Evening Report | January 31, 2023

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Cattle Inventory Report: U.S. cattle herd smallest in eight years... USDA estimated the U.S. cattle herd at 89.274 million head as of Jan. 1, down 2.803 million head (3.0%) from last year. The beef cow herd dropped 1.065 million head (3.6%) to 28.918 million head. The 2022 calf crop was estimated at 34.465 million head, down 701,000 head (2.0%) from the previous year. The total cattle herd, the beef cow inventory and last year’s calf crop were all the smallest in eight years.

The number of beef heifers expected to calve in 2023 dropped 171,000 head (5.1%) and total beef replacement heifers declined 318,000 head (5.8%). That was the smallest number of heifers held back for breeding since 2011, largely because so many were moved into feedlots. Combined with the smaller beef cow inventory, the 2023 calf crop will continue to shrink.

The milk cow herd at 9.403 million head rose 26,000 head (0.2%) from year-ago. But milk replacement heifers declined 104,000 head (2.3%).

Based on the cow herd size and number of heifers being held back for breeding, the total U.S. cattle herd is likely to decline another 1.1 million head as of Jan. 1, 2024.

Compared to pre-report expectations, the report data is largely neutral. But the underlying data is bullish as the U.S. cattle herd further contracted – and will continue to do so.

United Airlines taps corn for its growing green fuel push/SAF... United Airlines is teaming up with a corn ethanol maker in a bid to ramp up production of green jet fuel to deal with carbon credits and climate change. United Airlines Holdings Inc., biofuels producer Green Plains Inc. and energy infrastructure firm Tallgrass Energy Partners LP are jointly investing up to $50 million to form Blue Blade Energy. The venture seeks to bring to market technology that would simplify making sustainable aviation fuel (SAF) from ethanol and other alcohol-based ingredients, also known as feedstocks.

United plans to buy as many as 2.7 billion gallons of the fuel, its biggest SAF agreement by volume, as the airline works to reach net zero emissions by 2050. The venture centers around the idea that ethanol will beat out other commodities, like vegetable oil, as a preferred ingredient for making green jet fuel. “The trouble with SAF is the lack of feedstock,” United Airlines Ventures President Michael Leskinen said in an interview with Bloomberg. Blue Blade “has the potential to be very consequential in moving the needle in how much SAF is actually produced in the United States.”

The initial investment is for testing development. If that’s a success, then hundreds of millions in financing would be needed to build an initial production plant, according to Leskinen. The next step would be to build a test plant in 2024, followed by a facility that could start operating by 2028. The offtake agreement could provide for enough SAF to fly more than 50,000 flights annually between United’s hub airports in Chicago and Denver.

The Biden administration has challenged refiners and others in the supply chain to boost production of SAF to 3 billion gallons a year as part of an effort to cut aviation emissions 20% by 2030. The global aviation industry accounts for about 3% of the gases warming the planet today, though the sector’s emissions are rising fast.

Investor urges Green Plains to put itself up for sale... Ancora Holdings Group, which owns a nearly 7% stake and is Green Plains’ second largest shareholder, sent a letter seen by Reuters, to the board on Tuesday arguing a buyer would likely pay at least $50 a share for the company. “Our analysis and diligence indicate that strategic buyers with considerable cash on their balance sheets could be interested in acquiring the Company at a significant premium to current trading prices,” the letter said. “It is our belief that Green Plains’ ties to the ethanol industry are masking the value of its strategic and highly competitive co-products,” Ancora wrote. The investor warned that emerging risks, including reduced fuel consumption and political change are lurking and that “the macro environment presents a much greater challenge to Green Plains.”

Proponents send letter again urging no cuts to crop insurance... In a decade, government outlays to subsidize crop insurance increased 60%, expanding in sync with the rapid growth in acreage covered by the policies, according to Risk Management Agency data. Some $11.6 billion in premium subsidies were paid for the 2022 crop year, a record amount.

• Big growth: Premium subsidies cost nearly $7 billion in crop year 2012, when 282.9 million acres were insured. In 2022, 493.3 million acres were insured.
• To encourage enrollment, the government pays 60 cents of each $1 of premium. Premiums totaled $18.4 billion on 2022 crops, with $15.9 billion paid in indemnities.

Some groups are already using this data to call for crop insurance reforms via the new farm bill making its way through Congress. But crop, livestock and dairy insurance proponents say they are already in the process of educating lawmakers and staff regarding the importance to keep improving the risk management tool supported by many farm groups and lawmakers.

Senate Ag leaders call for Biden administration to pursue another USMCA dairy case against Canada... Senate Agriculture Committee Chair Debbie Stabenow (D-Mich.) and Ranking Member John Boozman (R-Ark.) are urging U.S. Trade Representative Katherine Tai to request a second dispute settlement panel under the U.S.-Mexico-Canada Agreement (USMCA) over Canada’s implementation of tariff-rate quotas (TRQs) for dairy. Even though the U.S. has already won one case via USMCA on Canada’s TRQ implementation, the lawmakers said Canada “continues to prevent U.S. dairy farmers and manufacturers from realizing the full benefits of the dairy market access commitments Canada made in USMCA.”

They contend Canada has “wrongly” interpreted the first USMCA panel ruling and continue to exclude retailers and food service operators from the TRQs. The U.S. requested consultations with Canada over the matter, but the lawmakers want another dispute settlement action to be deployed.

Next step: A dispute settlement panel after consultations, with a panel appointed to review the situation with 150 days to produce a draft report which would be finalized after a public comment period. The action could pave the way for the U.S. to deploy retaliatory measures.

White House announces plans to end Covid health emergency declaration... The White House announced via a statement of administration policy it plans to end the public health emergency for Covid-19 on May 11. The move to end the national emergency and public health emergency declarations would formally restructure the federal Covid response to treat the virus as an endemic threat to public health that can be managed through agencies’ normal authorities. Combined with the drawdown of most federal Covid-19 relief money, it would also shift the development of vaccines and treatments away from the direct management of the federal government.

The White House statement opposes resolutions being brought to the floor this week by House Republicans to bring the emergency to an immediate end. House Republicans are also gearing up to launch investigations on the federal government’s response to Covid-19. The administration warned that approval of the House measures would also immediately end the Title 42 restrictions at the U.S. border. The administration noted, however, that due to litigation, Title 42 remains in place even as the administration has sought to end the action, a situation which resulted in court action to keep the policy in place.

Biden budget proposal coming in early March... The White House will release budget proposals March 9, according to reports. Federal law mandates the White House submit a budget to Congress on the first Monday in February. But on more than a few occasions, the president has not met the deadline. The budget proposals are the president’s “wish list” and many of the requests aren’t fulfilled by Congress.

USDA announces $2.7 billion in rural electric infrastructure efforts... USDA announced 64 electric cooperatives and utilities will receive $2.7 billion in loans to modernize the rural electric grid and bolster grid security. The loans will be made in Alabama, Arkansas, Colorado, Florida, Georgia, Iowa, Indiana, Kentucky, Michigan, Minnesota, Mississippi, Montana, Nebraska, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington and Wisconsin.

 USDA said the action includes $613 million in loans for installation of upgrading smart grid technologies.

Nearly half of the awards will go to underserved communities with many of the efforts to upgrade and install new power lines. USDA said additional financing will be announced in coming months via more than $12 billion in funding from the Inflation Reduction Act (IRA) to expand clean energy in rural areas.