Biden, Like Trump, Tries to Take Middle Road in SAF Regs, Likely Pleasing No One

Lots of work to do but Congress out, again, on extended break

Washington Focus

Think about this: Congress has not yet delivered fiscal year (FY) 2024 funding bills. The fiscal year began Oct. 1… last year. Perspective: Kevin McCarthy (R-Calif.), now no longer in Congress, on Oct. 4 was removed as the speaker of the House by hard-right members of his own Republican party less than a year after his election.

There have been several FY 2024 stopgap spending measures, with the latest ones expiring March 1 for 20% of the gov’t (including USDA) and on March 8 for the remaining 80%. While some top GOP House leaders say there will not be another continuing resolution (CR), others are not so sure. A CR will not be needed if returning lawmakers (House Feb. 28, Senate Feb. 26) can do something they are not used to doing — working fast and finishing something, at least the March 1 funding requirements.

Other lingering issues include border protection and aid to Ukraine, Israel and Taiwan, among other topics.

Of note: President Biden denounced Russian leader Vladimir Putin for Alexey Navalny’s death, saying it highlighted the stakes for Russia’s war in Ukraine. The president also blamed U.S. lawmakers’ failure to approve emergency aid to Kyiv for the fall of Avdiivka, which handed the Kremlin a significant battlefield victory after months of fighting for control of the city.

Amid uncertainty regarding funding for Ukraine in Congress, the burden of supporting Ukraine's war effort against Russia has fallen on the U.S. Army. Since October 2023, the Army has expended over $430 million on diverse operations, such as training Ukrainian forces, conveying equipment, and deploying U.S. troops to Europe. This expenditure has raised concerns among Army officials about the sustainability of their support for Kyiv without additional funding. The absence of new funding could compel the Army to divert resources from other vital projects. However, progress on a crucial foreign aid bill is stalled, with many lawmakers on recess and House Speaker Mike Johnson (R-La.) showing reluctance to bring it to a vote.

With all that remaining work, Congress is out for another extended break. The Senate returns Feb. 26 and the House on Feb. 28.

Perspective: President Joe Biden’s job approval is low at 37%. But Congress’ approval rating is only 13%... the lowest rating since 2017. You are likely wondering who constitutes that 13%.

— The new farm bill (one should never put a year on a farm bill until it is law) still looks like it is going backward, not forward. The same now boring issues linger: (1) funding (need for more money for reference price hikes) and (2) policy issues (conservation, food stamps, tapping the CCC Charter Act and trying to do something to temper the impact of California Proposition 12 and other similar restrictive policies).

Talk but say nothing new. Several farm bill leaders have recently spun their positions but frankly, nothing new was evident in those prognostications.

— Biofuels policy: here we go again with the “let’s please both sides” approach to policy. Remember when former President Donald Trump tried to have it both ways relative to a kiss-kiss to Sen. Ted Cruz (R-Texas) and to biofuels groups regarding RFS mandates, RINs and year-round E15 and other biofuel issues? He never succeeded. But this time it is the Biden administration if a Reuters “scoop: is accurate.

SAF middle ground. Reuters reports that the Biden administration is preparing to announce a significant adjustment to its ethanol modeling, indicating that ethanol may be less effective at reducing greenhouse gas emissions than previously thought. This adjustment could impact ethanol producers' eligibility for new U.S. tax credits aimed at sustainable aviation fuel SAF). However, there's still a potential avenue for ethanol producers to qualify for these credits if they collaborate with corn growers practicing sustainable farming methods, the report adds. That’s call a carrot-and-stick approach.

Reuters says this change reflects a more precise consideration of the environmental consequences associated with converting land into corn farms. It also aims to incentivize climate-smart farming practices such as no-till farming and cover crops.

The adjustment aligns with the goals outlined in President Biden's climate legislation, particularly the Inflation Reduction Act or more accurately dubbed the Climate Bill.

