Washington Insider -- Thursday

Farmers and the Trade Bailout

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

Treasury’s Mnuchin Says Ag Key Focus for This Month’s Trade Talks With China

Deputy-level talks between the U.S. and China this month will have a focus on agriculture, Treasury Secretary Steve Mnuchin told the Senate Banking Committee Tuesday.

Mnuchin assured lawmakers that they have spent a “lot of time even on trying to get an interim agreement” on agricultural issues with China. “I never thought I would become an expert on soybeans and other agricultural products,” he noted. “I have been accused at times of just wanting to sell soybeans. That is not what we are trying to do. But we want to make sure that China treats our farmers fairly and does not retaliate against the farmers in an unfair way.”

As for the talks later this month at the deputy level, Mnuchin said, “I can tell you that [agriculture] is top of the agenda for the conversations we are having this month." Mnuchin also referred to China’s commitments to buy U.S. ag goods that have not been met with actual purchases.

“I can also tell you that there were specific commitments made in the Oval Office from the Chinese that they did not follow through on and that has been great concern on us for U.S. farmers,” he noted.

White House Told Biofuel Backers to Accept Boost in RFS Levels

Trump administration officials urged biofuel companies to accept a proposed increase of around five percent in the 2020 biofuel targets under the Renewable Fuel Standard (RFS), with reports indicating the companies were told they needed to accept the plan by Friday.

While some question if that was merely a negotiating tactic on the part of the administration, indications are the administration told biofuel interests work on boosting the 2020 biofuel levels beyond the marks proposed by EPA earlier this year would need to be started by Friday for the final version of the 2020 standards if the administration were to stick to the law requiring the standards to be finalized by November 30.

A meeting was expected to be held later Wednesday with refiners who have also chafed at the proposal to increase the levels for conventional biofuel by 500 million gallons and advanced biofuels by 500 million gallons. That would increase the total biofuel mandate to 21.04 billion gallons for 2020.

It was not clear whether the White House would make the same “request” of refiners – that they accept the plan by Friday.

Washington Insider: Farmers and the Trade Bailout

Press reports this week indicate that a great deal of media ink continues to be dedicated to the political impact of administration trade policies. And at the same time, the Washington Post is highlighting what it calls “the growing concerns” by some administration insiders over the “unprecedented farmer bailout.”

The report says that senior government officials, including some in the White House, privately expressed concern that the administration’s $28 billion bailout for farmers “needed stronger legal backing,” according to several officials who participated in the programs’ planning.

The bailout was created by the administration as a way to try to calm outrage from farmers who have been caught in the middle of the White House’s trade war with China. USDA authorized $12 billion in payments last year and another $16 billion this year, and “more money could be on the way,” the President promised.

But two USDA officials involved in the program told the Post they were worried the funding could surpass the original intent of the New Deal-era Commodity Credit Corporation, which is being used to manage the programs.

Separately, some officials in the Office of Management and Budget also raised questions about the scope of the $16 billion second round of payments. They pushed USDA to provide more legal reasoning for the effort, the officials said. Now the department says the concerns raised by OMB have been resolved.

Concerns about the programs are coming at a crucial time as many farmers are relying on the funding. However, Congressional approval likely will be required to allow the program to exceed its current $30 billion cap on payments.

The Post says that while the President has touted his financial support for farmers, administration officials have said little publicly about “internal consternation” over the process. White House aides are for the first time pressing Congress to increase how much the administration can spend under the program before hitting Commodity Credit Corporation’s (CCC’s) legal spending limit, likely this fall.

The bulk of the current program consists of direct checks intended to compensate for farmer losses from the trade war. There is little precedent for such an open-ended farmer bailout of this nature, the Post says.

Even some officials who believe the bailout is legally sound worry about its scope and the speed with which it is being implemented. “They’re doing it really fast and shorthanded,” a former USDA official who spent several decades involved in reviewing new department regulations but left the government earlier this year told the Post. “The agencies implementing it are stretched thin, and there’s immense political pressure to get the money out quick.”

In a statement to the Post, USDA acknowledged that OMB had raised concerns as part of its “normal clearance process” but said it cleared the package before it was published in the Federal Register. The statement also said OMB has no outstanding requests about the programs and that both “have been deemed legal by department attorneys.”

The administration says its trade war is necessary to counter anticompetitive Chinese economic measures. However, China’s retaliatory actions have increased economic pressure on thousands of American farmers. Net farm income has fallen by nearly half over the past five years, from $123 billion to $63 billion.

Still, close to three in 10 farmers feel the bailout payments will “not at all” make up for losses related to the tariff battle in 2019, according to an index calculated by Purdue University released this month. But about 70% said the bailout would either “completely or somewhat relieve” their concerns about the tariffs.

Questions around the program’s design may become increasingly urgent as the administration seeks approval from Congress to bailout funding for the first time. The CCC is expected to hit its $30 billion borrowing limit sometime after Oct. 1, according to an administration request for budget increases first reported by Roll Call.

In addition, it is unclear how strong producer support is for the administration’s trade policy. For example, Reuters reported this week that many farmers are angry and that some are directing their wrath not at the Republican president, but at Washington's bureaucracy.

The report notes that the administration has faced backlash from agricultural groups, ethanol producers and Midwestern politicians, but that polls still show that while administration support in farm country has slipped, it remains substantial.

In still another wrinkle, Reuters says that instead of directing their anger at the administration, dozens of farmers interviewed blasted USDA and other Washington institutions they believe are thwarting his true agenda. “Unsubstantiated conspiracy theories involving USDA staff are circulating in farm country and gaining traction online,” Reuters said.

So, we will see. Numerous ag observers warned earlier that proposed bailout programs were unlikely to fully pacify producers, who have invested heavily in overseas markets. Such bailout efforts failed badly in 1980 following the administration’s embargo on ag product shipments to Russia and the following severe political pushbacks and bad feelings that have persisted to this day. It may be difficult for the current administration to escape similar criticism, especially if current trade negotiations fail and overseas markets decline further. These are developments producers should watch closely over the coming months, Washington Insider believes.

Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products and on the News and Analysis Menu of DTN’s Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the US Ag Policy, US Farm Bill and DTN Ag News sections on their News Homepage.

If you have questions for DTN Washington Insider, please email edit@dtn.com