Biodiesel Tax Incentive Retroactively Extended from 2018 Through 2022 in Spending Package

Posted on 12/17/2019 7:23 AM

China asking about U.S. ethanol | No halt to moving two USDA research agencies to K.C.

In today's updates:

* Biodiesel tax incentive retroactively extended through 2022
* Nearly $1.4 trillion spending agreement would fund gov't through rest of FY 2020
* Spending bill does not halt USDA move of two research agencies to Kansas City
* Spending bill reprograms $1.5 bil. from unspent Fiscal Year 2017 for ag disaster aid
* Spending bill includes $26.3 bil. to reimburse USDA's Commodity Credit Corporation
* Other items in spending packages
* U.S., Mexico settle USMCA labor row; House vote Thursday
* China inquiring about U.S. ethanol
* China trying to coax small hog operations to restart
* Kudlow: U.S. wants to start on a trade deal with the United Kingdom 'very soon'
* Indonesia files WTO case against EU over palm oil rules

Markets: Front-month soybeans futures contract is approaching initial resistance after holding support for most of this year:

Soybean futures

French labor unions have called on teachers, doctors, and other public sector workers to join the third mass protest against the government’s proposed reform to the pension system after a broad plan was published last week. Transport workers have been on strike for 13 straight days, disrupting rail links nationwide as the holidays approach. The unions have pledged to keep protesting until the government withdraws the reform. The conflict is being complicated further by the resignation of Jean-Paul Delevoye, appointed by Macron to oversee pension reform, after it was exposed that he failed to report multiple side jobs. Strike organizers are hoping for a repeat of 1995, when they shut down a government pension reform effort following three weeks of strikes just before Christmas.

The Simpsons turns 30. The animated series first aired on Fox on Dec. 17, 1989, and has since become the longest-running scripted primetime series in history. You can watch more than 660 episodes in a 15-day marathon starting tonight on FXX.


Biodiesel tax incentive extended retroactively from 2018 and through 2022. Sen. Chuck Grassley (R-Iowa) and other biodiesel proponents scored big as lawmakers extended the $1 per gallon break for biodiesel producers, which expired at the end of 2017 but would last through 2022 if enacted as expected. The measure is being added to a spending bill slated for passage this week before Congress finishes its work for the year. The credit will be retroactive to Jan. 1, 2018. The tax package also includes extensions for tax breaks that subsidize cellulosic biofuels, electric vehicles and alternative fuels equipment and short-line railroads. Link to text of tax incentive provisions.

The agreement, in the form of an amendment, would extend more than two dozen incentives through 2020, including an excise tax break for beer, wine, and spirits producers that was established in the 2017 tax law.

One measure that isn’t expected to be part of any agreement is an expansion of the electric vehicle tax credit.

Other items in spending bill packages. Two pieces of bipartisan legislation cover the dozen appropriations categories. The bills include over 2,000 pages of legislative text detailing fiscal 2020 funds. Appropriators released the text of the legislation yesterday in two batches, technically avoiding the label of a 12-bill omnibus. One measure includes Commerce-Justice-Science, Defense, Financial Services and Homeland Security funding. The other includes Agriculture-FDA, Energy and Water, Interior-Environment, Labor-HHS-Education, Legislative Branch, Military Construction-VA, State and Foreign Operations, and Transportation-HUD funds. They will be debated and voted on in the House today, before being sent to the Senate ahead of the Friday deadline. While the White House has not made a public statement on the legislation, President Trump is expected to support the funding package. Link to a summary from the House Appropriations Committee. Some of the more noteworthy items:

