Defining a Crisis: World Food Prices Keep Surging Amid War & Chinese Covid-Related Port Issues
EPA again upsets biofuel proponents as they give 31 refiners end-around RINs
In Today’s Digital Newspaper
A missile attack kills dozens of people at a Ukrainian railway station, leading to calls for more international sanctions on Moscow. A missile attack on a busy train station in Kramatorsk killed more than 30 and injured more than 100 people trying to flee the country’s Donbas region ahead of an expected Russian onslaught. The station, one of the easternmost still open in Ukraine, is a major hub for civilians evacuating the region. Ukrainian officials called for more weapons to fight Russia as both sides mobilize forces in the east for what are expected to be some of the fiercest battles of the war so far. The plea came as the U.S. House and Senate passed legislation to strip Russia of its most-favored-nation trade status and ban Russian oil imports, and the United Nations General Assembly voted to suspend Russia from the U.N. Human Rights Council, reflecting international outrage over reports of atrocities committed against Ukrainian civilians. Meanwhile, there is a blueprint for how to rebuild Ukraine, by an all-star group of economists (link).
A worldwide linkage of surging food prices and continuing logistical snafus is building. The U.N. FAO released the FAO food price index showing the March index at a record-high 159.3, up 34% YoY, and the largest month-to-month jump ever, up 12.6%. Meanwhile, China’s pandemic lockdowns are wreaking fresh havoc on global supply chains. Containers full of frozen food and chemicals are piling up at China’s biggest port in Shanghai as a Covid lockdown in the city and compulsory virus testing means truckers can’t get to the docks to pick up boxes. Shanghai residents are rationing food as Covid-19 controls disrupt supplies and deliveries. In the U.K., the food and drink industry is suffering more from soaring energy and raw material costs than any other business group, according to the Office for National Statistics. In the U.S., Sen. John Boozman (R-Ark.), ranking member of the Senate Ag Committee, is pushing the Biden administration for answers about how it plans to address the looming global food crisis and support U.S producers’ efforts to meet increasing demand.
St. Louis Fed President James Bullard said that the central bank is behind in its mission to get an “exceptionally high” rate of inflation under control and will likely have to raise rates fairly aggressively.
U.S. mortgage rates continued to climb, with the average rate for a 30-year fixed-rate home loan hitting 4.72% from 4.67% a week earlier.
Walmart is raising starting pay for in-house truck drivers to as much as $110,000 a year in a bid to keep its supply chain running smoothly. The company is setting starting salaries for its truck drivers between $95,000 and $110,000 a year, up from an average starting salary of $87,000. Walmart workers will also be offered a 12-week course to become certified truck drivers and join the company’s fast-growing internal fleet.
EPA rejected 36 petitions from oil refiners requesting exemptions from biofuel blending laws for the 2018 compliance year. The agency said, however, it will allow 31 of the refineries to meet their 2018 obligations without having to buy credits to confirm compliance with the laws. The development is leading many to say the Biden administration’s professed support for biofuels is wanting. Biofuel proponents had some sharp words regarding EPA’s actions.
Senate Agriculture Committee sets hearing on cattle market legislation. April 26 the panel will hold a hearing on S 4030, the Cattle Price Discovery and Transparency Act of 2022, and S 3870, the Meat and Poultry Special Investigator Act of 2022. The measure has been reworked several times to get to its current form, but it is still not clear the legislation has the backing of enough lawmakers to move forward as standalone legislation.
Judge Ketanji Brown Jackson was confirmed as the first Black woman on the Supreme Court via a 53-47 Senate vote, making history in diversifying the bench while leaving unchanged the conservative tilt for the court. Democrats were joined by three Republicans in voting yes: Sens. Mitt Romney of Utah, Susan Collins of Maine and Lisa Murkowski of Alaska.
An appellate court reinstated the Biden administration’s Covid-19 vaccine mandate for federal employees, overturning a nationwide injunction by a Texas federal judge in January.
Equities today: Global stocks markets were mixed but mostly higher overnight. The U.S. Dow opened around 10 points higher and then went 10 points lower. Asian equities posted advances following a rise Thursday in U.S. action. The Nikkei was up 97.23 points, 0.36%, at 26,985.80. The Hang Seng Index was up 63.03 points, 0.29%, at 21,872.01. European equities are maintaining gains in early trade activity after opening higher. The Stoxx 600 was up 1.2% with regional markets up 1% to nearly 2%.
