Washington Insider -- Thursday

Ag Policy Fight in Oval Office

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

Small Refiner Exemptions Are The Issue That Won’t Die

Pressure continues on the Trump administration over the issue of small refiner exemptions (SREs) under the Renewable Fuel Standard (RFS).

The SREs have taken “a devastating toll on rural families facing one of the toughest years on record,” said Iowa Governor Kim Reynolds and Iowa Agriculture Secretary Mike Naig in letter to EPA Administrator Andrew Wheeler. EPA should be more transparent in issuing waivers and “immediately reallocate the gallons that have been lost due to the waivers that have already been granted,” Reynolds and Naig said in their letter.

Meanwhile, biodiesel advocates are seeking to ensure anything the Trump administration does to mitigate damage does not ignore biodiesel. The National Biodiesel Board and American Soybean Association asked President Trump for a meeting on the issue, stressing in a letter that refinery exemptions disproportionately affect biodiesel and renewable diesel producers because of the design of the RFS.

The Iowa Soybean Association said in a separate letter the actions to help ethanol really have not benefitted biodiesel.

US, Mexico Reach Deal on Tomatoes

Mexican tomato producers and the U.S. government have reached agreement on tomato trade in a deal that will avoid an antidumping investigation, according to Mexican Economy Minister Graciela Marquez.

While 92% of Mexican tomatoes coming into the U.S. will be inspected at the border – a “controversial proposal,” according to a statement from several Mexican agricultural organizations – the deal would also raise the reference price of specialty tomatoes and an increase in the price of organic tomatoes that would amount to a 40% increase compared with conventional tomatoes.

The groups releasing the statement included the SPTN tomato producers group.

The deal calls for a “sunset review” of the agreement by September 2024.

Mexico’s Marquez said on social media that the accord was “good news” that will keep the U.S. market open to Mexican tomatoes, noting the deal was reached just before midnight August 20. That will allow for a 30-day comment period before a September 19 deadline from the U.S. Department of Commerce to complete its antidumping investigation.

Resolution of the issue could help ease concerns about vegetable imports from Mexico that some lawmakers have cited and it could help build further support for the U.S.-Mexico-Canada Agreement (USMCA) in Congress.

Washington Insider: Ag Policy Fight in Oval Office

Bloomberg is reporting this week that a “farm state uproar” reached the Oval office on Monday — but that the difficulty was not the “get tough” trade policies that have been hammering ag markets this year, but rather concerned ethanol fuel mandates.

The report said that the president not only presided over the dustup but urged officials to soften the impact of recent policy moves that angered Midwestern farm states critical to his re-election, especially the EPA’s Aug. 9 decision to give 31 refineries exemptions from annual biofuel-blending requirements. The report quoted Iowa Senator Chuck Grassley, R-Iowa, as asserting that the administration’s biofuel policy had “screwed” farmers.

Trump suggested rescinding some of the newly granted waivers during the Monday meeting, Bloomberg said, but was told the waivers may not be reversible. In response, officials offered other ideas to mitigate the political impact in Iowa, a state he carried in 2016 and needs again in 2020 to win.

Monday’s back-and-forth illustrates an intensifying clash over U.S. biofuel policy that pits two of Trump’s top political constituencies — farmers and oil interests — against each other, Bloomberg said. The administration is divided, with USDA favoring farmers and the EPA insisting the law compels them to waive the requirement for refineries facing economic harm.

The Monday meeting was organized to discuss trade with China but quickly turned into a fuels discussion because the U.S. ambassador to China, former Iowa Governor Terry Branstad, had just visited the state and was concerned about “the harm” he believed the waivers will cause rural America.

The meeting was lively and lasted roughly two hours, with at least one follow-up call. The discussion included broad policy changes designed to mollify farm-state critics and expand the market for corn-based ethanol. At one point, Branstad even questioned whether the U.S. could mandate that auto companies make all vehicles capable of running on a variety of fuels to allow consumers to choose what to use, an idea that was quickly rebuffed after warnings that it would provoke a big fight with automakers.

Among the other options discussed: fuel policy changes designed to make E15 — gasoline that contains 15% ethanol — the new nationwide standard, replacing the 10% variety that is now commonplace.

The EPA in May lifted restrictions on E15 gasoline that blocked widespread summertime sales, but fewer than 2,000 stations offer that blend. Flex-fuel vehicles are capable of using both but limited consumer interest has discouraged widespread adoption.

It is not clear that any of Monday’s ideas will materialize. Since 2017 the administration has tried to broker a compromise on biofuel policy between warring ethanol and oil industry interests, but the design of the U.S. Renewable Fuel Standard makes it nearly impossible to satisfy both stakeholders simultaneously. And many of the ideas advanced Monday would require congressional action or lengthy federal rulemaking; some even conflict with regulatory changes already under way.

Moreover, some of the proposals would benefit ethanol but do little to address concerns by U.S. biodiesel makers that use soybean oil as a feedstock and whose footprint extends beyond the corn belt.

The White House discussions center around a 14-year-old federal law that dictates oil refineries use biofuel to satisfy annual quotas set by the EPA. The statute authorizes the EPA to issue exemptions for small refineries facing a “disproportionate economic hardship,” but biofuel proponents argue the administration has handed out the waivers too freely and is undermining domestic demand for the products.

The EPA decided to grant 31 exemptions from 2018 biofuel-blending quotas — and deny six other applications — following months of internal deliberations and after the President intervened to authorize the move.

The exemptions have caused anger throughout the Midwest, where biofuel producers, their political allies and farmers view the waivers as curbing demand for their products, amid a trade war with China that has already diminished sales. Democratic candidates for the White House also have seized on the issue.

EPA officials and oil industry advocates push back against assertions that refinery exemptions are eroding demand for ethanol and point to the fact that the administration has overseen year-over-year increases in domestic fuel ethanol production to the highest level in history and that the U.S. exported a record volume of ethanol in 2018 for the second consecutive year.

The EPA said its decisions take into account direction from Congress, recommendations from the Department of Energy and recent court decisions that rapped the agency for denying some refinery waivers.

Still, participants in Monday’s meeting are highlighting the backlash in Iowa and other midwestern states, illustrating the political concern about alienating crucial swing voters. Oil industry allies, including Senator Ted Cruz, R-Texas, have made the opposite pitch during earlier administration discussions on the issue, arguing that support from refinery workers in Pennsylvania and other battleground states is also at risk if the president strengthens U.S. biofuel mandates.

So, we will see. Ethanol and biodiesel mandates have always been controversial in some quarters and those fights intensify sharply during elections — especially when other markets have already been diminished by other administration policies. These are economic battles producers should watch closely as they emerge, Washington Insider believes.

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