Policy Updates: Cruz to Meet Thursday with Trump, Cabinet Officials on RFS

Posted on 12/06/2017 7:20 AM

Biodiesel tax incentive still being pushed by some lawmakers | China concerned about relations with U.S.

Sen. Cruz scores Thursday meeting with Trump, cabinet officials on RFS. A meeting with President Donald Trump, several cabinet members and Sen. Ted Cruz (R-Texas) Thursday on biofuels will not involve Sen. Chuck Grassley (R-Iowa). But the Iowa lawmaker says he is not worried so long as Trump "keeps doing what he told the voters of Iowa, as well as me and Sen. [Joni] Ernst , which is supporting ethanol," Grassley told reporters Tuesday. He said such meetings are not unusual and noted the session is probably not as key as it could have been now that EPA has announced its Renewable Fuel Standard (RFS) levels.

As for the hold that Cruz placed on the nomination of Iowa Agriculture Secretary Bill Northey to be a USDA undersecretary, Grassley said he did not think Trump would agree to weaken the RFS in exchange for Cruz to drop that hold. "Mr. Northey wouldn't want to be confirmed if the president was going to compromise his views on ethanol — if that was the trade-off," Grassley said. Regarding not being invited to the session, Grassley simply said, "I doubt they'd want me around."

Cruz's primary focus is getting changes regarding RINs.

Concerned about relations with the U.S., Beijing has dispatched Vice Minister of Foreign Affairs Zheng Zeguang for a visit to Washington, D.C. starting today, according to Bill Bishop at Sinocism. He says China is concerned enough about the trajectory of the relationship, especially over North Korea and trade. The main goal of Zheng, who is expected to replace Cui Tiankai as Beijing’s Ambassador to the U.S. is “to prevent an escalation of tensions over North Korea, specifically a U.S. attack on the DPRK and sanctions on Chinese entities such as a major financial institution or PetroChina if Beijing does not cut off oil supplies to North Korea, as the Trump Administration is demanding,” Bishop reports. He adds that the “recent talk by the National Security Advisor and Sen. Lindsey Graham (R-S.C.) about the increasing risk of war concerns Beijing, and Beijing has no doubt heard the rumor going around that the U.S. told South Korea on Nov. 29 after the latest test that it may strike North Korea unilaterally. So far, though, Xi’s efforts to find some sort of compromise are just not compelling or feasible.”

A U.S. B-1B bomber today joined large-scale U.S.-South Korean military exercises that North Korea has denounced. The drills come a week after North Korea said it had tested its most advanced intercontinental ballistic missile, Reuters reports.

Seeking to bolster its military capabilities against its nuclear-armed neighbor, South Korea is aiming to create a weaponized drone unit to swarm North Korea in the event of a conflict, the Financial Times reports. It comes after Seoul said it would increase its annual military budget by 7% next year - its biggest jump since 2009— as a result of the "grim security reality."

Next big GOP issue: welfare reform, including food stamps. Congressional Republicans who have been pushing President Trump for months to pursue welfare reform have proposed layering tougher work requirements on beneficiaries of programs such as food stamps, which are used by around 43 million Americans, and the cash benefit known as Temporary Assistance for Needy Families, which is received by around 3.5 million people, the Wall Street Journal reports. A spokesman for House Speaker Paul Ryan (R-Wis.) said the goals for 2018 would be set at a conference retreat in January.

USDA plans to give states greater flexibility over how they administer food stamps, potentially opening the door to stricter work requirements or drug testing on recipients. Meanwhile, Wisconsin Gov. Scott Walker (R) announced that he would move ahead with drug testing on able-bodied adults applying for food stamps.

Tax reform issues in focus as conference last step before final votes. House Ways and Means Chairman Kevin Brady (R-Texas) said repealing the alternative minimum tax (AMT) is a priority for House Republicans in conference negotiations with Senate tax writers. Brady said House GOP members "feel strongly" about permanently repealing the AMT for corporations and individual taxpayers. The House-passed tax bill (HR 1) would do so, while the Senate measure would keep the current corporate AMT and expand exemptions for the individual AMT rather than repeal it. He said the individual AMT particularly affects families in high-tax states and the corporate AMT "undermines some of the pro-growth provisions that we kept in the tax code," including the tax credit for research and development.

