Secretary of Agriculture, Sonny Perdue, is tasked with being the “Trump Whisperer” to the ag sector. He gets to interpret Trump ideology on immigration, trade and biofuel to the ag sector while attempting to educate the President on the needs of the ag sector and how to deconflict Trump policy and those needs. That is a really tough job and sometimes he is not the best man to do it. I think that is the case with biofuel policy. Perdue has bought into the Senator Ted Cruz’ argument that the RFS is unfair for refineries, that the obligation for refiners to buy RINs is too great a financial burden and that the biofuel industry needs to concede something in the RFS to the petroleum industry to ease their angst.
In the White House meetings, he reportedly suggested assigning RINs to exported ethanol which would mean that ethanol exports would apply toward the RFS volumetric targets which they do not now do, and there would be more RINs, adding to supply and therefore reducing their cost. This would water down the RFS, reducing the incentive for refiners to blend biofuel and demand for corn would be negatively impacted. That is how it would work.
Yet Perdue stood on the stage at the Commodity Classic and professed his strong support for the RFS and that they would do nothing to reduce corn demand by undermining it. What he said there and what he proposed in the WH meeting are opposites. I actually do not think that Perdue was lying to the Corn/Soybean convention. I have been told that he doesn’t get it. He doesn’t understand the nuances of the RFS. He didn’t get the connection that what he proposed relative to assigning RINs to ethanol exports undermined the RFS.
Trump doesn’t get the RFS either. His support for the RFS is also based on a lack of understanding about how the RFS actually functions. After being informed about E-15 (he reportedly did not know of it) and the need for a vapor waiver from EPA so it could be sold year-a-round, Trump thought that granting the waiver in return for accepting Ted Cruz’s proposal for capping the cost of RINs at a dime/gallon was a win-win. Granting the vapor waiver would be a good thing. It would add more RINs to the market and expand consumer access for ethanol. That in and of itself is a win-win.
The cap on the cost of RINs however, would make them so cheap refineries would buy RINs and refuse to blend and sell ethanol. The cost of the RIN was the incentive to blend biofuel. Lower the cost of RINs to near nothing and the whole enforcement mechanism in the RFS is undermined. Ted Cruz’s cap on the price of RINs would gut the RFS. They know that, which is why they are pushing it. Neither Perdue or Trump gets this. That is why Grassley was lamenting not having Tom Vilsack at USDA supporting the RFS instead of Perdue, who is not that good at it, other than making speeches to the choir promising things he doesn’t understand.
Perdue is also trying to be a Trump Whisperer trying to explain the importance of NAFTA to the President. Let’s be honest. Trump wants to end NAFTA which he has characterized as the worst trade deal ever. Despite the knowledge that it will hurt the ag sector he still intends to do just that. Perdue, the rest of the ag sector and most of the business sector wants to retain NAFTA and they have been very aggressive and vocal in championing that position to the President and his trade advisors. That meant that they had to make an attempt to renegotiate it to placate this NAFTA support. They had to make that attempt look well-meaning and serious. They have been having several rounds of talks and have been working on revisions and modernization of the trade pact.
Personally, my opinion is that it is all pretense. They have identified the major stumbling points having to do with auto content, dispute panels and a 5-year sunset clause and have made some progress on many technical aspects of the deal. But they are far from the finish line and are running out of gas to get there. This effort at negotiation, NAFTA 2.O, has mostly been done to placate the pro-NAFTA elements of the Trump base, primarily the Ag sector. It looks like Trump is negotiating in good will. Looks can be deceiving. I think that they could work through an agreement and he is still never going to sign it. They could never concede enough to fix the propaganda that it is the worst trade deal in history.
The ag sector is being played by Trump on NAFTA. Perdue is helping him, wittingly or not. Commerce Secretary Ross called the Ag sector a bunch of whiners on trade. In order to do what they want to reset trade under the America First ideological agenda, they have to throw the Ag sector under the bus. That is not going to stop them. Perdue is whispering to the ag sector that they renegotiate NAFTA and it will be just great. . .trust them.
I think that is BS. Mexico hates us and we are well on the way that Canadians will have good reason to hate us too. The plan revealed this week to threaten Mexico and Canada with steel/aluminum tariffs if they make the concessions necessary to finish a new NAFTA was really the same as throwing a wrench into the gears in order to see to it that there will be no new NAFTA. The tariff threat is meant to sabotage any chance of a positive result. . . on purpose. Trump has no intention of ever approving a new NAFTA. That is a truth that Perdue can hide until he can’t.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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