Washington Insider -- Monday

The Spreading Peanut Surpluses

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

US ITC Votes 5-0 to Continue Probe into Imports of Argentine, Indonesian Biodiesel

The U.S. International Trade Commission (USITC) voted 5-0 to continue the U.S. Commerce Department investigation into whether Argentine and Indonesian biodiesel has been dumped on the U.S. market with unfair subsidies.

The next step in the probe is for the Commerce Department to determine whether to impose preliminary anti-dumping duties and anti-subsidy duties on the shipments. The agency launched the antidumping duty and countervailing duty investigations in April at the request of the National Biodiesel Board (NBB) Fair Trade Coalition.

The decision "is an important next step for the US biodiesel producers suffering because of the flood of imports," said Anne Steckel, vice president of federal affairs at NBB.

In 2016, imports of biodiesel from Argentina and Indonesia were valued at an estimated $1.2 billion and $268 million, respectively.

The Commerce Department schedule is as follows: Announce a preliminary countervailing duty determinations in June 2017 and a preliminary AD determination in August 2017, though these dates may be extended.

Perdue Touches on Trade Policy, Ethanol in Iowa Remarks

USDA Secretary Sonny Perdue’s speech was not the “first major farm policy address” of his tenure leading USDA, as he spoke mostly “from the heart” and not from the 17 pages he said some staff had written for him.

Perdue Confirmed his and the Trump administration’s support for ethanol and its production. “You have nothing to worry about” regarding the future of the Renewable Fuel Standard (RFS) and President Donald Trump’s commitment to support the industry,” Perdue said. “Did you hear what he said during the campaign? Renewable energy, ethanol, is here to stay, and we’re going to work for new technologies to be more efficient,” Perdue said, later sporting a “Don’t Mess with the RFS” pin. Nevada, Iowa, is home to an ethanol production plant run by Lincolnway Energy and a cellulosic ethanol production plant run by DuPont. Perdue lauded the state's ethanol industry and technological advancements in renewable energy, like wind and solar.

Perdue listed trade, support for farm labor and working as the nation’s chief agriculture salesman as his priorities. “I’m going to be the unapologetic chief advocate, chief salesman for American agriculture products around the world,” he said. "You grow ’em, we’re going to sell ’em."

Between NAFTA, expected USDA budget cuts, the construction of a new farm bill, and naming new subcabinet members, Perdue added that he is focused on the building blocks of a better USDA. “We want facts-based, data-driven, customer-focused, ethics, transparency, and integrity in this agency. I’m focused on making the USDA the best managed and most effective agency for the American taxpayer in all of the U.S. government,” Perdue said.

Perdue said, “President Trump wanted me out here to let you all know that he understands American agriculture and that it is vital to the U.S. economy. And he understands that Iowa is vital to US agriculture.” He added that, “As farmers, we need to be better communicators, but farmers are definitely part of our national security.” He stressed that no longer can farmers just be good producers; they have to tell the nation that the food is safe and their animals are treated well. “We’re going to make sound science, fact-based, data-driven decisions. Because that is what works in agriculture,” said Perdue. "At the same time, we should be unapologetic in agriculture.”

Washington Insider: The Spreading Peanut Surpluses

Even as feelings among House Ag Committee members have been hurt over the failed efforts to change the 2014 Farm Bill to help dairy and cotton producers, another report about a policy problem is circulating. Bloomberg says that the peanut program stimulates supply beyond demand, even though peanut consumption is record high.

Bloomberg says the problem is U.S. production that far exceeds what’s needed. Rising shipments overseas have helped ease the glut, but recent prices are half what they were in 2012 and has triggered government support, especially since supports were boosted three years ago.

The report cites a grower, who says “the safety net is the only thing that’s enabled me to keep up economically.” And, he is expanding acreage by 15% this season, partly because subsides make peanuts more profitable than his other crop, cotton.

Peanuts have been a mainstay of U.S. diets for two centuries, Bloomberg says. Now, domestic farmers grow more than $1 billion worth of peanuts, with 60% used to make peanut butter. U.S. consumers ate about 7.4 pounds of peanuts last year, including 4 pounds of peanut butter, according to the National Peanut Board.

In all but three years since 1981, farmers have harvested surplus peanuts, Bloomberg reports. Exports tripled over the past decade, and were record high last year. However, the rising demand still wasn’t enough to help prices. The benchmark Runner peanut has plunged to about 19 cents a pound from 42 cents in early 2012. Cheaper peanuts have been a boon to buyers like Jif-maker JM Smucker Co. and Skippy’s Hormel Foods Corp., especially since retail product prices haven’t followed peanuts prices down.

Government payments remain a key source of revenue. Since 2002, farm bills approved by Congress included income support for peanut growers called “price-loss coverage” payments. Until 2014, payments kicked in when the average dipped below $459 a ton, or about 22.95 cents a pound, which occurred in seven of 12 years. In 2014, the trigger was raised to $535 a ton (26.75 cents a pound), which has led to payouts every year as prices fell.

Payments probably will continue, Bloomberg concludes. CBO forecasts over the next decade, include federal payments equal as much as 42% of peanut revenue some years, mostly for price-loss coverage payments. As a percentage of farmer income, peanuts are the most-subsidized major crop every year from now through 2027, CBO says. Peanuts also may remain below the trigger price in all 12 years, according to the forecasts.

Thus, the payments could push farmers to grow more, Bloomberg says, and USDA agrees. It sees plantings up 4.8% this year to 1.751 million acres. That’s up 29% since the current subsidy program was approved in 2014. Farm-bill politics that year created “the most favorable environment for peanuts since Jimmy Carter was in office” in the 1970s, according to Vincent Smith, an agricultural economist at Montana State University in Bozeman.

He says the result was “a program that’s guaranteed to be highly lucrative for peanut growers nearly every year,” Smith said. “This is not a program that provides them with help when they need it. It gives them help all the time.”

Now, however, the program may be attracting a different kind of attention, and possibly will be a top target for changes among groups hoping to cut farm payments in the next law reauthorizing agricultural programs, due in 2018, according to Josh Sewell, senior policy analyst for Taxpayers for Common Sense in Washington.

“This is definitely something we need to fix in the next farm bill,” Sewell said. “You’re sending a signal to farmers that they should plant for Washington, not the market, and that is exactly the approach we should be moving away from.”

Still, the program has its defenders. Adam Rabinowitz, a peanut economist at the University of Georgia in Tifton thinks that forecast for payments in the future may be overstated—and that prices already are trending higher than earlier estimates.

And, there is the political factor which suggests that any changes in the program may be an uphill slog, since the payments are popular among both producers and the lawmakers who represent them. “The safety net that exists for peanuts is necessary,” said Representative Rick Crawford, R-Ark., who leads the commodities subcommittee of the House Agriculture Committee. “It’s working as designed.”

So, we will see. Many producers worry about programs that lead to “planting for the program.” In addition, budget hawks are paying closer attention to program operations these days, and the peanut program certainly is on their radar. It is possible that the recent disappointments of dairy and cotton producers could indicate closer future scrutiny of program operations and costs, a trend that producers should watch closely as it emerges, Washington Insider believes.

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