Policy Updates: Sept. 13, 2017

USDA nominees get hearing | Estate tax | Glyphosate | Florida citrus | China ethanol | U.S.-China ag trade dispute | U.S.-Canada lumber dispute | Steel trade concern | Icahn | Clean Power Plan | Debt limit vote | Dow-DuPont | CEA | FSA certified acres | Markets

— Two USDA nominees on tap for Sept. 19 confirmation hearing, sans Clovis. The Senate Agriculture Committee has announced plans for its confirmation hearing Sept. 19 next week, but it won’t include the controversial nomination of Sam Clovis to be USDA’s undersecretary for research, economics and education. The hearing will be on Steve Censky, the nominee for deputy secretary, and Ted McKinney to be undersecretary for trade. Censky is head of the American Soybean Association and also held posts at USDA in the late 1980s. McKinney is the Indiana Director of Agriculture, a position he was appointed to by Vice President Mike Pence when Pence was governor of the state.

Clovis was nominated at the same time as Censky and McKinney. Clovis has come under scrutiny for a lack of scientific experience that opponents say s required for the job, and for statements he made as a conservative talk show host and political activist in Iowa. Senate Minority Leader Chuck Schumer (D-N.Y.) has called for the administration to withdraw Clovis’ nomination.

— Estate tax repeal under pressure by Senate Democrats. Eliminating the estate tax would be a giveaway to a small number of very rich families, key Senate Democrats charged. Senate Democratic leader Chuck Schumer (D-N.Y.) and Ron Wyden (D-Ore.), the top Democrat on the Senate Finance Committee, released data that showed that about 0.2% of families nationwide would benefit from repealing the tax. “Repealing this tax is not a tax cut for the middle class. It’s a tax cut for the wealthy elites in this country the president promised to stand up to,” Schumer said. The lost revenue is an estimated $269 billion over 10 years.

Senate Democrats warned they would work to block any rewrite of the tax code that repealed the estate tax and the deduction for state and local taxes. Congressional Republicans and the White House agree that the tax on inheritances should be scrapped.

— Glyphosate has no endocrine disrupting properties, EFSA peer review. The European Food Safety Authority (EFSA) has published a review of the pesticide risk assessment of the potential endocrine disrupting properties of glyphosate. The current assessment concluded that the weight of evidence indicates that glyphosate does not have endocrine disrupting properties through oestrogen, androgen, thyroid, or steroidogenesis mode of action based on a comprehensive database available in the toxicology area. Link to the full conclusion in an open access paper published in the EFSA Journal.

— Florida citrus badly impacted by Hurricane Irma. Florida citrus growers have taken a major hit, with areas affected by the eye of Hurricane Irma reportedly facing a 30% to 70% drop in fruit production, according to early estimates from the Florida Cooperative Extension Service. Florida produced almost half of U.S. citrus in the 2015-2016 season. Citrus-greening disease has impacted production in recent years. Link to NPR article on the topic.

— China plans nationwide ethanol use by 2020. China plans to expand use of ethanol in gasoline nationwide by 2020 to curb smog and fossil fuel demand, the government said today. Plans call for China to develop a demonstration facility by 2020 that can make 50,000 tons of ethanol a year from cellulose, according to the Cabinet’s National Energy Administration (NEA). It said that would expand to commercial scale by 2025. The NEA gave no indication what level of ethanol would be required, but Xinhua said it would be 10%. On Saturday, a deputy industry minister said Beijing is developing a timetable to phase out production and sales of traditional fuel cars. France and Britain announced similar plans in July.

Background. China is the world’s biggest energy consumer and auto market. It started producing ethanol from corn in 2004 but banned use of food crops in 2007, prompting suppliers to switch to straw stalks and other materials. About one-fifth of gasoline produced in China has added ethanol, according to Xinhua. Regulators later eased the ban on use of food crops in some areas. Xinhua said the latest plan is intended in part to use up aging stockpiles of corn.

— U.S. dispute on Chinese agriculture quotas likely on WTO Sept. 22 agenda. The World Trade Organization (WTO) is likely to agree on Sept. 22 to the Trump administration’s latest request that the WTO review whether Chinese trade policies unfairly harm U.S. farm exports. The Obama-era dispute alleged that the way Beijing applies its agricultural tariff-rate quotas (TRQs) for rice, wheat, and corn imports violates WTO rules because it unfairly undermines the ability of U.S. farmers to export their grains.

