Washington Insider --Thursday

President Reiterates Support for Ethanol

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

Mexican Companies Mull Plan To Sidestep US Grain Imports

One of Mexico's largest business groups is working on a bargaining chip ahead of talks to renegotiate the North American Free Trade Agreement (NAFTA): finding alternatives to the U.S. for grain imports.

The Consejo Coordinador Empresarial (CCE), one of the nation's top business chambers, is examining countries such as Brazil and Argentina to add new sources for soy products, corn and wheat, according to Juan Pablo Castanon, the group's president. Exports from those countries could help Mexico adjust to the difficulties that a NAFTA renegotiation might present, he said.

"The renegotiation might bring increased costs to imports, and our own exports might be hurt, so we need to find new markets," he said in a phone interview with Bloomberg News, adding that the group's efforts are still in the initial stages. The chamber, established in 1976, represents the country's main agricultural, industrial and financial industry organizations, among others.

Mexico is the largest buyer of U.S.-produced corn, spending $2.5 billion in the 2015/16 season, ahead of Japan's $1.8 billion, according to the U.S. Grains Council. Mexico has spent $800 million on U.S. corn so far in the current season.

Mexico is preparing to hold talks with Canada and U.S. President Donald Trump, who has threatened to withdraw from NAFTA if his partners are not willing to renegotiate a deal that he blames for destroying American jobs.

The push in Mexico for alternatives is not limited to grains, Castanon said. Other imports such as meat are also being considered. "An economy as important as Mexico's needs to have secure supply sources on many fronts," he said. Sigma Alimentos SA, the meat-packaging unit of Mexican conglomerate Alfa SAB, is looking into countries such as Brazil and Chile as new sources of raw materials, Chief Financial Officer Eugenio Caballero said on a call with investors last week.

Mexico depends heavily on rail for imports from the U.S. and Canada, which would not work for goods from South America. But Mexico's ports could handle imports from the South, and the benefits would outweigh the costs, Castanon said. "We need to open new doors," he said. "As the trade talks progress, we'll see how we need to make use of them."

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Georgia Halts Efforts To Publish New Poultry Price Index

The Georgia Department of Agriculture abandoned an effort to publish a new poultry price index "due to a lack of available data," it said in a statement on its website.

The department "maintains a high degree of confidence in the developed model and appreciates the cooperation and valuable input from the wide-range of economists and market experts who assisted with this effort." The department is not publishing any other poultry or chicken price index, spokeswoman Julie McPeake said.

As much as 4% of Tyson Foods' chicken products were sold under contracts connected to the Georgia Dock price survey and it will contact "customers who could be affected" by the state's decision, company spokesman Worth Sparkman said.


Washington Insider: President Reiterates Support for Ethanol

In spite of talk about political pushback against the Renewable Fuel Standard along with litigation being pressed by the petroleum industry, President Donald Trump dipped into the industry's battle with independent oil refiners this week over whether parts of a federal mandate should be changed.

Trump sent a letter during the National Ethanol Conference in San Diego, expressing his regrets for not being able to attend and pledging support for the Renewable Fuel Standard (RFS) policy. The timing of the letter was one day before the Environmental Protection Agency closes public comments on whether it should grant an oil refiner-led push to move the onus on who should be responsible for adhering to the RFS. Biofuel industry proponents have resisted the change.

Prices for compliance credits have plunged since Trump's election on speculation that his administration would be receptive to changing the program. Well known investor, Carl Icahn, who owns an 82% stake in CVR Energy Inc., is a special adviser to Trump on regulations and supports the changes.

But, the President doesn't. "Rest assured that your president and this administration value the importance of renewable fuels to America's economy and to our energy independence," Trump wrote. "As I emphasized throughout my campaign, renewable fuels are essential to America's energy strategy," Trump said, making reference to statements he made during the Iowa caucuses in the lead up to his victory in November. He also vowed to work with the ethanol industry's lead trade group, the Renewable Fuels Association, to "identify and reform ... overzealous, job-killing" regulations that have harmed the renewable fuels industry.

Trump said he will ensure the RFS stays intact. The renewable fuel industry has been leery of new EPA Administrator Pruitt because of past comments he made opposing the agency's implementation of the RFS program.

The oil industry has called for the program to either be repealed or significantly reformed over fears that too much ethanol could harm vehicle engines and place refiners on the hook for major legal claims.

Meanwhile, RFS proponents gave their bottom line. "The RFS has cleaned the air, reduced our dependence on foreign oil and boosted local economies," said Bob Dinneen, the Renewable Fuels Association's president and CEO. "Donald Trump understands all this. Consumers benefit from this national policy and our industry looks forward to continuing to be the lowest cost, highest octane fuel in the world."

Bloomberg is also reporting this week that The American Fuel and Petrochemical Manufacturers, a group of oil refiners who want changes to the U.S. ethanol mandate, is eyeing an April 24 court hearing in its fight against the RFS. The case in the U.S. Court of Appeals in Washington, involving ethanol-industry groups and the EPA, focuses on how much authority the agency has over the RFS, Bloomberg says. "It's a critical issue on whether EPA has authority to grant waivers," Chet Thompson, president of the AFPM, told Bloomberg in an interview in San Diego.

The case could set a precedent on whether EPA should take into account AFPM claims that ethanol shouldn't breach 10% of US gasoline consumption.

The group also is pushing for "legislative reform" of the biofuel mandate, and argues that "at some point the industry has to stand on its own,"

AFPM wants changes before 2022, when EPA has wider latitude with the RFS. Thompson says that he's confident EPA administrator Pruitt will consider the changes advocated by his group and investor Carl Icahn.

There is nothing new in efforts by petroleum refiners, along with others in the industry, to push back against the RFS. And, overall, there is more opposition from within agriculture nowadays than was true a decade ago. Still, while observers expect continuing efforts in Congress, especially the House, to modify the RFS, there do not seem to be the votes, especially in the Senate, to support major changes, if any Washington Insider believes.


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