Washington Insider -- Monday

Trump Administration and Ethanol

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

CRP Contract Maturities to Be Around 2.51 Million Acres

September 30 marks the end of Fiscal 2017 and the date Conservation Reserve Program (CRP) contracts mature. USDA's data as of July indicated 2.51 million acres will mature September 30, including 1.97 million acres enrolled via a general signup and 540,000 acres that were enrolled via the continuous CRP signup. Program enrollment at the end of July (latest USDA data available) indicated 23.47 million acres are in the CRP, just below the 24 million acre cap imposed under the 2014 Farm Bill.

There are seven states with 100,000 or more acres of CRP contracts maturing September 30, including three with 200,000 or more – Montana (390,690 acres), North Dakota (327,426 acres) and Iowa (214,613 acres). Around 800,000 acres of grassland signup were approved for contracts that start October 1 and there were around 919,000 continuous signup acres approved for acceptance but not yet approved in Fiscal 2017.


China Disputes Contention They Will Need to Import Corn For Biofuel Push

The plan unveiled by China to boost the use of ethanol in gasoline will not impact grain markets, according to a Xinhua news report. Some have signaled the Chinese effort to have ethanol fuel go nationwide by 2020 will necessitate potentially large imports of corn to meet the needs.

However, Han Jun, director of the central agricultural work leading team office, told a press conference it would be "unrealistic" to import large amounts of corn. "The government plan to increase ethanol fuel production is for consuming corn stocks," Han said. Government estimates are that current China corn supplies will meet needs in the short-term and a supply/demand balance in the corn market would be seen in three to five years.


Washington Insider: Trump Administration and Ethanol

Bloomberg is reporting a highly critical report this weekend, with stories being picked up by several mid-western papers. The report says that as President Donald Trump sought votes during last year’s Iowa caucuses, he courted farmers with praise for ethanol and promises that he would boost the home-grown fuel.

But now those farmers and other biofuel supporters say the officials put in charge of the issue in Washington “are instead boosting their fossil-fuel rivals.” “This seems like a bait-and-switch,” Iowa’s senior Republican senator, Chuck Grassley, is quoted as saying on the Senate floor this week. “Big Oil and oil refineries are prevailing, despite assurances to the contrary.”

The issue is politically precarious for the Trump administration, Bloomberg says, as it pits the oil industry against the Midwest voters who helped elect the president. As a candidate, he repeatedly vowed to “protect” ethanol, but then loaded his Cabinet with allies of the oil industry, which views the Renewable Fuel Standard that mandates biofuel use as “costly and burdensome.”

Ethanol producers are most vexed by Scott Pruitt, EPA head. His agency has pursued a series of changes that would help the oil industry at the expense of farmers.

“The White House needs to rein in the EPA before the agency tramples the president’s rural base — and his promises to voters,” according to Brooke Coleman, executive director of the Advanced Biofuels Business Council. “I would be surprised if those in the White House realize the depth of his attacks on the Renewable Fuel Standard.”

Pruitt hails from oil=rich Oklahoma, and backing refiners and oil producers could aid any future political campaign in his home state, including a possible bid for the Senate seat that would open up if Republican Jim Inhofe retires in 2020. Pruitt has not announced plans to seek that seat or any other political office. But, while serving as Oklahoma’s attorney general, Pruitt dubbed the quotas “unworkable” and a “flawed program,” Bloomberg says.

Now at the EPA, Pruitt has gone “rogue,” said Michael McAdams, president of the Advanced Biofuels Association.

“His job is to implement the vision of the president who says he supports biofuels,” he said. Pruitt’s actions don’t “support biofuels in any shape or form.”

Representatives of EPA administrator Pruitt did not respond to Bloomberg’s article or to questions about his ties to the oil industry, Bloomberg says. “EPA is currently seeking input from all stakeholders involved. Nothing has been finalized at this time,” the agency said in a statement.

Despite the president’s high-profile pledges of support, the intricate details of biofuel policy are being decided by administration officials with no allegiance to the sector, said Monte Shaw, executive director of the Iowa Renewable Fuels Association said.

For instance, Trump’s energy secretary is Rick Perry, who as Texas governor asked the EPA to waive half of the conventional renewable fuel quota in 2008. And Trump’s Agriculture Department is led by Sonny Perdue, who previously was governor of Georgia, the nation’s top poultry producer. Livestock producers have linked arms with the oil industry to fight the biofuel mandate, arguing it drives up feed costs, Bloomberg argues.

The administration also tapped billionaire refinery owner Carl Icahn, a critic of the biofuel mandate, as special adviser on regulations, Bloomberg says. Icahn has since left that role.

In the latest policy move, the EPA last week issued a notice opening the door to potential reductions in annual quotas for biodiesel and ethanol. The action followed heavy lobbying by oil industry leaders seeking lower biofuel targets.

The 14-page “notice of data availability” that set those potential changes in motion explicitly invokes arguments by refiner Valero Energy Corp. or top oil trade groups nine times, with the EPA echoing the industry’s assertions that imported biofuels jeopardize U.S. energy independence.

What’s missing? Any reference to the counter arguments from the other side — biodiesel producers or corn farmers, Bloomberg says.

The EPA had already proposed lowering the amount of advanced biofuel that would be required next year, after Pruitt forced a last-minute rewrite of the agency’s initial slate of renewable fuel quotas. EPA officials initially wanted to require 384 million gallons of cellulosic ethanol to be used next year — up 19% from this year’s 311 million gallon quota — according to documents released by the Office of Management and Budget.

But after lobbyists for refiners raised concerns about relying on imported biofuel to meet the targets, Pruitt directed EPA staff to recalculate the figures. The resulting proposal aims to lower the cellulosic ethanol requirement for the first time — to 238 million gallons next year.

Separately, the agency is mulling a change to allow exported biofuel to count toward compliance with the annual quotas — a move that would lower compliance costs for refiners while decreasing the premium some ethanol producers collect for selling the fuel domestically.

Oil industry leaders say Pruitt is making good on his pledge to get the RFS back on track, by establishing biofuel quotas ahead of legal deadlines.

The EPA is advancing “Congress’s stated purpose of bolstering America’s energy independence,” the American Fuel and Petrochemical Manufacturers said in an emailed statement. “American drivers shouldn’t have to shoulder more costs to help foreign biofuel producers.”

Biofuel boosters are reminding Trump of his promises now, Bloomberg says.

“It is my hope that your EPA has not forgotten about the pledges that were made to my constituents and to farmers across the country,” Senator Joni Ernst, a Republican from Iowa, told the president in a letter last week.

In fact, producers see a number of potential threats looming, ranging from fairly deep skepticism about trade and the potential for damages to important Mexican and Canadian markets to potential threats from budget hawks to the upcoming farm bill. There has been much to cheer about in the administration’s moves to cut back environmental and other regulations, but changes to the ethanol program are seen as a looming threat by many—especially as some parts of ag that formerly agreed with the program have begun to oppose it because of fears of potential higher livestock feed prices, Washington Insider believes.


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