Washington Insider -- Thursday

Modestly Bad Trade News

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

House Hearing Reveals Rifts Remain on Biofuel Policy

The chasm between biofuel supporters and refiners shows now signs of being bridged based on testimony both sides delivered at a House Energy & Commerce subcommittee hearing this week on small refinery exemptions (SREs) under the Renewable Fuel Standard (RFS).

Both sides are clearly set in their positions and there was little indication that will change. The situation still remains that both biofuel supporters and refiners are not happy with EPA’s supplemental rule issued relative to 2020 biofuel requirements under the RFS which aimed at addressing the SRE issue.

Given that the comment period on the plan runs through November 29, the November 30 deadline for finalizing the 2020 biofuel standards will be missed.

And EPA has not committed to a timeline of when they will do so, only saying it will be later this year. The U.S. biofuel policy situation will remain uncertain until the final 2020 biofuel plan is in place.


USDA Releases Hemp Rule

USDA released its interim final rule covering hemp production, with the measure coming into effect October 31. The plan would set up a nationwide regulatory framework to oversee commercial production of the newly legalized crop in time for the 2020 growing season.

USDA said the measure will be in effect for two years and the agency will accept public comments as it considers potential revisions. USDA said it will act on state plans within 60 days of submission after it publishes the rule in the Federal Register.

Some have expressed concern on the testing provisions in the plan. USDA said samples of hemp flower to be collected by a USDA - or state-approved agent within 15 days of anticipated harvest, and the sample must then be tested at a Drug Enforcement Agency (DEA) registered laboratory using one of several widely used methods, including post-decarboxylation as well as gas or liquid chromatography. However, USDA appears to have acknowledged the variance in testing methods, including a "measurement of uncertainty" for testing results that effectively bumps the legal THC level from 0.3% to 0.5%.

Under the plan, states can set stricter rules but they cannot put rules in place that have easier standards than those laid out by USDA.


Washington Insider: Modestly Bad Trade News

There was more than a little bad economic and trade news for the ag sector this week, including a report that U.S. farm bankruptcies in September surged 24% to the highest since 2011. Bloomberg linked the bankruptcy data to “strains from President Trump’s trade war with China and a year of wild weather.”

At the same time, the American Farm Bureau Federation is reporting that growers are becoming “increasingly dependent on trade aid and other federal programs for income and that the “squeeze on farmers underscores the toll China’s retaliatory tariffs have taken on a critical Trump constituency” as the 2020 election campaign heats up.

The Farm Bureau report said that almost 40% of “projected farm profit” this year will come from trade aid, disaster assistance, federal subsidies and insurance payments, based on Department of Agriculture forecasts — as much as $33 billion of a projected $88 billion in income. AFBF noted that the trade war and two straight years of adverse weather “rattled” farmers already facing commodity price slumps.

Chapter 12 bankruptcy filings in the 12 months ended September rose to 580 from a year earlier. That marked the highest since 676 cases in 2011 under the chapter of the bankruptcy code tailored for farms. The total “remains well below” historical highs in the 1980s, the federation said.

Recent bankruptcies were concentrated in the 13-state Midwestern region, a key battleground in the upcoming election where grain, soybean, hog and dairy farms have been hit by trade disputes. More than 40%, or 255 filings, were in the region.

Another piece of bad news came as Chile announced the cancellation of the Nov. 16-17 summit where President Trump had hoped to sign the preliminary trade accord with China. The decision to cancel follows a wave of protests that overwhelmed Chilean police, Bloomberg said. It called the unrest the most extensive “in a generation.”

How and when the leaders of the world’s two largest economies will meet to resolve their trade differences appears to be the biggest question thrown up by the Chilean decision. The expected deal, which Trump had previewed in mid-October, had calmed fears of a continuing escalation in the trade war that has cast a shadow over the global economy for the past 18 months.

The new cancellation “suggests that the trade war uncertainty might be hanging over us for longer,” Torsten Slok, the chief economist at Deutsche Bank AG, told Bloomberg. “It raises the risk that we could never see a phase two or phase three.”

Chile also canceled the United Nations climate change conference, known as COP25, scheduled for December in Santiago, President Sebastian Pinera said.

“We understand perfectly the importance of APEC and COP for Chile and the world, but we have based our decision on common sense,” Pinera said from the presidential palace. “A president needs to put its people above everything else.”

The decision to cancel the meetings highlights the depth of trouble facing the Latin American nation that has seen almost two weeks of rioting and protests. It also comes as a deep embarrassment to the government that had insisted it would go ahead with the conference just two days ago.

Bloomberg also reported that the White House says it still hopes to sign a preliminary accord with Xi Jinping next month, even after the cancellation by Chile appeared to catch the White House off guard. White House spokesman Hogan Gidley said that Trump still intends to sign a partial trade deal with Xi at about the same time in November as the planned Asia-Pacific Economic Cooperation summit.

“We look forward to finalizing Phase One of the historic trade deal with China within the same time frame, and when we have an announcement, we’ll let you know,” Gidley said.

The possibility of a Trump-Xi meeting in Santiago next month had buoyed markets as investors look for signs that an end to the multi-year trade war between the two nations is in sight. The White House was working as recently as Tuesday to finish a “phase one” agreement with an eye toward the leaders signing it in Chile, according to a statement from White House spokesman Judd Deere.

Both President Trump and Vice President Mike Pence said last week they were optimistic the deal would be finalized at the summit.

So, we will see. Both parties to the proposed partial trade deal appear inclined to favor at least a modest cooling off now, thus boosting chances for something positive to happen. However, given all the political tensions affecting both sides, the process still seems fragile and one producers should watch closely as it proceeds, Washington Insider believes.


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(GH/CZ)