoral vote to each of its three districts. Polls show the 2nd District is leaning toward the Democratic nominee, and both parties are also fighting over the district’s seat in Congress, currently held by GOP Rep. Don Bacon.
  • A wall of plexiglass will be erected between Mike Pence and Kamala Harris during Wednesday’s vice-presidential debate to prevent any transmission of the virus, the New York Times reports, citing a person familiar with discussions between the campaigns and the Commission on Presidential Debates. There will also be plexiglass between the candidates and the moderator, Susan Page of USA Today.

    Last week, during the first debate for the South Carolina Senate race, Democrat Jaime Harrison put a plexiglass barrier between himself and Sen. Lindsey Graham.

    A virtual event is also under consideration for the planned Oct. 15 debate between Trump and Joe Biden.

    Sen. Ron Johnson (R-Wis.), who has tested positive, said he’ll go to the Capitol “in a moon suit,” if necessary, to vote to confirm Judge Amy Coney Barrett to the Supreme Court.

  • Sabato’s Crystal Ball takes a look at the political implications of D.C./Puerto Rico statehood. In the upcoming 2020 elections, if Joe Biden defeats Donald Trump, and if the Democrats win control of the Senate and maintain control of the U.S. House, statehood for the District of Columbia and for Puerto Rico is a real possibility. The following are highlights of potential impacts provided by Dudley L. Poston Jr. and D. Nicole Farris, guest columnists, to Sabato’s Crystal Ball (link):

    — On June 26, 2020, the U.S. House voted 232-180 to establish Washington, D.C., the nation’s capital, as the 51st state.

    — A referendum for P.R. statehood will be held in Puerto Rico (P.R.) on Nov. 3, 2020. If the referendum favors statehood, and if Puerto Rico submits a petition for statehood, and if Biden beats Trump, and if the Democrats win control of the Senate, then there is a chance that the House and Senate will pass a resolution authorizing statehood.

    — Statehood will result in four new senators, two each for the District and for Puerto Rico. Three or perhaps even all four will likely be Democrats.

    — Statehood will result in the District receiving one seat in the House and Puerto Rico receiving four seats. The size of the U.S. House likely would remain at 435. Therefore, five states could each receive one less House seat in the 2020 apportionment: New York, Florida, Texas, Montana, and Illinois.


  • Chief executive officers of Facebook, Google and Twitter have agreed to testify before the Senate Commerce, Science and Transportation Committee on Oct. 28, a committee aide said. The hearing was announced after the committee threatened to subpoena the executives.
  • United States and Mexico are expanding their cross-border food safety cooperation to include all human food regulated by the Food and Drug Administration, instead of just produce, the FDA said on Monday. Mexico accounts for about one-third of all U.S. food imports and about 60% of U.S. produce imports. Link for details.
  • International Trade Commission this morning holds a teleconference meeting on the economic impact of trade agreements implemented under trade authorities procedures.
  • The IRS is reportedly investigating the National Rifle Association’s chief for criminal fraud. At issue is whether Wayne LaPierre underreported his income by not declaring benefits like yacht trips and safaris, according to the Wall Street Journal.

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