Monday, December 12, 2016

"Caveat Emptor," Trump Supporters

    Way too early as it is to think in terms of "buyer's remorse," South Dakotans, who went 2-to-1 for Donald Trump last month should be at least going into "buyer's concern" mode.  This
Pruitt The Ethanol Hater
was kicked off a few days ago in the arcane but ultra-meaningful market for "renewable identification numbers" (RINs) which are traded on the basis of expectations for corn-based ethanol production. Too complicated to sufficiently explain here, you can figure that RINs are something like a futures market for ethanol prices--and last week developments in the Trump transition caused them to take a 5% nosedive in one day.  Consider that a similar move in the stock market would cause a 1000 point drop in one session.  Anyway, I've stressed my concern about a President Trump's potential for badly impacting South Dakota's number one industry, agriculture, many times here, and sure enough, last week we got our first inkling of that.

     Trump's nomination of Oklahoma Attorney General Scott Pruitt to head the Environmental Protection Agency was the news that caused the flight from the RIN market, and with some reason.  Pruitt has been an aggressive critic of EPA during his tenure as AG, particularly focusing on the Renewable Fuel Standards (read:  corn-based ethanol) which in 2013 he called "a flawed program," adding, "the evidence is clear that the ethanol fuel mandate is not working."  Whew.  With a guy like that in the driver's seat at EPA, I'd be pitching my ethanol certificates in a hurry, too.  As a floor trader and broker in both stock options and ag commodities at the principal Chicago exchanges, as well as a cattle feeder here in South Dakota, for many years, I know first hand the effect of ethanol mandates on corn production and pricing.  More than a third of U.S. corn is used for ethanol.  Here in South Dakota, about 6 million acres are dedicated to corn production. At 5 or 6 hundred bucks worth of corn coming off each acre, you can see the connection between ethanol markets and corn prices.  
     Our Governor Daugaard is aware ("concerned" might be a better word) of the situation. A
This Month's Corn Price
Look Out Below
copy of a letter that Daugaard signed last Friday turned up in Cory Heidelberger's Aberdeen-based blog Dakota Free Press over the weekend.  The letter, from the "Governors' Biofuel Coalition," comes on the heels of the Pruitt nomination and ever-so-gently and -carefully reminds the Trump transition team that "the nation's biofuel industry has generated thousands of jobs throughout the nation."  Though the alarm bells are muted, they're going off.  On the political tachometer, farm state Trump supporters are probably in a stage between awareness and concern, with regret and remorse to follow if Pruitt doesn't lighten up on his anti-ethanol rhetoric. If he goes the other way and Pruitt's actions follow his words, alarm is likely to follow. Already beleaguered corn prices could get pounded even harder, adding more pressure to the already-stressed South Dakota ag industry.  

1 comment:

  1. Of course your right. Every nanny state is headed for trouble, but big ag is going to take a big hit just because of their voting tendencies.