“Ethanol makers are bracing for a drop in earnings as cheap crude pushes down the prices they fetch from refiners to blend the corn-based fuel additive into gasoline. Ethanol producers also face a recent jump in the price of corn, their main raw material.
“Falling profit margins for the $40 billion U.S. ethanol industry may cause some companies to scale back production in 2015, analysts and industry executives say. Still, many observers think ethanol demand may remain steady or even rise if cheap gasoline spurs U.S. motorists to drive more, tempering the hit to ethanol earnings.”
The Journal writers explained that, “Lower oil prices have made for an unusual scenario in which gasoline prices currently trade at a discount to ethanol, making blending of the biofuel—which has been required by federal law since the 2000s—a pricier proposition for fuel companies. Most U.S. gas contains as much as 10% ethanol as a result of the federal rules, but fuel companies also can meet ethanol-blending requirements by using credits stored up from surplus use.”
Bunge and Newman also pointed out that, “Since Sept. 30, U.S. corn futures prices have surged 23%, due in part to farmers storing more of their freshly harvested supplies rather than selling. Meanwhile, gasoline futures dropped 21% in December, after the Organization of the Petroleum Exporting Countries, or OPEC, on Nov. 27 said its members would continue producing crude oil at their planned rate, despite rising supplies in the U.S.
“‘I think we’re facing a period of dim ethanol prices and profitability,’ said Scott Irwin, professor of agricultural economics at the University of Illinois. ‘At $1.50 [per gallon for the] wholesale price for gasoline, ethanol producers can’t pay $3.75 per bushel of corn and make money. It doesn’t work.’”
“One wild card for the industry in 2015 may be exports. Demand from some overseas buyers may ease if cheap oil and gas prices reduce the incentive to add ethanol to fuel supplies,” the Journal article said.
Trade Variables- Currency Values, Port Logistics, Legislation, Cuba
Pat Curtis reported late last week at Iowa Radio Online that, “As for 2015, [Sec. of Agriculture Tom Vilsack] says trade will be critically important for creating new and expanded opportunities for U.S. agriculture and rural America. Vilsack says those opportunities include gaining access to huge, growing and lucrative Asian markets that represent one third of all world trade.”
Ira Iosebashvili and Ian Talley reported on the front page of Saturday’s Wall Street Journal that, “Investors snapped up dollars, pushing the greenback to its highest level against major currencies since September 2003, as they ramped up bets the U.S. economy will pull ahead of the rest of the world this year, with the Federal Reserve in the driver’s seat [related graph].”
The article noted that, “But many observers are bracing for the negative effects of a stronger dollar. As the greenback strengthens against other currencies, foreign buyers pay more for U.S. products. That gives international competitors a price advantage over their American counterparts…[T]he Obama administration has failed to meet a goal of doubling exports in the five years through 2014–a key plank of its economic policy. A stronger dollar will put even more distance between its goal and reality.”
Landon Thomas Jr. and Jack Ewing reported in Saturday’s New York Times (“Euro Falls Lower as Central Bank Hints at Increase in Stimulus Plan”) that, “To jump-start growth and avoid deflation, many analysts say the most powerful policy arrow in [Mario Draghi’s, the president of the European Central Bank] quiver is to talk the euro sharply downward, which would bolster exports, increase the price of imports and ultimately, it is hoped, stimulate an increase in inflation.”
The Times’ writers also explained that, “A strong dollar is a welcome reflection of a United States economy that is growing and adding jobs at a faster clip than many of its peers. But if the currency climbs too much too quickly, corporate profits can suffer. When the dollar is worth more against other currencies, it pushes up the price of American goods and services in overseas markets. This can lead to lower exports and weaker earnings for many American companies.”
Meanwhile, Robert Wright reported late last week at The Financial Times Online that, “A labour dispute and problems handling vast new container ships have led to the worst delays in 10 years at US west coast container ports, with shipping lines being forced to divert vessels or cancel services.
“Retailers have called on President Barack Obama to intervene after they were left struggling to get hold of stranded goods. Other sectors of the US economy including manufacturing and agriculture have also been hit.”
The FT article indicated that, “‘For the last few months we’ve seen significant impacts of the congestion and the slowdowns, not just in retail but in other sectors of the economy which rely on the west coast ports,’ said Jonathan Gold, head of supply chain for the NRF.”
“‘We hear a lot from manufacturers who are waiting for inputs to production,’ Mr Gold said. ‘Farms and agriculture companies are having a lot of problems.’”
Beyond the currency and logistics variables, from a policy perspective, Adam Behsudi reported late last week at Politico that, “The new Republican majority in Congress could turn 2015 into the year of the trade deal.
