Farmers fearing ethanol changes
RFS moves may be worse for farmers than a soy tariff.
Based on his own back-ofthe-envelope calculations, Minnesota farmer Kirby Hettver could lose tens of thousands of dollars of earnings because of President Donald Trump.
But damaging as the brewing trade war with China may turn out to be for Hettver and other American soybean farmers, he says the greater financial impact could come if Trump moves ahead with changes to the U.S. ethanol mandate, known as the Renewable Fuel Standard, or RFS.
While proposed tariffs announced by China last week would apply to about $14 billion a year of U.S. soybean exports, the RFS accounts for 38 percent of the U.S. corn crop, valued at about $21 billion at current prices. And unlike the situation in the soybean market, where other buyers could pick up the slack for a drop in Chinese demand, the undoing of U.S. biofuel laws could lead to real demand destruction.
Farmers “thought they were voting for an administration that was supportive of rural America,” and now they’re anxious, said Wallace Tyner, an economist at Purdue University in West Lafayette, Indiana.
The RFS requires oil refiners to blend ethanol, mostly made from corn, and biodiesel, derived from soybeans, with petroleum. In the 13 years since its inception, the mandate has been a key driver for grain demand. But the oil industry has taken issue with the law, saying that it’s too costly to comply with.
Trump vowed his support for the RFS during campaign rallies in Midwestern states like Iowa, the leading U.S. corn grower and ethanol producer. He has repeated the pledge since taking office, and last fall ordered Environmental Protection Agency Administrator Scott Pruitt to back down on possible changes to the law.
Then in January, the largest U.S. East Coast oil refiner filed for bankruptcy and blamed the cost of complying with the mandate. That thrust the issue back onto the political agenda and spurred Trump to hold meetings — the most recent one on Monday— in an attempt to carve out a deal between the oil and agriculture lobbies.
The National Corn Growers Association, along with other groups, had its members send a barrage of tweets to Trump ahead of Monday’s meeting, reminding him of his promise to uphold the law.
The threat to ethanol demand comes as the rural economy is already suffering from years of crop gluts. The oversupply sparked a prolonged rout for grain prices, and U.S. farmer incomes are projected to fall to a 12-year low in 2018.
At the same time, China has retaliated to Trump’s hard-line stance on trade with a plan for duties on about $50 billion of U.S. imports, including a host of agriculture products.
On Monday, Trump acknowledged the impending pain that farmers may feel from the trade war.
“Our farmers are great patriots,” Trump said to Washington reporters. “They understand that they’re doing this for the country. We’ll make it up to them.”
Farmers like Hettver see the trade impact from China’s duties as more of a done deal, but are holding out hope that Trump will stand by his ethanol pledges and spare them extra hardship.
“I hope he holds that promise because after what’s happened with the tariffs, we really need the RFS,” Hettver, who’s also president of the Minnesota Corn Growers Association, said in a telephone interview. “We’ve been tightening our belts for five years.”