US Fuel Mandates No Salve for Farm Trade Losses

May 21, 2019

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(Argus Media) Higher US biofuel blending mandates cannot make up for lost export trade opportunities, according to farm groups caught in the crossfire of the country's trade war with China.

US independent refiners show little concern that the administration will blunt sharply lower exports to China by pressuring more renewable fuels into the domestic transportation supply. While renewables groups continue to seek rising targets and stricter enforcement of US fuel blending mandates, the scale of renewable volume obligations (RVO) imposed on refiners and fuel importers each year falls well short of the agricultural commodities shipped to China.

"It would take a heck of an RVO number, on the biodiesel side, to even put a dent or a ripple in the pond to make up for China," said Rob Shaffer, an Illinois farmer and boardmember of the American Soybean Association and National Biodiesel Board. "We would appreciate any increase, but it just takes so much to make up for China."

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Tariffs on certain corn and soy products will rise by 25pc on 1 June, intensifying policies that have priced soy farmers especially out of a market that took decades to cultivate.

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The blender tax credit (BTC), a $1/USG incentive to add biodiesel to conventional diesel, expired at the end of 2017. EPA has cited the BTC as the most influential driver of US biodiesel blending. Congress has repeatedly extended the credit after allowing it to expire, but has allowed the current limbo to stretch to 17 months.

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The DC Circuit Court of Appeals last week rejected a request to block EPA from exempting more small refineries from fuel blending requirements. The 36 waivers the agency issued for the previous compliance year effectively cut total mandates by almost 10pc. EPA was considering 39 applications for the next compliance year, according to the latest disclosure issued last week.

Previous waiver recipients expected the EPA to continue issuing the exemptions despite the court challenges.

"We expect the [exemptions] to continue to be granted, consistent with the recent practice under the Trump administration," HollyFrontier chief executive George Damiris told investors. READ MORE

Court rejects ABFA request for injunction on SREs (Ethanol Producer Magazine)

Trade Aid 2.0 requests from National Corn Growers Association (Ag Daily)

In Battle Between Big Oil and Big Corn, Ted Cruz Finally Called Out Trump (Texas Observer)

Farms are suffering from climate change and Trump’s trade war. Here’s how to help. (Washington Post/Storm Lake Times)

A reset on trade with China is necessary but painful (Des Moines Register)

IOWA CORN CHAIRMAN: TREAT CORN FAIRLY IN MFP PROCESS (Brownfield Ag News)

AG GROUPS PLEASED WITH SUPPORT FOR FARMERS IMPACTED BY TRADE DISPUTES (Brownfield Ag News)

US farms to receive $16bn to offset trade war impact (Argus Media)

Ethanol: Will it help Trump with tariff-rattled farmers? (Colorado Politics/Washington Examiner)

Pain of Tariffs Tests Farmers’ Faith in Trump: ‘How Long Is Short-Term? (New York Times)

Farm lending data shows cracks in ag economy (Politico's Morning Agriculture)

Floods and Trump’s Trade War Create an Uncertain Year for Farmers (New York Times)

‘I don’t know how we’re going to survive this.’ Some once-loyal farmers begin to doubt Trump. (Washington Post)

U.S. ethanol industry expects normal China trade to boost exports growth (China Economic Net)

Explainer: What extra U.S. farm products could China buy? (Reuters)

China sees intensive contact with U.S. this month ahead of Sept trade talks (Zawya)

Excerpt from Ag Daily: Trade disputes and tariffs, demand destruction in the ethanol market, devastating weather conditions, stagnant farm incomes, and crumbling infrastructure have combined to create a perfect storm for agriculture. NCGA’s farmer members appreciate President Donald Trump’s intent to provide farmers with assistance to make up for potential agriculture losses due, in part, to the most recent tariff increases and prolonged trade dispute with China. NCGA also recognizes the significant work such an undertaking requires of USDA and its employees.

However, a replication of last year’s Market Facilitation Program, which set the payment rate for corn at just one cent per bushel, would be insufficient to come close to offsetting the harm corn farmers are experience in the marketplace. When USDA constructed its 2018 trade mitigation package, NCGA shared analysis that showed trade disruptions had cost $0.44/ bushel, a $6.3 billion loss to corn farmers.

An update to that analysis, capturing corn market impacts from May 2018 to April 2019 showed an average price loss of $0.20/bushel. In March and April of 2019, as trade talks with China lagged on, that loss widened again to closer to $0.40/bushel. READ MORE

Excerpt from Texas Observer: Cruz has studiously avoided confronting Trump. But when it came to helping oil refiners get a bigger share of the EPA's deregulatory spoils, the senator was more than willing to play hostage politics.

Ted Cruz has finally found the courage to call out the Trump administration. He’s demanding that the president and his bureaucrats stop providing cover for the ethanol industry and stand up for fossil fuel rights.

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The industry wants the EPA to make it easier to wiggle out of compliance, which would save refiners hundreds of millions of dollars.

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A year before he sent the Wheeler (EPA’s then-Acting Administrator Andrew) letter, Cruz stood in front of hundreds of union workers at the Philadelphia Energy Solutions refinery and promised to save their jobs. The independent refinery had just filed for bankruptcy, and its owners blamed the cost of compliance with the RFS. Cruz claimed that powerful Wall Street firms were getting rich by shorting the RIN market and forcing plants to shutter. “The ones that would be put out of business are the speculators, who can go and speculate on something else,” Cruz declared.