U.S. equities yesterday: The Dow finished with a gain of 87.06 points, 0.25%, at 34,583.57. The Nasdaq rose 8.48 points, 0.06%, at 13,897.30. The S&P 500 was up 19.06 points, 0.43%, at 4,500.21.
Energy funds are the market’s top performers this year. The stock funds were up 32% in the first three months of 2022, far outpacing the overall stock market, which fell nearly 5% in the first quarter.
Agriculture markets yesterday:
- Corn: May corn futures rose 1 1/4 cent to $7.57 3/4. December corn rose 4 1/4 cents to $7.09.
- Soy complex: May soybeans rose 26 cents to $16.45 1/2, the contract’s highest close since March 30. May soymeal fell $1.60 to $460.20, while May soyoil rose 119 points to 73.02 cents, near a two-week high.
- Wheat: May SRW wheat fell 18 1/4 cents to $10.20. May HRW wheat fell 14 1/4 cents to $10.70 3/4. May spring wheat fell 9 1/4 cents to $10.99 1/2.
- Cotton: May cotton futures dropped 249 points to 133.20 cents, the contract’s lowest settlement since March 24. December cotton futures rose 19 points to 114.69 cents.
- Cattle: June live cattle futures slipped 12.5 cents to $134.10, though other contracts ended with modest gains. May feeder futures declined 47.5 cents to $159.475.
- Hogs: June lean hogs fell 55 cents to $114.15, the contract’s seventh decline in the past eight sessions.
Ag markets today: Grain and soy complex futures held in narrow ranges in light trade overnight as traders await USDA’s April World Agricultural Supply and Demand Estimates (WASDE) Report later this morning. As of 7:30 a.m. ET, corn futures were trading fractionally on either side of unchanged, soybeans were 3 to 6 cents higher, SRW wheat was 2 to 4 cents higher, while HRW and HRS wheat were mostly 1 to 3 cents higher. Front-month U.S. crude oil futures were just above unchanged, while the U.S. dollar index was around 160 points higher this morning.
Technical viewpoints from Jim Wyckoff: “There are still major concerns about the Russia/Ukraine war, a more hawkish U.S. Federal Reserve and rising global inflation. However, from a markets’ perspective, there have been no major developments on those fronts late this week, which has allowed traders and investors to exhibit just a bit more risk appetite.”
On tap today:
• U.S. wholesale inventories for February are expected to increase 2.1% from the prior month. (10 a.m. ET)
• USDA report: WASDE, noon ET.
• Baker Hughes rig count is out at 1 p.m. ET.
• CFTC Commitments of Traders report, 3:30 p.m. ET.
Yet another sign of inflation and food security concerns that will stem from Russia’s invasion of Ukraine, came this morning as the U.N. FAO released (link) the FAO food price index showing the March index at a record-high 159.3, up 34% YoY, and the largest month-to-month jump ever, up 12.6%. The chart below shows the food price index broken out by category and the YoY change for each category.
FAO said “war in the Black Sea region spread shocks through markets for staple grains and vegetable oils.” The price rise was due to a 17.1% rise in the cereal price index, “driven by large rises in wheat and all coarse grain prices largely as a result of the war in Ukraine. The Russian Federation and Ukraine, combined, accounted for around 30% and 20% of global wheat and maize exports, respectively, over the past three years.”
Wheat prices were up 19.7% on the month with crop conditions in the U.S. also a factor.
For corn, the 19.1% rise to the index to a record high along with those of barley and sorghum.
Rice prices, however, were little changed.
Vegoil prices rose 23.2%, “driven by higher quotations for sunflower seed oil, of which Ukraine is the world’s leading exporter.” But prices for palm, soy and rapeseed oil also “rose markedly as a result of the higher sunflower seed oil prices and the rising crude oil prices, with soy oil prices further underpinned by concerns over reduced exports by South America.”
FAO also updated their global production outlook, noting relative to their reduction in global wheat production that “at least 20% of Ukraine’s planted area to winter crops, notably winter wheat, may not be harvested due to direct destruction, constrained access or a lack of resources to harvest crops, reports from Russia of continued conducive weather conditions, as well as prospective production trends in China, the European Union, India, North America and elsewhere. Coarse grain production prospects remain favorable in Argentina, Brazil and South Africa.”
