Washington Insider -- Friday

Farmer Political Support May be Softening

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

U.S. Ag Export, Import Values Fell in April, Paring Trade Surplus

The value of U.S. ag exports in April declined to $11.99 billion in April, down from 12.86 billion in March, while import values edged down to $11.38 billion versus the $11.69 billion record registered for March. That pared the U.S. ag trade surplus to $612 million, marking the third time in the past four months the trade surplus has been below $1 billion.

While the value of imports fell, they have been at $10 billion or more for the first seven months of Fiscal Year (FY) 2018, an unprecedented run based on USDA data back to FY 1976.

This also potentially puts the just-updated USDA forecast for the value of ag imports in FY 2018 at risk. USDA May 31 boosted the forecast for ag imports to $121.5 billion. To meet that mark, imports only have to average $9.24 billion for the next five months.

Import values have not been below $10 billion since a string of four months to close out FY 2017.

To meet the forecast of $142.5 billion for ag exports in FY 2018, values have to have $11.13 billion the next five months.

U.S. Ag Attache in Mexico Discusses Import Duties on U.S. Pork, Other Products

Import duties announced by Mexico apply to $3.1 billion of products imported by Mexico in 2017, based on Mexican trade data, with the U.S. supplying $2.6 billion of that total, according to a report from the U.S. ag attache in Mexico on the duty action.

The report confirmed the duties took effect immediately and that those on pork and cheese would be lower levels until July 5. The 350,000 metric ton duty-free quota on imports of pork legs and shoulders for the rest of 2018 is open to U.S. supplies, but those supplies coming from the U.S. would be subject to duties of 10% until July 5 and then 20% after that.

Historical importers will have access to 97% of the quota, with those who have not imported the products having access to three percent of the quota.

Further, any pork coming from the U.S. will be subject to the duties no matter what the country of origin is on the shipments. "In other words, transshipments will be charged the U.S. tariff," the attaché said.

Washington Insider: Farmer Political Support May be Softening

There is wide support for U.S. producers from all levels of the Trump administration, Bloomberg says, but it also suggests that farmer loyalty for the president may be “starting to waver over moves that are seen to undermine corn-based ethanol and escalate trade disputes” with countries that import American crops.

Agriculture groups have repeatedly urged caution on trade disputes, citing the importance of the Mexican and Canadian export markets under NAFTA. They’ve also pointed to China’s willingness to retaliate against U.S. measures by targeting major commodities including soybeans, the second-most-valuable American crop.

Biofuels policy, meanwhile, has continued to be a flashpoint in a long-simmering refiners-versus-farmers standoff.

Farm-state lawmakers including Iowa Republican Senator Chuck Grassley have been in a series of negotiations with Texas Republican Senator Ted Cruz, industry stakeholders and the White House as refiners have sought waivers of biofuels rules. Some waivers have been granted by the EPA. Grassley, who represents the top ethanol-producing state, has threatened to seek EPA Administrator Scott Pruitt’s resignation if the agency undermines renewable fuel requirements.

On a conference call with reporters on Tuesday, Grassley said that Pruitt has “betrayed” the president on the RFS and that he will wait until he sees the details of the White House announcement before deciding if he will call for his resignation. Separately, at the Platts Energy Podium in Washington on Tuesday, Senator Joni Ernst, R-Iowa, said the administrator is “breaking our president’s promises to farmers.”

“I would like to see the president’s administration upholding his commitment to our American farmers, and right now, support is wavering in Iowa, people are really worried,” Ernst told the conference. “We have some young and beginning farmers that just don’t have the types of savings built up they would need to sustain a long period of loss.”

While most farmers still support the president, frustration with his administration has come more into the open, Bloomberg says.

More than 80% of voters in Iowa, Minnesota and Missouri said it was important that Trump maintain his promise to defend federal biofuel mandates, according to a survey by the National Biofuels Board. A "substantial majority" of respondents say the EPA’s Pruitt isn’t reflecting the president’s promises, the Jefferson City, Missouri-based board said.

The controversy is reverberating in politically important agricultural states, several of which host Senate races that may determine which party controls the chamber this year. Two incumbent Democrats in Minnesota and one in Missouri, both states covered by the survey, are up for re-election. Incumbent Democrats are also facing tough battles in North Dakota and Indiana, which also produce biofuels.

The likelihood of a massive exodus of farmers from the Trump coalition is still low, according to Harwood Schaffer, an agricultural economist and farm-policy expert at the University of Tennessee at Knoxville.

But even weakening support, combined with skepticism from voters who may not be farmers but still care about agricultural issues, may be enough to tilt outcomes in several close races this year, Schaffer said. The farm bloc may be pro-Trump, but also may be less in the president’s pocket than was earlier assumed, he said.

"If you see some changes on the margins, you might see some softening along the edges," in terms of support, Schaffer said. "If you see changes that make the price of corn go from $4 to $2 (a bushel), then you’ll have a rebellion."

Well, if the past is any guide, administration policies that undercut markets can be expected to sharply reduce farmer political support, as the Carter embargos of shipments to Russia did in 1980—in spite of extensive administration market interventions to reduce producer impacts. Thus, a double impact from both reductions in grain energy mandates and loss of export markets could prove very difficult to overcome—likely much more difficult than administration observers are now suggesting; policies that should be watched very closely should they emerge, Washington Insider believes.

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