Report: Ethanol May Have to Wait Longer for Sustainable Aviation Fuel - Hil Anderson, Roach Ag Daily Grain Plan Ruling

The ethanol industry and the nation’s corn growers may have to wait until the end of the year, rather than later this month, to find out if the U.S. Department of Treasury will make it easier for them to qualify for tax credits and subsidies that will lead to the expanded use of ethanol to produce sustainable aviation fuel (SAF).

“At issue is a requirement in last year’s Inflation Reduction Act that SAF producers seeking tax credits must demonstrate with an approved scientific model that their fuel generates 50% less greenhouse gas emissions over its lifecycle than petroleum fuel,” Reuters said.

The ethanol industry has been lobbying for a scientific model that opens the door to a potentially significant role for ethanol as a feedstock for SAF in the air-transportation sector, but environmentalists argue the production of corn generates greenhouse gas emissions and that priority should be given to waste products such as used cooking oils and animal fat left over from food processing.

Differences of opinion also exist over the complex tracking of emissions generated in the production process, including changes to land use and carbon sequestered in the soil after a crop is harvested.

Agriculture has a lot riding on how the SAF debate plays out. Ethanol production in the Midwest could conceivably find a substantial new market before the gradual growth of electric vehicles cuts into their role as a gasoline additive. The soybean sector is already riding a wave of biofuel expansion; StoneX recently projected steady annul increases in crushing capacity to nearly 3 billion bushels per year by the end of the decade.

There are also new SAF production plants on the slate in the United States. Sen. Amy Klobuchar, D-Minn., announced a partnership late last month to launch an SAF production project to serve the Minneapolis-Saint Paul International Airport. “Homegrown sustainable aviation fuel is not only an economic generator for communities across the state,” Klobuchar said. “It is also an important tool to help us reduce our carbon footprint.

Earlier this year, United Airlines joined a partnership aimed at making ethanol SAF easier to produce. The airline said at the time that food waste likely will not be plentiful enough to ensure an adequate supply of SAF to meet increasing demand.

The crux of the matter is the methodology that will be used to determine the total carbon emissions from the production of ethanol aviation fuel. There are currently two of these complex modeling programs in use: the Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) model, which was developed by the U.S. Department of Energy, and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which was launched by the United Nations’ International Civil Aviation Organization (ICAO).

The ethanol industry prefers the GREET model since its land-use provisions are less stringent; however, environmental organizations prefer CORSIA, which favors the use of waste products over new crops. The ICAO announced this summer it had certified initial loads of CORSIA-compliant SAF produced in China, the Netherlands, and the United States.

As is often the case in the nation’s capital, agency deliberations over such high-stakes questions don’t always occur in a vacuum. Farm state lawmakers banded together this summer to introduce the Sustainable Aviation Fuels Accuracy Act of 2023, a bipartisan, industry-backed move to settle debate outright by allowing ethanol producers to use GREET in their emissions modeling to meet the technical definition of an SAF.

“Our measure ensures America’s domestic energy production is driven by the U.S. GREET model rather than relying on the current international model dictated by foreign countries like Russia and China,” said Sen. Joni Ernst, R-Iowa.

Iowa’s senior Senator, Republican Charles Grassley, dismissed the competing models as “outdated” and as “market barriers.”

“Our bill fixes the problem by requiring the FAA reference the most accurate GREET model for emissions, which is consistent with many other federal agencies,” said Grassley. “It would be a win for Iowa agriculture and the environment.”

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Forecast for Beef, Pork production lowered by USDA

The USDA trimmed its projections for beef and pork production in the monthly WASDE report released Tuesday.

The contraction of the U.S. cattle herd during the recent drought appeared to be confirmed as the USDA projected beef production for the full year at 27,009 million pounds compared to 28,359 million pounds in full-year 2022; last month’s projection was modestly higher at 27,049 million pounds.

Beginning stocks were unchanged from last month’s tally at 723 million pounds and solidly above the 676 million pounds in 2022. Prices for 2023 were pegged at $178.50 per center weight ton, unchanged from last month, but projected to jump in Q4 to $190/cwt.

Drought and searing temperatures, particularly in the Southwest, this year reportedly pushed more and lighter-weight cattle into the packing chain as pastures withered and feed costs surged. Cattle numbers are expected to remain low this year; the next Cattle on Feed Report is still more than a week away.

Drought remains prevalent in much of the Plains and the west side of the Corn Belt, and there are concerns among analysts that tight supplies of beef and overall inflation could push consumers away from higher-end cuts, or even cause them to lose their taste for beef altogether.

