Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.EPA Sets RFS Ethanol Mandates Above Proposed Levels
EPA has finalized the volume requirements and associated percentage standards that apply under the RFS program in calendar year 2017 for cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel. EPA also finalized the volume requirement for biomass-based diesel for 2018.
The final volumes represent continued growth over historic levels and are above those marks the agency proposed earlier this year for ethanol, but not biodiesel, and represent a lower amount for cellulosic ethanol. The final standards meet or exceed the volume targets specified by Congress for total renewable fuel, biomass-based diesel, and advanced biofuel.
In May via a notice of proposed rulemaking, EPA proposed a level of 312 million gallons for cellulosic ethanol and 4 billion gallons of advanced biofuels and a total renewable fuel level of 18.8 billion gallons.
Total renewable fuel volumes grow by 1.2 billion gallons from 2016 to 2017, a 6% increase.
Advanced renewable fuel, which requires 50% lifecycle carbon emissions reductions, increase by roughly 700 million gallons between 2016 and 2017.
Non-advanced or “conventional” renewable fuel increases in 2017 meet the 15 billion gallon congressional target for conventional fuels.
The standard for biomass-based biodiesel, which must achieve at least 50% lifecycle greenhouse gas emission reductions compared to petroleum-based diesel, grows by 100 million gallons. The required volume of biomass-based diesel for 2017 is twice as high as the minimum congressional target.
Cellulosic biofuel, which must achieve at least 60% lifecycle greenhouse gas emissions reductions, grows by 35% over the 2016 standard.
The advanced biofuel standard, which is comprised of biomass-based diesel, cellulosic biofuel, and other biofuel that achieves at least 50% lifecycle greenhouse gas emissions reductions, increases by 19% over the 2016 standard.
The higher advanced biofuel level assumes production of BBD beyond the 2 billion gallon requirement for 2017, with vegetable oil the primary feedstock (primarily soy, corn and canola oils) and waste fats, oils and greases.
USDA Forecasts 2016 Grocery Store Food Price Decline
Food-at-home (supermarket) prices are now forecast to decrease between 1.25% and .25% in 2016, the first year since 1967 that grocery store food prices could reflect annual deflation, according to an updated forecast from USDA's Economic Research Service (ERS).
"Recent declines in prices for beef and veal, poultry, and eggs" are behind the now-lower forecast, ERS noted. "Lower transportation costs due to deflated oil prices as well as the strength of the US dollar have placed additional downward pressure on food prices in the first half of 2016. A strong U.S. dollar makes U.S. goods less desirable to foreign markets, leaving more potential exports on the domestic market. Comparing the 2015 average price level with the 2016 level to date, the CPI for food-at-home is down 1.1%."
Another factor: "Retail food prices have remained flat or decreased for eight of the first ten months in 2016."
The reduction in grocery store prices also lowered the overall food price increase to a range of 0.25% to 1.25%, putting the rise in line with the lowest level seen since at least 1974 of an increase of 0.8% seen in 2010.
One area not revised is for forecast for food-away-from-home costs to rise 2.5% to 3.5%. "Food-away-from-home prices have been rising consistently month-over-month due, in part, to differences in the cost structure of restaurants versus supermarkets or grocery stores," ERS observed. "Restaurant prices primarily comprise labor and rental costs with only a small portion going toward food. For this reason, decreasing farm-level and wholesale food prices have had less of an impact on restaurant menu prices."
While forecast to rise in 2017, ERS economists now forecast that increase to be just 0.5% to 1.5%, down from their month-ago outlook. "Despite the expectation for declining prices in 2016, poultry, fish and seafood, and dairy prices are expected to rise in 2017," ERS said. They included their usual caveat that weather, unforeseen events, the value of the US dollar or shifts in energy prices could alter the 2017 outlook.
Reductions in 2016 from forecasts the prior month were noted in meats, poultry, fish, eggs and dairy products, with individual meat products such as pork, beef and other meets revised down again.
Washington Insider: New Rules for Chicken Price Reporting
The issue of erratic chicken prices appears to be at least one step closer to resolution now, Informa Economics is reporting this week. A number of urban dailies including the Wall Street Journal and the Washington Post had questioned why prices for a major meat product like chicken had increased steadily in the face of declining livestock feed costs that dampened other meat prices.
For example, Georgia Dock chicken prices have at times this year been 30% to 60% higher than comparable price quotes from other major indexes for meat products, Informa says. And previous inquiries by USDA and the State of Georgia had revealed a somewhat haphazard system that collected but didn’t verify the reported prices.
Now U.S. major poultry processors will be required to submit documents verifying the accuracy of information they provide for the Georgia Dock Price. The shift is the first major change to the Georgia Dock index reporting procedure in more than 40 years.
The Georgia Dock index includes prices for chicken parts provided by representatives at nine different poultry producers with processing plants in the state. Pilgrim’s Pride and Tyson control about half of the 18 contributing plants to the benchmark, which excludes outlier prices that are more than one cent above or below the average.
In the past, each company representative told the state agency how many pounds its plants sold of certain chicken parts, and at what price, based on an honor system begun in 1973. Because poultry companies are not legally mandated to report the terms of their business agreements with retailers it is unclear how many contracts use the Georgia Dock index, as opposed to other indexes.
Earlier this year, in response to questions about performance of the Georgia index, USDA first requested changes in the collection process and then, when the State said it was reluctant to change the voluntary process, it discontinued publishing the Georgia figures, citing its inability to verify the information.
In the midst of these discussions, press reports said author of the Georgia report, Mr. Arty Schronce, wrote in a memo, “I have come to question the validity of some of the information provided,” he wrote in preparation for a meeting at the Georgia Department of Agriculture. “I do not think I am getting actual weighted average prices from some companies.”
Schronce indicated that he had been contacted by an investigator from the antitrust division of the Florida attorney general as well as USDA. He argued that he came into his job just a few years ago. “My training was inadequate, inconsistent and sometimes in error,” He wrote, and added that the companies he was required to survey were sometimes uncooperative. However, companies claimed to have provided accurate information when surveyed.
Tyson’s incoming chief executive, Tom Hayes, on a recent conference call with company analysts, played down the significance of the index, which he said is a factor used to price 3.5% to 4% of its chicken volume. “It will have no impact, if the Georgia Dock went away,” said Dennis Leatherby, Tyson’s chief financial officer. Pilgrim’s, the second-largest U.S. chicken processor, prices less than 5% of its current sales off the index, according to a spokesman.
So, while a change in the Georgia price reporting process has been anticipated for some time, it will be important to see how the new index performs—especially since retailers likely have adjusted their formulas and purchasing strategies to better reflect the market realities, as reflected by the comments by Tyson’s executives.
Potentially, the biggest loser in the recent questioning of industry prices is the food industry itself and its credibility. Thus, it will be important for producers to watch the new series closely to see how well as it is introduced and tested, Washington Insider believes.
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