Trump EPA sides with farmers over refiners in biofuel waiver decision

By Stephanie Kelly

NEW YORK (Reuters) – The Trump administration said on Monday it rejected scores of requests from U.S. oil refiners for waivers that would have retroactively spared them from their obligation to blend biofuels like ethanol into their fuel, delivering a win for farmers and a blow to the oil industry just ahead of the November presidential election.

Reuters had reported last week that U.S. President Donald Trump, under the advice of his allies in the Midwest, ordered his Environmental Protection Agency to deny the waivers because they had become a lightning rod of controversy in the Farm Belt, an important political constituency.

“This decision follows President Trump’s promise to promote domestic biofuel production, support our nation’s farmers, and in turn strengthen our energy independence,” said EPA Administrator Andrew Wheeler in a statement announcing the agency was denying 54 applications that the Department of Energy had reviewed.

Refiners say the waivers are crucial for reducing regulatory costs for small fuel producers and keeping them in business, but the corn lobby argues the exemptions undermine demand for corn-based ethanol at a time farmers are already suffering from the impacts of a trade war with China.

CONTENTION LAW

Under the U.S. Renewable Fuel Standard, refiners must blend some 15 billion gallons of ethanol into their gasoline each year or buy tradable credits from those that do. Small refiners have also been able to seek an exemption if they can prove financial harm from the requirements.

The Trump administration has roughly quadrupled the number of exemptions given out to refiners in a trend that had angered the biofuel industry.

In January, an appeals court handling a case initiated by the biofuel industry cast a cloud of doubt over the EPA’s waiver program, ruling that waivers granted to small refineries after 2010 should only be approved as extensions. Most recipients of waivers in recent years have not continuously received them.

That triggered a wave of requests for retroactive relief by refiners seeking to comply with the court decision. Since March, 17 small refineries in 14 states submitted 68 petitions, Wheeler said in a memo. The Department of Energy, which advises EPA on the waiver requests, had transmitted its findings on 54 of the petitions.

“(T)hese small refineries did not demonstrate disproportionate economic hardship from compliance with the RFS program for those RFS compliance years,” Wheeler said.

It is unclear what will happen to refining facilities that had benefited from waivers in recent years that are non-compliant with the court’s ruling. But sources told Reuters the administration may seek to offer them another form of financial relief to compensate.

It was also not immediately clear how this would affect 28 pending waiver applications for 2019 and three pending applications for 2020.

The Trump administration’s decision on Monday is a major victory for biofuel advocates in the long-standing battle between the deep-pocketed Corn and Oil lobbies.

“This is outstanding news for biofuels producers, farmers, and RFS integrity,” said Iowa Renewable Fuels Association Executive Director Monte Shaw. “With gap year waivers denied, the number of refiners eligible to even apply for – let alone receive – an RFS exemption going forward is reduced to single digits.”

Some in the oil industry criticized the decision. “EPA has turned a blind eye to merchant refineries and their workers in key battleground states like Pennsylvania, Ohio and Texas,” said the Fueling American Jobs Coalition, a group that includes union workers and independent refiners.

Trump over the weekend also tweeted that he would allow states to permit fuel retailers to use their current pumps to sell gasoline with higher blends of ethanol, or E15, a move that could help lift ethanol sales.

“Today’s announcements will help provide more certainty to our biofuel producers, who have for too-long been yanked around by the EPA, and help increase access to E15, which drives up demand for corn and ethanol,” said Iowa Senator Joni Ernst.

(Reporting by Stephanie Kelly; Editing by Dan Grebler and Marguerita Choy)

Major grain traders face one-two punch from U.S. floods, trade war

Water stands next to a field of crops near Putnam County, Illinois, U.S. July 5, 2019. Picture taken July 5, 2019. REUTERS/Stephanie Kelly

By Karl Plume

CHICAGO (Reuters) – Severe U.S. weather likely dented earnings for large grain companies including Archer Daniels Midland Co and Bunge Ltd for a second straight quarter, adding to headwinds from a still-unresolved U.S.-China trade war, analysts and economists said.

ADM and Bunge, as well as peers Cargill Inc and Louis Dreyfus Co, known as the ABCD quartet of global grain trading giants, faced processing-plant downtime, rail, and barge shipping delays and other supply uncertainty this spring as historic floods ravaged the central United States.

The weather woes are heaping more pain on the battered U.S. agricultural sector already hard-hit by a years-long crop supply glut and the U.S.-China trade war now entering its second year. The tariffs China imposed on soybean exports from the United States in retaliation for U.S. duties on Chinese goods curbed shipments of the most valuable U.S. export crop.

The excessive rains and flooding could also have a lasting impact on the grain merchants, whose latest round of quarterly earnings will start this week. ADM and Cargill are viewed as particularly vulnerable due to their outsized U.S. footprints. Reduced U.S. corn and soybean plantings will likely cut available crop supplies in the United States, potentially driving up raw material costs and squeezing margins.

“They thrive on volumes and margins and both of those are going to be depressed in the coming year with the bushels being smaller and the margins likely not being there,” said Kevin McNew, chief economist with Farmers Business Network. “Export business is just going to fall off the cliff, especially for corn.”

The U.S. corn crop was more affected by floods than soybeans because soy can be planted later in the season.

FILE PHOTO: A flooded parcel of land along the Platte River is pictured in this aerial photograph at La Platte, south of Omaha, Nebraska, U.S. March 19, 2019. REUTERS/Drone Base/File Photo

FILE PHOTO: A flooded parcel of land along the Platte River is pictured in this aerial photograph at La Platte, south of Omaha, Nebraska, U.S. March 19, 2019. REUTERS/Drone Base/File Photo

WEAKER RESULTS

The first of the companies scheduled to report is privately held Cargill, which announces fiscal fourth-quarter earnings on Thursday.

The results will cover the March-to-May period, when flooding disrupted grain movement, including export shipments, and the year’s second “bomb cyclone” blizzard temporarily shuttered at least six Cargill grain handling facilities and a beef processing plant.

Cargill and ADM both own barge companies that haul grain and other products on the Mississippi River and its tributaries. Grain barge movement so far this year is down about 37% from a year ago, according to U.S. Army Corps of Engineers data, due largely to prolonged river closures triggered by floods.

Cargill is expected to report weaker results compared with the very strong earnings of the year-ago quarter, due partly to expected lower profit in its origination and processing unit, said Bill Densmore, senior director of corporate ratings at Fitch Ratings.

Bunge and ADM will follow, with second-quarter results covering April, May and June scheduled for release on July 31 and Aug. 1, respectively. Privately held Louis Dreyfus is expected to issue interim first-half results in the autumn.

Shares of publicly traded ADM and Bunge are hovering just above three-year lows notched this spring as mounting concerns about U.S. plantings and trade fueled investor nervousness.

FILE PHOTO: Flooded farm fields are seen from an aerial photo taken while Nebraska Army National Guard Soldiers used a CH-47 Chinook helicopter to deliver multiple bales of hay to cattle isolated by historic flooding in Richland, Nebraska, U.S., March 20, 2019. Picture taken on March 20, 2019. Courtesy Lisa Crawford/Nebraska National Guard/Handout via REUTERS

FILE PHOTO: Flooded farm fields are seen from an aerial photo taken while Nebraska Army National Guard Soldiers used a CH-47 Chinook helicopter to deliver multiple bales of hay to cattle isolated by historic flooding in Richland, Nebraska, U.S., March 20, 2019. Picture taken on March 20, 2019. Courtesy Lisa Crawford/Nebraska National Guard/Handout via REUTERS

UNEVEN IMPACTS

With its concentration of assets in the United States and its large U.S. ethanol business, ADM was likely hit harder by adverse U.S. weather than Bunge, analysts said.

ADM cited poor U.S. weather for a nearly $60 million drop in operating profit in its first quarter and warned in April that lingering weather impacts would cut second-quarter earnings by $20 million to $30 million. Some analysts expect ADM to post as large a hit to second-quarter earnings as in the first quarter as adverse weather stretched through the spring season.

“ADM’s first-quarter estimate of $50-60 million seems like a good starting point” for the second-quarter impact, said Seth Goldstein, analyst with Morningstar.

ADM’s soy processing, ethanol and sweeteners and starches units may post lower margins, and smaller corn and soybean crops will hurt its grain origination business, said Heather Jones, founder and senior analyst with Heather Jones Research LLC.