On the pork side, the WASDE numbers pegged pork production for the year at 27,174 million pounds, slightly down from 27,279 million pounds in the August report. Projections for 2024 were unchanged at 27,350 million pounds, which would be closer to last year’s production of 27,011 million pounds.

The export market is expected to hold up in the coming months, which should provide some welcome support for pork prices, although the firm dollar could stir up some headwinds. The WASDE report lowered its export projections for the year to 6,801 million pounds. Projections for 2024 were taken down modestly from 6,980 million pounds in August to 6,900 million pounds.

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September 2023 USDA Supply & Demand

Corn production larger, beans and wheat as traders expected

The USDA found more corn and bean acres in their September report. Corn plantings were increased by 774,000 acres and bean plantings by 95,000 acres. The average corn yield was pulled down 1.3 bpa to 173.8 bpa and the soybean yield was 0.8 bpa lower at 50.1 bpa. Both yield estimates were in line with trade expectations.

The net result was an increase in corn production of 23 million bushels to 15.134 billion bushels. If they are correct, it would be a record corn crop by 60 million bushels. Bean production was estimated at 4.146 billion bushels, a decrease of 59 bushels from the August estimate. This would be a large bean production but well below record level.

US corn usage estimates were unchanged this month. All US supply demand numbers for wheat were left unchanged this month.

The soybean crush forecast is reduced 10 million bushels and the export forecast is reduced 35 million bushels on lower supplies. Ending stocks are projected at 220 million bushels, down 25 million from last month.

The USDA did not reduce the 2023-24 world soybean ending stocks enough to make us feel comfortable. The graph below shows today’s USDA world soybean stocks estimate compared to history. Unless something changes, we need to make sure we wrap up soybean sales during Brazil’s growing season.

Wheat was the only market today able to overcome active selling activity. After setting a new low for this move, prices bounced higher on the day in all three types of wheat. Traders may have been reacting to the USDA slightly tightening world wheat stocks, but we think it is more. 

As you know, we only get so many days of Buy Signals before markets turn around. Today was Day 26 of the Chicago wheat Buy Signal. Prices have dropped sharply during this period. We think that is about enough.

Source: USDA

Source: USDA, Bloomberg

USDA’s Farm Income Report Adds Urgency to Farm Bill Talks - Hil Anderson, Roach Ag Daily Grain Plan

Members of Congress will soon be making their way back to the Beltway after the latest USDA outlook for farm revenues has added some fresh urgency to negotiations over the unfinished Farm Bill.

The USDA’s 2023 Farm Sector Income Forecast was released just as the nation adjourned for the Labor Day weekend. It had projected a 23% drop in net farm income this year, a dizzying decline that should increase the focus on crop insurance and other basic financial support for farmers once the House and Senate agriculture committees get back to business later this month.

“Combined with weather uncertainty and a high cost of capital to operate their businesses, farmers and ranchers will be forced to adapt as they always have,” said Danny Munch, an economist with the American Farm Bureau Federation. “Part of being able to adapt means having clarity on rules that impact their businesses’ ability to operate, having access to comprehensive risk management options and being given a resounding voice during formulation of vital legislation such as the Farm Bill.”

Lawmakers were on the trail in late summer to shake hands and hear from their rural constituents about the stresses and strains of agriculture policy, although serious discussions of the Farm Bill will likely have to wait behind legislation to continue funding the government before taking center stage. The current Farm Bill’s appropriations expire on Sept. 30 with FY 2024 beginning Oct. 1.

Political observers in Washington are confident that an extension of the Farm Bill will be granted this fall, although many farm organizations urge Congress to press forward so that growers will have a greater level of certainty as they make plans for the 2024 growing season.

The USDA report was densely packed with the usual volume of comprehensive statistics; however, the bottom line shows the nation’s net farm income totaling $141 billion this year compared to $183 billion in 2022. Munch noted the August report finalized the 2022 income total and increased it around $20 billion from estimates made eight months ago.

The declines in 2023 were tied to lower cash receipts for crops and livestock, higher production costs and a 19% decline in government support outlays from 2022. “Direct government payments are forecast to fall by $2.9 billion from 2022 to $12.6 billion in 2023,” the report said. “This decrease is expected largely because of lower supplemental and ad hoc disaster assistance in 2023 relative to 2022.”

Analysts agreed that 2022 was an unusual year in which commodity prices were pushed higher by inflation and significant drought in the United States and by Russia’s disruption of Ukraine’s grain trade. The weather has improved in many areas this year while wheat prices no longer carry much of a war premium and the world seems in general to be adequately supplied.

The declines come mainly from lower prices for the major commodity crops while cattle and vegetables should fare better, the USDA said. The impact on individual farming households will be varied since, the report said, most farm families hold outside jobs. The USDA projected a 3.8% increase in median household income to $98,148 this year, although much of the increase will be canceled out by inflation.

