Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.Treasury Proposes Pass-Through (199A) Rules With Implications for Ag
Non-corporate businesses made up of more than one entity will be able to band together to claim a new 20% reduction on their income, according to proposed rules issued this week by the Treasury Department and IRS.
Known as pass-throughs, the rule is meant to keep single businesses that operate through multiple legal entities from reorganizing themselves for tax purposes, a senior Treasury official said. The IRS is soliciting comments on the assumptions and the methodology used to calculate the compliance costs imposed by the proposed regulations.
The agency also said it will hold an October 16 public hearing on the proposed rules. The aggregation allowance should also ensure that pass-throughs generally face as low an effective tax rate as possible. For agriculture, the regulations proposed come with favorable terms for farms and ranches structured as pass-throughs — partnerships, limited liability companies or sole proprietorships — according to several tax consultants and accountants.
However, it appears cash rent or crop-share landlords will not qualify for the new deduction, known as Section 199A.
Push Continues To Revive COOL Via NAFTA Talks
Bringing mandatory Country of Origin Labeling (COOL) back into force via the current NAFTA 2.0 negotiations is being called for by the Coalition for a Prosperous America (CPA).
The group contends reinstatement of COOL labeling will help US consumers to find safer food alternatives and will also help to boost domestic agriculture. "If the president wants to extend his ‘Buy American, Hire American’ agenda to the nation’s agricultural sector, then we need to revise our food labeling policies,” said CPA Chair Dan DiMicco. “Americans undoubtedly want to buy safe, domestically farmed beef and pork. They should have the option to choose where their food is raised.”
CPA believes the U.S. Trade Representative should negotiate with Canada and Mexico to reinstate COOL labeling for both beef and pork.
However, Canada and Mexico still retain the right to retaliate against the U.S. if mandatory COOL is brought back.
***Washington Insider: Why Soybeans are on Frontlines in Trade War
Bloomberg is carrying a detailed analysis this week asking why soybeans are on the front lines of the U.S. China trade war. The report says that while China is targeting a slew of American farm goods in this round of taxes, soybeans are the top agricultural commodity China imports from the U.S. – by far.
Soybeans yield cooking oil as well as animal feed and account for about 60% of the $20 billion of U.S. ag exports to China. Before the tariffs were announced, a study by the University of Tennessee forecast that a 25% duty would spark a drop in American shipments of at least $4.5 billion. Brazil, already the world’s biggest soybean shipper, is set to be the biggest winner, filling much of the gap left by the U.S., Bloomberg says.
The tariff announcements have already weighed on soybean prices, the report notes. Most active soybean futures on the Chicago Board of Trade sank 14% in June as tensions swelled between the U.S. and China, the largest loss in four years.
As demand is threatened, supply looks strong. Brazil harvested a bumper crop earlier this year. And U.S. farmers planted one of the highest soybean areas on record and growing conditions have proven favorable so far this season, Bloomberg says.
China is the world’s largest soybean consumer and remains heavily reliant on imports, so “the country’s buying habits have an outsize inï¬‚uence on global prices.” By imposing the tariffs on U.S. agricultural products, China is targeting one of the few sectors of the American economy that runs a trade surplus at a time when net farm income is poised to fall to a 12–year low. Also, soybeans are one of the largest U.S. goods exports to China — trailing just civilian aircraft and motor vehicles by value this year, Bloomberg says.
Brazil has been the world’s top soybean shipper since the 2012/13 season. Its lead has widened against the U.S. in recent seasons and China’s tariffs may serve to accelerate Brazilian demand. Brazil typically dominates global shipments at this time of year, while the U.S. takes over from about October through January, as the new harvest supplies become available.
Brazil has posted swift gains in soybean production, spurring the export rivalry. A boom in global soy prices in the mid–1970s encouraged the government to invest in technology to adapt the crop to the country’s weather and soil. That created successful varieties that allowed planting in the Cerrado region, including what today is the top producer state, Mato Grosso. The biggest acreage jump occurred since 2000, as China’s demand climbed.
As China formalized its plans last month to act against U.S. agricultural products, soybean premiums at Brazilian ports soared. Demand for South American supplies has surged even though U.S. futures are tumbling and U.S. soybean prices may see an “increasingly severe” impact if trade tensions remain through harvest, CoBank recently reported.
The longer–term impact is less certain. Brazil doesn’t export enough soybeans to meet China’s demand alone, and there are few other major shippers besides the U.S., which will begin harvesting its next crop in September.
Argentina also is a signiï¬�cant grower of the oilseed, but more commonly exports processed meal and oil. Lower Chinese demand for U.S. oilseeds may be partially offset by rising exports to destinations like the European Union, Rabobank recently reported.
China still has about 1.14 million tonnes of outstanding U.S. soybean sales on the books for delivery by Aug. 31, though some cargoes have recently been switched for delivery in countries like Bangladesh and Iran, USDA says.
Bloomberg doesn’t say so but other have — U.S. soybeans appear to represent to the Chinese a large, vulnerable sector that includes numerous administration political supporters and the current trade fight is seen by many as an administration initiative that is already highly unpopular among parts of that group.
So, we will see what happens. Both sides appear to be deeply dug in now, with increasingly important escalations being made. This is a fight that is being closely watched across the ag sector, and among politicians — although the outcome remains uncertain. It likely will remain increasingly contentious for the foreseeable future, Washington Insider believes.
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