Russia’s invasion of Ukraine is causing chaos in the $120 billion global grains trade, Bloomberg reports. It says “Buyers are on the hunt for alternatives, and sellers are finding ways to fill the void. India, which tended to keep its large wheat harvests at home, is jumping into the export market with record volumes. Brazilian shipments for the first three months almost doubled those in all of last year. U.S. corn is going to Spain for the first time in four years, while Egypt is looking to swap fertilizer for Romanian grain and holding wheat talks with Argentina.” The emergence of new trades comes at a cost: pricier freight, longer transits or differing quality, which further accelerates food inflation. World supplies were already reeling from droughts in Canada and Brazil and transportation blockages in parts of the world, from rail logjams in the U.S. to trucker strikes across Spain.
The U.K.’s food and drink industry is suffering more from soaring energy and raw material costs than any other business group, according to the Office for National Statistics. More than two-thirds of the country’s food and beverage companies said prices of materials, goods or services rose in March, compared with about half for businesses across all sectors, the statistics office said in its Business Insights and Conditions Survey. Energy price increases affected 60% of those in the food and drink industry, versus about 38% across all sectors. Only 3% of food and beverage companies said they hadn’t been affected by prices, compared with 20% across all businesses, according to the survey.
Boozman: USDA needs plan for looming global food crisis. Sen. John Boozman (R-Ark.), ranking member of the Senate Ag Committee, is pushing the Biden administration for answers about how it plans to address the looming global food crisis and support U.S producers’ efforts to meet increasing demand. In a letter (link) to USDA Secretary Tom Vilsack, Boozman stresses that USDA’s international food assistance programs are heavily supported by donated food commodities grown in America. He calls on USDA to develop a plan for the coming food supply shortage leading up to the fall harvest of our spring-planted crops.
“The McGovern-Dole Program has used U.S. agriculture commodities to establish school meal programs and help combat food insecurity among children in developing countries. Monetizing donated commodities like rice, soybeans, and wheat under the Food for Progress Program has helped improve the agriculture sectors and address hunger and malnutrition in these countries. While many of these development programs have aided in reducing global hunger, the emergency we face today outpaces the scope of that work,” Boozman wrote.
Boozman specifically requests “regular written updates on USDA’s efforts no less than every two weeks” on the department’s plans to:
- Ensure U.S. producers have access to necessary resources to meet the increased global demand;
- Work across federal agencies to prepare for the anticipated food shortages from decreased production in Ukraine, record-high production costs, and disrupted supply chains; and
- Engage other federal agencies to ensure a coordinated plan that ensures regulatory actions, such as those pursued by the Food and Drug Administration and the Environmental Protection Agency pertaining to animal medicines and crop protection tools for example, will not result in a net decrease in food and commodity yields.
California could bar 80,000 active trucks by the end of the year. The final phase of CARB's Truck and Bus Regulation takes effect Jan. 1, 2023, banning the use of pre-2010 emissions-spec engines in the state. But with new and used trucks in short supply, trucking groups are saying it's an impossible task.
Fed’s Bullard favors 3% to 3.25% rates this year to blunt inflation. Federal Reserve Bank of St. Louis President James Bullard said he favors raising interest rates sharply to counter the highest inflation in four decades, and suggested he backs a half-point hike in May along with shrinking the Fed’s bloated balance sheet. The Fed raised its benchmark overnight rate by 25 basis points last month to a target range of 0.25% to 0.5%. Bullard, who favored a half-point increase, was the lone dissenter in the 8-1 policy vote.
Mortgage rates keep going up. The average rate for a 30-year fixed-rate home loan edged up to 4.72%, mortgage-finance giant Freddie Mac said Thursday, the weekly figure’s highest reading since December 2018. The average rate on America’s most popular home loan was 3.22% at the start of this year. It hit a record low of 2.65% in January 2021. The most recent surge seems unlikely to reverse soon. Federal Reserve officials signaled they could raise interest rates by a half-percentage point at their meeting early next month. Mortgage rates are tied closely to the 10 -year U.S. Treasury yield, which tends to move in tandem with the Fed’s benchmark rate. The sharp rise in rates could eventually crimp demand for housing, since higher rates mean higher monthly payments for buyers. Among sellers, there is a growing sense of urgency to list properties before the housing market cools.
Significant expansion in U.S. consumer credit during February. Consumer Credit data from the Federal Reserve showed a dramatic increase to $41.8 billion in February compared with a rise in January of 8.9%. This marks an annual increase of 11.3%, the strongest annual rate since November 2001 and compared with a 2.4% increase registered in January. Expectations were for a rise of just $15 billion. The increase was notable in revolving credit which rose 20.7% in February or $18 billion from February after rising just $3.5 billion in January. The situation suggests that consumers were very willing to use their credit cards in February which signals that consumer activity for the month should be a positive in the U.S. GDP picture for the first quarter of 2022.
