Farmers Still Battling Hog Backlogs

The backlog of hogs in states hit hardest by the meatpacking industry crisis is just now easing up somewhat. Hundreds of thousands of hogs were killed by producers who had nowhere to send the animals for processing. While that number is short of the initial slaughter estimates of millions of hogs, the pork industry still needs financial assistance to cover the cost of euthanizing animals as well as for the price losses from COVID-19. They’re also asking for help getting mental health resources for farmers who were understandably disturbed by having to kill their animals for disposal. “The drain on equity and the financial and emotional crisis that farmers are facing is not resolved,” says Dave Preisler (PRICE-lehr), CEO of the Minnesota Pork Producers Association. Producers have gone to great lengths to reduce the backlog and avoid on-farm slaughter. Some have been shipping hogs to processors out of state or selling directly to individuals looking to stockpile meat. Others have started contracting with smaller processors, who’ve seen an unprecedented rise in their business. Still, Politico says those measures haven’t fully solved the large pileup of excess hogs.

EPA: 52 “Gap Year” SRE Petitions Filed

The Environmental Protection Agency released an updated list of small refinery exemptions that shows smaller refiners have filed 52 “gap year” SRE petitions. Those petitions cover Renewable Fuels Standard Compliance from 2011 through 2018. Biomass Magazine says the filing is to circumvent a recent ruling from the Tenth Circuit Court that struck down three SREs approved by the EPA. The ruling also determined that the agency cannot extend exemptions to any small refinery whose earlier temporary exemptions had lapsed. A challenge to the court’s decision was rejected in early April. If the ruling is eventually applied nationally, it will limit eligibility for future SRE petitions to a handful of the nation’s small refiners. However, reports recently began to surface that several small refiners were filing “gap-year” SRE petitions to maintain eligibility for future SREs. The gap-year petitions are designed to provide impacted refineries with a continuous chain of SRE approvals, allowing the affected refineries to continue to be eligible for SREs in the future. Several biofuel groups have strongly condemned the gap-year filings as an effort to get around the Tenth Circuit Court ruling.

Renewable Fuel Groups React to 52 “Gap-Year” SRE Petitions

Two of the nation’s key renewable fuel groups reacted to the Environmental Protection Agency’s announcement that 52 new small refinery exemption petitions have been filed. The National Biodiesel Board is asking EPA Administrator Andrew Wheeler to immediately reject the petitions that cover compliance years from 2011-2018. Kurt Kovarik is the NBB Vice President of Federal Affairs. He says, “EPA’s consideration of small refinery exemption petitions going back to 2011 flies in the face of the recent 10th Circuit Court decision. By rolling the clock back, there appears to be no length the EPA won’t go to help refiners undermine the Renewable Fuels Standard.” Kovarik says the handouts would come at the expense of ethanol and biodiesel. Growth Energy says the “gap filings” are designed to reconstitute a continuous string of exemptions to circumvent court limits on new oil industry handouts. “This absurd maneuver is a blatant attempt to dodge the law at the expense of rural communities,” says Growth Energy CEO Emily Skor. “EPA’s dashboard confirms that the refiners hope to rewrite years of history just to bypass the 10th Circuit Court and push more biofuels out of the marketplace.”

CoBank: Ethanol Industry Needs to Transform Itself

A new report from CoBank’s Knowledge Exchange says the ethanol industry may have to diversify itself in the future. The report says excess production capacity and reduced demand will force the U.S. ethanol industry to “transform its business model to create more value and improve its operational efficiency.” CoBank predicts that consolidation within the industry will lead to larger and more financially stable companies with diversified ethanol co-product offerings by 2025. “While ethanol remains an attractive business with long-term potential, the industry will need to evolve and diversify beyond fuel ethanol,” says Kenneth Zuckerberg, CoBank lead grain and farm supply economist. “That diversity will need to include higher-margin co-products like high protein distillers’ grains for animal feed, liquid carbon dioxide for refrigeration, beverage grade alcohol, and other industrial products. COVID-19 led to businesses shutting down and people staying at home, causing significant ethanol demand destruction. The industry had one billion gallons of excess capacity at the start of 2020, with that number projected to rise to 3.9 billion at the end of this year before it settles to 2.4 billion at the end of 2021. Strong export growth would help reduce the excess, but current projections don’t support such an outcome.

Dairy Safety Net Signup Begins October 12 for 2021 Coverage

The USDA’s Farm Service Agency says safety-net signup for 2021 Dairy Margin Coverage begins on October 12th and runs through December 11th of this year. DMC has already triggered payments for two months for those producers who signed up for 2020 coverage. “If we’ve learned anything in the past six months, it’s to expect the unexpected,” says FSA Administrator Richard Fordyce. “Nobody would have imagined the significant impact that current, unforeseen circumstances have had on an already fragile dairy market.” Fordyce says it’s during unprecedented times like these that the importance of offering agricultural producers support through the delivery of farm bill safety-net programs like DMC becomes readily apparent. As of June 15th, FSA has issued more than $100 million in much-needed program benefits to dairy producers who purchased DMC coverage for 2020. The DMC offers protection to dairy producers when the difference between the all-milk price and the average feed price (the margin) falls below a certain dollar amount selected by the producer. More than 13,000 operations enrolled in the program for the 2020 calendar year.

