FarmPolicy

October 22, 2014

Biofuels; Farm Bill; Trade; Ag Economy; GIPSA; and Political Notes

Biofuels

Scott Irwin, Darrel Good, and Mindy Mallory, from the University of Illinois, published a paper this week titled, “Could a Variable Ethanol Blenders’ Tax Credit Work?

The authors stated that, “The U.S. biofuels industry is the recipient of a number of economic incentives from the federal and various state governments. For the ethanol industry, the Volumetric Ethanol Excise Tax Credit (VEETC) is the major federal tax incentive that supports the use of ethanol. Known more popularly as the ‘ethanol blenders’ credit,’ this incentive has been widely debated in recent months for several reasons. First, the blenders’ credit is scheduled to expire at the end of 2010. Second, pressure to reduce the fiscal deficit of the federal government has focused attention on many tax incentive programs, including the blenders’ credit. Third, recent economic analysis has questioned the need for a blenders’ credit in the presence of biofuels mandates (Babcock, 2010).

The purpose of this policy brief is to analyze how a variable ethanol blenders’ credit might work in comparison to the current fixed per gallon credit. We first review some specifics regarding the current fixed credit policy and then discuss basic issues pertaining to a variable credit policy. We follow this with a comparison of the historical performance of two variable blending policies and the present policy.”

After some background about ethanol tax credits, the paper indicated that, “The VEETC is scheduled to expire on December 31, 2010. Legislation to extend the tax credit was introduced in the House and Senate in the spring of 2010, but such legislation has not yet been enacted. Debate about the need for a continuation of a blender’s tax credit continues. Part of the debate includes the concept of a variable tax credit that would benefit blenders when they needed it most.”

The recent paper added that, “A key issue in the development of a variable blenders’ credit is a clear understanding of the objective of the program. If the objective of the ethanol blenders’ credit is to provide support to blenders during periods of an unfavorable blending margin in order to ease the burden of meeting the RFS mandate, then the best basis for a variable credit rate should be highly correlated with the blending margin.”

The authors pointed out that, “Tyner, Taheripour, and Perkis (2010) propose a variable ethanol blenders’ credit based on the price of crude oil, with the magnitude of tax credits inversely related to the price of crude oil.”

Later, the paper noted that, “The statistical analysis in the previous section indicates that basing a variable tax credit on the level of gasoline prices might be an improvement over basing a credit on crude oil prices. However, since the correlation between gasoline prices and blending margins is not perfect the ‘correct’ rate might not always be applied. A better alternative might be to base a variable tax credit directly on the calculation of the blending margin. The challenge to using this approach is to correctly calculate the blending margin.”

As part of the paper summary, the authors noted that, “The answer to the question posed in the title to this brief is clearly yes. A variable blenders’ credit policy is more efficient at targeting the subsidy to periods when it is uneconomic for ethanol to be included in gasoline blends and as a result is much less costly than the current fixed rate policy. Of course, it is important to keep in mind that the variable blenders’ credit policies considered here are based on simple rules meant to only illustrate the concept.”

Meanwhile, the Washington Insider section of DTN reported yesterday (link requires subscription) that, “Tom Buis, who is chief executive of the ethanol group Growth Energy, says he is continuing efforts to convince Congress to amend the 2007 Energy Act to permit corn-based ethanol to qualify as an ‘advanced biofuel.’ Such a change would allow a higher federal usage mandate to apply and thus more corn-based ethanol would be used. ‘The 2007 Energy Act prohibits corn starch based ethanol from qualifying as an advanced biofuel,’ said Buis. ‘We are working with lawmakers to eliminate this clause. Our chances of this passing are tied to the likelihood of an energy bill passing.’

Growth Energy also is predicting the volumetric ethanol excise tax credit of 45 cents for every gallon of ethanol blended into gasoline will be renewed before the end of 2010. Unless Congress extends the tax credit, it will expire Dec. 31. Buis did not offer details about the predicted extension, saying only that the VEETC ‘could be extended through whatever legislative vehicle is on the table.’”

And Darren Goode reported yesterday at The Hill’s Energy Blog that, “Texas lawmakers in both parties are seeking legal protection for oil refiners and others that fear exposure to costly lawsuits if EPA allows an increase in the amount of ethanol blended into gasoline.

“As early as next week, EPA is expected to back a request from the pro-ethanol group Growth Energy and say that E-15 — a blend of 15 percent ethanol and 85 percent gasoline — is safe for cars as old as model year 2007. By year’s end, the agency will likely announce the same holds true for model years 2001 through 2006.

“The Texas lawmakers fear the higher ethanol blend could lead to a host of lawsuits against the fuel industry, reminiscent of when the additive methyl tertiary butyl ether (MTBE) was found to contaminate groundwater.”

