Trump Sets Second White House RFS/RIN Meeting Next Week after Cruz Philly Refinery Rally

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1 February 23, 2018 by Steve Kopperud SLK Strategies Grassley Says He Thinks Groups have Sec. 199A Fix, NCFC Says Not Yet Is there in hand a legislative solution to the Sec. 199A mistake in the federal tax reform law? Sen. Chuck Grassley (R, IA) said this week he thinks so; the National Council of Farmer Cooperatives (NCFC) says both sides are still talking. Grassley made his pronouncement earlier this week, but stressed he wasn t 100% sure a deal has been cut to fix the language making grain sales to cooperatives more price and tax attractive than selling to private companies and elevators. The Iowa lawmaker said marketplace confusion has reached the point that while there isn t 100% buy-in on a solution by both sides of the dispute, Congress is looking to fix problem by tacking language on to the FY2018 omnibus spending package under construction to be ready for a March 23 vote. He said the solution could go forward even if co-ops aren t completely satisfied with what we re doing. Insiders say Grassley is likely referencing calls early in the week for Congress to simply reinstate the repealed Sec. 199 manufacturing deduction previously enjoyed by cooperatives, giving them a roughly 9% income tax deduction generally passed back to member/owners. Under the new law, coops were redefined as pass-through entities, giving them the same 20% deduction as LLCs, S Corps, etc., but also an additional 20% income tax deduction on payments made to members, including gross grain sales, making farmer sales to cooperatives more attractive. Meanwhile, a bipartisan group of 87 House members signed a letter to House Speaker Paul Ryan (R, WI) and Senate Majority Leader Mitch McConnell (R, KY), circulated by Rep. Dave Young (R, IA), calling on the leaders to prioritize the Sec. 199A fix by retroactively restor(ing) the competitive marketplace for agricultural producers and replicate the tax benefits accorded to co-ops and their farmer-patrons under Sec. 199 prior to the enactment of Sec. 199A. Changes are necessary to restore, the equity in grain marketing and set co-ops and other independent businesses on a more level playing field, Young said in a statement. The House letter says, Unfortunately, Sec. 199A goes too far and has created a tax advantage for producers who sell to cooperatives instead of private and independent businesses. Trump Sets Second White House RFS/RIN Meeting Next Week after Cruz Philly Refinery Rally

2 President Trump has set for early next week a second meeting between dueling corn and petroleum state senators, several cabinet members, including Agriculture Secretary Sonny Perdue and EPA Administrator Scott Pruitt, and other administration officials to try and reach a compromise on potentially modifying the Renewable Fuel Standard (RFS) and its accompanying Renewable Identification Number (RIN) program, according to an exclusive February 22 Reuters report. Trump, in a previous White House meeting on RFS issues, took no position on the RIN program or other alleged RFS burdens on petroleum refiners he publicly restated his support for the RFS but ordered participants to sit down and find a win-win solution to the problem. However, both sides the petroleum industry and ethanol producers, along with their respective congressional champions contend the other is refusing to seriously engage in discussions. While none of the reported participants in next week s meeting is talking, Reuters reports unidentified sources say the meeting idea comes on the heels of an appearance by Sen. Ted Cruz (R, TX) at a Philadelphia rally this week at the headquarters refinery of Philadelphia Energy Solutions (PES). PES has filed for bankruptcy protection, citing the cost of RIN program compliance as a major contributing factor. PES says its RIN compliance costs last year exceeded the company s payroll for its 1,000-plus employees, Reuters reports. Opponents contend PES is scapegoating the RFS to distract from their own failings, arguing the company bankruptcy has more to do with company mismanagement and investor demand for payouts despite low company revenues. Reuters reports that in addition to Cruz, Perdue and Pruitt, invited meeting participants include Sen. Charles Grassley (R, IA), the legislative protector of all things biofuel, and Sen. Joni Ernst (R, IA). Also a possible player is Energy Secretary Rick Perry, former Texas governor. Throughout the week, Cruz said he s not arguing to get rid of the RFS. The argument I m making is the RIN system, an enforcement mechanism and only part of the RFS, is broken. The Texas lawmaker has repeatedly called for capping RIN prices at 10 cents and using the proceeds to pay for infrastructure investment. Such a move would dramatically lower current RIN values. The ethanol industry opposes the move saying it would devastate investment in new ethanol facilities. As an olive branch to ethanol producers, Cruz now wants to see a removal of federal barriers from selling more ethanol, a reference to the industry s call for permission to sell 15% ethanol/gasoline blends (E15) all year, and not just during summer months as currently permitted. Pruitt says it s unclear whether EPA has the legal authority to remove the E15 marketing restriction and Congress may have to legislate specific authority for the agency to act. Cruz and Grassley have been procedurally jousting in the Senate. Back in October 2017, when Cruz saw Trump s restatement of RFS support and Pruitt s written commitment to Ernst on E15 and related biofuels issues, he put a formal hold on the Trump nomination of Iowa Agriculture Secretary Bill Northey to be USDA undersecretary for farm programs and conservation. There are no indications Cruz will lift that hold any time soon, and Grassley has circulated a letter to his