Americans Support COVID-19 Aid for Farmers

Trust in America’s farmers and ranchers remains high amid the devastating blow delivered this year by COVID-19. A new poll conducted by the American Farm Bureau shows that 84 percent of Americans trust the nation’s farmers. That same number also supports financial assistance from the government for farmers struggling to keep from going under because of the pandemic. “The results of the survey indicate a growing understanding of how important a stable food supply is to the health and well-being of our nation,” says AFB President Zippy Duvall. “Shortages at grocery stores and other food supply chain shockwaves caused by the pandemic gave many people a new understanding of the crucial role America’s farmers and ranchers play in their survival through COVID-19.” Duvall says it’s “heartening” to know that through it all, the American people’s trust in farmers is unwavering. Even more broadly, 59 percent of Americans also think that the federal government should classify U.S. agriculture as a matter of national security to ensure a stable food supply. USDA estimates suggest the decline in commodity value alone for 2019, 2020, and 2021 production totals almost $50 billion.

Washington Insider: Problems With US Trade Policy

The Hill this week is carrying an article by Robert Scott, who is a senior economist with the Economic Policy Institute. He notes that U.S. Trade Representative Robert Lighthizer once again reported to Congress that “the era of U.S. offshoring is over.” This is essentially the same message President Trump’s new "American Comeback" campaign ads carry, the article said.

Scott charges that the Trump administration often touts returning trends in industries and jobs. In actuality, its policies are “actually failing to curb most of this offshoring.” They simply haven’t addressed the root causes of America’s growing trade deficits,” he said.

The article pointed to “the reality” in which COVID-19 has wiped out much of the job gains seen in recent years. And, he warns that unless steps are taken now to curb dollar overvaluation, which makes imports artificially cheap in the U.S. market, along with tax incentives for offshoring, there won’t be a comeback.

Scott also says that the administration has ignored the linkage between its policies and the rising trade deficit as it continues its “rosy pronouncements.”

In his testimony last week, Lighthizer praised several companies that have scrapped offshoring efforts or have “announced” plans to move production to the U.S. And he praised both the U.S.-Mexico-Canada Agreement (USMCA), which takes effect July 1, and the current "phase one” China trade deal.

Scott argues that increased domestic purchasing spurred by tax cuts and an expanded federal budget pushed average employment per manufacturing plant up between 2016 and 2019 -- but that offshoring continued throughout. Overall, the U.S. has lost more than 91,000 manufacturing plants and nearly 5 million manufacturing jobs since 1997 -- including nearly 1,800 factories that disappeared under the current administration between 2016 and 2018, Scott says. And, he thinks that any recent manufacturing gains were abruptly wiped out by the COVID-19 lockdown -- with a staggering 1.2 million manufacturing jobs lost this year.

But U.S. manufacturing was struggling even before COVID-19, Scott says. Starting in 2014, the U.S. dollar has appreciated in fits and starts, climbing nearly 28 percent. “More than half of that rise has come since the administration’s tariffs were first imposed in March 2018.”

Equally problematic, the 2017 Trump tax cuts on corporate profits incentivized offshoring for certain types of production while also raising after-tax profits, he says. This has attracted foreign capital to U.S. stock markets, spurring the dollar even higher.

If the administration’s trade policy really encouraged “reshoring,” America’s trade balance would have improved. But the U.S. trade deficit in manufactured goods rose significantly between 2016 and 2019. “In fact, the real U.S. trade deficit has increased every year since 2016, reducing GDP growth by roughly one-quarter of one percent annually over the past three years,” Scott says.

As for the USMCA, it is unlikely to resolve longstanding U.S.-Mexico trade issues, Scott charges. And, the “Phase One” China trade deal is a bust, too, Scott charges. China promised to increase purchases of U.S. goods and services by $200 billion over 2017 imports but is unlikely to meet these targets.

Beijing has also strategically adjusted to the Trump tariffs. China is simply exporting more goods elsewhere, and the U.S. trade deficit with China’s trading partners rose rapidly in 2019. In fact, China’s overall trade surplus with the world climbed significantly in 2019. China also reduced the value of its currency by 11.4% against the U.S. dollar since March 2018, helping to offset the tariffs.

The tariffs are a signature element of the administration trade agenda, and have helped sectors like steel and aluminum. But “increasing tariffs without taking steps to prevent the dollar’s appreciation, the overall benefits are simply neutralized,” Scott says.

These problems have been compounded by mistakes on tax policy, Scott thinks. U.S. multinationals continually engage in massive, international tax avoidance, with some paying no income tax. The pharmaceuticals industry has reaped major rewards, and moved plants to countries with the lowest possible corporate tax rate. As a result, the U.S. now has a massive trade deficit in pharmaceuticals.

The U.S. trade deficit is likely to shrink during COVID-19. But unless steps are taken to address dollar overvaluation and tax incentives for offshoring, these deficits will simply reemerge when recovery occurs. Washington must embark on major investments in infrastructure, R&D, training, renewable energy and other industrial policies.

In 2016, President Donald Trump campaigned against globalization and failed trade deals that have hurt U.S. manufacturing. That strategy worked, Scott says, but the administration has since failed to deliver for working Americans. “Now the wheels are coming off,” Scott says and it is time for a meaningful rewrite of failed U.S. trade and economic policies.

So, we will see. It is true that trade policy pressures abound, but also seems likely that since the administration and the Congress are tightly focused on alleviating impact of the virus concerns about trade deficits are unlikely to command new priorities. However, these are high stakes debates that should be watched closely as the election season advances, Washington Insider believes.