“Republicans and President Barack Obama are both eager to act on a massive Asia-Pacific deal, an even bigger agreement with the European Union and legislation that would fast-track their approval by Congress — all of which have a shot of moving next year.”
The Politico article explained that, “Before the biggest trade deals can get done, Obama will need to get lawmakers to give him the legislative authority to expedite their debate and passage. Also known as ‘fast-track’ legislation, the Obama-backed TPA [Trade Promotion Authority] bill failed to advance earlier this year after outgoing Senate Majority Leader Harry Reid (D-Nev.) refused to take it up out of concern that a vote on the bill before the midterm elections would put Democrats in the politically hazardous position of possibly damaging their support from labor and environmental groups.
“Even with the GOP majority in the Senate, the bill will still need Democratic support to get through Congress, political observers say.”
Mr. Behsudi added that, “House Speaker John Boehner (R-Ohio) has said the White House needs to rally support from at least 50 House Democrats to get the bill through the lower chamber — no easy task given the post-election decline in the number of trade-friendly Democrats.”
“Bilateral talks between the U.S. and Japan on the tariffs issue have proved particularly troublesome for the larger deal. In a breakthrough last month, Tokyo proposed more meaningful tariff cuts on U.S. beef, pork and dairy products, but the negotiations have since stalled again over the United States’ refusal to meet Japan’s demands for lower auto parts tariffs,” the Politico article said.
And with respect to Cuba, Reuters writers Roberta Rampton and Patricia Zengerle reported on Saturday that, “Only two-and-a-half weeks after U.S. President Barack Obama announced a historic prisoner exchange and re-establishment of long-broken ties with Cuba, his new policy is encountering obstacles that threaten to flare up when Congress returns next week.
“Questions surrounding Havana’s human rights record and the promised release of Cuban detainees have the potential to inflame anti-Havana passions on Capitol Hill, where the House and Senate are expected to hold hearings soon after they resume on Tuesday.
“Whether the obstacles amount in the long run to anything more than speed bumps on the way to wider detente remains to be seen. But at a minimum, they illustrate how benefits from Obama’s ditching of a half-decade of U.S. isolation of Cuba won’t come quickly or without rancorous debate.”
Policy Issues- Broad Perspective
More broadly on the policy interplay between the executive and legislative branches, Damian Paletta reported in Friday’s Wall Street Journal that, “While President Barack Obama and Republican leaders in Congress disagree on a lot of things, they have a few overlapping ambitions for 2015, including the business tax code and securing trade deals. But emboldened right and left wings and looming 2016 elections could overwhelm any effort toward bipartisan deals.
The Journal article noted that, “The midterm elections had the effect of emboldening the ideological wings of both parties. Conservatives read the results, which gave Republicans control of the Senate and an expanded House majority, as a mandate for their policies. Some Democrats felt they lost because they weren’t liberal enough, and they have urged the party to take a harder line against political compromise, with Sen. Elizabeth Warren of Massachusetts as their guide.”
Michael A. Memoli reported on the front page of Saturday’s Los Angeles Times that, “Returning to Washington with fewer numbers and increased doubt about their direction in the new Congress, Democrats are pushing President Obama to pursue a more aggressive economic agenda that lays the groundwork for a political rebound in 2016 by focusing sharply on helping the middle class.”
Mr. Memoli noted that, “The [Democratic] party’s challenge in 2015 is to unite with an approach that serves potentially conflicting interests — the president’s desire to cement his legacy and congressional Democrats’ need to set a foundation on which to challenge the GOP in 2016.”
On the GOP side, Ed O’Keefe and Paul Kane reported on the front page of yesterday’s Washington Post that, “After years of sparring with the White House, Republicans are eager to demonstrate productivity and some level of bipartisan cooperation with Obama and the Democrats.”
“Securing final passage of bills will require [incoming Senate Majority Leader Mitch McConnell (R-Ky.)] and House Speaker John A. Boehner (R-Ohio) to compromise with Democrats while holding together their own ranks, which have clashed repeatedly over issues such as spending and immigration. Many GOP leaders hope that their differences can be set aside in favor of legislative wins,” the Post article said.
O’Keefe and Kane added that, “In the Senate, the rebranding effort will begin with energy policy.
“McConnell plans to start his tenure as Senate majority leader with a ‘full-throated’ debate on national energy policy, ranging from a new oil pipeline to additional oil exploration. He has also promised consideration of liberal alternatives.”
Megan R. Wilson reported yesterday at The Hill Online that, “Soon-to-be Senate Majority Leader Mitch McConnell (R-Ky.) said on Sunday that the GOP agenda will be focused on ‘voting on things I know [President Obama is] not going to like.’
“He said that jobs would be the number one focus, also lumping in the Keystone XL pipeline project and rolling back strict environmental and healthcare regulations.”