Help wanted: IRS has thousands of job offers out to tackle tax return backlog. The IRS has made thousands of offers under an expedited process that it is using to hire workers to tackle a backlog of unprocessed tax returns, Commissioner Chuck Rettig told the Senate Finance Committee. Rettig, during a Thursday hearing, said the agency has made more than 2,200 offers to people who attended in-person job fairs for positions at the processing centers in Austin, Texas; Kansas City, Mo.; and Ogden, Utah.
Walmart is flexing its financial scale to take tighter control of its supply chain. The largest U.S. retailer by revenue is raising wages for in-house truck drivers and expanding a program that trains existing workers to become drivers. The Wall Street Journal reports (link) Walmart is taking the steps to keep its supply chain running smoothly amid a period of disruption that has extended from ocean transport to inland distribution. That will include raising starting salaries for the company's truck drivers to between $95,000 and $110,000 a year, up from an average starting salary of $87,000. Walmart will also offer workers in other Walmart roles training to become certified truck drivers and join the company’s fleet. It’s the latest sign of how big retailers are using their size to take greater control of their own supply chains as bottlenecks, capacity constraints and rising prices roil logistics operations.
• Outside markets: The U.S. dollar index is higher ahead of U.S. market action, with weakness in the euro and British pound. The yield on the 10-year U.S. Treasury note is trading higher around 2.68% with a mostly higher tone in global government bond yields. Gold and silver are mixed, with weaker around $1,937 per troy ounce and silver firmer around $27.75 per troy ounce.
• Yellen: Digital dollar would take years of development. Treasury Secretary Janet Yellen said a digital dollar would take years to develop if the U.S. decides to proceed with one, underscoring a deliberate approach by American policy makers as they flesh out their regulatory plans to address the rapid spread of digital assets. U.S. regulators are now engaged in a six-month review aimed at coming up with recommendations on a raft of issues linked to digital assets, including a digital version of the U.S. sovereign currency.
• JP Morgan has warned raw commodity prices could surge by another 40% if investors move their allocations into raw materials at a time of rising inflation. Problematic inflation has been historically bullish for commodity markets.
• Crude oil futures are higher ahead of U.S. trading, with U.S. crude just under $97 per barrel and Brent around $101 per barrel. Futures had traded lower in Asian action, with US crude around $95.60 and Brent around $100 per barrel.
• The price surge for industrial fuel, including diesel and jet fuel, has far outstripped the pain at the pump, according to Axios Markets.
• IEA outlines emergency oil release details. The International Energy Agency (IEA) released a detailed breakdown (link) of members’ emergency oil stock release following an agreement this month to overcome a supply shock after Russia invaded Ukraine. As part of that decision, the group will release 120 million barrels of oil over the next six months. The U.S. will contribute about 60 million barrels, which are part of the larger drawdown from its strategic reserve that was announced on March 31. Over the next six months, around 240 million barrels of emergency oil stocks, the equivalent of well over 1 million barrels per day, will be made available to the global market.
• Who broke the wheat market? In early March, the market for wheat stopped working. Trading was halted, restarted and halted again. Prices for a key futures contract were essentially frozen because there were no buyers or sellers. It went on for days. The market is functioning again, but wheat traders are still trying to piece together what happened, the New York Times reports (link). Here are some of the theories:
- It was the “wheat whale.” A trader took a large position in wheat and got stuck (or, uh, beached). All eyes are on an exchange-traded fund, the Teucrium Wheat Fund. In early March, investors piled into the E.T.F., guessing that Russia’s invasion of Ukraine would drive up wheat prices, since both countries are large wheat producers. Some speculate that the fund, which buys only futures contracts, couldn’t cope with the volume and blew up the contract for May delivery (it traded “limit up” for several days in a row).
- The wheat market went meme. On March 7, a user on Reddit observed that the price of wheat was soaring: “I wouldn’t be surprised if we hit at least $20,” wrote a Reddit user with the handle “quarantrader.” A number of wheat traders are pointing to that message as the start of the turbulence: It happened with the so-called meme stocks GameStop and AMC, so why not wheat?
- Shorts got squeezed. Andrey Sizov, a grain analyst based in Russia, said hedge funds that placed bets on wheat prices falling were caught off-guard by the war. As they quickly covered their positions, the market ran out of sellers. But unlike in the nickel market, which also froze in the early days of the war, no single short-seller has emerged with big losses.
