Washington Insider -- Friday

Tariff War Scrambles U.S. Trade Routes

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

EPA Moves to Exempt Livestock Operations From Emissions Reporting Rule

The Trump administration is moving forward with a plan to permanently exempt livestock operations from requirements to report releases of hazardous air emissions to state and local emergency officials, setting up a likely legal showdown with environmentalists over the scope of the underlying statute.

A newly proposed rule would shield farms from the Emergency Planning and Community Right-to-Know Act (EPCRA), the 1986 statute that requires the reporting of emissions of hazardous chemicals above certain thresholds.

The law affects large livestock operations as animal waste produces ammonia and hydrogen sulfides, the two gases that can trigger notification responsibilities under EPCRA. Releases of more than 100 pounds a day must be reported under the law.

EPA has long suggested concentrated animal feeding operations (CAFOs) should be exempt from the law but its past efforts have been struck down in federal court.

In 2017 a federal appeals court sided with environmentalists and blocked a 2008 rule that exempted most CAFOs from EPCRA and all farms from inter-related requirements laid out by the Superfund law. The move prompted the Trump administration to issue new guidance last year that went further than the 2008 rule, exempting all farms from the EPCRA requirements. Congress in March enacted an exemption for CAFOs from reporting requirements of the Superfund law within the 2018 omnibus spending bill.

The bid to again codify the EPCRA exemption in regulation has strong support from the agriculture industry and was announced Tuesday (Oct. 30) by Acting EPA Administrator Andrew Wheeler, along with Sen. Jerry Moran, R-Kansas, state emergency responders and representatives of the livestock industry.

“It was never the intent of Congress for normal odors from animal waste on farms to fall under our nation’s emergency hazardous waste reporting requirements," Moran said.

Wheeler echoed that sentiment Wednesday (Oct. 31) at the National Chicken Council (NCC) annual meeting where he said the proposal will ensure the livestock exemption is "clear and crystallized" in a rulemaking.

"Doing so will provide much needed certainty and clarity to America's farmers, ranchers and chicken producers," Wheeler told NCC. "It will save them from onerous reporting requirements and [from] third parties possibly using that information against them in litigation."

EPA Approves Two-Year Registration for Dicamba, But Adds Restrictions

The registration of dicamba has been extended for two years for "over-the-top" application for cotton and soybeans genetically engineered to be resistant to the herbicide, but some additional restrictions on applications were announced by EPA to address "potential concerns to surrounding crops and plants."

“EPA understands that dicamba is a valuable pest control tool for America’s farmers,” said EPA Acting Administrator Andrew Wheeler. “By extending the registration for another two years with important new label updates that place additional restrictions on the product, we are providing certainty to all stakeholders for the upcoming growing season.”

The two-year registration goes until December 20, 2020, and over-the-top applications on soybeans are prohibited 45 days after planting and 60 days after planting for cotton. The number of over-the-top applications for cotton would be reduced to two while soybeans will remain at two. Applications will only be allowed from one hour after sunrise to two hours before sunset.

In counties where endangered species may exist, the downwind buffer will remain at 110 feet and there will be a new 57-foot buffer around the other sides of the field (the 110-foot downwind buffer applies to all applications, not just in counties where endangered species may exist). There are also enhanced tank clean-out instructions and the registration for all dicamba products will automatically expire December 20, 2020, unless EPA further extends it.

Washington Insider: Tariff War Scrambles US Trade Routes

It is not news that many producers are concerned about the impact of the administration’s “get tough” trade policies. In addition, Bloomberg is reporting this week that not only is the trade fight “rattling global soybean markets. It’s also shifting the flow of crops within the U.S., changing pricing patterns and boosting storage needs for much of this season’s bumper crop.”

Traders shipping soybeans through the Pacific Northwest, a key export hub for flows to China, are now diverting supply from that pattern south to the Gulf of Mexico, where the product can be shipped to alternative destinations including Iran and the European Union. Corn flows are also changing, with some elevator owners shipping more of the grain to make space for soybeans.

"A very big part of the soybean supply that typically moves out of the U.S. to China comes off the West Coast, and that’s just not happening now," Soren Schroder, chief executive officer of Bunge Ltd., told Bloomberg on Wednesday. "But that doesn’t mean that there are no bids for soybeans, it just means that they are most likely directed toward crushing plants in the domestic market or export channels that take the flows to the Gulf."

Still, Schroder said, “it’s building up a historically high level of soybean stocks that will carry through this year, and into next.”

Soybeans that usually get sent by rail to the Pacific Northwest ports for export are now moving by train to areas near the Mississippi River, where they get put on a barge to the Gulf, according to Jim Sutter, CEO of the U.S. Soybean Export Council. St. Louis is one of the common spots for that, he said.

The Pacific Northwest is also getting more corn at the start of the season as some grain elevators seek to make storage room for higher-priced soybeans. All of that is creating dislocations and price gaps that traders with domestic assets can benefit from.

"In the short term, dislocations caused by tariffs create arbitrage opportunities that well-positioned merchants and shippers can benefit from," Corey Jorgenson, president of the grain unit of The Andersons Inc. "Long term, the trade war is bad for our business and is really bad for U.S. farmers.”

The trade war already created a merry-go-round of sorts in international trade, with Argentina and Canada buying U.S. soybeans for local processing while exporting their own produce, Bloomberg says. It’s now doing the same within the U.S., creating local-price arbitrages and reshaping the way crops flow.

The impacts of the changes in flows affect growers differently in different regions, Bloomberg said. Growers in the Dakotas, Minnesota and Nebraska, more northern states whose crops used to flow west, have sold at discounts as wide as $1.80 a bushel against Chicago futures — while farmers in some southern poultry-producing regions see stronger prices.

Monte Peterson, who farms both corn and soybeans on 4,500 acres in Valley City, an hour away from Fargo in North Dakota, says his local elevator is sending corn by rail to the Pacific Northwest instead of the usual soybeans, which can sell for two to three times more. Sutter says some are piling weather-resistant corn on the ground and storing the oilseed.

Bloomberg notes that the U.S. has approximately 8,500 grain elevators with 11.2 billion bushels of storage capacity.

“There are sales for corn and the opportunity to ship corn to the Pacific Northwest, at least in these nearby months," Peterson said. He sees that as “the only salvation” for some producers.

Despite the record size of this year’s soybean crop, “the country has enough space” to store it, said Corey of The Andersons. “It’s just an element of displacement that things need to move to non-traditional places."

Meanwhile, Sutter said his export group is bringing trade delegations from countries other than China to try to persuade them to buy from the Pacific Northwest, or the PNW as it’s referred to within the industry.

“We’ve been bringing trade teams" in to visit the PNW and the states that usually supply that region so they can learn about the trade route and the quality of U.S. soy, Sutter said. That includes groups from Taiwan, South Korea, Japan, Thailand, Vietnam and Indonesia. And they’ve already scored a win with a memorandum of understanding with Taiwan.

"We saw Taiwan buy soybeans off the PNW for the first time in 15 years," he said.

So, U.S. producers have long been famous for their sophisticated marketing and transportation systems, and for their “sharp pencils.” Thus, highly complex new marketing schemes can be expected to emerge. However, producers also are increasingly aware of the impacts of the trade war on their markets overall, and can be expected to continue to press hard for market interventions that reduce the negative impacts of the national trade fight, Washington Insider believes.

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