Carl Hulse reported on the front page of today’s New York Times that, “In taking control of Congress on Tuesday, Republicans say they will quickly advance energy and health care legislation that stalled in the Democratic-controlled Senate as they try to make good on claims, and address doubts, that they can govern effectively.”
Mr. Hulse noted that, “Because the House has been in Republican hands since 2011, the real test comes in the Senate, where the new majority leader, Senator Mitch McConnell of Kentucky, is armed with a 54-46 majority. He will still have to find a way to make legislation passed by the House attractive to enough Democrats to assemble the 60 votes needed to overcome procedural obstacles and send them to the president’s desk.”
And with respect to the executive branch, Michael A. Memoli reported in yesterday’s Los Angeles Times that, “President Obama is heading back to Washington on Saturday after a two-week holiday visit to Hawaii, but he won’t stick around for long.
“Eager to stay on the offensive as new Republican majorities are seated in Congress, the president plans to take a more bullish economic message on the road next week in something of an early test drive of his State of the Union message.
“During stops in Michigan, Arizona and Tennessee, Obama plans to draw a connection between actions his administration took early in his presidency and increasingly positive economic trends in sectors such as manufacturing and housing.”
Yesterday’s article indicated that, “Though incoming Majority Leader Mitch McConnell (R-Ky.) has pledged to seek common ground with the president on areas such as trade and tax reform, Senate Republicans’ first order of business will be to advance legislation to approve the Keystone XL pipeline. The House plans to take up jobs-related legislation it passed in the previous Congress but that the Democratic-led Senate declined to consider.
“‘If the president is willing to work with us, we’ll have a real chance to address our nation’s most pressing challenges,’ Rep. Rodney Davis (R-Ill.) said in the Republicans’ weekly address.”
Brett Neely reported recently at Minnesota Public Radio Online that, “‘Instead of the House not being able to work with the Senate, I think what will happen is that they pass bills that Obama will veto,’ [Minnesota’s longest-serving member of Congress, 13-term DFL Rep. Collin Peterson] said.
“Peterson says he plans to keep his head down and focus on the House Agriculture Committee, where he’s the top Democrat.”
Policy Issues- Food, Nutrition
AP writers Stephen Ohlemacher and Donna Cassata reported on Saturday that, “Kansas’ Pat Roberts, 78, [the incoming Senate Ag Committee Chairman] will consider renewal of child nutrition programs that have been pushed by the White House and expire next year. Roberts has criticized efforts to make school lunches healthier, calling for studies on the costs of the program and economic impact on schools.
“Roberts has been a recent dissenter on the normally bipartisan panel, voting against the five-year farm bill that Congress passed in May. Roberts supported the bill’s boost in crop insurance for farmers but said other subsidies needed more changes. He called the entire bill ‘a look in the rear-view mirror.’”
The AP article noted that, “Like his Republican counterparts in the House, Roberts has championed cutting back spending for food stamps, saying the farm bill’s estimated cut of $8 billion over 10 years was insufficient.
“Roberts held the gavel of the House Agriculture Committee 20 years ago and during his tenure he helped write the 1996 farm bill.”
AP writer Mary Clare Jalonick reported late last week that, “For years, the government has been issuing guidelines about healthy eating choices. Now, a panel that advises the Agriculture Department is ready to recommend that you be told not only what foods are better for your own health, but for the environment as well.
“That means that when the latest version of the government’s dietary guidelines comes out, it may push even harder than it has in recent years for people to choose more fruits, vegetables, nuts, whole grains and other plant-based foods — at the expense of meat.
“The beef and agriculture industries are crying foul, saying an environmental agenda has no place in what has always been a practical blueprint for a healthy lifestyle.”
Also, Helena Bottemiller Evich and Chase Purdy reported recently at Politico that, “Michelle Obama has made getting American kids to eat better and exercise more the cornerstone of her platform as first lady.
“But her husband’s administration appears to be waving a white flag when it comes to one key effort aimed at tackling childhood obesity: The Federal Trade Commission has given up on tracking how much the food industry spends to promote sugary cereal, snacks and other less than healthy foods to children, a major setback for advocates who wanted a crackdown on junk food marketing to kids.
The Politico writers indicated that, “Federal Trade Commission officials tell POLITICO they have no plans to continue using their authority to pry child marketing data from the 44 largest food and beverage companies in the United States. When the FTC last did so, in 2012, it found the industry giants spent some $1.8 billion on kid- and adolescent–targeted advertising in 2009.
“The White House — under siege most of this year over school lunch reform — remains dedicated to improving food marketing to kids, administration officials assert. They say there is still time for the FTC to act before the end of Obama’s term.”