Articles in this document:

· ADM Bests Exxon as Farmers Gain Influence Over Energy Policy

· Politicians divided over RFS waiver

ADM Bests Exxon as Farmers Gain Influence Over Energy Policy

By Alan Bjerga

Bloomberg

July 28, 2008

(Bloomberg) -- In the battle to set U.S. energy policy, Big Oil is losing ground, and farmers are gaining.

While farmers and oil companies are both reaping record profits from rising commodity prices, Archer Daniels Midland Co. and farmers' groups are proving more adept than Exxon Mobil Corp. and its fellow oil companies at bending Washington to their will.

Fresh from winning a record, subsidy-packed $289 billion agricultural bill over a veto by President George W. Bush, farmers are about to stop a bid backed by oil companies to reduce the amount of corn-based ethanol that must be produced under a government mandate. Meanwhile, lawmakers are threatening oil companies with a ``windfall profits'' tax, and moves to expand drilling are languishing.

Things may get worse for oil producers, who tend to support Republicans, should Democrats take the White House and expand control of Congress next year. Agribusiness has a nationwide network of support and is more bipartisan in its political giving.

``Every state has farms,'' says Mark McMinimy, an energy and agriculture analyst with the Stanford Group Co. in Washington. ``And people carry the picture of the family farm with them.''

With gasoline prices topping $4 a gallon, oil futures have soared 62 percent in the past year. The top seven oil companies made $83.1 billion in profits last year, according to data compiled by Bloomberg.

Food Inflation

Food inflation, meanwhile, is set to increase at the fastest rate in almost 20 years. Corn has increased 82 percent over the past year, soybeans 70 percent and wheat 28 percent, according to Bloomberg data. Net U.S. farm income may reach $92.3 billion this year, the Agriculture Department says.

Oil companies say increased use of crops for ethanol, which some industry groups criticize as an inefficient fuel with exaggerated environmental benefits, deters investment in new refineries that would drive gasoline costs down, even as it raises food prices. Farm groups blame rising energy costs for food gains and say biofuels, which are less expensive than oil, are necessary to stem the rise in gasoline prices.

In Washington, the farmers are winning the argument.

In May, lawmakers passed the new farm bill over Bush's veto; the president, a former oil executive, objected to subsidies that encourage crop production and lower costs for processors including Archer Daniels Midland and Cargill Inc.

Ridiculing Executives

That same month, Senator Patrick Leahy, a Vermont Democrat, hauled executives from Exxon, ConocoPhillips, Shell Oil Co., Chevron Corp. and BP PLC before Congress to testify on high gasoline prices. At one point, Leahy ridiculed some of the executives when they were unable to recall their salaries.

``I wish I made enough money that I didn't even have to know how much I make,'' he told ConocoPhillips Executive Vice President John Lowe when Lowe couldn't remember his annual compensation of more than $5.6 million.

The farm lobby has successfully defended a 54-cent-a-gallon tariff on imported ethanol meant to keep out shipments from Brazil, which produces the biofuel from sugar, a source that's cheaper than corn.

Farm groups have found other areas in which to flex their political muscles as well. Agriculture supporters led congressional pressure on South Korea to open its market to U.S. beef as a condition of passing a $29 billion trade accord. After Korea complied in April, street protesters called for newly elected President Lee Myung Bak's resignation, prompting him to fire all but one of his top advisers and publicly apologize for his handling of the negotiations.

Korea's Beef

U.S.-Korea beef shipments resumed late last month; the trade agreement remains stalled in Congress.

The farm lobby also slows global trade agreements necessary to develop worldwide carbon trading that would benefit oil, says Kevin Book, a senior analyst for Friedman, Billings, Ramsey & Co.

Completing the current round of World Trade Organization talks would make it easier to reach a global agreement on carbon trading, which is already in place in Europe and is being contemplated in the U.S. A global emissions market will benefit U.S. oil companies because they are more energy-efficient than their foreign competitors, Book says.

Among the biggest obstacles to an agreement: resistance to agriculture-subsidy cuts, such as last week's outcry from farm groups when the U.S. offered to limit its subsidy payments to $15 billion a year.

