The Trump administration is scrambling to repair its relationship in farm country, which has long been a faithful political constituency of the President. But after being hit on multiple fronts by Trump administration policies, farmers are getting restless.
Most recently, the Environmental Protection Agency (EPA) granted 31 waivers to small oil refineries that allowed them to get out of their obligations to purchase ethanol to blend into their fuel mixes. The decision was the latest body blow for farmers already suffering from deteriorating market conditions.
The waiver decision led to plunging prices for renewable identification numbers (RINs), the credits that are bought and sold to comply with federal blending requirements. Farmers and ethanol producers were incensed. So were Republican politicians from farm states. “They screwed us…when they issued 31 waivers,” Republican Senator Chuck Grassley told Iowa Public Television. “Compared to less than 10 waivers during all the Obama years…What’s really bad isn’t a waiver, it’s that it’s been granted to people who aren’t in hardship,” he said, referring to oil refiners. President Trump reportedly intervened personally to decide in favor of oil refiners.
The waiver issue is only the latest in a series of policy decisions to go against American farmers.
Ethanol markets have already been battered by a prior slate of waivers issued by then-EPA Administrator Scott Pruitt. More broadly, the U.S. agriculture sector has been slammed by Trump’s trade war with China. Prices for soybeans, corn and wheat have gyrated, with soybeans in particular down sharply since China introduced retaliatory tariffs last year, all but closing off the massive Chinese market to American agriculture exports. Corn prices fared a bit better, but only because horrendous floods earlier this year raised fears about supply. With production turning out better than feared, corn prices recently plunged all over again.
Farmers have tried to find other markets, but prices remain depressed. Financial stress is spreading – farm bankruptcy filings are up 13 percent this year.Related: Trump Feeds Oil Markets False Hope
The New York Times reported on the growing ire in farm country, and the political threat that losing such a constituency represents to the president. Notably, the Times reported that farmers have been offended by Trump’s tweets about how “farmers are starting to do great again.”
Despite the posturing in public, the Trump administration is privately concerned about the political fallout, so much so that they are scrambling to find a fix to mend the damaged relationship with rural voters.
One proposal is to increase the blending requirements for oil refiners next year in an effort to compensate ethanol producers. However, this plan faces some challenges. As Reuters reports, the market for RINs has become oversupplied due to the string of waivers that the EPA has issued. As a result, the policy change may not do enough to push up prices. RIN prices have fallen to around 15 cents each in recent days, down from 88.75 cents two years ago, according to Reuters. In other words, the ethanol market has been badly damaged and the Trump team might struggle to clean up the mess.
“Even if the EPA (Environmental Protection Agency) moves forward with some of the ideas being talked about, we wouldn’t expect it to have significant impacts on RIN prices,” an industry source familiar with the matter told Reuters.
Moreover, even as the Trump administration weighs one measure as a sop to farmers, the president is escalating the trade war with China, which will surely deepen the pain for the agriculture sector. In a fit of anger, Trump immediately announced higher tariffs last Friday, just hours after China increased tariffs – which were a response to the previous round of U.S. tariffs.Related: US Natural Gas Prices Could Soon Fall Below $2
Sure, American farmers will welcome higher blending requirements on oil refiners, but that will be more than overshadowed by the rapid escalation of the trade war, especially if the trade war ultimately pushes the global economy into recession. Trump still has broad support from farmers, but the longer the trade war persists, the more politically dangerous it becomes.
One other potential land mine lies ahead. President Trump is clearly betting that the Federal Reserve will be forced to cut interest rates again in an effort to keep the economy humming along. Former New York Fed President Bill Dudley is calling on the Fed to refuse to play along. He wrote in Bloomberg Opinion that Fed officials “could state explicitly that the central bank won’t bail out an administration that keeps making bad choices on trade policy, making it abundantly clear that Trump will own the consequences of his actions.”
It’s not clear if the central bank will heed this advice, but if the Fed takes a more hawkish line than most analysts expect, it would cripple Trump’s effort to escalate the trade war. At that point, only a breakthrough on trade or a wholesale retreat from tariffs would be enough to rescue American farmers.
By Nick Cunningham of Oilprice.com
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