Washington Insider -- Wednesday

Aid is Scarce for Farmers in Trade War

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

Report Says EPA to Propose Reset for RFS

EPA is developing a proposal to be unveiled in January that would set new targets for the 2020-2022 period for the Renewable Fuel Standard (RFS) given that the legislative targets for biofuel levels have been missed, according to two sources quoted by Reuters.

Under the law, EPA is able to propose a "reset" of RFS levels if biofuel targets spelled out in law are missed by more than 20 percent or more for two years in a row.

The two sources told the news service EPA is planning to "slash" the 2022 target to bring it closer to market realities, however, a figure has not been settled on.

The shortfalls in biofuels production have mostly been in the advanced and cellulosic biofuel categories while conventional ethanol production -- primarily corn-based ethanol -- has met the statutory targets.

EPA has proposed setting the cellulosic biofuel requirement at 381 million gallons in 2019 after having set it at 288 million gallons in 2018. Under the 2007 energy law, the requirement for cellulosic biofuel was to be at seven billion gallons for 2018 and 8.5 billion gallons for 2019.

For advanced biofuels, EPA has proposed a mark of 4.88 billion gallons for 2019 and set the level at 4.29 billion gallons for 2018. Under the 2007 energy law, the advanced biofuel level was to be 13 billion gallons for 2019 and 11 billion gallons for 2018.

Conventional biofuel, primarily corn-based ethanol, was capped at 15 billion gallons annually for 2018 through 2022.

Corn Growers Urge Changes for Second Tranche Of Ag Trade Aid

Changes to the methodology used to calculate a second round of trade aid payments are being called for by corn growers, contending the first payments did not take enough into account.

A first round of payments under USDA's Market Facilitation Program (MFP) are currently being disbursed and as the second round is being readied, the National Corn Growers Association (NCGA) wants USDA to broaden the areas it considers in putting those payments together.

Of commodities receiving MFP payments, first round payouts for corn set to be the lowest with a rate of $0.01 per bushel, yielding disbursements totaling $96 million. In a letter to USDA Secretary Sonny Perdue, NCGA President Lynn Chrisp cited an analysis it previously shared with the White House, conducted by Integrated Financial Analytics and Research (IFAR), which found trade disputes with China and the European Union (EU) caused an average decline in the price of corn of $0.44 per bushel.

As trade turmoil with the EU, China and others persists, causing "significant uncertainty," Chrisp asked Perdue to consider two changes to MFP payment calculations to more accurately address the negative effects being felt by US corn growers.

First, Chrisp asked that ethanol and distillers dried grains with solubles (DDGS) be added to the calculation of damages for corn. "Gross trade damages for ethanol and DDGS amounts to $254 million that was not accounted for in the first tranche of MFP payments," he wrote.

Second, farmers suffering production losses due to natural disasters should be allowed to use an alternate method for calculating 2018 production for the purpose of determining MFP payments. Such a change "would ensure that farmers in Kansas, Missouri and Texas, who are suffering from drought, and farmers in the Southeast, who are suffering losses from Hurricane Michael, would not be penalized twice," Chrisp said. Also, he added, it is "important that farmers be allowed to use RMA production records in MFP."

Washington Insider: Aid is Scarce for Farmers in Trade War

The New York Times and most other urban papers have a certain amount of trouble painting realistic pictures of what is going on down on the farm. Still, they try and NYT is reporting this week that “America’s farmers have been shut out of foreign markets, hit with retaliatory tariffs and lost lucrative contracts in the face of the President’s trade war.”

In addition, the Times says the $12 billion bailout program created to “make it up” to farmers has actually “done little to cushion the blow, with red tape and long waiting periods resulting in few payouts so far.”

The main point of the article is that USDA is reporting that only $838 million has been paid out to farmers since the first $6 billion pot of money was made available in September. Another pool of up to $6 billion is expected to become available next month.

Though, as DTN reported Monday, the payments had reached $1.128 billion by Monday morning. The top five commodities being soybeans, corn, wheat, dairy and hogs. The top five states for recipients are Illinois, Indiana, Iowa, Kansas and Minnesota.

Also, the “government is unlikely to offer additional money beyond the $12 billion,” according to Sonny Perdue, the agriculture secretary.

The program’s limitations are beginning to test farmers’ patience, the Times thinks. The trade war shows no signs of easing, with China and the United States locked in a stalemate that has reduced American farmers’ access to a critical market for soybeans, farm equipment and other products. Europe is planning more retaliatory tariffs on top of those already imposed on American peanut butter and orange juice and Canada and Mexico continue to levy taxes on American goods, including on pork and cheese.

President Trump, who has had broad support in many farm states, still insists that his get-tough approach to trade will ultimately help American farmers, a position Secretary Perdue reiterated last month when he said farmers are “resilient” and can plan ahead for market conditions.

Farmers are no strangers to foreign tariffs or to government subsidies. But receiving monetary support in response to a trade dispute set off by the United States government is unusual.

Different commodities receive different rates -- for instance, hog farmers get $8 per head for 50% of their herd, while dairy farmers get 12 cents for every hundred pounds of milk. In addition, the government plans to purchase about $1.3 million worth of certain products, such as apples, oranges and pork, which it will distribute through nutrition assistance programs.

Farmers had mixed feelings about the “bailout” when it was announced last summer, as they tend to prefer free enterprise over government intervention. “Many” say they are disappointed as the subsidies have not made up for their losses, NYT says.

“I don’t think this is going to be enough to compensate them,” said Eric Belasco, an economist at Montana State University and a scholar at the American Enterprise Institute. “It seems like there’s not really an end in sight.”

The dairy industry has been particularly critical of the program and, in a recent letter to Perdue, asked the administration to rethink how it calculates subsidies and to make them more generous to dairy farmers.

“This was supposed to make sure farmers were not the victims of this trade policy,” said Jim Mulhern, president of the National Milk Producers Federation. “I think most agriculture producers feel that the payments have not come close to making up for the damage for the tariffs.”

Like any program offering free money, there are also opportunities to game the system. On Monday, the watchdog organization Environmental Working Group released a report that shows city residents who own shares in farms and relatives of farmers have been capitalizing on the bailout and that some farmers appear to have been paid large sums of money.

The program caps the amount farmers can receive, limiting payments to $125,000 per person or legal entity. But farms are often structured as partnerships, meaning that people who are not physically working on farms can still receive subsidies.

The Environmental Working Group’s analysis of 87,704 payments made through October found that 1,142 farmers in the nation’s 50 largest cities have received bailout payments.

Farmers in general are having a tough year. The USDA’s Economic Research Service predicts net farm income in the United States this year will fall by $9.8 billion, to $65.7 billion, a 13% drop from 2017. Weak pricing and tight credit have put pressure on farms in recent years, and new trade barriers have exacerbated their economic problems.

Pork has also been getting pinched. The National Pork Producers Council estimated that China’s pork tariffs, which were a response to Trump’s steel and aluminum tariffs, could cost the industry more than $2 billion this year.

So, we will see. Farmers are notoriously skeptical of programs that are expected to offset losses from policy decisions, a characteristic they have shown repeatedly in the past. Analysts suggested that the administration largely escaped political retaliation for its trade policies in the recent midterms. At the same time, few seem to believe that producers will support the administration’s tough trade policies and the retaliations they bring indefinitely, especially if it turns out that the so-called farm aid has been seriously oversold -- a debate producers will need to watch closely as it proceeds, Washington Insider believes.

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