Washington Insider -- Wednesday

Ag Interests Trade Letter

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

ADM to Sell Crop Insurer to Validus

Archer-Daniels-Midland Co. (ADM) agreed to sell its crop insurer to Validus Holdings Ltd. for $127.5 million in cash, extending the retreat of some of the world's largest agribusiness companies from the crop insurance industry.

The acquisition of ADM's Crop Risk Services (CRS) adds a business that operates in 36 US states with about 1,170 agents and generates more than $500 million in gross policy sales per year, the Bermuda-based buyer said in a statement Monday.

ADM joins Cargill Inc., seed provider Monsanto Co., tractor maker Deere & Co. and lender Wells Fargo & Co. among giant companies exiting crop insurance operations in recent years. "The sale of the business gives us the opportunity to redeploy capital," Joe Taets, president of agricultural services at Chicago-based ADM, said in the statement.

The companies will work together to offer insurance and grain-marketing services, he said. Validus said CRS will operate as part of its Western World Insurance Group. Validus also provides property-catastrophe coverage and sells specialized policies tied to construction, energy and aviation.

Zurich Insurance Group AG has also been expanding in the U.S. crop market, purchasing a unit last year from San Francisco-based Wells Fargo. The transaction is expected to be completed in the second quarter, according to the statement.

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Trump Continues to Shake Up Washington

President Donald Trump has continued his fast pace in his second week in Washington, with his team weighing in on a host of issues:

Department of Justice: President Trump fired top federal government lawyer Sally Yates after she ordered Department of Justice lawyers not to defend new travel and immigration restrictions. Dana Boente, U.S. Attorney General for the Eastern District of Virginia, has been named acting Attorney General until Jeff Sessions is confirmed by the Senate.

Trump also replaced the acting director of Immigration and Customs. But unlike Yates, no explanation was given for Daniel Ragsdale's bump back down to his previous position of deputy director.

Trade: Germany is using a "grossly undervalued" euro to exploit the U.S. and its European Union (EU) partners, one of President Donald Trump's top trade adviser said. Peter Navarro, the head of Trump's new National Trade Council, told the Financial Times the euro was like an "implicit Deutsche Mark" whose low valuation gave Germany an advantage over its main trading partners. FT said his views suggest the new administration is focusing on currency as part of its hard-charging approach on trade ties.

Regulations: Trump signed an executive order Monday to require federal agencies to eliminate two existing regulations for every new one created. The action is among promises candidate Trump made during the campaign and came after he emerged from a meeting with nine small business owners. "This will be the biggest such act that our country has ever seen," Trump said in signing the executive order.


Washington Insider Ag Interests Trade Letter

Bloomberg is reporting that a diverse group of more than 130 agricultural organizations and producers wrote to the president to stress the need to "re-evaluate NAFTA in ways that preserve and expand on what has been achieved."

The groups argued that market access and integration spurred by NAFTA have increased competitiveness and led to a "rising trade in agricultural products and substantial levels of cross-border investment in the agriculture and food sectors," the letter said.

Bloomberg also followed up with a number of ag experts who caution against renegotiating NAFTA on the grounds that such a policy could ignite a potential trade war with Mexico that would be "particularly costly to U.S. agriculture producers who rely on integrated supply chains," a former U.S. official said. Bloomberg cites Joe Glauber, former USDA chief economist and current senior research fellow with the International Food Policy Research Institute as concluding that, "U.S. producers will undoubtedly take a hit if a U.S.-Mexico trade war erupts."

President Trump has called for renegotiation of the NAFTA, blaming it for loss of U.S. manufacturing jobs. However, NAFTA intraregional agricultural trade is now with few exceptions—including sugar from Mexico—tariff and quota free. Thus, a trade war would mean that U.S. consumers who benefit from lower prices and counter-seasonal availability of food products from Mexico would be adversely affected, Glauber said, pointing to pineapples and tropical fruits as examples.

Trade attorney James L. Sawyer, of Drinker Biddle & Reath LLP, was cited by Bloomberg as believing that the currently proposed border adjustment tax would disproportionately affect the agriculture sector. The reason is that importers of agricultural products from Mexico and elsewhere are unlikely to benefit from the proposed tax exemptions on income from exports, he said.

Since 1960, U.S. agricultural exports have been larger than U.S. agricultural imports, generating a U.S. ag trade surplus that helps counter the trade deficit in nonagricultural U.S. goods trade, according to a USDA Economic Research Service report. For fiscal year 2017, China is expected to be the top U.S. agricultural export market at $21.8 billion, followed by NAFTA partners Canada ($21.3 billion) and Mexico ($18.3 billion), USDA says.

The U.S. Grains Council told Bloomberg that Mexico is the top market for U.S. corn and second largest customer for U.S. distillers' dried grains with solubles and U.S. sorghum as well as a leading buyer of U.S. barley. It also is the top market for U.S. dairy exports, totaling $1.2 billion in 2016. "NAFTA has opened a major door to Mexico that we don't want slammed shut," National Milk Producers Federation President and Chief Executive Officer Jim Mulhern said recently in a statement.

At the same time, the group said work remains to be done on NAFTA concerning barriers that still exist for U.S. exporters. The group said they look forward to working with your Administration on reducing the non-tariff trade barriers…as well as to addressing the remaining tariffs impeding access for some U.S. export sectors."

Campbell Soup Co., Cargill, Inc., Archer Daniels Midland Co. and Land O'Lakes Inc. were among the signatories on the letter.

The group cautions especially against imposition of large border taxes which could lead to Mexican retaliation including pork, beef and poultry as well as dairy, Glauber said. Grains, such as corn and soybean, could potentially take a double hit because they are used in animal feed, he said.

With most tariffs at zero, NAFTA can be improved on by harmonizing standards, Glauber said. Since NAFTA came into effect in 1994, there have been efforts to try to cut red tape at the border so that products can move more freely—and there is interest in further harmonization since sectors that were protected in the earlier US-Canada Free Trade Agreement, such as dairy, have remained protected under NAFTA, he said.

Well, the trade letter has attracted significant attention in ag circles as the sector watches carefully to see how nominee Sonny Perdue approaches a topic that the President has made clear is intended to be a major administration priority, perhaps in spite of negative consequences for some sectors, including agriculture. The current letter makes a case somewhat softly with promises of future cooperation. Clearly, the issue is high stakes for both sides, and should be watched carefully as the debate continues, Washington Insider believes.


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