President Trump will soon unveil his plan for corn and ethanol producers, a kind of apology package after upending the market for ethanol in a recent decision that favored oil refiners.
Last month, the EPA approved 31 waivers to oil refiners, absolving them of some of their requirements to buy and blend ethanol into their fuel mixes. Waivers have sharply increased under the Trump administration, undermining both demand for ethanol and the market for renewable identification numbers (RINs), the credits that refiners can buy and sell to otherwise comply with the law.
Over the past year, several ethanol producers have been forced to shut down ethanol production facilities, including Green Plains Inc. and Poet LLC. The rise of EPA waivers for refiners, combined with the loss of the export market in China due to the trade war, has hit American farmers hard. According to the Wall Street Journal, the average profit or loss for ethanol producers has been in negative territory since the summer of 2018.
The recent decision on waivers sparked an immediate backlash from farm country, one that the president did not anticipate. At a closed-door meeting on August 19 between Trump and former Iowa Governor Terry Branstad (current U.S. Ambassador to China), Branstad told the president that he risked losing several Midwestern states in the 2020 election due to his ethanol policies, according to Reuters. President Trump was “shocked” by the presentation, according to Reuters.
In the next few days, Trump held several cabinet meetings in an effort to come up with a set of policies to repair his relationship with farmers and ethanol producers. A few of the ideas included increasing the blending requirements for 2020, which would mean oil refiners would be obliged to step up their purchases of ethanol.
Trump followed those meetings up with a tweet promising a “giant package” for farmers on August 29.
The Farmers are going to be so happy when they see what we are doing for Ethanol, not even including the E-15, year around, which is already done. It will be a giant package, get ready! At the same time I was able to save the small refineries from certain closing. Great for all!— Donald J. Trump (@realDonaldTrump) August 29, 2019
This is the latest chapter in a saga that might not have a solution, or at least not a solution that pleases all sides. Trump tried to put on a brave face, saying that his solution will be “great for all,” but that seems unlikely. Oil refiners and the ethanol industry are locked in a zero-sum battle.
A few days after Trump’s tweet, the Wall Street Journal Editorial Board wrote a scathing op-ed, criticizing President Trump for his “payoff” and his “sops” to “Lord Corn.” Pulling no punches, they wrote that Trump should not be “fooled by another round of rent-seeking from one of the country’s most shameless farm interests.”
But farm country is not giving an inch. Darrel McAlexander, an Iowa corn farmer who has served as chairman of the Iowa Corn Promotion Board and is on the board of directors of the U.S. Grains Council, wrote an op-ed in Des Moines Register saying that Trump “betrayed the trust of farmers.” McAlexander wrote that he personally spoke with Trump at an event in Iowa in June regarding refinery waivers, and Trump said he would “look into it,” according to McAlexander, leaving him with the impression that Trump would reject the waivers.
However, a few weeks later, the EPA approved 31 waivers for oil refiners – and Trump personally intervened to give the go-ahead.
“What made this round of refinery exemptions even worse was the news that Trump himself had greenlighted them. I feel betrayed, and I know other Iowa farmers do too,” McAlexander wrote. He went on to suggest that farmers might not vote for Trump in 2020, but said that the Trump administration could make amends if the EPA hikes biofuels blending requirements next year. McAlexander concluded by noting that rolling out new ethanol policies would be beneficial for farmers in Iowa, Wisconsin, Michigan and Ohio – not coincidentally these are vital swing states in next year’s election.
On a somewhat separate issue, Trump’s bailout to farmers as compensation for lost exports due to the trade war may be on shaky legal ground, something that some of Trump’s advisers quietly acknowledge, according to the Washington Post.
It’s in this political nightmare that Trump now has to wade. Eroding trust from farmers in swing states will likely push Trump to try to boost ethanol ahead of the election. But any effort to do so will be met with stiff opposition from the oil industry. “This rushed and arbitrary course deviation will only further distort the fuel market while providing little, if any, relief to farmers,” Frank Macchiarola, API's vice president of downstream and industry operations, told reporters in early September. “We hope the administration walks back from the brink of what would be a disastrous political decision that potentially hurts American drivers.”
By Nick Cunningham, Oilprice.com
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