3 colleagues hoping to get the necessary 60 signatures that allows Senate Majority Leader Mitch McConnell (R, KY) to set a cloture vote on the Northey nomination so a final vote can follow, effectively end-running Cruz. The Iowa Republican Party this week unanimously adopted a resolution and sent Cruz a strongly worded letter urging the Texas lawmaker to end the political points he s attempting to gain in an election year (we) strongly encourage Sen. Cruz to get back to doing what he does best promoting the conservative agenda particularly if he s to remain in good standing with Iowa conservatives should he return here in future endeavors. Ironically, Cruz won the 2016 presidential race Iowa Caucuses despite his opposition to the RFS and continuing the program beyond its 2022 expiration. Goodlatte Modifies Immigration Guestworker Bill to Make Ag Happier; Some Groups Are, Some Aren t A bill to modify the H-2A seasonal guestworker visa program has been rewritten in part by Rep. Bob Goodlatte (R, VA), chair of the House Judiciary Committee, to address some agricultural concerns, though it s still up in the air if the bill will ever see the House floor for a vote. The Goodlatte bill has been tucked into the Securing America s Future Act, the House attempt to fund a border security wall, enhance border security broadly, and extend the Deferred Action for Childhood Arrivals (DACA) program. However, despite the changes Goodlatte made to his bill to create a new H-2C visa program for ag workers run by USDA, including a multi-year path to legal status for undocumented laborers, and despite support from the American Farm Bureau Federation, the conservative House Freedom Caucus and Agriculture Secretary Sonny Perdue, the legislation is still under attack as too hard line. The Los Angeles Times quoted Perdue this week, saying, I don t know if we can do that in the current environment or not. I don t know if there s an environment where we can. The Goodlatte bill makes year-round the eligibility of guestworkers, and opens the program to dairies, meatpackers and the timber industry for the first time. Employers wouldn t be responsible for the transportation or housing of workers, and wage limits would be relaxed. Other new modifications include more time for farmers to comply with mandatory E-Verify that requires employers to use an on-line federal system to verify citizenship, and would extend the maximum visa term to 24 months from the current 18. Opposing the bill are the Western Growers, representing fruit and vegetable farmers, as well as the California Farm Bureau, because the bill would require workers now in the U.S. illegally to touch back or return to their homelands before applying for an H-2C visa. Western Growers said the requirement is a non-starter if its members are to get enough workers for planting and harvest, and that Goodlatte refuses to compromise on the touch back language. There is also concern over the program s cap of up to 900,000 guestworkers per year given it s estimated agriculture needs as many as 2.5 million workers.

4 EPA Items Bill on Neonicotinoid Insecticides Introduced Legislation to restrict the use of neonicotinoid insecticides to help protect pollinators was introduced this week by Reps. Earl Blumenauer (D, OR) and Jim McGovern (D, MA). The bill would suspend the registration of various insecticides until EPA conducts full scientific reviews of their impact on bees and others. In related action, 16 environmental and conservation groups collected over 100,000 public comments urging EPA to limit what it called rampant overuse of neonicotinoid pesticides. The comment period on EPA s review of the human health impact and the ecological risk of some chemicals has been extended. The chemicals in question are clothianidin, thiamethoxam and dinotefuran. Comments on Water Pollution Action Requested EPA wants public comments on whether it should strengthen groundwater discharge pollution rules, a move environmental groups fear will again exempt or minimally regulate concentrated feeding operations (CAFO), power plants and other operations which release discharges which move to waterways through groundwater. The action comes after a federal court ruled a Hawaiian sewer plant that discharged wastewater into below-ground wells needed an EPA permit to continue the practice. However, other court actions have taken the opposite view. EPA wants suggestions on how to move forward from its current may-need-a-permit position on groundwater discharges. Ag Group Action in California on Glyphosate Heard A number of national agriculture groups took the state of California to federal court this week seeking a temporary injunction halting the state s action to list and product-label glyphosate under its Prop 65 carcinogen regulations. A dozen groups, including the National Association of Wheat Growers (NAWG), filed a constitutional challenge to California s listing of glyphosate and to require products containing the herbicide to be labeled as carcinogens as part of its list of naturally occurring and synthetic chemicals that are known to cause cancer or birth defects or other reproductive harm. While farmers are readying our fields and making plans to put seeds in the ground, California is engaging in aggressive legal wrangling, placing us at risk to crippling liability for using a product that hundreds of studies and the U.S. EPA say is safe for use, NAWG said in a statement. The group called the state s action an erroneous Prop 65 listing. Monsanto Loses on Arkansas Dicamba Action A federal court judge threw out Monsanto s action against the Arkansas State Plant Board challenging the board s action to limit dicamba by banning the herbicide s use from April 16-October 31. The judge cited a previous state supreme court decision ruling that state lawmakers could not waive state lawsuit immunity the plant board is a state agency and said that the decision precluded the Monsanto suit from moving forward. Monsanto said it would consider other legal steps. Mayors Call on Pruitt to Move Clean Power Plan Forward Mayors from 233 cities and towns in 46 states sent a letter this week to EPA Administrator Scott Pruitt slamming his actions to roll back the so-called Obama Clean Power Plan, saying such action would have devastating health and economic impacts on 51 million citizens. The elected officials said the effects of climate change are real, and that the future costs of climate change should not be overlooked. EPA is about to hold a meeting in Kansas City, Missouri, the first of three public listening sessions around the U.S. to take public comment on the impact on the Obama administration initiative that would regulate old and