  • USDA funding. Provides $23.5 billion in discretionary funding in fiscal 2020 under the agreement for USDA, Food and Drug Administration (FDA), and related agencies. That amount would be $183 million more than the fiscal 2019 level. The measure also includes mandatory funding for nutrition assistance and crop insurance programs, among other things, bringing the total to $153.5 billion, which would be $3.96 billion less than fiscal 2019.
    Ag spending
  • Border funding. Provides $1.375 billion for border barriers, the same amount in last year’s bill. Similar restrictions on the specifications and locations of the barrier are also included in this year’s package. Trump had requested $5 billion for the wall plus another $3.6 billion to backfill military construction funds he had reprogrammed for the wall.
  • Census. Provides $7.6 billion to the 2020 census.
  • Moving two USDA research facilities to Kansas City. Contains no language that would stymie USDA's move of two research agencies to Kansas City. USDA says it has enough funding for the move via current spending initiatives.
  • Hog slaughterhouses. Contains no language that would bar funding to finalize or implement a rule allowing for unlimited line speed at hog slaughterhouses.
  • CCC reimbursement. Includes $26.3 billion in mandatory funding to reimburse USDA's Commodity Credit Corporation (CCC) for expenditures previously incurred by CCC to finance farm supports, export promotion, disposition of surplus commodities and other programs like the Market Facilitation Program (MFP).
  • CFTC. Funds the Commodity Futures Trading Commission (CFTC) at $315 million, $47 million (17.5%) more than FY 2019 and $65 million more than requested.
  • Ag disaster aid. Allows eligible farmers and ranchers to continue to access previously appropriated USDA disaster aid. $1.5 billion in disaster assistance is being reprogrammed from unspent Fiscal Year 2017 disaster funding. This funding is in addition to the $3 billion in disaster funding approved earlier this year. The provision:
       * Requires the Secretary of Ag make disaster payments to eligible sugar cooperatives.
       * Expands loss coverage by authorizing USDA to cover quality losses, in addition to production losses.
       * Clarifies eligible disaster events by including losses related to excess moisture and D3 drought.
  • FSIS, APHIS. Provides $1.1 billion for the Food Safety and Inspection Service, a $5 million increase from FY 2019 and $1.04 billion for the Animal and Plant Health Inspection Service, a $31.5 million increase from FY 2019.
  • Tobacco products. Raises minimum age to purchase tobacco products, including and e-cigarettes, to 21. The smoking crackdown would give the FDA six months to develop regulations and then three years to work with states on implementing the change. A large number of states already have age laws in place.
  • Health care taxes. Permanently repeals several health-care-related taxes — would permanently repeal the so-called Cadillac tax on high-cost employer health insurance, which never took effect, and a tax on medical devices that was scheduled to resume in January.
  • Ex-Im Bank. Extends the Export-Import Bank for seven years.
  • Dairy farms. Requires USDA to finalize, within 180 days of enactment, a proposed rule that would specify procedures for producers to transition dairy farms from nonorganic to organic management once over a 12-month period.
  • Hemp. Blocks any use of funds to prohibit growing, selling, processing, or researching hemp, which was legalized in the 2018 farm law.
  • USDA reorganization. Prohibits USDA from reorganizing agencies within the Department unless Congress affirms it in legislation.
  • SPR. Directs the Energy Department to sell $450 million worth of crude oil from the Strategic Petroleum Reserve (SPR) in fiscal 2020 to fund the reserve’s Life Extension II project. It also would authorize the sale of refined petroleum products from the SPR if there’s a regional supply shortage of significant scope and duration that would likely lead to a “severe” price increase.
  • Army Corps of Engineers:
       * Provides for six new construction projects and six new feasibility studies identified in a work plan the Corps has submitted to Congress.
       * Continues to bar the Trump administration from reorganizing the Corps to transfer its civil works functions out of the Defense Department.
       * Fails to include provisions to prohibit the use of Corps funding to design or construct barriers or security infrastructure on the southern border.
  • ANWR. Omits riders from the House’s bill that would restrict the Trump administration’s offshore leasing plan and lease sales in the Arctic National Wildlife Refuge.
  • EPA policy riders include:
       * Prohibits regulating greenhouse gas emissions from livestock and requiring reporting on emissions from manure management systems.
       * Bans regulating the lead content of ammunition and fishing tackle.
       * Requires all federal agencies to treat energy from burning forest biomass, which is generally in the form of wood pellets, as carbon neutral and a renewable energy source.
       * Bars enforcement of a rule on emissions from small remote incinerators in Alaska.
  • 232 auto report. Retains an amendment requiring the administration to publish the results of its national security investigation into imports of automobiles. President Trump ultimately did not act on that report, which was carried out by the Commerce Department under Section 232 of the Trade Expansion Act of 1962.
  • OTA. Provides no funding to revive the Office of Technology Assessment, as the House version had proposed.
  • China: Provides at least $300 million for a new Countering Chinese Influence Fund. It would prohibit funding in the measure from being used to support China’s Belt and Road Initiative or other “dual-use” Chinese projects, as well as Chinese technology. Diplomatic program funding couldn’t be used to process licenses to export satellites to China unless Congress is notified at least 15 days in advance.
  • Russia: Provides at least $290 million for the Countering Russian Influence Fund. It also would bar funding in the measure from being used to support the Russian government, or a foreign government that recognizes Russia’s annexation of Ukrainian territory or its occupation of Georgian territory.
  • Saudi Arabia: Bars the use of funds to provide military education and training assistance to Saudi Arabia and prohibit Export-Import Bank support for nuclear technology exports to Saudi Arabia unless it has a nuclear cooperation agreement with the United States.