Farm Bill

Bob Meyer reported yesterday at Brownfield that, “U.S. Ag Secretary Tom Vilsack’s Dairy Industry Advisory Committee met again recently in Washington, Wisconsin Ag Secretary Randy Romanski says they are looking at ways to ‘smooth out the volatility in the dairy markets.’ Romanski says the Committee is very diverse and represents all aspects of the dairy industry across the country but they are determined to have recommendations to Ag Secretary Vilsack by the end of the year.”

The Brownfield link included an audio interview with Romanski.

Trade

Reuters news reported yesterday that, “A top U.S trade official indicated on Tuesday that the long-running Doha round of world trade talks could stretch into 2012, but said some progress had been made over the past six months.

“‘The U.S. view is that there is no shortcut to a Doha success,’ U.S. chief agricultural trade negotiator Isi Siddiqui said in the prepared text of a speech given in Brussels, a copy of which was released in Washington.”

The article added that, “Siddiqui repeated the U.S. demand that major developing countries such as China, India and Brazil make better offers to open their markets to more imported goods and services.

He also warned that Congress has already began work on a new farm bill that will govern U.S. crop subsidy programs after the current farm bill expires in 2012.”

Yesterday’s Reuters article stated that, “Siddiqui indicated that the Doha negotiations might run into 2012, saying that if there is no deal by then, the United States would be free to continue spending at limits allowed under the current WTO pact.

“‘Unless a Doha deal is reached between now and the autumn of 2012, the next farm bill will have as its guidepost our current Uruguay Round commitments,’ he said.”

Kevin Bogardus reported yesterday at The Hill that, “A number of business associations are planning a lobbying blitz during the lame-duck session to repeal the U.S. travel ban to Cuba.

“The bill ran into trouble last week when Rep. Howard Berman (D-Calif.), chairman of the House Foreign Affairs Committee, postponed a markup of the legislation. An analysis by The Hill found Berman did not have the votes to move the bill through the panel and onto the House floor for a vote.

Despite the setback, lobbyists for business and farm groups say that this Congress may be their best opportunity to see the bill passed and signed into law. Republicans are expected to make big gains in the midterm elections and are seen as less likely to vote for a bill that loosens restrictions on Cuba.”

The Hill article explained that, “A GOP takeover of the House could put Rep. Ileana Ros-Lehtinen (R-Fla.) in charge of the Foreign Affairs Committee. Ros-Lehtinen, the panel’s current ranking member, is a firm opponent of repealing the travel ban.

“Goule’s [Chandler Goule, vice president of government relations for the National Farmers Union] group and others, including the U.S. Chamber of Commerce, the National Foreign Trade Council (NFTC) and the National Pork Producers Council, plan to lobby lawmakers to take up the bill again during the lame-duck session.”

A news release yesterday from Senate Ag Committee Chairman Blanche Lincoln (D-Arkansas) stated that, “[Senator Lincoln] today hosted Ambassador Ron Kirk, U.S. Trade Representative, at a series of meetings in Arkansas to discuss trade issues important to creating jobs and growing Arkansas’s economy. Chairman Lincoln and Ambassador Kirk took the occasion to announce the first US poultry shipment cleared customs in Russia today. Lincoln has pressed to resume fair and open poultry trade since the Russian government placed artificial and unnecessary restrictions on poultry imports earlier this year.”

Ag Economy

A news release yesterday from the U.S. Grain Council indicated that, “The U.S. Grains Council recently concluded its annual China Corn Tour, estimating an increase in production over 2009… ‘While the Council is projecting higher production numbers than last year, this does not indicate a bumper crop. Conservative estimates of demand growth suggest China will likely need to import,’ said Thomas C. Dorr, USGC president and CEO.

“In the 2011 calendar year, the Council anticipates China to import 2 million tons (78.7 million bushels) of U.S. corn and 2.5-3 million tons of U.S. distiller’s dried grains with solubles, a co-product of U.S. ethanol production.”

Meanwhile, Andrew Pollack reported in yesterday’s New York Times that, “As recently as late December, Monsanto was named ‘company of the year’ by Forbes magazine. Last week, the company earned a different accolade from Jim Cramer, the television stock market commentator. ‘This may be the worst stock of 2010,’ he proclaimed.

“Monsanto, the giant of agricultural biotechnology, has been buffeted by setbacks this year that have prompted analysts to question whether its winning streak of creating ever more expensive genetically engineered crops is coming to an end.”

The Times article noted that, “The latest blow came last week, when early returns from this year’s harvest showed that Monsanto’s newest product, SmartStax corn, which contains eight inserted genes, was providing yields no higher than the company’s less expensive corn, which contains only three foreign genes.

