Push the Fight

With dust finally flying across the state, a tough, uncertain growing season has given way to a difficult fall harvest. The lingering uncertainty has left folks with more questions than answers.

How will my crop yield? When will the weather turn? How will the market react? The answers, to a degree, rest on the outcome of issues in the hands of lawmakers and trade negotiators. In last month’s “Sprint to the Finish” column, I ran through a laundry list of critical issues requiring congressional action before year’s end. Since then, both the legislative and political landscapes have shifted.

By now, you’ve read a headline (and likely a tweet, too) regarding the EPA’s supplemental RFS rule released mid-October. The announcement came after President Trump directed EPA to expand biofuel use in 2020 and account for future small refinery exemptions (SRE). Unfortunately, the supplemental rule differed significantly from what industry and congressional champions discussed with the White House and EPA during negotiations in late September.

On October 15th, EPA proposed to estimate 2020 SRE using a three-year average of exemptions recommended by the Department of Energy (DOE) — an approach never before discussed or considered.

Why is this problematic?

Well, EPA has sole authority to grant exemptions and has consistently waived higher volumes (gallons) than recommended by DOE since 2016. The rule makes clear that the average of DOE’s recommendations is only about half — maybe 60% — what EPA actually granted from 2016 to 2018. Further, the DOE recommendations are not made public. These recommendations are protected under confidential business information leaving no way to verify them.

A colleague recently summed it up best. “I now get how Charlie Brown must feel when Lucy swipes the football before he can kick it.”

No matter how reassured we are that EPA won’t drain the RFS, the agency goes back on its word. This never-ending “bait and switch” by EPA hasn’t fooled us or other biofuel supporters.

While promising at first, the outlook for a meaningful U.S.-China trade deal before the 2020 election continues to deteriorate. Uncertainty is now building around China’s commitment to purchase U.S. farm products. According to U.S. officials, the recent “Phase 1” deal reached between the two countries would lead to China buying $40 to $50 billion worth of ag goods.

While the terms and timeframe are unknown and not finalized, we can all agree any progress is good. For historical context, U.S. exports of soybeans, pork and other agricultural products peaked in 2013 at around $29 billion, falling to $24 billion in 2017 before trade soured with China. Those same exports plunged to $9.2 billion over the past 12 months, according to Commerce Department data. We remain hopeful the “Phase 1” agreement does indeed signal a de-escalation to the ongoing U.S.-China trade war.

With several thorny issues left unresolved, there’s reason to fear the damage done will extend long after a deal is reached. More specifically, if Chinese customers begin to question the United States as a reliable source of agricultural products, importers may completely unwind complex relationships with U.S. suppliers over time. Meanwhile, other nations fill the gap, further eroding U.S. competitive advantages that took decades to develop. Even if current trade conflicts are resolved to the U.S. government’s satisfaction, the market share we are losing to foreign competitors will be hard, if not impossible, to win back.

We must stand firm and continue to “push the fight” — a mantra ingrained into my head by a former boss. Let’s not lose sight of what we already know, too. A soybean is comprised of protein-rich meal and versatile oil. Managing the future is more important than ever. As ISA CEO Kirk Leeds wrote last month, we must find markets to replace the loss of sales to China, redouble efforts to identify new uses for soybeans, and never lose focus on the most important market for Iowa soybeans — the domestic livestock market. Until next time, be safe and push the fight.

Michael Dolch, Director of Public Affairs

MDolch@iasoybeans.com