Trump ethanol moves may be worse for farmers than soy tariff

Based on his own backof-the-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 fuel standard accounts for 38 percent of the U.S. corn crop, valued 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 fuel standard 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 standard 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.