The WTO, if it accepts the U.S. complaint, will determine whether China fulfilled its TRQ obligations and will evaluate U.S. allegations that China imposed “impermissible” restrictions on farm imports, failed to provide sufficient information about its import quantities, and didn’t disclose changes to those import quotas. As part of China’s WTO accession agreement, Beijing pledged to set specific TRQ levels for various products by applying a lower tariff rate to imports up to a certain quantity and then applying higher duties to imports that exceed the threshold.

Beijing could be forced to accept increased amounts of U.S. grain imports or face retaliation from Washington, if the WTO finds that China’s TRQ policies violate international rules.

Background. In 2016, the U.S. filed a dispute that claimed China’s TRQ procedures violate its WTO accession agreement and the General Agreement on Tariffs and Trade because Beijing’s policies were not transparent, predictable or fair. The U.S. alleged that China never reached its agreed upon threshold for agricultural TRQs despite lower global prices that favored the importation of grains into China. Had Beijing complied with its WTO obligations, China would have permitted an additional $3.5 billion worth of crop imports into China, according to USDA estimates. The case is closely linked to a separate U.S. dispute that claimed China provided more than $100 billion in illegal government subsidies for producing rice, wheat, and corn.

Last month, China blocked the initial request by the U.S. to establish a WTO dispute panel investigation into the matter and said it stood ready to defend the “serious” manner in which it administers its TRQ mechanism. The WTO’s dispute settlement understanding prohibits members from blocking a dispute investigation a second time.

Timeline. A ruling in the case is unlikely to come until 2019 or 2020, due in part to a series of delays and staff shortages in the WTO dispute settlement system.

— ITC to decide around mid-Oct. in U.S.-Canada lumber trade dispute. Attorneys for the U.S. and Canadian lumber industries debated before the International Trade Commission (ITC) on whether the agency should pave the way for duties on Canadian softwood lumber imports. The U.S. argued that these imports are unfairly subsidized by Canada and have harmed U.S. producers and led to shuttered mills. The Canadian side questioned why the ITC should protect what they said was a flourishing and robust U.S. industry. The ITC is expected to vote on the topic around mid-October.

“This case is like no other prior lumber investigation,” Eric Parnes, an attorney with Hughes, Hubbard and Reed, told the ITC at a hearing. “As a whole, the U.S. industry is doing better than at any time in recorded history.”

Commerce has already preliminarily found that softwood lumber from Canada is dumped and subsidized. Final Commerce rulings, originally expected in September, have been pushed back to Nov. 14, as the U.S. and Canadian governments continue to try to reach a negotiated settlement.

Canada argued that the increase in Canadian market share has not suppressed lumber prices or hurt the performance of the U.S. lumber industry. Lumber prices and the U.S. industry’s financial performance improved during times when Canadian market share went up, a Canadian attorney said. A U.S. attorney countered that the fact that an industry is profitable does not preclude a finding of injury.

Most timber in Canada is harvested from federally owned lands. The government charges a stumpage fee to harvest these logs. U.S. producers have claimed that this fee is artificially low and constitutes an unfair subsidy— a charge that Canada has consistently denied.

— Farm, steel groups to Trump: Scrap steel tariffs. President Donald Trump should not use a national security review to impose tariffs on foreign-made steel products that could cost U.S. jobs and make American agricultural products likely targets of retaliation from angry trading partners, steel importers and two agriculture groups said Tuesday. Executives of the American Institute for International Steel (AIIS) along with representatives from the National Chicken Council and the American Soybean Association say they have shared their concerns with Commerce Secretary Wilbur Ross and Trade Representative Robert Lighthizer. The groups urged the Trump administration to cancel the steel review outlined in the April executive memorandum, which calls for a steel investigation under Section 232 of the Trade Expansion Act of 1962.

Trump has pledged to boost U.S. steel production and to counter excess steel output by China that has lowered global steel prices. U.S. imports of Chinese steel are down after years of antidumping and anti-subsidy penalties, but domestic steel companies say exporters in other countries are buying cheaper Chinese steel for products they sell into the United States.

The investigations can take 270 days to complete, and the president could raise tariffs on imported steel or limit the amount of foreign steel sold in the United States. The Commerce Department failed to meet its June deadline to release its recommendations.