• NWS weather: Upper-level low to produce rain and snow showers from the Midwest to the Northeast this weekend; East Coast and Northwest cool down as central U.S. warms up... ...Widespread temperature records forecast to be tied or broken in California today... ...There is a Critical Risk of Fire Weather over portions of the Central/Southern Plains and Lower Mississippi Valley today.
Items in Pro Farmer's First Thing Today include:
• Quiet trade ahead of USDA report
• April WASDE Report out at noon ET
• RFA’s Cooper: EPA’s SRE announcement a ‘hollow victory’ for biofuels
• FAO lowers 2022 world wheat production forecast
• Russian wheat export tax jumps
• China to buy more pork for reserves (details in China section)
• June cattle at discount to cash
• Another decline in cash hog index
— Summary: Western allies on Thursday hammered out new steps to further isolate Russia, with Congress voting to strip Moscow of its preferential trade status and ban the import of Russian energy while the European Union weighed a ban on Russian coal, a significant step for a bloc that is heavily dependent on Russian fossil fuels, as the NYT reports (link). The coal ban, which will take full effect mid-August, is the fifth sanctions package against Russia to be adopted by the EU. “My agenda is very simple. It has only three items on it: it's weapons, weapons, and weapons” — Ukrainian foreign minister Dmytro Kuleba.
- Russia suspended from U.N. Human Rights Council. In an unprecedented step, the United Nations general assembly voted 93 to 24 to suspend Russia over gross and systematic violations and abuse of human rights in Ukraine.
- In a rare admission, the Kremlin’s spokesperson acknowledged that Russia has suffered “significant losses of troops” in Ukraine. “We have significant losses of troops,” Dmitry Peskov said in a half-hour interview with Sky News on Thursday, “and it’s a huge tragedy for us.” Link for details.
- The House passed and sent to President Joe Biden for his signature legislation that would bar U.S. imports of Russian oil, gas and coal. The 413-9 House vote followed 100-0 Senate approval earlier Thursday. Once signed by Biden, it will put into law an order he issued last month. When crude oil and all other petroleum products are included, such as unfinished fuel oil that can be used to produce gasoline and diesel, Russia accounted for about 8% of 2021 U.S. oil imports, according to the Energy Information Administration.
- Boris Johnson, Britain’s prime minister, is to meet Olaf Scholz, Germany’s chancellor, today to discuss how to help wean European countries off Russian gas.
— Market impacts:
- End-around Russia oil sanction? If a barrel of oil has just under 50% Russian crude, some oil companies say it doesn’t technically count as of Russian origin.
- Russia’s central bank cut its key interest rate today, a sign that efforts to stabilize the country’s financial system are having an effect.
- Why Russia doesn’t want to default — even in a time of war. The last time Russia defaulted on its debt, in 1998, it took several years of painful economic reforms to get back in the good graces of international investors.
- Russia's war hammers Ukraine agriculture. Europe’s largest poultry farm, on Ukraine’s occupied Black Sea coast, has lost almost four million chickens to thirst and starvation during the country’s war with Russia, the WSJ reports (link). The war has already disrupted Ukraine’s prodigious exports of wheat, sunflower oil and other produce, boosting global food costs. It has also halted production at the Chornobaivske chicken farm, situated in a southern part of Ukraine that has experienced some of the heaviest fighting. The facility, which typically exports about one billion eggs a year, is just one of several to have been hit in one of the one of the world’s biggest producers. The chicken factory’s difficulties are emblematic of the broader impact Russia’s invasion is having on Ukraine’s agriculture sector. The industry not only plays a crucial role in feeding the world but also represents the biggest contributor of the country’s economy, raising the specter of a slow recovery if and when peace returns.
— House passes restaurant aid. On a 223-203 vote split along party lines, the Democratic-controlled House passed a bill providing $42 billion for the Restaurant Revitalization Fund and $13 billion for other hard-hit small businesses. Link for details.
— Schumer plans late April votes on Fed picks. Senate Majority Leader Chuck Schumer (D-N.Y.) on Thursday teed up two of President Joe Biden’s four Federal Reserve Board nominees for votes by the full chamber later this month. Schumer took a procedural step before the Senate leaves for a two-week break seeking to limit debate on Lael Brainard’s nomination for vice chair, as well as Lisa Cook’s nomination for Fed governor when lawmakers return. Biden’s other two nominees — Jerome Powell for another term as Fed chair and Philip Jefferson for Fed governor — have widespread support and may not need face attempts by Republicans to extend debate. Senate Banking Chairman Sherrod Brown (D-Ohio) said he expects all four nominees to be confirmed shortly after the Senate returns on April 25. Brown said he also hopes Biden will have nominated a new vice chair of supervision by then.