The Treasury Department’s guidance provides important clarity around eligibility for the SAF Credit. The credit incentivizes the production of SAF that achieves a lifecycle greenhouse gas emissions reduction of at least 50% as compared with petroleum-based jet fuel. Producers of SAF are eligible for a tax credit of $1.25 to $1.75 per gallon. SAF that decreases GHG emissions by 50% is eligible for the $1.25 credit per gallon amount, and SAF that decreases GHG emissions by more than 50% is eligible for an additional $0.01 per gallon for each percentage point the reduction exceeds 50%, up to $0.50 per gallon. The Biden administration aims to supply at least 3 billion gallons per year of SAF by 2030, as part of broader efforts to reduce carbon emissions in the transportation sector.

Before the so-called Reuters “scoop,” we and others reported that EPA, DOT, USDA, and DOE announced their commitment to release an updated version of DOE’s GREET model by March 1, 2024. Pending further guidance from the Treasury Department, the updated GREET model will provide another methodology for SAF producers to determine the lifecycle GHG emissions rates of their production for the purposes of qualifying for the SAF Credit for SAF sold or used during calendar years 2023 and 2024.

We previously reported that the updated model will incorporate new data and science, including new modeling of key feedstocks and processes used in aviation fuel. We noted the updated model will also integrate other categories of indirect emissions like crop production and livestock activity, in addition to best available science and modeling of indirect land use change emissions. The updated model will also integrate key greenhouse gas emission reduction strategies such as Carbon Capture and Storage, Renewable Natural Gas, Renewable Electricity, and Climate-Smart Agriculture Practices.

Market impacts: The corn and stock markets will tell us quickly what they think about the possible watered-down SAF rules and regulations coming from the Treasury Dept. since it is a tax deduction. Stocks that may be affected by this announcement include companies involved in ethanol production and related sectors such as Archer Daniels Midland), Valero Energy, Green Plains, Rex American Resources, Gevo, Aemetis, Exxon Mobil and LyondellBasell. Investors in these companies may want to monitor developments closely as the new ethanol modeling could impact their operations and financial performance.

— The Biden administration is contemplating easing the stringent vehicle emissions regulations it had previously suggested, which could impede the growth of electric vehicles (EVs). Instead of a prior proposal aimed at significantly boosting EV sales in the U.S., President Biden's revised plan might grant automakers until after 2030 to fulfill specific EV sales targets. Although the rule has yet to be finalized, reports note it could be unveiled in the spring. Meanwhile, White House officials are emphasizing Biden's dedication to lowering emissions and shifting away from gasoline-powered vehicles, despite facing resistance from major automakers.

— The 2024 world cotton outlook from National Cotton Council economists indicates a complex economic landscape for the cotton industry. Here's a breakdown:

Slow Recovery in Demand: Despite some anticipated recovery in cotton demand, the global economy's uncertainty has hindered this progress. Weak demand has created pressures throughout the cotton supply chain.
Economic Growth Projection: Modest economic growth is forecasted for the next two years, albeit below recent historical averages. This economic trajectory will influence the world cotton market.
U.S. Cotton Acreage Projection: The U.S. cotton acreage for 2024 is estimated to be 9.8 million acres, a decrease from the previous year. Growers are facing challenges as current prices are insufficient to cover production costs.
Price Dynamics: While cotton prices have increased recently, corn and soybean prices have declined, resulting in improved cotton-to-corn and cotton-to-soybean price ratios. This may impact final cotton acreage.
Harvested Area and Crop Yield: Using historical data and adjustments for current conditions, the estimated harvested area for cotton in the U.S. is projected. Crop yield projections generate estimates for upland and extra-long staple (ELS) bales.
U.S. Consumption and Trade: U.S. mills are expected to consume more cotton in the upcoming marketing year. Despite challenges in U.S. textile manufacturing, larger U.S. supply and increased world consumption contribute to higher U.S. export projections.
World Consumption and Trade: World consumption is expected to increase, along with higher world production and trade. This leads to a slight decline in ending stocks.
Export Competition: The U.S. faces strong export competition from Brazil, with the latter potentially becoming the largest cotton exporter soon.
Economic Caution: Current economic projections should be approached cautiously due to factors like tighter monetary policy, high interest rates, and geopolitical tensions.

— Nikki Haley, from South Carolina, faces an uphill battle in the Saturday Republican party primary against Donald Trump. Despite her home-state advantage, current polling indicates a significant lead for Trump, making a victory for Haley highly improbable. The question arises whether she can sustain her campaign until Super Tuesday on March 5, when 16 states and territories will hold their primary contests.