The price of corn, the most common feedstock for U.S. ethanol makers, has surged as U.S. farmers struggled to plant the 2019 crop due to a historically soggy spring. Cash corn premiums in parts of the eastern Midwest, where planting delays were most acute, are at a six-year high. Soybean prices hit a one-year top last week.

“Bunge is less exposed, but higher bean costs would squeeze soy crush margins in the U.S.,” Jones said. Bunge is the world’s largest soybean processor.

(Reporting by Karl Plume in Chicago; Editing by Caroline Stauffer and Matthew Lewis)

China halts oil product exports to North Korea in November as sanctions bite

A North Korean iron ore mine, near the North Korean town of Musan is seen in this general view taken May 11, 2013.

By Ryan Woo and Muyu Xu

BEIJING (Reuters) – China exported no oil products to North Korea in November, Chinese customs data showed, apparently going above and beyond sanctions imposed earlier this year by the United Nations in a bid to limit petroleum shipments to the isolated country.

Tensions have flared anew over North Korea’s ongoing nuclear and missile programmes, pursued in defiance of years of U.N. resolutions. Last week, the U.N. Security Council imposed new caps on trade with North Korea, including limiting oil product shipments to just 500,000 barrels a year.

Beijing also imported no iron ore, coal or lead from North Korea in November, the second full month of the latest trade sanctions imposed by U.N.

China, the main source of North Korea’s fuel, did not export any gasoline, jet fuel, diesel or fuel oil to its isolated neighbour last month, data from the General Administration of Customs showed on Tuesday.

November was the second straight month China exported no diesel or gasoline to North Korea. The last time China’s jet fuel shipments to Pyongyang were at zero was in February 2015.

“This is a natural outcome of the tightening of the various sanctions against North Korea,” said Cai Jian, an expert on North Korea at Fudan University in Shanghai.

The tightening “reflects China’s stance”, he said.

Chinese Foreign Ministry spokeswoman Hua Chunying said she didn’t know any details about the oil products export situation.

“As a principle, China has consistently fully, correctly, conscientiously and strictly enforced relevant U.N. Security Council resolutions on North Korea. We have already established a set of effective operating mechanisms and methods,” she said at a regular briefing on Tuesday, without elaborating.

Since June, state-run China National Petroleum Corp (CNPC) [CNPET.UL] has suspended sales of gasoline and diesel to North Korea, concerned that it would not get paid for its goods, Reuters previously reported.

Beijing’s move to turn off the taps completely is rare.

In March 2003, China suspended oil supplies to North Korea for three days after Pyongyang fired a missile into waters between the Korean Peninsula and Japan.

It is unknown if China still sells crude oil to Pyongyang. Beijing has not disclosed its crude exports to North Korea for several years.

Industry sources say China still supplies about 520,000 tonnes, or 3.8 million barrels, of crude a year to North Korea via an aging pipeline. That is a little more than 10,000 barrels a day, and worth about $200 million a year at current prices.

North Korea also sources some of its oil from Russia.

TOTAL TRADE LESS THAN $400 MILLION

Chinese exports of corn to North Korean in November also slumped, down 82 percent from a year earlier to 100 tonnes, the lowest since January. Exports of rice plunged 64 percent to 672 tonnes, the lowest since March.

Trade between North Korea and China has slowed through the year, particularly after China banned coal purchases in February. In November, China’s trade with North Korea totalled $388 million, one of the lowest monthly volumes this year.

China has renewed its call on all countries to make constructive efforts to ease tensions on the Korean peninsula, urging the use of peaceful means to resolve issues.

But tensions flared again after North Korea on Nov. 29 said it had tested a new intercontinental ballistic missile that put the U.S. mainland within range of its nuclear weapons.

Meanwhile Chinese exports of liquefied petroleum gas to North Korea, used for cooking, rose 58 percent in November from a year earlier to 99 tonnes. Exports of ethanol, which can be turned into a biofuel, gained 82 percent to 3,428 cubic metres.

 

(Reporting by Muyu Xu and Ryan Woo; Additional reporting by Meng Meng, Hallie Gu, Christian Shepherd and Ben Blanchard; Editing by Kenneth Maxwell and Tom Hogue)