— Lawmakers push movement on ag trade officials. Senate Agriculture Committee leaders asked President Biden to quickly nominate candidates for chief agricultural negotiator at the U.S. Trade Representative's office and for agriculture undersecretary for trade. Link to letter.
— Containers full of frozen food and chemicals are piling up at China’s biggest port in Shanghai as the lockdown of the city and virus testing means truckers can’t get to the docks to pick up boxes, Bloomberg reports. Shanghai is now the epicenter of China’s worst Covid outbreak in two years. Truckers form a crucial component of supply chains, moving raw materials from coastal ports to factories further inland. The backlog is likely contributing to growing ship queues off China, threatening even more delays and higher freight rates in the coming months. While the port is operating normally, there are a “critically high” number of refrigerated containers and items classified as dangerous goods piled up at two storage yards, meaning some ships carrying those types of cargo may not be able to unload any more boxes at the port, Ocean Network Express said.
"Basically everything else is not moving but is being diverted away from Shanghai to other parts of China," said Mads Ravn, global head of air freight procurement at transport and logistics giant DSV. "It's affecting every commodity you can think of and will have a global effect on almost every trade."
“It doesn’t bode well for an easing of supply chain bottlenecks anytime over the next few weeks or indeed months,” said Tim Huxley of Hong Kong container ship owner Mandarin Shipping. “It’s anything from electronics goods, domestic goods, furniture — you name a household brand or chain store in the U.S. or Europe and you can bet they will have something stuck in a factory or on a truck coming out of Shanghai, “ said Tim Huxley, chairman of Mandarin Shipping, a Hong Kong container shipowner.
Upshot: As the virus spreads to more cities and provinces, alternate shipping channels may also be disrupted by lockdown measures, further weighing on the global supply chain. Nomura economists say “China's ‘around 5.5%' GDP growth target this year is becoming increasingly unrealistic." Nomura now estimates that 23 cities and nearly 200 million people are under full or partial lockdown across China.
— China to buy more pork for reserves. China’s state planner will buy another 40,000 MT of frozen pork for state reserve – its fourth round of stockpiling this year. The move is an effort to support domestic prices, which have fallen sharply. While lower pork prices are helping ease consumer inflation, they are squeezing hog production margins. China has previously purchased 118,000 MT of pork for reserves, though that’s a small fraction of its annual production, which reached 53 MMT last year.
ENERGY & CLIMATE CHANGE
— EPA denied all 36 2018 RFS waivers for small refineries but will not force 31 of them to comply. EPA announced Thursday it was denying 36 small refinery exemptions (SREs) — 31 that had been granted and five that had been rejected (link), opting to provide “compliance flexibility” on 31 of the 36 petitions.
Details: The Biden administration on Thursday rescinded 36 refineries’ previously granted waivers from 2018 biofuel-blending requirements — but said it will not require 31 facilities to buy compliance credits to fulfill the quotas. EPA said the 36 previously granted exemptions were wrongly authorized because any economic hardship suffered by the facilities was not directly caused by the RFS program itself. EPA said the petitions were granted in error as the law specifies that granting SREs has to be based on the refiners “disproportionate economic hardship” (DEH) and the statue also authorizes EPA to grant SREs “only where RFS compliance costs are the cause of the small refinery’s hardship.”
EPA provides compliance flexibility to affected parties. As for the compliance flexibility (link), EPA said it took the action as there are “extenuating circumstances that warrant an alternative compliance demonstration.” After making the original determination, EPA said that the small refineries “generally” sold their Renewable Identification Numbers (RINs) and/or used some portion of them to satisfy their 2019 obligations. In an accompanying document (link), EPA went into greater detail on their reasoning for the compliance flexibility. "The compliance flexibilities we are providing to select refineries are based on a separate and distinct analysis," EPA spokesperson Nick Conger said.
EPA said in the wake of the April 7 decision, the refiners on the 31 petitions that were denied either no longer had the RINs or did not have enough to meet their obligations. EPA estimated the combined obligations would amount to over 1.4 billion RINs.