Given Trump's substantial lead in the polls, Haley's chances of securing the nomination seem slim. If she withdraws from the race before Super Tuesday, Trump could potentially secure the nomination even before the end of the week, with some polls showing him ahead by as much as 37 points over Haley. Thus, Haley's decision on whether to continue her campaign may have significant implications for the trajectory of the Republican nomination process.

— Other events on tap this week include:

Wednesday: USTR Special 301 review. The Office of the US Trade Representative holds a hearing regarding the 2024 Special 301 Review.
Wednesday: Biden clean energy transition agenda. The National Press Club holds a discussion on the Biden administration's industrial strategy for the clean energy transition.
Thursday: Governors’ meeting. The National Governors Association holds its 2024 Winter Meeting on pressing issues including infrastructure investment, economic growth, workforce development and health care solutions. Runs through Saturday.

Economic Reports and Events for the Week

— Wednesday’s release of the minutes from the Jan. 30-31 Federal Open Market Committee (FOMC) meeting is expected to take precedence over other economic data. Market analysts will scrutinize these minutes to gauge whether the FOMC is contemplating rate cuts. However, the minutes will reflect conditions as they were three weeks prior to the meeting, meaning any hopes for a dovish shift in FOMC sentiment may be premature.

The FOMC is expected to prefer waiting until the March 19-20 meeting before signaling any potential changes in monetary policy. Therefore, analysts say markets should temper expectations regarding rate cuts, even if the minutes suggest that sentiment among policymakers is leaning towards considering such a move.

The Fed is not likely to rush into reducing the fed funds target range, which was set at 5.25-5.50% back in July 2023. The FOMC's stance reflects their belief that while monetary policy has been restrictive, it has not significantly harmed the labor market or impeded the ongoing moderate economic expansion. Therefore, policymakers are not under pressure to adjust interest rates hastily.

— The conference schedule is heating up, with the CAGNY Conference in Boca Raton, Florida, perhaps the headliner of the bunch. Companies due to present include Coca-Cola, PepsiCo, Kraft Heinz, WK Kellogg, Mondelez International, Philip Morris International, and Coty. The conference has been used by management teams to talk about long-term strategies

Tuesday, Feb. 20

E-commerce retail sales
Conference Board Leading Indicators: Down by only 0.1% in December which was the smallest decrease in more than a year, the index of leading economic indicators in January is expected to extend its long streak of decline, down a consensus 0.3%.
China: People’s Bank of China loan prime rate (LPR) announcement.
Canada: January CPI inflation rate data

Wednesday, Feb. 21

MBA Mortgage Applications
Federal Open Market Committee will issue minutes from its monetary policy meeting of Jan. 30-31, 2024.
Federal Reserve Board Governor Michelle Bowman is set to participate in a discussion, "A View from the Federal Reserve, before an Exchequer Club luncheon.
Federal Reserve Vice Chair Philip Jefferson will speak on the U.S. economic outlook and monetary policy before a Peterson Institute for International Economics webcast.
Brazil: G20 Foreign Ministers meeting opens in Rio de Janeiro. It will conclude on Thursday.

Thursday, Feb. 22

Jobless claims likely rose to 217,000 for the week ended Feb. 17, from 212,000 in the prior week.
S&P Global flash manufacturing PMI is expected to show a reading of 50.2, slightly down from the 50.7 reported in January.
PMI Composite Flash: February's consensus for manufacturing is 50.1 versus 50.7 in January; for services, the consensus is 52.0 versus 52.5.
The National Association of Realtors will likely report existing home sales rose to a seasonally adjusted annual rate of 3.97 million units in January from 3.78 million units in December.
Quarterly services survey
Fed Balance Sheet
Money Supply
Federal Reserve Bank of Minneapolis President Neel Kashkari will participate in a panel discussion on economic trends and outlook for 2024 and the growth of Minnesota's economy hosted by Northside Economic Opportunity Network Community Conversations.
Federal Reserve Board Governor Christopher Waller is due to speak on the economic outlook before the Notre Dame Club of Minnesota and University of St. Thomas Finding Forward Speaker Series.
Federal Reserve Board Governor Lisa Cook is scheduled to speak on "Sources of Uncertainty in the Short Run and the Long Run" before the Annual Conference of the Julis-Rabinowitz Center for Public Policy & Finance (JRCPPF) – "Empirical Macrofinance in the Long Run: New Insights on the Global Economy."
Federal Reserve Vice Chair Philip Jefferson will speak on the U.S. economic outlook and monetary policy before a Peterson Institute for International Economics webcast.
Federal Reserve Bank of Philadelphia President Patrick Harker is expected to speak on the economic outlook before an event hosted by the University of Delaware Center for Economic Education.
EU: European Central Bank publishes minutes from its last monetary policy discussions, with an overview of the financial market and economic situation.
UK: former prime minister Liz Truss speaks at the Conservative Political Action Conference in the U.S. capital, Washington.

