Washington Insider-- Thursday

New Anti-Pollution Rules in Vermont

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

Farm Lenders Excluded from CFTC's Trading Advisor Definition

Designated institutions in business primarily to make loans to farmers, ranchers and other agricultural entities are excluded from the definition of commodity trading advisor (CTA), the CFTC said.

Any commodity trading advice provided by institutions in the "Farm Credit System" (FCS) is incidental to their lending activities, the agency said. The Farm Credit Council, which represents members of the system, petitioned the Commodity Futures Trading Commission (CFTC) in October to exclude FCS institutions from the CTA definition, the CFTC said in an order.

FCS is a federally chartered network of borrower-owned institutions that make loans to agricultural interests. The lenders, which are regulated like banks by the Farm Credit Administration, include CoBank, AgriBank, AgFirst Farm Credit Bank and Farm Credit Bank of Texas. They make loans to affiliated associations, which then extend loans to borrowers.

FCS members exist primarily to make loans, the FCC told the commission. FCS institutions use derivatives to manage their own risks and offer them to borrowers so the borrowers can manage risk associated with their loans, according to the CFTC. Information provided by FCS institutions about derivatives "generally is generic and not intended as commodity trading advice," the CFTC said. Borrowers also acknowledge that FCS lenders are not advisors, the agency said.

EIA: 2017 RFS Targets to Bolster Biomass-Based Diesel Growth

The greatest impact from the Environmental Protection Agency's (EPA) final 2017 Renewable Fuel Standard (RFS) rule will be on biomass-based diesel consumption, which is forecast to continue its recent growth into 2017, while ethanol consumption is expected to remain largely unchanged, according to the Energy Information Administration (EIA). Link.

On November 23, EPA issued the final rule for the 2017, with higher targets than those initially proposed in May. EPA increased both the advanced biofuels and total renewable fuel targets while keeping the cellulosic biofuel and biomass-based diesel targets unchanged.

Biomass-based diesel generates Renewable Identification Number (RIN) credits, which are used by refiners and importers of gasoline and diesel to meet the RFS targets for use of biomass-based diesel, advanced biofuels, and total renewable fuel. Biomass-based diesel RINs, also known as D4 RINs, are more valuable than D6 RINs for grain-based ethanol given their flexibility in meeting multiple RFS targets.

Steadily increasing RFS targets for biomass-based diesel have led to increasing D4 RIN prices, which, along with the blender's tax credit, have helped encourage growing levels of biomass-based diesel consumption in 2015 and 2016.

In EIA's December Short-Term Energy Outlook (STEO), the agency forecasts that biomass-based diesel consumption will increase from 1.7 billion gallons in 2015 to a record level of 2.5 billion gallons in 2017, 0.5 billion gallons above the biomass-based diesel RFS target of 2.0 billion gallons. The additional biomass-based diesel will help meet the advanced biofuel RFS target.

Washington Insider: New Anti-Pollution Rules in Vermont

One of the most persistent complaints of ag producers concerns environmental regulations and the paperwork and overall intrusions they bring. The industry has notched legal and political victories in efforts to reduce these in recent years, and expects more under the incoming Trump administration.

At the same time, urbanites have pushed hard for more effective watershed pollution cleanups in the Chesapeake Bay, parts of Florida, in the huge watersheds of the Mississippi river and some Great Lakes, among others. For example, the Associated Press is reporting this week that farmers in Vermont are facing tough new rules to prevent runoff into Lake Champlain. The AP says some observers are calling these the "biggest change to the industry in their lifetime."

The new agricultural practice rules, with took effect Monday, require small-farm certification, storing and spreading of manure, planting cover crops to improve soil and prevent erosion, and expanding vegetated buffer zones on fields near water and ditches. They are part of Vermont's commitment to reduce phosphorus runoff into Lake Champlain, which has been plagued by toxic algae blooms.

The state says agriculture is the biggest phosphorus contributor at more than 40%.

"A lot of farms, whether it's small, medium or large haven't had this type of regulation handed down with as many changes," said Brian Kemp, president of the Champlain Valley Farmer Coalition. The rules are a big challenge to some dairy farmers already struggling with low milk prices, particularly those that may need to update manure storage or other facilities, he said.

The rules also are expected to have a big impact on farms that rely on land on floodplains because they shorten the time manure can be spread in those areas, Kemp said.

"That's going to affect a lot of farmers along the river corridors that rely on that crop ground. And it really is going to shorten their window of opportunity to do their tillage, and ... implement their fall manure," he said.

The report cited the Orr Family Farm in Orwell, which milks about 100 cows, as an example. It said the farm has spent already tens of thousands of dollars preparing for the requirements by building a new barn, keeping cows our of streams, planting cover crops and redoing ditches, grass waterways and buffer zones. The farm received financial assistance from the USDA's Natural Resources Conservation Service, the report noted and said it had "been very proactive."

Numerous aspects of particular water and air cleanup regimens have been the subject of intense legal fights by producer groups and others in recent years, and most expect some relief from some environmental regulations from the more fossil fuel friendly executives now being named to key jobs in the incoming administration and that likely will be the case.

At the same time, it is unlikely that these conflicts will be entirely a thing of the past. Unlike the officials in other policy positions that enforce social and economic rules that are fairly recent in origin and allow considerable leeway for executive interpretation, those in the environmental area are often based on frequently tested areas of relatively well settled law—supported by well-funded groups with long experience in anti-administration lawsuits as well as considerable success in recent campaigns to force administrations to take cleanup steps.

This doesn't mean an end to EPA programs or regulations, of course. EPA's budget likely will be challenged and its staffing choices face greater scrutiny from states as well as advocate groups. At the same time, anti-pollution efforts likely will continue, especially in areas where pollution problems increasingly affect drinking water and air quality for large, important areas, Washing Insider believes.

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