EPA said they “treating the 2018 obligations as newly imposed obligations that are added to obligations for the earliest compliance year that has not yet closed (i.e., the 2019 compliance year).” While some have seized on that statement as indicating the 2018 RINs would be rolled into 2019, EPA said that since the obligations were created by the April 2022 decision, they were not rolled over from prior compliance years. EPA said that many small refineries already used 2018 RINs to satisfy up to 20% of their 2019 obligations.
EPA said that to require the 31 small refineries to comply with their 2018 obligations “would be impossible without EPA reopening the 2018 and 2019 compliance years for all obligated parties” and the process in its entirety would be “virtually impossible in practice.” That would involve EPA reopening the process for 2018 and 2019 compliance years, including setting new Renewable Volume Obligations (RVOs) for both years, etc.
A shortage of advanced biofuel carryover RINs also factors into the matter as there are not enough to allow the small refiners to show their compliance with those obligations. Plus, EPA said relying on carryover RINs to meet the 2018 obligations “would undermine the proposed standards for 2022, likely to the point of making them unachievable.”
If all 31 of the refiners were required to come into compliance “through the retirement of 2018 and 2019 RINs, most if not all of them would be unable to achieve compliance under the existing compliance scheme.”
Further, EPA argued that if the small refiners were required to acquire and retire the RINs now, “there would be no impact on renewable fuel production or demand in the 2018 compliance year.” And requiring them to acquire and retire the RINs would have a “detrimental effect” on the RIN market and could damage the Renewable Fuel Standard (RFS) program.
“To comply using this alternative approach, these parties must resubmit their annual compliance reports for 2018 and report their actual gasoline and diesel fuel production, actual annual RVOs, and zero RIN deficit carryforward into the following compliance year,” EPA said. “EPA recognizes that this will create the appearance of a RIN shortfall in the annual RFS compliance data EPA compiles and EPA will explain this on its website. Through this Compliance Action, that shortfall is satisfied, and no further action will be required by the 31 small refineries.”
Some biofuel advocates took a dim view of the decision, which they said effectively absolved refiners of the need to acquire some 1.4 billion RINs. Geoff Cooper, chief executive of the Renewable Fuels Association, called the EPA’s decision “a hollow victory for the biofuels industry… EPA admits that those exemptions never should have been granted in the first place, but now is sweeping them under the rug and letting the refiners who got these exemptions off the hook,” Cooper said. “The so-called alternative compliance approach issued by EPA is really a no-compliance approach.”
EPA’s position: “Limited available RINs makes it impracticable for these 31 small refineries to meet their 2018 obligations under the existing compliance scheme,” EPA said. By contrast, the agency said, a drawdown of 1.4 billion credits would seriously jeopardize the ability of refiners to satisfy future quotas and could result in “serious harmful impacts” to the entire program. The denials could provide legal support for a separate EPA proposal to reject more than 60 other refinery requests for waivers from quotas spanning 2016 to 2021, the agency said. The agency said the new rejections were consistent with a 2020 decision by the 10th Circuit U.S. Court of Appeals that previous exemptions had been improperly granted because refineries’ economic hardship wasn’t tied to the RFS.
EPA’s decision has not set well with biofuel state lawmakers like Sen. Chuck Grassley (R-Iowa), who tweeted, “Once again EPA has let Big Oil off + is not FOLLOWING THE LAW/RFS 2days action screws over our farmers &biofuel producers Biden’s EPA is letting 31 of 36 small refineries off the hook w a workaround Instead of promoting biofuels w E15 yr round theyre working against farmers/IOWA.”
The Biden administration is set to finalize blending quotas for 2020, 2021 and 2022 by June 3.
Bottom line: Basically, EPA is letting most of the refiners off the hook and will call into question the Biden administration’s repeated announcements of support for biofuels.
— Bill focused on boosting renewable diesel & sustainable aviation fuel. Sen. John Barrasso (R-Wyo.), ranking member of the Senate Energy and Natural Resources Committee, on Thursday introduced a bill that would allow renewable diesel and sustainable aviation fuel production facilities to qualify for the Energy Department’s Title XVII loan guarantees. Sens. Dianne Feinstein (D-Calif.), Bill Cassidy (R-La.), Ben Ray Luján (D-N.M.), and Steve Daines (R-Mont.) are also cosponsors on the bill.
— Methane count: The National Oceanic and Atmospheric Administration said global atmospheric methane rose by 17 parts per billion last year, a record increase since systemic measurements started in 1983. NOAA said atmospheric methane levels averaged 1,895.7 parts per billion in 2021, or about 162% higher than preindustrial levels.