Friday, Feb. 23

Fed Monetary Policy Report
Germany: final Q4 GDP data and Ifo business climate survey

Key USDA & international Ag & Energy Reports and Events

— Another USDA food price outlook report is released Friday. With Monday’s U.S. holiday, the Weekly Export Sales report comes out Friday, a day later than usual.

— The Egypt Energy Show will be held in Cairo in the first half of the week, with the line-up including several energy ministers from producing nations. On Wednesday, ministers, senior industry executives and analysts will attend a symposium co-hosted by the IEA, IEF and OPEC in the Saudi capital, Riyadh.

Tuesday, Feb. 20

Ag reports and events:

Export Inspections
Food Expenditure Series
Chickens and Eggs, Annual
UK’s National Farmers Union annual conference (Feb. 20-21)
Malaysia Feb. 1-20 palm oil export data
Grain Forum in Dubai

Energy reports and events:

Egypt Energy Show, Cairo (second day)
IEA hosts round-table event on delivering the COP28 climate change commitments. Participants to include US Climate Envoy John Kerry and COP28 President Sultan Al Jaber.
E-World Energy & Water conference, Essen, Germany (through Feb. 22).
European Commission President Ursula von der Leyen attends presentation of the ‘Antwerp Declaration’ on a green deal for industry
WTI March futures expire
Earnings: Diamondback Energy

Wednesday, Feb. 21

Ag reports and events:

Broiler Hatchery
Fruit and Tree Nuts Data
Vegetables and Pulses Data
Milk Production
Grain Russia conference in Sochi (Feb. 21-22)

Energy reports and events:

API weekly U.S. oil inventory report
Genscape weekly crude inventory report for Europe’s ARA region
IEA-IEF-OPEC Symposium on Energy Outlooks, Riyadh.
Egypt Energy Show, Cairo (last day).
E-World Energy & Water conference, Essen, Germany (second day).
Diamondback Energy results conference call
Earnings: Suncor

Thursday, Feb. 22

Ag reports and events:

Livestock Slaughter
Poultry Slaughter
Sime Darby Plantation 4Q and FY 2023 results
Port of Rouen data on French grain exports

Energy reports and events:

EIA natural gas storage change
Insights Global weekly oil product inventories in Europe’s ARA region
EIA weekly U.S. oil inventory report
U.S. weekly ethanol inventories
Singapore onshore oil-product stockpile weekly data
E-World Energy & Water Conference, Essen, Germany (last day).
Earnings: Orlen; Repsol; Engie; Cheniere; Pioneer Natural Resources; Dominion Energy; TechnipFMC
Holiday: Saudi Arabia

Friday, Feb. 23

Ag reports and events:

CFTC Commitments of Traders report
Weekly Export Sales
Peanut Prices
Food Price Outlook
Cattle on Feed
Cold Storage
County Estimates: Corn, Soybeans, Sorghum
FranceAgriMer’s weekly crop conditions report

Energy reports and events:

Baker Hughes weekly U.S. oil/gas rig counts
ICE weekly Commitments of Traders report for Brent, gasoil
Earnings: BASF; EOG
Holiday: Russia, Japan, Guyana

Saturday, Feb. 24

Paris Agriculture Show starts (Feb. 24-March 3)

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Biden, Like Trump, Tries to Take Middle Road in SAF Regs, Likely Pleasing No One

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