Evening Report | April 16, 2024

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Brazil makes first ethanol for SAF... Although the LanzaJet Inc. facility in Georgia is able to process ethanol made from American-grown corn, it will likely run on mostly sugarcane ethanol imported from Brazil when it starts commercial production, Bloomberg reports. That’s because many of the largest Brazilian mills have already been certified to make feedstock for sustainable aviation fuel (SAF) that meets official international and domestic standards.

Sao Martinho SA says it expects to be first to be able to supply the U.S. SAF market. It has received the necessary certifications – including the globally accepted Corsia standard, established by the United Nation’s governing body for aviation, plus registration with the Environmental Protection Agency — and has started to make SAF-compliant sugarcane ethanol for export, the company’s CEO told Bloomberg.

Other major Brazilian producers including Raízen SA, BP Bunge Bioenergia and mills linked to Copersucar SA have also received the Corsia certification. Raízen and Copersucar have registered with EPA as well, the companies said.

LanzaJet’s plant has been using U.S. corn ethanol during the testing and commissioning phase, and Chief Executive Officer Jimmy Samartzis has repeatedly said he aims to use the biofuel ingredient again when improvements are made to its carbon intensity. He told Bloomberg it’s critical the Biden administration make changes to recognize greenhouse-gas reduction practices already taking place in making U.S. corn ethanol.

Aussie meteorologists: El Niño has ended, neutral period until at least July... El Niño has ended and the El Niño Southern Oscillation (ENSO) has returned to neutral, according to the Australian Bureau of Meteorology. It says climate models indicate ENSO will likely continue to be neutral until at least July. While three out of seven international models are predicting central Pacific sea surface temps to reach La Niña thresholds in July, the bureau cautions that forecasts made at this time of year typically have lower accuracy.

Vilsack plays the political card in new farm bill debate... A majority of Republicans on the House Agriculture Committee, influenced by proposals aligned with the Republican Study Committee (RSC), are pushing for significant changes to farm policy, including cutting subsidies for wealthier farmers, altering crop insurance premiums and ending enrollment in major land stewardship programs, USDA Secretary Tom Vilsack said Monday in comments to the North American Agricultural Journalists. Vilsack highlighted the challenge of passing a bipartisan farm bill amidst a closely divided Congress. He emphasized the need for bipartisan support, especially as Republicans hold a narrow margin in the House, and Democrats have only a slight edge in the Senate. With farm bill negotiations stalled over issues like crop subsidies, climate funding and SNAP, Vilsack proposed utilizing the Commodity Credit Corp. reserve to support farmers. He cautioned against RSC’s “radical” proposals, which could significantly reduce USDA spending on agricultural programs.

The RSC proposals include shutting off crop subsidies to farmers with more than $500,000 a year in adjusted gross income, requiring growers to pay a larger share of the premium for subsidized crop insurance and ending enrollment in the two largest USDA land stewardship programs, the Conservation Reserve Program and the Conservation Stewardship Program.

The “pretty radical” RSC recommendations would result in “a pretty significant retreat” in USDA spending on agriculture programs, Vilsack said. “It’s going to be interesting to see how it’s playing with members of the House,” he said.

Comments: Here is what Vilsack did not tell the ag reporters, nor did they report this: Nobody takes the RSC budget seriously.

USDA could expand conservation practices for IRA aid... USDA could continue expanding the list of conservation practices that qualify for financial support via the Inflation Reduction Act (IRA), said Robert Bonnie, undersecretary for farm production and conservation. Bonnie addressed plans to expand eligible conservation practices during a panel at the annual meeting of the North American Agricultural Journalists. Key comments:

