Evening Report | June 6, 2023

Evening Report
Evening Report
(Pro Farmer)

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

 

EPA abandons e-RINs plan... EPA will abandon a proposal to include the electric vehicle industry in the U.S. biofuel blending program, three sources familiar with the matter told Reuters. Scrapping the plan pushes the administration further away from allowing electric vehicles to generate nearly 2 billion credits under the Renewable Fuel Standard over the next two years. We previously reported EPA was considering delaying the EV program over concerns the plan could trigger lawsuits.

The Office of Management and Budget is currently reviewing EPA’s RFS proposals for 2023, 2024 and 2025. EPA has a June 14 deadline to set its final RFS levels.

 

Consultant raises Brazil corn estimate... Weather was beneficial for Brazil’s safrinha corn crop with widespread rains across south-central areas of the country last week that will especially benefit later-plants acres. As a result, crop consultant Dr. Michael Cordonnier raised his Brazilian corn crop forecast by 3 MMT to 129 MMT. Cordonnier kept his Brazilian soybean crop estimate at 155 MMT. He also maintained his Argentine soybean and corn crop estimates at 22 MMT and 35 MMT, respectively.

 

Farmer sentiment sours amid falling crops prices... Producer sentiment fell to its weakest reading since July 2022, as the Purdue University/CME Group Ag Economy Barometer Index declined 19 points (15.4%) to a reading of 104 in May. The Index of Future Expectations declined 22 points (18.3%), while the Index of Current Conditions fell 13 points (10.1%). Crop price weakness triggered much of the sentiment decline.

The Farm Financial Performance Index plunged 17 points (18.3%). Falling commodity prices were a key factor behind the decline as 38% of this month’s respondents said they expect weaker financial performance for their farm this year compared to just 23% in April. Putting additional pressure on farmers’ profit prospects are expectations for higher interest rates in the upcoming year. Although producers’ interest rate projections have moderated somewhat, 59% of respondents still said they expect interest rates to rise during the upcoming year and 22% chose it as a top concern for their farm. Additionally, 40% of farmers in this month’s poll said they expect this spring’s U.S. bank failures to lead to some changes in farm loan terms in the upcoming year, possibly putting more financial pressure on their operations.

When asked what will be important to them in a new Farm Bill, nearly half (48%) of producers in the May survey said the Crop Insurance Title will be the most important aspect of a new farm bill. Coming in second was the Commodity Title, chosen by one-fourth (25%) of respondents. Almost half of corn and soybean producers expect Congress to raise PLC reference prices for both crops when a new farm bill becomes law.

 

World Bank warns of sluggish global economy... The World Bank’s latest economic projections note rising interest rates, the aftermath of the pandemic and ongoing supply chain disruptions due to the war in Ukraine as key contributing factors to concerns with the global economy. It forecasts global economic growth will slow to 2.1% this year from 3.1% in 2022, with a slight improvement to 2.4% in 2024. While that’s up from its 1.7% growth forecast in January, World Bank noted many economies are experiencing a synchronized slowdown, with debt distress affecting several low-income countries.

Slowdowns are expected in advanced economies, including the U.S., which is projected to see growth of 1.1% this year, though that’s up from 0.5% growth forecast in January. The World Bank expects U.S. economic growth to slow to 0.8% next year.   

It expects China’s economy to expand 5.6% this year, up 1.3 percentage points from its prior forecast, in part due to the reopening of its economy following strict Covid-19 lockdowns. For 2024, World Bank forecasts China’s economic growth will slow to 4.6%, down 0.4 points from the January outlook.

Inflation is likely to remain above central bank targets in many countries through 2024, but World Bank expects prices will continue to moderate this year.

 

Economic consequences of capping premiums in crop insurance... A study examining the economic impact of capping farmer premiums for Risk Management Agency (RMA) crop insurance suggests that setting a cap of 4.0% on the premium-to-liability ratio would benefit farmers and lead to lower consumer prices. As RMA provided $11.6 billion in premium subsidies in 2022, by capping premiums at 4.0%, farmers would see an 8% reduction in their premiums, at a cost of around $186 million for the additional subsidies. Major beneficiaries would include farmers growing cotton, corn, wheat and soybeans in Texas, the Dakotas and Kansas. The proposed policy would ultimately enhance farm revenue, promote a stable food supply and potentially lower consumer prices.

 

GAO finds fault with USDA’s CCC spending... USDA has issued documents to implement four new financial assistance programs using funds from the Commodity Credit Corporation (CCC), but failed to submit reports as required by the Congressional Review Act (CRA), the General Accountability Office (GAO) said in a report. The CRA mandates that any new rule should be submitted to the House of Representatives, Senate and Comptroller General before taking effect. After reviewing, it has been concluded that all four implementing documents meet the definition of a rule under CRA and must follow reporting requirements. However, GAO said USDA’s violation of the CRA does not trigger the Antideficiency Act provisions, as the agency’s borrowing authority from CCC is not contingent on adherence to CRA requirements.

Of note: Some lawmakers have taken issue with USDA’s use of CCC funding to operate various programs and the GAO report will become a focal point with USDA officials at some point relative the next farm bill or the appropriations process.

 

USDA considers lifting ban on imports of fresh beef from Paraguay... The ban has been in place due to concerns about the country’s cattle herds being affected by Foot and Mouth Disease (FMD). This decision comes after a request from the Paraguayan government and follows previous site visits by USDA in 2008 and 2014, which found a low risk of FMD spreading from Paraguayan beef. However, U.S. beef groups are urging USDA to maintain the ban, citing concerns about outdated assessments and unresolved issues with Brazil. USDA estimates the costs of an FMD outbreak in the U.S., even if limited to one state, could exceed $6 billion.

 

DOE releases hydrogen roadmap... The Department of Energy (DOE) released plans for the scaling up of hydrogen use in the country. Concurrently, there is ongoing focus on establishing a production tax credit for hydrogen under the Inflation Reduction Act (IRA). This tax credit could provide up to $3 per kilogram for hydrogen that meets certain emissions standards. The Biden administration and involved agencies are currently in active conversations about the matter. A key part of the debate is whether hydrogen producers should be required to source energy from renewable power plants to claim the credits.

DOE’s hydrogen roadmap indicates U.S. hydrogen demand could reach 50 million metric tons by 2050. One main issue is how electricity will be sourced for electrolyzer production. Using power from the traditional grid could increase the carbon intensity compared to producing hydrogen from natural gas. The report also suggests that without tax credits, electrolysis may not reach the necessary learning curves to remain competitive. Energy Secretary Jennifer Granholm has emphasized the tax credit’s structure is a crucial aspect to consider.

 

Chinese biodiesel producers face ‘potentially fraudulent’ accusations... Chinese biodiesel producers have pledged to enhance compliance and export standards following concerns raised by European rivals about “potentially fraudulent” shipments. A group representing China’s largest producers, affiliated with the technology ministry, has promised to closely monitor the quality and sourcing of biofuels. European producers previously accused Chinese exporters of mixing fuels with cheaper feedstocks and mislabeling them to qualify for EU incentives, causing price depression and threatening local suppliers. Due to the surge in Chinese exports, several European biodiesel plants have halted or curbed their production. The Chinese group expressed willingness to cooperate on certification and compliance and is considering implementing a white list to improve traceability and transparency.

 

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