Any action by the U.S. to restrict steel imports could lead to other countries striking back at export-dependent agriculture by slapping higher tariffs or adding import restrictions, added Kevin Brosch, attorney for the National Chicken Council, and Patrick Delaney, spokesman for the American Soybean Association. Brosch said U.S. poultry farmers lost a $700 million a year market in China after President Barack Obama raised tariffs in 2009 in response to the United Steelworkers filing a trade complaint with the International Trade Administration. The union said a surge in Chinese-manufactured tires over several years led to job losses for 5,000 U.S. workers. China was the top market at the time for U.S. chicken exports. Now Canada and Mexico, part of the North American Free Trade Agreement the Trump administration is trying to renegotiate, buy 40% of American poultry products.

“The idea that we’re the only game in town when it comes to selling soybeans or other agricultural products abroad is false. So is the notion that there’s always another country that will buy our commodities. Furthermore, even the threat to withdraw from this [KORUS] or any trade agreement is a dangerous course of action. Repeatedly walking our trade relationships to the brink, or actually breaking them, only weakens our standing abroad,” said the American Soybean Association.

— EPA’s Pruitt says Icahn wasn’t directing policy at EPA on RFS. Even though Carl Icahn has exited the White House as an adviser to President Donald Trump, he is still getting attention. EPA Administrator Scott Pruitt responded to inquiries from Sen. Sheldon Whitehouse (D-R.I.) on Icahn’s involvement in the Renewable Fuels Standard (RFS) and the point of obligation issue he pursued. Pruitt said in any meetings he had with Icahn, he gave no assurances to Icahn relative to the point of obligation or “any other substantive issue.” Pruitt further noted the agency searched email in boxes of 39 EPA officials and found no emails from Icahn or the refining firm he has a majority interest in – CVR. However, a spokesman for Whitehouse indicated some skepticism about Pruitt’s assurances. “On its face, this letter suggests Mr. Icahn had far less control over RFS policymaking than he had suggested publicly,” Whitehouse spokesman Rich Davidson told Politico. “On the other hand, Pruitt has a long-established skill in obscuring his contacts with the industry that pulls his strings.”

— Rescinding the Clean Power Plan. EPA is poised to move ahead on the Obama-era Clean Power Plan (CPP), readying a plan to rescind the regulation. There had been resistance to replacing the rule and some believe this action now may signal that EPA Administrator Scott Pruitt will not challenge a legal determination the agency has to regulate greenhouse gasses. Indications are the rescind action will be unveiled by the first week of October, which would have the agency taking some kind of action ahead of an October 7 timeline outlined in August by the DC Circuit court when the court ruled that if EPA did not propose a replacement to the CPP, it was not meeting its statutory duty to regulate carbon emissions.

— Sen. McConnell: No debt-limit vote in December. Senate Majority Leader Mitch McConnell (R-Ky.) said Tuesday Congress will not vote on raising the debt ceiling later this year. “It does not eliminate the extraordinary measures that the Treasury secretary had always had,” McConnell said. “It doesn’t mean that we won’t address the debt ceiling in the future.” But a vote on addressing the debt ceiling “will not be in December,” he noted.

While Treasury Secretary Steven Mnuchin has not said when the borrowing limit will be hit and how long he could use “extraordinary measures” to meet US obligations, some think that could be until March 2018.

— DowDuPont alters breakup plans. DowDuPont is tweaking its breakup plans among the three units it said it create when the two forms merged in a bid to avoid a long fight with activist shareholders. Dow and DuPont will split into three companies focusing on agriculture, specialty chemicals and materials, but now will move businesses that total around $8 billion in annual sales from the materials science division to specialty chemicals.

As part of the revised plan, DowDuPont will split the old Dow Corning and distribute the silicone business among the materials and specialty companies. The materials science company will be the biggest in terms of revenue generation, Andrew Liveris, executive chairman of the combined company, said in an interview with Reuters. The Trian Partners fund led by Nelson Peltz said they support the adjustments announced by DowDuPont.

— Senate clears Hassett to head CEA. The Senate Tuesday voted 81-16 to confirm Kevin Hassett the head of the Council of Economic Advisers (CEA), the White House economic analysis operation. Hassett is was a tax expert at the American Enterprise Institute and a former senior economist at the Federal Reserve and has him in a role that could be important as the push for tax reform is getting underway. Hassett would not totally endorse President Donald Trump’s policies on things like immigration and trade, saying he was not an expert on the border wall with Mexico and noted research indicating immigration boosts productivity. His confirmation is seen as adding another pro-business voice in the White House.

— FSA certified acreage data: September 2017. Reports from U.S. producers participating in farm programs show they have reported planting 87.258 million acres of corn, 88.666 million acres of soybeans, 43.170 million acres of wheat and 12.151 million acres up upland cotton, according to the September release of certified acreage data from the Farm Service Agency (FSA). The totals are up from levels released in August.