5 new power plants for greenhouse gas emissions (GRG). Pruitt began the repeal process on the rulemaking in 2017, and is just beginning the replacement process, believed to be action to target specific utilities rather than states or regions. Trade Notes Election Year NAFTA Popularity Noted Given November brings the biennial midterm congressional elections, supporters of NAFTA 2.0 are noting a particular uptick in the trade pact s popularity among lawmakers. The 24-year-old trade deal the seventh round of formal talks to reinvent the treaty begins February 25 and ends March 5 championed by nearly all of U.S. agriculture and the U.S. Chamber of Commerce, has been the target of attacks by President Trump as the worst deal we ever signed, and as the three-nation negotiations progress, Trump has not relented in his threats to possibly pull the U.S. out of the deal. The Chamber says the amount of support for NAFTA is growing on both sides of the aisle, saying the level of support has been a sea change since last October. Lawmakers want to see the treaty modernized, with no loss of current open border trade benefits, while warning the White House to abandon so-called poison pill positions that could jeopardize the outcome of the treaty talks. Trump and lawmakers are talking NAFTA a lot more in recent weeks, with the administration insisting the talks are making progress. For their part, members of Congress remind the White House abandoning NAFTA would cost millions of U.S. jobs and slam the brakes on an accelerating U.S. economy. Senators Want to Revisit TPP; USDA Says Japan Deal Coming A group of 25 Republican Senators this week sent President Trump a letter urging him to re-engage with the Trans-Pacific Partnership (TPP) as part of the party s call to broaden U.S. trade ambitions, while urging the White House to back away from threats of import tariffs and other trade barriers. Meanwhile, USDA Undersecretary for Trade & Foreign Agriculture Ted McKinney told USDA s Outlook Forum this week he expects the U.S. will ink a trade treaty with Japan even if the U.S. does not rejoin TPP. I don t know what the agreement will be, but it s not a matter of if, but when, McKinney said. However, he acknowledged, he s not sure what Trump will do on TPP broadly. Taking Trump at his word last week that if the U.S. could get a better deal, he d look at rejoining TPP, the senators told the White House, We encourage you to work aggressively to secure reforms that would allow the U.S. to join the agreement. The lawmakers cite increased economic engagement with the 11 nations currently in TPP is a net win for U.S. industry. For its part, the administration says it s pursuing not only possible TPP opportunities, but bilateral trade opportunities with TPP participants. Final Biodiesel Antidumping Duty Set on Argentine, Indonesian Product This week the Department of Commerce (DOC) announced the affirmative final determination in the antidumping duty investigation into imports of biodiesel from Argentina and Indonesia. DOC determined that exports from the two nations have sold biodiesel in the U.S. at % and % less than fair value, the department announced. The determination clears the way for DOC to instruct U.S. Customs & Border Protection (CBP) to collect cash deposits from Argentine and Indonesian exporters based on the final rates. In 2016, the two nations shipped biodiesel to the U.S.

6 valued at $1.2 billion and $268 million, respectively. The original petition was filed by the National Biodiesel Fair Trade Coalition, led by the National Biodiesel Board (NBB)and 15 U.S. biodiesel producers. Lower Corn, Soybean Production Expected; Ethanol Corn Use to Hit Record Lower planted acreage and trend yields leads USDA to predict corn and soybean production will be down from the year before, with corn pegged at 14.4 billion bushels, down 1%, and soybean production predicted to be 4.32 billion bushels, down from 4.39 billion in Planted acres for both crops, the department said, will be about 90 million acres. Corn yield is set at 174 bushels per acre, down from last year s bushels. Corn for ethanol production is seen hitting 5.65 billion bushels, 125 million bushels more than the year before. If realized, fuel use would take about 40% of the total crop, the highest use on record. Corn exports should hit about 1.9 billion bushels, down 150 million bushels, mainly on competition from Brazil, Argentina and Ukraine. The soybean crop, if realized, would be the second largest on record, with yield projected to hit 48.5 bushels per acre, marginally lower than a year before. Exports are pegged at 2.3 billion bushels, up 200 million from Wheat production is forecast at billion bushels, up from 1.74 billion the year before, mainly based on higher planted acreage. This crop would be 20% lower than the year before, USDA said. All-wheat yield will be up a bit from the year before at 47.4 bushels per acre. Exports are projected to hit 925 million bushels, down 25 million from the year before. Contact Us Kathy Zander, Executive Director Roxanne Rice, Finance Director Phone: 605/ Fax: 605/ info@sdaba.org Website: