At 11 a.m. today (November 16), the Environmental Protection Agency fully denied the formal petition filed by the Governors of North Carolina and Arkansas – as well as the separate petition filed by 265 national agriculture groups – seeking a partial waiver through 2013 of the ethanol Renewable Fuel Standard based on the claim of “economic farm” suffered by agriculture. The agency cited U.S. Department of Agriculture and the Department of Energy’s inability to show any harm to feed and food users of corn caused by the RFS, while attributing the dramatic reduction in corn stocks and the record increase in prices pressuring feed, livestock and poultry production to the effects of this past summer’s drought. The following is the full EPA press release:
EPA Keeps Renewable Fuels Levels in Place After Considering State Requests
WASHINGTON---The U.S. Environmental Protection Agency (EPA) today (November 16) announced that the agency has not found evidence to support a finding of severe “economic harm” that would warrant granting a waiver of the Renewable Fuels Standard (RFS). The decision is based on economic analyses and modeling done in conjunction with the U.S. Department of Agriculture (USDA) and U.S. Department of Energy (DOE). “We recognize that this year’s drought has created hardship in some sectors of the economy, particularly for livestock producers,” said Gina McCarthy assistant administrator for EPA’s Office of Air and Radiation. “But our extensive analysis makes clear that Congressional requirements for a waiver have not been met and that waiving the RFS will have little, if any, impact.” To support the waiver decision, EPA conducted several economic analyses. Economic analyses of impacts in the agricultural sector, conducted with USDA, showed that on average waiving the mandate would only reduce corn prices by approximately one percent. Economic analyses of impacts in the energy sector, conducted with DOE, showed that waiving the mandate would not impact household energy costs. EPA found that the evidence and information failed to support a determination that implementation of the RFS mandate during the 2012-2013 time period would severely harm the economy of a State, a region, or the United States, the standard established by Congress in the Energy Policy Act of 2005 (EPAct). EPAct required EPA to implement a renewable fuels standard to ensure that transportation fuel sold in the United States contains a minimum volume of renewable fuel. A waiver of the mandate requires EPA, working with USDA and DOE, to make a finding of “severe economic harm” from the RFS mandate itself.
This is the second time that EPA has considered an RFS waiver request. In both cases, analysis concluded that that the mandate did not impose severe harm. In 2008, the state of Texas was denied a waiver. More information: http://www.epa.gov/otaq/fuels/renewablefuels/index.htm.
While there are financial and political bridges to build and hard negotiations are only at the “early sparring stage,” as one Senator put it, both GOP and Democrat sentiments over whether a deal can be struck during the lame duck congressional session to avoid the so-called “fiscal cliff” were cautiously upbeat this week, signaling at the very least stop-gap action will be taken during the lame duck session to avoid the tax rate/spending one-two punch to the economy come January 1. The “fiscal cliff” is the euphemism used to describe the confluence of expiring Bush Administration tax rate cuts, mandatory spending reductions – $600 billion in 2013 – called for by the Budget Control Act of 2011, as well as unemployment eligibility and other unemployment program changes. Many insiders predict Congress will agree to some version of a plan resembling one floated by Sen. Christopher Coons (D-DE) to extend all the Bush tax cuts to a date certain in 2013, and make a “down payment” on the deficit of between $75-100 billion for 2013. Deadlines would be established for further savings cuts – Coons wants to give the authorizing committees a deadline for coming up with spending cuts – and tax reform action. President Obama is set to meet with congressional leaders the afternoon of November 16, but at his November 14 press conference, he refused to draw a hard line on what it would take to get his signature on a spending cuts/tax rate bill. He reiterated that by allowing the Bush tax rate cuts to expire on the wealthiest 2 percent of Americans – those making more than $250,000 – Congress could make a substantial down payment on the revenue side of the equation, avoiding other more painful actions to reduce spending and increase revenues. However, he said he’s absolutely wedded to no specific actions and “will not slam the door in their (Republicans) face” on any recommendation as long as the middle class does not bear the brunt of any congressional fiscal cliff deal. For his part, House Speaker John Boehner (R-OH) November 7 repeated his stance – almost identical to his statement made in 2011 – that the GOP is willing to look at an array of revenue actions, including the closing of “special interest tax loopholes,” but that entitlements and all government spending must be on the table. He also stated several times in the last week “I won’t raise taxes on anyone.” In the Senate, Majority Leader Harry Reid (D-NV) is working to keep his members in line, and fearing his caucus would appear split, this week urged Sen. Tom Harkin (D-IA) and Sen. Jay Rockefeller (D-WV) not send President Obama a letter they’ve circulated in the Senate for signatures recommending to the president that any deal on the fiscal cliff should begin with an agreement that for every $1 in tax increases, the federal budget would be whacked by $1. As of late this week, 13 Senators had signed the letter, even though Obama has said previously he’d accept $2.50 in spending cuts for every $1 in new revenues. The 800-pound gorilla in the Democrat-controlled Senate remains entitlement programs. The Rockefeller-Harkin letter says any “changes to Medicare, Medicaid, Social Security that would shift costs to the states, alter the structure … or force vulnerable populations to bear the burden of deficit reduction efforts must be rejected,” saying all of these programs are “a vital lifeline to the middle class.” However, without entitlement program changes – Obama has said Medicare needs cost-control repair – Democrats will not get GOP support for tax and revenue actions necessary to get anywhere close to the “grand bargain” Congress is seeking. Ultimately, any deal will be cut between Boehner, Reid and Obama, with their respective parties in Congress basically asked to take it or leave it.
The big pot of federal dollars – $100 billion by last estimate – that is any five-year Farm Bill may provide congressional incentive to enact a five-year omnibus agriculture bill as part of any deal struck to avoid the fiscal cliff, insiders hoped out loud this week. Farm groups in Washington, D.C., are pushing hard to include the Farm Bill in the deficit reduction/tax package as the last hope of getting a long-term bill done in 2012. Rep. Frank Lucas (R-OK), chairman of the House Agriculture Committee, said November 15, House Speaker John Boehner (R-OH) told him this week the Farm Bill will be part of the end-of-the-year “big picture,” and that the House ag panel’s bill and its $35 billion in spending cuts “got somebody’s attention.” Lucas said he has no idea how the Farm Bill will fit specifically in the lame duck agenda. The Farm Bill passed by the Senate would shave $23 billion from federal spending over 10 years. Those savings could be a “significant first step in meeting the critical deficit reduction challenges” Congress faces, said Senate Agriculture Committee Chairwoman Debbie Stabenow (D-MI) in an Associated Press story this week. The two big hurdles, however, in reconciling the two bills remain how much to cut from the Supplemental Nutrition Assistance Program – federal food stamps now received by 46.1 million Americans – with the Senate cutting $4 billion, the House cutting $16 billion, and how to marry the risk reduction approach to re-inventing farm programs in the Senate bill with the loan/deficiency payment approach embraced by the House ag panel. Letters calling for enactment of the five-year Farm Bill by the end of the year flew fast and furiously this week, with one letter signed by 235 agricultural groups reminding congressional leaders that failure to enact the bill would cause “significant budget uncertainty for the entire agriculture sector, including rural businesses and lenders whose livelihoods depend on upon farmers’ and livestock producers’ economic viability.” Rep. Collin Peterson (D-MN), House ag committee ranking member, said he hasn’t heard from Lucas on the fate of the Farm Bill, but reiterated his “110-percent opposition” to any attempt to extend existing farm programs for a year. “I will do everything in my power to stop it, including making the ag committee partisan for the first time, if that’s what it takes,” Peterson told AgriTalk radio.
The breadth of California agriculture this week sent House and Senate leadership their demands that Congress address comprehensive estate tax law and enact a five-year Farm Bill. Twenty-seven groups, representing crop, livestock/poultry and the nursery industry, called on leaders from both sides of the aisle to extend current estate tax law until permanent estate tax relief can be achieved. If the current estate tax exemption drops from the current $5 million to $1 million, the number of California farmers and ranchers subject to the estate tax would more than quadruple in 2013. On the need for Congress to enact a five-year Farm Bill, the groups said because of the record drought and increased feed prices in the West, state producers will need the assistance provided in the disaster aid title of the bill. The groups also cited the importance of domestic and foreign product promotion programs, technical assistance, research and conservation programs important to California farmers. They want to see a final Farm Bill that includes an air quality incentives program to help farmers with a cost-share program to meet the Environmental Protection Agency non-attainment area standards. Further, the groups said a provision in the House version of the Farm Bill to prohibit states from regulating ag products not produced within their borders – a shot at federal milk protein content levels, and a California law that prohibits the sale of eggs from caged layers – would impact state plant and livestock inspection, vaccination and testing entry requirements.
As speculation on congressional re-organization for the 113th Congress continues, it’s clear all Senate and House leaders will retain their positions. However, Senate Majority Leader Harry Reid (D-NV) this week said he wants to increase the Democrat majority on some Senate committees from one seat to two seats based on the Democrats’ pickup of two Senate seats – Indiana and North Dakota – in the November 6 election. At the same time, rumors continue to fly around the D.C. ag community that Sen. Thad Cochran (R-MS), former chairman of the Senate Agriculture Committee, may challenge Sen. Pat Roberts (R-KS) for that panel’s ranking member slot. By Senate rules, Cochran must surrender his ranking slot on the Appropriations Committee because he’s served in that position for six years. Politico reported this week that Roberts says he will retain the spot, but that Cochran is willing to force a vote within the committee and possibly the full Senate GOP conference if necessary. Cochran, who came to the Senate in 1978, has the seniority advantage over Roberts. Roberts’ departure from the ranking member slot becomes critical to the future of the Farm Bill if it does not see enactment by the end of the year. If there’s no 2012 Farm Bill, Congress starts from square one in 2013. While Roberts and Senate ag panel chairwoman Debbie Stabenow (D-MI) worked well together and were able to forge a compromise on shifting farm programs to risk-based programs as part of the Senate’s approved Farm Bill, the final product drew heavy criticism from southern farmers who contend the Senate Farm Bill’s commodity title favors large Midwestern producers over southern farmers. If Farm Bill drafting begins anew in 2013, then the current commodity title is in for a serious rewrite if Cochran sits in the ranking member slot, insiders say. As for Reid’s plan to increase the majority seats on some committees – newly elected Sen. Heidi Heitkamp (D-ND) wants a seat on the ag committee – he contends the new Democrat majority – 53 Democrats and two Independents v. 45 Republicans – allows him to add one Democrat seat to the following committees: Agriculture, Budget, Foreign Relations, Commerce, Science & Transportation, Homeland Security & Governmental Affairs, Small Business & Entrepreneurship, Special Aging and Veterans Affairs. Senate Minority Leader Mitch McConnell (R-KY), says he’s not talked with Reid about the seating plan, but that it will be part of the formal re-organization negotiations following any general election.
The House Financial Services Subcommittee on Oversight & Investigations November 15 released the results of its year-long investigation into the bankruptcy of MF Global, and while the report finds several incidences of wrongdoing, it stops short of calling for criminal charges against any MF Global executives, including former Goldman Sachs co-chair and U.S. Senator John Corzine (D-NJ), MF Global CEO. While the report calls out Corzine’s “dereliction of duty,” no federal agency has filed charges against MF Global executives; however, MF Global executives, including Corzine, face multiple civil suits. The eighth largest bankruptcy in U.S. history resulted in the loss of $1.6 billion in customer funds, much of which can still not be accounted for, the subcommittee said. The Commodity Futures Trading Commission and the Securities & Exchange Commission did not cooperate as required under Dodd-Frank, the panel reported, resulting in “no meaningful coordination among the regulators responsible for the supervision of MF Global.” While the full report can be read here – http://financialservices.house.gov/uploadedfiles/256882456288524.pdf – the subcommittee press release on the contents includes the following findings and recommendations:
Corzine caused the bankruptcy and put customer money at risk – In transforming MF Global from a futures broker to an investment bank, Corzine showed he didn’t have a full understanding of the futures business or the risks associated with the move. Corzine pushed for heavy MF Global investment in foreign sovereign debt, and the responsibility for inadequate systems and controls falls on Corzine. The subcommittee recommends Congress enact legislation to impose civil penalties on the officers/directors that sign the futures commission merchant financial statements or authorize shifting funds from customer segregated accounts.
The SEC and the CFTC failed to share critical information about MF Global – Both agencies focused only on their specific areas of jurisdiction and didn’t share information about the financial health of the company. The subcommittee said it couldn’t find any “record of meaningful communication” between the two regulators, and when they tried to coordinate, it was “disorganized and haphazard.” The subcommittee recommends the two agencies streamline their operations or be merged into a single regulatory agency that would have authority over all capital markets.
MF Global was not “forthright” with regulators or the public about its exposure to European bond portfolios nor was it honest about its liquidity position – MF Global didn’t own up to the precarious position of investment in sovereign debt – it didn’t disclose anything until a year after it began accumulating positions – even denying it had European exposure in 2010, despite a nearly $2-billion portfolio. This was termed “negligent and misleading.” Executives painted a much rosier picture of financial health than was known internally, the subcommittee said, even after the CFO told Corzine one of MF Global’s affiliates was in trouble. The subcommittee recommends the SEC investigate whether MF Global violated federal securities law or SEC rules in connection with its disclosures about European RTM trades and the firms overall financial health. The panel also wants to see the SEC proactively conduct a review of off-balance sheet report, generally.
Moody’s and S&P failed to indentify the biggest risks to MF Global – While told in May, 2011, the credit rating agencies (CRAs) didn’t factor European exposure into their MF Global ratings until late October, 2011. These agencies didn’t understand the full scope of the exposure, and the CRAs failed to conduct adequate due diligence. Credit ratings were not based on a full and complete examination of all information related to the company’s long-term financial health. The subcommittee recommends continued pressure on regulators to implement 939A reforms to remove references to credit ratings in statute; consider legislation to promote greater competition among CRAs, and require some form of periodic monitoring by CRAs to ensure “fresh ratings.”
MF Global used the “Alternative Method” to use some customer monies to finance day-to-day operations, subjecting customers to risk the monies would not be restored to customer accounts upon insolvency – The use of the Alternative Method to finance trades on foreign exchanges put customer funds at risk, with substantial “excesses” from the use of the method making customer more likely to be used for MF Global liquidity problems in day-to-day operations. The subcommittee recommends and agrees with the CFTC that Alternative Method must be abandoned.
A House-passed bill creating new protections for federal employees who report waste, fraud and abuse was cleared this week by the Senate and is heading to President Obama for his signature. The bill will provide greater protections to inspectors for the U.S. Department of Agriculture, the Food and Drug Administration and other agencies that try to report illegal actions, including failure to report, inhibited publications, etc. The bill would overturn legal precedents that narrowed federal employee protection; give whistleblower protections to employees not currently covered; restore the Office of Special Counsel’s ability to seek disciplinary action against supervisors who “retaliate;” and hold agencies accountable for retaliatory investigations.
Feed grain supplies for 2012-2013 are seen increasing slightly, according to the November 9 World Agricultural Supply & Demand Estimate. Small increases were forecast for corn, with production increased 19 million bushels at 122.3 bushels per acre. Corn ending stocks are projected 28 million bushels higher at 647 million bushels. Corn imports are increased 25 million bushels, particularly in the southeastern U.S. Corn food, seed and industrial use are increased 17 million bushels with highest uses in corn sweeteners and starch. Total oilseed production is set at 91.4 million tons, up 3.2 million from last month. Soybean production is forecast at 2.971 billion bushels, up 111 million from last month. Yield was forecast at 39.3 bushels per acre.