In reality, a private equity giant had swooped in a few years back, stripped the refinery’s assets and left it saddled with hundreds of millions of dollars in debt. No matter. The ethanol mandate was a convenient scapegoat, and Cruz had a prepackaged message to deploy.

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Last March, the EPA bailed out the Philadelphia refinery by forgiving much of its RIN debt, saving 1,100 jobs (though the company is on the brink of failure once again).

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Wheeler’s EPA is handing out refinery exemptions like candy, and every time Cruz or another senator makes a threat, RIN investors get spooked, the cost of regulatory credits plummets and refiners save on compliance costs. Valero reported earlier this year that it saved $400 million in 2018 from lower RIN costs, and revenue from its refinery operations jumped 25 percent to $5 billion. READ MORE

Excerpt from Washington Post/Storm Lake Times: One serious, sensible step that would help set markets right and aid the environment: idling a third of Iowa’s acres from corn and soy production.

“We’ve got all our eggs in one basket. This is a wake-up call to change agriculture,” John Norris, former chief of staff to Agriculture Secretary Tom Vilsack in the Obama administration, told me recently. “We’re subsidizing cheap grain and cheap pork for China, and we keep farmers just afloat. The only ones benefiting are the traders, the seed and chemical companies, and the Chinese.”

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Instead of writing a $15 billion check for trade-disaster aid — as Trump promised this month, after a $12 billion aidinfusion in the electorally crucial Midwest last year — the government could put the money toward paying those farmers to capture carbon from the air and bury it in the soil by planting grass or small grains such as rye in rotation with corn.

The mechanism exists through the Conservation Stewardship Program, which pays farmers for conservation practices on working lands. It is funded at $12 billion over the next five years — after suffering a $5 billion cut by Congress in the 2018 farm bill.

“Farmers always farm the program. They chase the money,” Norris said. “So let’s farm a different program, one that actually benefits the land. When you add carbon to the soil, you improve yields. Farmers can make more money by building the soil through crop rotations and grazing.”

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It would help if Trump ended the steel tariffs that are driving up the cost of tractors and cutting into profits at John Deere, Caterpillar and Case IH.

The breadbasket of the Midwest can be protected by shifting funding from disaster aid and crop insurance to programs that actually benefit the public — and farmers specifically. Better yet if there were a carbon market that rewarded farmers, ranchers and foresters, and could keep rural communities whole with new jobs in wind and solar. READ MORE

Excerpt from Des Moines Register: Donald Trump was elected in part because large chunks of America were hollowed out, industries lost, jobs gone, wages shriveled, factories abandoned, and towns decayed by the shift of production to Asia. Trump promised to “Make American Great Again.”

Now the process of reversing and correcting these trends is under way with President Trump’s hard confrontation and tariff barrage. As we can clearly see, the picture is panoramic. It’s about more than unfair trade. It’s about American power and the future.

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China has redirected its trade to Brazil and other producers. It will take years to rebuild China’s hog stock, a major destination of U.S. grains, now decimated by African swine fever. On the other hand, corn will suffer from the EPA Renewable Fuels biofuel waivers the Trump administration continues to give to the oil industry. That is seriously hitting corn-based ethanol with losses up to 928.6 million bushels not processed for ethanol.

The Democrats currently have no clear alternative proposals to Trump’s policies for resolving the long simmering “China dilemma,” although most agree that a reset with China is needed. Going back to the status quo of the past 30 years seems unlikely and unwise. Unfortunately, the coming years will be marked by both uncertainty and, I’m afraid, significant pain. READ MORE

Excerpt from New York Times: To help farmers, the Trump administration has offered assistance payments designed to offset lost income from the trade war. However, those payments will be calculated on how many acres of crops a farmer plants this year — which means any cutbacks in planting due to floods or rain will hurt farmers even more, by reducing eligibility for the government assistance.

And there is yet another complicating factor. Often, farmers who aren’t able to plant corn choose soybeans instead, which can be planted later in the year. But that strategy might not make sense this time around, given China’s retreat from buying America’s soybeans.

The American Farm Bureau Federation has urged the Department of Agriculture to change the way it sets the assistance payments, according to John Newton, the group’s chief economist. The bureau wants acres that can’t be planted to count toward a farmer’s eligibility for federal assistance.

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Even if the administration changes the policy determining how farmers get assistance payments, the floods and rain have caused other problems that will continue to ricochet through the economy.

The most obvious effect will be on prices. Corn futures have jumped since mid-May, increasing by about one-quarter. Those prices will lead to higher costs for some foods.

“Where it would be felt most immediately is through milk, meat and eggs,” said Scott Irwin, a professor of agricultural marketing at the University of Illinois.

Those changes could take several months to appear, though, as livestock producers respond to higher feed prices by breeding fewer animals.

Another unknown is the effect of the flooding on grains that have already been harvested and are being stored by farmers. If water gets into those storage bins, those crops can no longer be used for food, animal feed or even ethanol, Mr. Newton said. It’s still too soon to know the extent of damage to stored crops. READ MORE