“Monsanto has already been forced to sharply cut prices on SmartStax and on its newest soybean seeds, called Roundup Ready 2 Yield, as sales fell below projections.

“But there is more. Sales of Monsanto’s Roundup, the widely used herbicide, has collapsed this year under an onslaught of low-priced generics made in China. Weeds are growing resistant to Roundup, dimming the future of the entire Roundup Ready crop franchise. And the Justice Department is investigating Monsanto for possible antitrust violations.”

In other news, Ian Berry reported yesterday at The Wall Street Journal Online that, “Supporters of genetically modified crops should concentrate on keeping officials in much of Europe from demonizing the agriculture methods so the benefits reach developing countries battling hunger, the U.S. Department of Agriculture’s chief scientist said Tuesday.

Roger Beachy, head of the National Institutes of Food and Agriculture, said the argument that biotech crops boost yields falls on deaf ears in much of Europe given flat population growth there. Instead, government farm ministers in Europe increasingly must consider the potential of genetically modified, or GM, crops to alleviate hunger in the developing world.

“‘They are starting to recognize now that they are having a negative impact on Africa, and the poor countries this does impact,’ Beachy said in an interview on the sidelines of a Soyatech global grain and soybean transport conference in Minneapolis.”

GIPSA

DTN Ag Policy Editor Chris Clayton reported yesterday (link requires subscription) that, “Lawmakers and livestock groups are putting more pressure on USDA to pull back a controversial proposed livestock marketing rule and to conduct a more detailed economic analysis of the rule’s potential market impacts.

In a letter sent Friday to USDA, a bipartisan group of leaders on the House Agriculture Committee wrote Agriculture Secretary Tom Vilsack questioning the mandate for the proposed rule and asking for a more thorough economic analysis of the impact. The letter had 115 signatures from House members of both parties.”

Mr. Clayton pointed out that, “Several U.S. senators also have written similar letters asking for USDA to conduct a more thorough economic study of the rule.

“In response to the letter and requests for more analysis, a spokesman for USDA stated, ‘The proposed rules were designed to implement the mandates of the 2008 farm bill and to address concerns that had been raised for years about fairness in the livestock and poultry markets. USDA has received letters from members of Congress offering a variety of suggestions and positions on the proposed rule. GIPSA takes very seriously all comments on the rule, which is why GIPSA extended the comment period to a total of 150 days. GIPSA is currently in the middle of that extended comment period where we have encouraged comments from all interested parties on costs and benefits and whether all impacts have been considered.’”

Political Notes

Alexander Burns reported yesterday at Politico that, “Indiana Rep. Brad Ellsworth, Missouri Secretary of State Robin Carnahan and Wisconsin Sen. Russ Feingold are all struggling to overcome their shared party label in states that have swung to the right this year;” the article added that, “Ellsworth has the toughest climb of the three candidates.”

“Carnahan still lags [former House majority whip Republican Rep. Roy Blunt] in polling, but a Democratic Senatorial Campaign Committee survey showed her within the low single digits in late September,” the article said.

The PBS NewsHour reported yesterday that, “It wasn’t so long ago that [three-term Democratic Senator Russ Feingold], long viewed as a maverick in the Democratic Party, was assumed a shoo-in for a fourth term. His go-it-alone identity would inoculate him against problems other Democrats might have — so the thinking went. But that was before a new president and his ambitious agenda stirred up a hornet’s nest of opposition… But, less than two years later, with the economy still struggling and Obama policies under attack, all the Democrats here, even Russ Feingold, find themselves facing a tougher political environment.”

Aaron Blake reported yesterday at The Fix (Washington Post Online) that, “[T]here are a number of other rising Democratic stars who face the very real potential of seeing their political rise stunted badly in four weeks time… Such may be the case for the likes of Reps. Ron Klein (D-Fla.), Stephanie Herseth Sandlin (D-S.D.), Patrick Murphy (D-Pa.), Heath Shuler (D-N.C.), Tim Walz (D-Minn.) and Martin Heinrich (D-N.M.) — or even for candidates who have previously run for statewide office (and may do so again), like Reps. Baron Hill (D-Ind.) and Ben Chandler (D-Ky.).

Herseth Sandlin, Hill and Patrick Murphy are thought to be particularly vulnerable in the current environment, and the National Republican Congressional Committee has placed ad buys against all three.”

And Susan Page reported yesterday at USA Today Online that, “A Gallup Poll analysis released Monday underscores the huge ‘enthusiasm’ advantage Republicans hold a month before elections that will determine control of Congress and help shape the rest of President Obama’s term…Under Gallup’s traditional voter model, 56% of likely voters say they’re inclined to vote for a Republican; 38% for a Democrat. If slightly higher turnout is assumed, the GOP leads 53%-40%.”

Keith Good

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