Reigning Supreme

``Our farmer reigns supreme,'' says Book, who adds that agriculture is also likely to beat back a request from Governor Rick Perry of Texas, the state that produces the most U.S. energy, to waive a government requirement that 9 billion gallons of ethanol be blended into U.S. gasoline this year.

The Environmental Protection Agency, which was set to decide on the waiver by July 24, postponed the ruling so it could have more time to go through 15,000 comments on the proposal, many from farm groups, agency administrator Stephen Johnson said.

The political environment for oil may become even more challenging next year if the Democrats take full control of the government. Illinois Senator Barack Obama, the party's presumed presidential nominee, supports additional taxes on oil profits, and backed the farm bill. His Republican opponent, Senator John McCain of Arizona, opposed both.

`Talk to Everyone'

The energy industry isn't worried about which party is in power, says Mark Kibbe, a spokesman for the American Petroleum Institute, which represents companies such as Exxon and Chevron in Washington. ``We talk to everyone.''

Any solution to high gasoline prices will inevitably include measures to encourage oil production, he says, adding that ethanol, while necessary to add supply, needs to be examined for its impact on food prices.

Agribusiness, meanwhile, is more aggressively arming itself against its critics, with ADM, seed and biotech companies DuPont Co. and Monsanto Co., and Deere & Co. forming a group called Alliance for Abundant Food and Energy on July 24. The alliance is meant ``to encourage Congress, the president and world leaders to support agricultural innovation globally,'' it said in a statement.

The energy industry gives far more to Republicans than Democrats, while agricultural interests spread their money around. Oil and gas companies have given 74 percent of their contributions to Republicans in this election cycle, while crop money has been split 50-50 between them and the Democrats, according to data from the Center for Responsive Politics.

Hostile Democrats

``Democrats are going to be more hostile to the oil industry,'' says James Lucier, managing director of Capital Alpha Partners LLC, a Washington-based research firm.

Lucier cautions that the farm lobby in future years may become the victim of its own success should ethanol continue to disrupt food markets and trade negotiators, weary of farmer intransigence, decide it's time to cut subsidies.

``It could be the classic case of the dog that bit the fire truck,'' he says. ``They got what they wanted, and now the struggle will be to hold on.''

bloomberg.com

Politicians divided over RFS waiver

Friday, July 25, 2008, 9:35 AM

by Peter Shinn

Brownfield

U.S. Environmental Protection Agency Administrator Stephen met Thursday with a group of Senators from ethanol-producing states in the office of Nebraska Democrat Ben Nelson. The Senators called the meeting to urge Johnson to deny a request by Texas Governor Rick Perry to waive 50% of the Renewable Fuels Standard (RFS) for corn-based ethanol.

South Dakota Republican John Thune took part in the meeting. He told Brownfield the Senators wanted Johnson to understand the RFS enjoys just as much political support as the waiver request. And according to Thune, Johnson got the message.

"I thought it was a good meeting," Thune said. "He seemed very receptive to what we had to say and I'm still keeping my fingers crossed that he has come to or will come to the right conclusion before it's all said and done."

But what the right conclusion is when it comes to waiving 50% of the RFS is still a matter of debate. And the waiver request has strong supporters of its own in Washington D.C., including ranking House Ag Committee Republican Bob Goodlatte, who communicated that support to a top EPA official during an Ag Subcommittee hearing on the RFS yesterday.

"While I understand there are many factors that play into the rising price of corn, a temporary reduction in the government-mandated RFS is the only factor in our control that will give immediate relief to livestock producers and consumers," Goodlatte said.

That argument cuts no ice with South Dakota Democratic Congresswoman Stephanie Herseth Sandlin, who is also a member of the House Ag Committee. She told Brownfield, while times might be tough now for livestock producers, they enjoyed decades of low feed costs, largely at the government's expense.

"I have very little sympathy for some of the stakeholders that are pressing for these waivers, because they built business models on taxpayer-subsidized cheap corn," Herseth Sandlin said.

Perry made his request to waiver 50% of the RFS on April 25th. By law, the EPA had 90 days, or until Thursday, to make a decision. But Johnson pushed it into next month, saying he still needs more time to review more than 15,000 public comments made since Perry first filed his request.

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