Producers have to file planted acreage data to FSA as part of their participation in U.S. farm programs, including levels of acreage they were prevented from planting. The updated release of FSA data shows a total of 2.568 million acres were prevented from being planted in 2017, up slightly from 2.565 million acres in August and well below the 2016 total of 3.412 million acres.

On an individual state basis, 10 U.S. states are reporting 100,000 acres or more that were prevented from being planted in 2017. Arkansas still leads all states with over 427,000 acres and still there are no states in the eastern Corn Belt with more than 46,000 acres of prevent plan where planting interruptions were much touted this spring.

The top states in 2017 for prevented planting are:
Arkansas: 427,586 acres, including 218,300 acres of rice, 98,858 acres of corn, 63,494 acres of soybeans, 20,883 acres of wheat and 16,329 acres of upland cotton. In August, more than 100,000 acres of corn were listed as prevent plant.
North Dakota: 152,910 acres, including 63,106 acres of soybeans, 52,271 acres of wheat and 32,221 acres of corn, all slightly higher than the August totals.
New York: 152,268 acres, including 103,160 acres of corn and 45,788 acres of soybeans, both higher than the August update.
Kansas: 148,432 acres, including 221,302 acres of corn, 21,281 acres of wheat and 4,712 acres of sorghum. The level for corn and wheat increased slightly, but sorghum held steady with the August figures.
Colorado: 129,328 acres, including 124,469 acres of corn, and 2,363 acres of wheat.
Missouri: 126,099 acres, including 52,224 acres of corn, 24,576 acres of rice, 21,066 acres of soybeans, 17,852 acres of wheat and 10,144 acres of upland cotton. Missouri was the ninth largest prevent-plant state in August, so the updated figures moved it up the list.
Wisconsin: 125,258 acres, including 97,936 acres of corn and 22.853 acres of soybeans. The decline in soybeans trimmed total prevent plant acres compared to August.
Louisiana: 124,109 acres, including 79,106 acres of soybeans, 36,083 acres of wheat, 4,169 acres of rice, 2,740 acres of upland cotton and 1,955 acres of corn. The total and all the major crops were down versus August.

Ironically Texas reported 503,748 acres of prevented planting in 2016, but growers are now reporting just 95,981 acres prevented from planting, down from the August total. Drought-stricken South Dakota now reports just 65,319 acres were prevented from being planted, down sharply from 97,254 acres in August and 249,367 acres in 2016.

Perspective: The data is painting a clearer picture for the U.S. acreage situation. And the info will likely result in adjustments to planted acres in the October U.S. Crop Production report — the month that typically takes place. The adjustments made to acreage this month by the National Ag Statistics Service took place in cotton and rice, two commodities that showed little or no movement in most states this month compared to August. It also still underscores that prevent plant acres in 2017 still will not exceed the 2016 total.

— Markets: After U.S. equities closed at record highs for the second consecutive session Tuesday, the rally in global stocks is easing. Overnight, the MSCI Asia Pacific Index advanced 0.2%, while Japan’s Topix index climbed 0.6% as the yen remained weak against the dollar. In Europe, the Stoxx 600 Index was 0.2% lower, while S&P 500 futures slipped 0.1%. 10-year Treasury yields were largely unchanged at 2.160%, and gold was slightly higher. The International Energy Agency said in its monthly report published this morning that global oil demand will climb by the most since 2015 this year. On the supply side, OPEC and its allies are discussing extending by more than three months the oil production cuts that are due to expire in March 2018. A barrel of West Texas Intermediate for October delivery was trading 51 cents higher at $48.74.

Goldman Sachs says the hurricanes Harvey and Irma will have a big impact on U.S. growth. The storms will erase 0.8 percentage points from third-quarter gross domestic product, which Goldman thinks will now come in at 2%, a note sent out by economist Spencer Hill said.

The Baltic Dry Index, the key measure for the cost of moving commodities like coal and iron ore, is hovering near its highest point in nearly three years, and ship brokers say an improving global economy along with China’s moves to limit its own production of industrial materials are fueling the upturn, according to the Wall Street Journal. The growth is expected to continue because China’s industrial limitations come even as the country steps up infrastructure spending, boosting demand for seaborne imports.

Broader economic growth is also building up shipments of grain, lumber and other goods. The shipping rates are rising after years of downsizing that has left capacity relatively tight, but the stronger demand is sure to tempt carriers to bulk up fleets again.