Washington Insider -- Friday

Perdue and Prospects for NAFTA

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

Oil Refiner CVR Reports Drop in Biofuel Compliance Costs

CVR Energy's refining unit reported their cost for biofuel compliance in the first quarter of 2017 fell to its lowest level in nearly five years.

Prices for renewable identification numbers (RINs) fell dramatically during since CVR majority owner and White House adviser Carl Icahn in February signaled a change in biofuel policy to shift blending requirements away from refiners to fuel terminals. Prices for the credits dropped in the wake of the situation which has yet to come to fruition.

CVR spent $6.4 million on RINs in the first quarter, down 85% from year-ago quarter, the company said in a call discussing its quarterly earnings. CVR chalked up the lower costs in part to a decline in prices.

Dairy-State Senators: USDA Can Help Canada-Impacted Dairy Farmers

Five Democratic senators in a letter sent to USDA Secretary Sonny Perdue said he just needs to take advantage of his existing authority to help Wisconsin and New York dairy farmers who have been locked out of Canada by the phasing in of new pricing schemes.

Section 5 of the Commodity Credit Corporation Charter Act allows USDA "to assist farmers now, helping them to market their milk, develop new markets, and increase the uses of their milk," the lawmakers said.

Section 32 authorities under the same legislation allow the agency to "purchase surplus dairy products and provide them to feed families in need," they added. The letter was signed by Sens. Tammy Baldwin. Wis., Charles Schumer, N.Y., Kirsten Gillibrand, N.Y., Amy Klobuchar, Minn., and Al Franken, Minn.

Washington Insider: Perdue and Prospects for NAFTA

Well, nobody said it would be easy, but probably, nobody said it would be so hard, either. In his first week on the job, new Ag Secretary Perdue appears to find himself in a position where his main constituency is struggling to know just what trade policy he has signed on to represent, or fight.

As you guessed, trade is the early issue. Over the last day or two, President Trump told leaders of Mexico and Canada by telephone that he would not immediately seek to end NAFTA. However, only hours earlier, important White House sources had signaled that orders for the staff to begin the process of dismantling NAFTA were being prepared.

In what the White House described as “pleasant and productive” evening phone calls with President Enrique Peña Nieto of Mexico and Prime Minister Justin Trudeau of Canada, Trump said no such “pull out” was planned, and that he would quickly start the process of renegotiating NAFTA. He said he made clear that he does not intend to abandon the agreement, as he said he would do during the presidential campaign if it cannot be “reworked” to his satisfaction. “It is my privilege to bring NAFTA up-to-date through renegotiation,” Trump said in a statement issued by the White House at 10:33 p.m. Wednesday.

The President added that he “believes that the end result will make all three countries stronger and better.”

Earlier on Wednesday, several media outlets (initially, a report by Politico) quoted officials signaling Trump was laying the groundwork to pull out of NAFTA, a move apparently intended to increase pressure on Congress to authorize new negotiations and on Canada and Mexico to accede to American demands. The Politico story said that an executive order “to get out of NAFTA” had been submitted to the White House staff secretary for the final stages of review. The author was said to be Peter Navarro, head of Trump's National Trade Council, working closely with chief White House strategist Steve Bannon.

As you might imagine, several farm commodity groups quickly released statements as did some lawmakers noting their alarm at the development, which was altered by Trump’s late-evening statement.

Trump added on Thursday that his willingness to renegotiate NAFTA did come with a warning to the leaders of Mexico and Canada: he is fully prepared to back out of the pact “if we do not reach a fair deal for all.”

Still, Trump sounded an optimistic tone in a pair of tweets Thursday morning. “I received calls from the President of Mexico and the Prime Minister of Canada asking to renegotiate NAFTA rather than terminate,” Trump wrote. “I agreed, subject to the fact that if we do not reach a fair deal for all, we will then terminate NAFTA. Relationships are good - deal very possible!”

The agreement itself requires Washington to give Canada and Mexico six months’ notice before exiting the trade agreement, which came into force in 1994. Any action to that effect would start the clock. But the prospect of the United States’ pulling out obviously alarmed Canadian and Mexican leaders, as well as US ag leaders, prompting their contacts to the White House.

“Canada is ready to come to the table at any time,” Alex Lawrence, a spokesman for the Canadian foreign minister, Chrystia Freeland, told Reuters on Wednesday.

In an interview with the Financial Times, Ildefonso Guajardo Villarreal, Mexico’s economy secretary, said his government was consulting with Washington and conscious of the new president’s desire to bring manufacturing jobs back to the U.S. “We are trying to work with his team,” he said.

In a somewhat wry side note, the Mexican officials said they tried to explain to Trump and his Cabinet that any time they lashed out at NAFTA and the peso fell it only made producing in Mexico cheaper and therefore more attractive to US companies. They did not mention a response.

The Trump administration must send a final version of a letter to Congress to start a 90-day waiting period before beginning negotiations for a new NAFTA.

Conservative Canadian House of Commons Member Gerry Ritz, the country's official opposition critic for international trade, was especially critical of President Trump's repeated criticism of Canada's dairy supply management program. He told Canadian-based www.RealAgRadio.com. "It's all shock and awe ... without a lot of details that his assumptions are based on. The biggest problem in the U.S. is overproduction and until they come to terms with that, we're not a dumping ground for anybody, especially for dairy and a few other commodities," he said.

Well, the administration position on NAFTA seems clearer now, but its statements leave a lot of room for just what will be required in an acceptable deal. The main problem, observers say, is that key White House experts do hate NAFTA and can be expected to work long and hard against it, in spite of ag interests across the industry and in the administration and Congress. This certainly is a central issue for the new Secretary and a tough challenge—certainly one that producers will be watching closely as it proceeds, Washington Insider believes.

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