U.S./China trade policy update:

  • China is shopping for U.S. ethanol, with two plants inquiring, according to sources.
  • Business investment impact. Economists expect the easing of the U.S./China trade tensions to unleash business investment in the United States.

China trying to coax small hog operations to restart. China’s efforts to boost hog production in the wake of African swine fever (ASF) devastating their hog herd are now turning to the small farmers who have not jumped back into the business. Nearly 50% of China’s pork supply comes from farms that produce less than 500 pigs per year, according to Wang Junxun, an official the Animal Husbandry and Veterinary Bureau at the Ministry of Agricultural and Rural Affairs. "Accelerating production recovery at small- and medium-sized farms directly affects whether the goal of guaranteeing supplies and stabilizing production nationwide can be realized as scheduled," he said. Wang told Reuters the government is helping small farmers partner with large producers to scale up and get bank loans. "If you partner up with big-scale farmers, you solve your problem and also the big producers' problem," Wang told the news service.

USMCA update:

  • The U.S. and Mexico resolved an 11th-hour labor dispute that had threatened to stymie a planned congressional vote on the trade pact. The row developed over the weekend when Mexico reacted angrily to implementing legislation for the USMCA, released by U.S. officials on Friday, which said up to five labor attachés would be sent to the U.S. embassy in Mexico City. Enforcement of USMCA labor rights in lower-wage Mexico has been a key demand of U.S. House Democrats, and Andrés Manuel López Obrador, Mexico’s president, accused Washington of seeking to appoint labour inspectors “in a clandestine fashion.” But U.S. Trade Representative Bob Lighthizer said that was not the case. He insisted the attachés would work with Mexican authorities by providing “technical assistance” in accordance with Mexican law, rather than acting unilaterally. Mexican Foreign Affairs Undersecretary Jesús Seade, who flew to Washington for urgent talks, said Mexico was “satisfied . . . now it is perfectly clarified. We have achieved something very important.”
  • Seade indicated that Mexico has not found any other issues in the implementing legislation that would be questionable.
  • The House of Representatives is expected to vote on the deal on Thursday after a committee hearing on the agreement today. A Senate vote will not come until 2020.
  • USMCA implementing bill officially repeals the North American Free Trade Agreement (NAFTA) Implementation Act, which was signed into law by President Bill Clinton on Dec. 8, 1993. It only “suspends” the slightly older U.S.-Canada Free Trade Agreement.

Other items of note:

  • U.S./U.K. trade deal. White House economic adviser Larry Kudlow said Monday that the U.S. wants to start on a trade deal with the United Kingdom “very soon.” Link for more from Bloomberg.

  • Indonesia files WTO case against EU over palm oil rules. Indonesia filed a WTO complaint against the European Union (EU), claiming the restrictions the EU is putting on biofuel made from palm oil are an unfair restriction. Indonesia has sent a request for consultations with the EU forward, dated Dec. 9, the initial stage in a WTO complaint. If no agreement is reached in 60 days, then the matter could be referred to a dispute settlement panel. The European Commission earlier this year set in place restrictions on the kind of biofuel that would count toward their renewable-energy goals. “The Indonesian government objected to the elimination of the use of biofuel from palm oil by the EU,” Indonesian Director General of Foreign Trade Indrasari Wisnu Wardhana said. “In addition to having a negative impact on exports of Indonesian palm oil to the EU, it will also create a bad image for oil palm products in global trade.” The country is ratcheting up pressure on the EU, with officials warning the bloc they will walk away from the comprehensive economic trade agreement (CEPA) the two are trying to work out. "We have told the EU, if there's no palm oil, there will be no CEPA," the Trade Ministry's director of trade security Pradnyawati told reporters. However, she said Indonesia would still continue the talks which are aimed at concluding in mid-2020.

Markets. The Dow on Monday gained 100.51 points, 0.36%, at 28,235.89. The Nasdaq moved up 79.35 points, 0.91%, at 8.814.23. The S&P 500 rose 22.65 points, 0.71%, at 3,191.45. All three indices closed at their highest levels ever. Meanwhile, the S&P 500's 10-month moving average is back above its 20-month moving average, which tends to be a bullish sign. It has been the best decade for U.S. stocks since the 1950s.

Business activity in the euro area is growing very modestly and at its weakest pace since 2013. Although the service sector is holding up, manufacturing activity declined for an 11th consecutive month. The purchasing managers’ index for manufacturing fell in December from 46.9 to 45.9. Any value below 50 indicates a contraction.


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