Regarding pass-through business income, Brady said there were "strengths" in each chamber’s proposed structure. "Right now, we’re looking at how we can really improve on both structures, especially making sure pass-throughs that make a lot of capital investment in their business can achieve the lowest possible pass-through rate that we can deliver," he said. Of note, the National Council of Farmer Cooperatives (NCFC), who initially complained that both tax measures would repeal the Section 199 deduction, now says that with some technical clarifications, the language should be sufficient. The Senate included language that would make farm co-ops eligible for a new 23% deduction that is earmarked for partnerships and other pass-through businesses.

On deductions for state and local taxes (SALT), Brady said possible changes are still pending. Both the House and Senate tax plans would allow up to $10,000 in property taxes to be deducted, but that provision could be tweaked to further address concerns of Republicans from high-taxed states like New York, New Jersey and California. "There’s four or five incentives, tax relief, that can help our high-tax states that we’re working with our lawmakers on," he said. "Could a $10,000 deduction that could be used for income, sales and property taxes . . . how does that help address the SALT-state lawmakers’ concerns? All of those options and a few more are being discussed." Brady said making such a change could be costly in terms of revenue. "It’s got a pretty big figure to it. But all of this stuff interacts with each other," he said.

Slow pace for new farm bill in Senate: Grassley. Sen. Chuck Grassley (R-Iowa) said the Senate Agriculture Committee had not yet started drafting the next farm bill. This comes about continued conjecture that some Democrats and aides on the panel are slow-walking the process and upping the odds of a farm bill being written in 2019.

Meanwhile, Grassley said that he would renew his push to limit eligibility for farm payments by cutting off family members who aren't "actively engaged" in the business. "I do believe that at some point, farms are big enough and shouldn't be able to have unlimited subsidies," Grassley said. He cited a USDA Economic Research Service report published last week (link) that analyzed how a growing portion of subsidies were flowing to the largest and wealthiest operations as a result of consolidation in agricultural production.

The American Enterprise Institute holds a discussion today on the state of the American farm sector and the 2018 Farm Bill.

Another attempt at extending expired tax incentives, including biodiesel. “We always wind up doing it, so yeah, I suspect that’s something we’ll have to do,” said Senate Finance Chairman Orrin Hatch (R-Utah). “There hasn’t been much talk about it right now, but there’s always loose ends that you just have to tie up.” The provisions, which would resurrect short-term tax benefits to promote renewable energy sources like biodiesel and solar power, were not included in the major tax legislation advancing in Congress.

Some observers signal the extenders could be part of an end-of-year government funding agreement. “I wanted it in the bigger tax bill but there are so many extenders that they just made it too complicated,” said Sen. Mike Crapo (R-Idaho). “So the decision was made — not by me — to pull the extenders back for a different bill.” Crapo is pushing to continue a tax credit to maintain short-line railroads, which connect farm goods from hard-to-reach locations around the country to main rail arteries that can carry the food anywhere.

Sen. Chuck Grassley (R-Iowa) has worked on extending the lapsed biodiesel tax incentive.

But other congressional contacts signal GOP leadership may not want to move the topic in the waning days of this Congress.

Mexico continues to increase its non-U.S. imports as hedge on NAFTA collapse. Mexico officials continue to look beyond the U.S. for imports of food and agricultural goods. The Mexican government released data recently that shows imports of agricultural goods like beef, grain and dairy products from the rest of the world increased by 19.8% during the three months ending in October. Imports from outside the U.S. increased 40.3% in October alone, according to an analysis done by trade data company Panjiva. Mexican imports of U.S. agricultural goods also increased, but at a lesser rate of 11.4% vers8us the same three-month time period from a year before, Panjiva calculated. U.S. products still accounted for 71.1% of Mexico’s food and agricultural imports during the three months, which is only a slight drop from the 72.6% in the same period a year earlier.

Other items of note:

  • President Trump to announce today that the U.S. will recognize Jerusalem as the capital of Israel, a decision that Arab and European leaders warned could disrupt the Mideast peace process and unleash violence across the region. West Jerusalem is the seat of Israel’s government, but the Palestinians view East Jerusalem as the capital of a future Palestinian state. The White House is preparing for possible unrest and is making plans to protect Americans abroad. There will be a late morning Cabinet meeting and then a statement early this afternoon on Jerusalem.
  • Democrat plans impeachment vote. Rep. Al Green (D-Texas) says he intends to force a vote today to impeach President Donald Trump. Under House procedures, lawmakers can offer “privileged” motions on impeachment, which means an individual member can force consideration of the subject. But GOP leaders who control the House intend to vote to table it.
  • Ag groups lobby for NAFTA. More than 14 national commodity associations and their state-level affiliates are telephoning and taking to Twitter today via a grassroots campaign day to emphasize the benefits of NAFTA and the importance of staying in the pact. Some of the groups involved in the effort include the American Farm Bureau Federation, National Pork Producers Council and USA Rice Federation. On Tuesday, Sen. Joni Ernst (R-Iowa) followed up on expectations she would raise the importance of NAFTA as she and other lawmakers met with President Donald Trump and US Trade Representative Robert Lighthizer at the White House Tuesday. "Trade plays a critical role in Iowa's economy, and I reiterated to the administration the importance of ensuring Iowans remain competitive in the global market - provided our trading partners are operating on a level playing field," Ernst said in a statement after the meeting. "I will continue working to ensure that any changes made to NAFTA do not hurt our crop and livestock producers." Ernst was among six Republicans who lunched with Trump and other administration officials at the White House where they talked trade, taxes and other issues.
  • U.S., Egypt agree to explore ways to boost trade ties. Trade officials from the U.S. and Egypt met on Tuesday under the two countries’ Trade and Investment Council, where they agreed to further promote two-way trade between the nations, USTR said in a press release.
  • Russia to lift ban on EU pork. Russia's veterinary and phytosanitary watchdog announced it will lift its ban on imports of pork from the European Union (EU), a ban enacted based on concern over African Swine Fever outbreaks. This comes after the World Trade Organization (WTO) dismissed Russia's appeal against the WTO's decision which invalidated their ban. But it will not make a difference – Russia is maintaining its embargo of ag products from Western countries.
  • Infrastructure reform plan again delayed. Transportation Secretary Elaine Chao said Tuesday that a long-promised infrastructure package is still coming, but not as quickly as previously thought. “I do not expect infrastructure to come out until probably early next year. But this’ll be part of the dynamic of the legislative process,” she added. The timeline has slipped several times.
  • An interactive map showing the impact of immigration in individual states, cities and congressional districts was released by the New American Economy, founded by Michael Bloomberg. the group today will hold an iMarch to rally support for immigration reform and "Dreamers" ahead of this month's government spending battles. Events are planned in all 50 states, with a war room to host lawmakers and journalists in the U.S. Capitol. Link to interactive map.
  • Shipping recovery remains elusive: Fitch Ratings. Overcapacity in shipping undermines the current rebound in dry bulk and container shipping rates and puts in doubt its longevity, according to Fitch Ratings, in a report on the 2018 shipping outlook. “ Any improvement in market sentiment tends to stimulate new orders, and this happened again when new orders, including for mega-ships, surged in the third quarter of 2017.” Link for details.
  • Employers at U.S. East and Gulf Coast ports and unionized dockworkers began negotiations aimed at long-term contract extension.
  • U.S. transport regulators withdrew a proposed rule requiring special brakes on freight trains carrying hazardous commodities. The U.S. Department of Transportation on Dec. 4 repealed a 2015 Federal Railroad Administration rulemaking requiring freight railroads to employ electronically controlled pneumatic (ECP) brakes on certain trains hauling hazardous flammable commodities such as ethanol and crude oil in DOT-117 tank cars. An October 2016 study by the Government Accountability Office (GAO) said that the DOT’s justification for the rule “lacked transparency.” The Association of American Railroads had been lobbying for repeal of the ECP brake rule, seeking “common-sense regulatory principles.”
  • The nation's homeless population increased this year for the first time since 2010, driven by a surge in the number of people living on the streets in Los Angeles and other West Coast cities. The AP has more on this topic. HUD Secretary Ben Carson holds a conference call today to unveil the 2017 Annual Homeless Assessment Report to Congress.

Markets. The S&P 500 closed lower Tuesday, posting its first three-day losing streak since August. The S&P 500 declined 9.87 points, 0.4%, to 2,629.57, while the Dow Jones Industrial Average fell 109.41 points, 0.5%, to 24,180.64. The tech-heavy Nasdaq Composite slipped 13.15 points, 0.2%, to 6,762.21.

Australia's economy grew at the fastest annual pace in over a year last quarter, with GDP expanding at a 2.8% annualized rate due to a jump in private business investment. The result will be no surprise to the Reserve Bank of Australia, which yesterday kept interest rates steady at 1.5% in anticipation of faster growth and a gradual revival in inflation.

CME lowers maintenance margins for corn, soybeans and wheat. CME Group lowered its maintenance margin for corn, soybeans and wheat as follows:

  • Corn: Down $100 to $650 per contract.
  • Soybeans: Down $250 to $1,650 per contract.
  • Wheat: Down $150 to $950 per contract.

The exchange added that all initial margin rates are 110% of these levels. These changes take effect today.


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