LIVESTOCK, FOOD & BEVERAGE INDUSTRY
— Additional commercial operations with confirmed HPAI cases. USDA’s Animal and Plant Health Inspection Service (APHIS) has added more commercial operations as being confirmed with highly pathogenic avian influenza (HPAI). New cases were confirmed in commercial operations in North Carolina (216,049 broiler chickens and 65,601 broiler chickens in Wayne County), Missouri (a pending number of commercial turkeys in Dade County), Minnesota (20,438 commercial turkeys in Waseca County), and South Dakota (42,500 commercial turkeys in McPherson County). All of those are listed as April 6 confirmations.
Bottom line: Americans will not run out of eggs in the ongoing outbreak of bird flu, the worst since 2015, says USDA Secretary Tom Vilsack. Some 4% of the U.S. layer flock has died in the two months since the first confirmation of highly pathogenic avian influenza (HPAI) on Feb. 8. Egg-laying hens account for two of every three birds that have died of HPAI or in culling of infected flocks.
— Senate Agriculture Committee sets hearing on cattle market legislation. The Senate Agriculture Committee will finally hold a hearing on legislation to address cattle market issues and set cash-market purchase requirements in place. On April 26 the panel will hold a hearing on S 4030, the Cattle Price Discovery and Transparency Act of 2022, and S 3870, the Meat and Poultry Special Investigator Act of 2022. Sen. Chuck Grassley (R-Iowa), an author of the cattle market legislation, tweeted his approval, saying it was “clear the cattle market needs more competition + transparency so gr8 progress made w a hearing in the Senate Ag Committee on Apr 26 at 9am Iowa time /Hearing is on my Cattle Price Discovery & Transparency Act + Meat and Poultry Special Investigator Act Be sure 2 tune in!!”
The measure has been reworked several times to get to its current form, but it is still not clear the legislation has the backing of enough lawmakers to move forward as standalone legislation.
— Summary: Global cases of Covid-19 are at 496,417,117 with 6,171,259 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 80,289,264 with 984,571 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 563,999,093 doses administered, 218,135,613 have been fully vaccinated, or 65.73% of the U.S. population.
— An appellate court reinstated the Biden administration’s Covid-19 vaccine mandate for federal employees, overturning a nationwide injunction by a Texas federal judge in January. The Fifth U.S. Circuit Court of Appeals in New Orleans held that it wasn’t the judiciary’s role to adjudicate the dispute but said unvaccinated workers seeking to avoid discipline first had to pursue their grievances through administrative channels — a ruling that came as a victory for the White House’s vaccination efforts after a string of legal setbacks.
POLITICS & ELECTIONS
— French voters head to the polls on Sunday to cast their votes in the first round of the French presidential election with Emmanuel Macron seeking a second five-year term as head of the world’s seventh largest economy. Macron is a shoo-in to reach the second-round runoff, taking place on April 24. Marine Le Pen, the leader of the far-right National Rally, seems most likely to make it through. She has had to fight within a crowded right-wing field. Polls suggest Macron’s lead has shrunk considerably in recent weeks while support for his far-right rival, Marine Le Pen, has surged. Macron said he regretted having started his campaign so late.
— Treating politics like the NCAA tournament. Charlie Cook points out that according to the PredictIt betting odds, there is an 84% chance that Republicans will capture the House in November, a 77% chance that the GOP wins a Senate majority, and a 72% chance that Republicans end up controlling both. Election Day 2022 is 214 days away.
— Trump probe: The Manhattan District Attorney’s criminal investigation into former President Donald Trump, his company and its leadership continues, despite the resignation earlier this year of two senior prosecutors. Separately, New York’s Attorney General went to a judge over documents for her civil-fraud investigation into Trump and his company.
— The Senate voted 53-47 to confirm Judge Ketanji Brown Jackson as the 116th Supreme Court justice. Jackson will start hearing cases when the court's next term begins in October.
OTHER ITEMS OF NOTE
— AWP eases after sharp jump. The Adjusted World Price (AWP) for cotton eased to 130.42 cents per pound, effective today (April 8), down from 130.89 cents per pound the prior week which marked a sharp jump in the AWP. This marks the highest AWP since it was 145.57 cents per pound the week of June 10, 2011. Meanwhile, USDA announced Special Import Quota #25 would be established April 14 for 46,314 bales of Upland Cotton, applying to supplies purchased not later than July 12 and entered into the U.S. not later than Oct. 10.