• USDA plans to continue expanding the list of conservation practices that qualify for financial assistance, building on the expansions already made in 2024. This is aimed at broadening the scope of activities that can receive funding under the IRA.
• Any new practices added to the list must be accompanied by a robust climate mitigation analysis. This ensures the practices are genuinely beneficial in combating climate change and are not merely nominal measures.
• Some progressive lawmakers and environmental organizations have criticized USDA for including practices in the IRA funding they believe have questionable effectiveness in reducing greenhouse gas emissions or addressing environmental injustices. Concerns specifically pointed to the inclusion of certain agricultural practices like parts of industrial manure management systems, which might have limited environmental benefits.
• IRA has significantly boosted funding for farm bill conservation programs, with a $20 billion increase. This funding is crucial as it addresses the high demand for financial support in key USDA programs.
• In response to criticisms, USDA claims to have a rigorous process for assessing the climate impacts of supported practices. More detailed information and scientific backing for these practices are expected to be released during the summer.
• USDA’s approach suggests an ongoing evaluation of what constitutes effective climate action within agricultural practices, balancing the expansion of support with the need for environmental accountability.

New Black Sea grain deal falls through... A potential deal regarding Black Sea shipping between Russia, Ukraine and Turkey was almost finalized but ultimately fell through when Ukraine withdrew at the last minute, according to Reuters. After two months of negotiations, the deal was essentially reached in March. Ukrainian authorities initially allowed Turkish President Tayyip Erdogan to announce the agreement on March 30, indicating a tentative approval. Despite the initial agreement, Ukraine unexpectedly pulled out of the deal, leading to its cancellation. This decision surprised the negotiating parties, Reuters said, citing multiple sources.

The agreement would have authorized Turkey to ensure the “free and safe navigation of merchant vessels in the Black Sea,” in line with the Montreux Convention concerning the regime of the straits. This convention regulates the passage of naval ships through the Bosporus and Dardanelles straits but also impacts commercial shipping under certain conditions. Both Russia and Ukraine were to provide security guarantees for merchant vessels operating in the Black Sea, agreeing not to attack or seize vessels that were either empty or carrying non-military cargo.

The reasons behind Ukraine’s decision to not finalize the agreement remain unclear. This situation highlights the complex and ongoing negotiations between the conflicting parties, even as the conflict continues.

Global economy resilient despite familiar headwinds... The global economy is expected to remain “quite resilient,” set for another year of slow but steady growth, the International Monetary Fund (IMF) forecast. But IMF warns, “The resilient global economy masks stark divergence across countries,” suggesting the road ahead could be laden with multiple bumps.

IMF forecasts the global economy will grow 3.2% this year, up from the 3.1% pace it previously projected and steady with 2023. Global GDP is expected to remain at that level for a third straight year in 2025.

IMF projects the U.S. economy will expand 2.7% this year, up from its 2.1% forecast in January, though growth is expected to moderate to 1.9% in 2025. This economic expansion is attributed to robust productivity, employment growth and strong demand, albeit in an overheated economy. This calls for “a cautious and gradual approach” to easing monetary policy by the Federal Reserve.

IMF left its forecast for China’s economy to grow 4.6% this year, down from 5.2% in 2023, though a further drop to 4.1% GDP is expected in 2025. But it warned the lack of a comprehensive restructuring for the country’s troubled property sector could prolong a downturn in domestic demand and worsen China’s outlook.

IMF forecasts the euro zone economy will rise 0.8% this year, down from the 0.9% growth it projected in January. Weak consumer sentiment in Germany and France, the bloc’s two largest economies, will limit growth. With no signs of overheating, the European Central Bank will need to “carefully calibrate the pivot toward monetary easing to avoid an inflation undershoot.”

IMF noted bright spots in some other big emerging markets. It says Group of 20 large emerging market countries are playing a bigger role in the global trading system and have the capability to shoulder more of the growth burden going forward. IMF raised the growth forecast for Brazil’s economy by 0.5 point to 2.2% for this year and increased the outlook for India’s economic growth by 0.3 point to 6.8%.

Bottom line: Overall, while the global economy is expected to continue growing, there are concerns about fiscal sustainability, inflation, and trade restrictions that could impact the trajectory of growth in the coming years.