Evening Report | April 5, 2024

Check our advice monitor on ProFarmer.com for updates to our marketing plan.

Your Pro Farmer newsletter is now available... USDA is down to fine tuning usage forecasts for the 2023-24 marketing year, putting a focus on exports and domestic use. March planting intentions give us a starting point on outlooks for the upcoming marketing year. We have a breakdown of our old- and new-crop balance sheets in our News page 4 feature. USDA’s first winter wheat crop condition ratings of the spring were the highest in five years. That suggests the winter wheat yield won’t fall far below trendline barring a significant spring weather scare. Even with fewer wheat acres this year, production will likely increase significantly. There was a lot of news regarding the outbreak of highly pathogenic avian influenza in the U.S. dairy herd, including the first human case tied to the situation. While there have been no detections in the U.S. beef cattle herd, the news spooked traders, triggering long liquidation in cattle futures. Meanwhile, the U.S. hog herd expanded modestly as of March 1. We cover all of these items and much more in this week’s newsletter, which you can access here.

Initial SAF subsidy model to raise climate hurdle for ethanol... The Biden administration will release a preliminary climate model for its sustainable aviation fuel (SAF) subsidy program in the coming weeks that is more restrictive than the corn-based ethanol producers had hoped, two sources familiar with the matter told Reuters. Under the preliminary model, which could be released by May 15, ethanol is not expected to automatically qualify as a feedstock in the SAF subsidy program unless the corn involved is sourced from farmers using one of just three sustainable agriculture techniques – efficient tilling, use of cover crops and efficient fertilizer application – the sources said.

The sources said the model could be expanded to include a broader range of options when the administration issues its final rule later in the year.

To secure the $1.25 per gallon tax credit, SAF producers must demonstrate their fuel is 50% lower in emissions than jet fuel.

Exchange cuts Argentine corn crop forecast... The Buenos Aires Grain Exchange cut its Argentine corn crop forecast by 2 MMT to 52 MMT, citing damage from spiroplasma bacteria that causes corn stunt disease – and said further cuts are possible. The exchange left its Argentine soybean crop forecast at 52.5 MMT.

Strong jobs growth in March... The U.S. economy added 303,000 non-farm payrolls in March, far exceeding expectations. The unemployment rate dropped 0.1 point to 3.8%. Over the past 12 months, average hourly earnings increased 4.1%.

Chair Jerome Powell said earlier this week the strong jobs market is one of the factors that could delay the Fed from cutting interest rates. Fed fund rate futures now put the greatest odds on just two rate cuts this year.

Used cooking oil imports exceed predictions, sparking regulatory concerns... American Soybean Association (ASA) Chief Economist Dr.  Scott Gerlt notes the domestic biomass-based diesel (BBD) industry, encompassing biodiesel and renewable diesel, has experienced significant growth, with capacity increasing from 3.3 billion gallons in 2021 to 5.9 billion gallons by the end of 2023. This growth has been fueled by various feedstocks, including soybean oil, other vegoils, used cooking oil (UCO) and animal fats. Importantly, Gerlt says, the consumption of these feedstocks for biofuels has increased, with UCO imports surpassing expectations, particularly from China.

UCO holds advantages in biofuel programs due to its waste product status, especially in California where it receives a low carbon intensity score under the Low Carbon Fuel Standard. This makes biofuels produced from UCO more valuable, along with other waste feedstocks like tallow and yellow grease.

The increase in UCO imports has implications for the federal blending obligations set by EPA. While renewable diesel consumption is primarily in California, EPA sets national blending levels based on assumed feedstock availability. Import levels exceeding EPA’s expectations displace domestic feedstocks, affecting the overall biofuel landscape.

The surge in UCO imports from China in 2023 coincided with concerns raised by Germany regarding biofuel imports from China labeled as made from waste oils, Gerlt observes. European imports of Chinese UCO declined while U.S. imports increased substantially, likely due to differing regulatory scrutiny.

Economic incentives, including credits under California’s LCFS, have driven the demand for UCO imports, leading to potential mislabeling concerns, says Gerlt. While EPA requires chain of custody data for UCO, enforcement actions occur after Renewable Identification Numbers (RINs) are generated.

Bottom line: Gerlt says that while the biofuel sector is expanding, imports, particularly of UCO, play a significant role, influenced by regulatory incentives. Monitoring of market behaviors and regulatory oversight, he stresses, is essential to ensure transparency and prevent displacement of domestic feedstocks. He says “EPA assumed that in 2024 renewable diesel imports plus renewable diesel produced from imported feedstocks would drop from 649 million gallons to 166 million gallons. This is further assumed to drop to zero in 2025. If imports remain at their current levels, over 1 billion gallons of biofuels that EPA assumed could be made from domestic feedstocks will instead be produced from foreign feedstocks. The agency assumed the domestic feedstocks came largely from growth in soybean crushing, which is based upon industry expansion to supply soybean oil to renewable diesel plants.”

Of note: Tax credits for biomass-based diesel change in 2025 and will have some effect on this. The Blenders Tax Credit ends in 2025 and the Producers Tax Credit (45Z) starts. “Imported BBD is no longer eligible for tax credits, so renewable diesel imports will likely fall. However, the PTC amounts are dependent upon carbon intensity scores, which will give an even stronger incentive to import UCO,” Gerlt concludes.

NCGA opposes Corteva’s petition for duties on 2,4-D imports from India and China... National Corn Growers Association (NCGA) President Harold Wolle expressed concerns to the International Trade Commission, stating that imposing tariffs on 2,4-D could limit imports, increase prices, and lead to supply shortages. Wolle emphasized that such tariffs would exacerbate economic challenges for farmers, who are already price takers and rely on managing production costs for success.

Meanwhile, herbicide formulator Drexel Chemical voiced opposition to Corteva’s claims of market flooding by imports from India and China. Corteva argues tariffs are necessary due to pricing disparities affecting their sales and capacity utilization. However, formulators disputed Corteva’s assertions, alleging it has prioritized its own product over supplying formulators, leading to increased reliance on imports.

ITC is expected to release a report on 2,4-D imports by March 22, followed by a vote on whether to affirm domestic production injury and proceed with imposing duties on March 26.

Pork exports stay strong in February... The U.S. exported 593.4 million lbs. of pork in February, the second highest total ever for the month behind 2020. Pork shipments increased 5.7 million lbs. (1.0%) from January and were 89.2 million lbs. (17.7%) more than February 2023, fueled by a 22.0% surge in volume to Mexico. For the first two months of this year, the U.S. shipped 1.181 billion lbs. of pork, up 121.2 million lbs. (11.4%) from the same period last year.

Beef shipments totaled 244.1 million lbs. during February. While that was up 11.6 million lbs. (5.0%) from January, exports fell 6.6 million lbs. (2.6%) from last year. In the first two months of this year, beef shipments totaled 476.7 million lbs., down 16.7 million lbs. (3.4%) from the same period last year.