Further downstream, the USDA projected working capital for farmers to fall 5.5% from last year to just under $122 billion, the first decline since 2016 and the lowest level since 2014. Munch said, “Lower levels of working capital often suggest that many U.S. farmers have just enough capital to service their short-term expenses and debt, which becomes more difficult as interest rates rise.”

A likely point of friction for farmers is the increasing rental price for farmland, a rising cost that University of Illinois economists warned last week could make it even tougher for aspiring young farmers to establish their own operations. An August 31 report urged Farm Bill negotiators to be well aware of the impact that increased reference prices could have on the rents farmers pay to landowners.

“For this reason, increasing government payments may benefit farmers in the short-term but hurt them over the long term,” the paper said, adding: “This is a problem that no amount of reference price increase in 2023 will help. These are matters that should weigh heavily on the congressional mind as reauthorization of these policies is undertaken.”

Further reading:

The USDA’s Farm Sector Income & Finances report is at: https://www.ers.usda.gov/topics/farmeconomy/farm-sector-income-finances/ 

The Farm Bureau analysis by economist Danny Munch can be found at: https://www.fb.org/market-intel/usda-forecasts-23-drop-from-2022-farm-income-levels 

The University of Illinois analysis is available at: https://farmdocdaily.illinois.edu/2023/08/farm-bill-2023-is-there-bad-medicine-in-base-acresand-reference-prices.html.

August 2023 USDA Supply & Demand

USDA Report Summary

USDA delivers positive corn and bean numbers in Friday’s reports to go along with Roach Ag Buy Signals

The season’s first survey-based corn yield forecast, at 175.1 bushels per acre, is 2.4 bushels lower than last month’s projection. Today’s Crop Production report indicates that among the major producing States, yields are forecast above a year ago in Indiana, Iowa, Nebraska, Ohio, and South Dakota. Yields in Illinois, Minnesota, and Missouri are forecast below a year ago.

Corn production for 2023-24 is forecast at 15.1 billion bushels, down 209 million from the July projection, but if realized, would still be the second highest production on record behind 2016-17.

The first survey-based soybean yield forecast of 50.9 bushels per acre is reduced 1.1 bushels from last month. Soybean supplies for 2023-24 are projected at 4.5 billion bushels, down 2% from last year.

The UDSA forecast soybean exports would be down 25 million bushels. They left crush unchanged, pegging ending stocks at 245 million bushels, down 55 million from last month and 22 million below the average trade estimate.

The USDA data was not enough to push prices outside (during the first 15 minutes of post-report trade) of the trading range that they have been in since the first of August.

The Brazilian corn crop continues to grow. The USDA increased their estimate by 2 million tons to 135.0 million tons, well above the latest CONAB estimate of 130.0 million tons. 

US wheat production numbers were little changed from July and wheat prices tested recent lows after the USDA numbers were released.

Source: USDA, Bloomberg

July 2023 USDA Supply & Demand

USDA lowered US corn yield estimate but left beans unchanged

The USDA lowered their US corn yield estimate from 181.5 to 177.5 bushels per acre this month, while they left their US bean yield estimate unchanged at 52.0 bpa. Trade was expecting lower yield estimates for both (176.6 & 51.4 bpa, respectively). This put their 2023 production estimates above trade expectations.

The USDA estimates for next year’s carryout (2023-24) were larger than trade expected for corn, beans, and wheat. Of note, their 2023-24 soybean carryout estimate was 300 million bushels, 50% above the 199 million bushel average trade estimate.

Soybean prices dropped 40 cents lower on the larger than expected bean carryout.

In South America, the USDA offset changes in corn production by lowering their Argentine estimate 1 million tons at the same time they increased their Brazilian corn production estimate 1 million tons. They left their South American soybean production estimates unchanged from last month. 

Total wheat 2023-24 wheat production was larger than trade expected. The USDA increased their total wheat production estimate by 74 million bushels to 1.739 billion bushels. Trade was expecting a smaller increase to just 1.683 billion bushels.

From the WASDE report

Corn

This month’s 2023/24 U.S. corn outlook is for fractionally higher supplies and ending stocks. Corn beginning stocks are lowered 50 million bushels, as greater feed and residual use for 2022/23 more than offsets reductions in corn used for ethanol and exports. Corn production for 2023/24 is forecast up 55 million bushels as greater planted and harvested area from the June 30 Acreage report is partially offset by a 4.0-bushel reduction in yield to 177.5 bushels per acre.

According to data from the National Centers for Environmental Information, harvested-area-weighted June precipitation data for the major Corn Belt states represented an extreme downward deviation from average. However, timely rainfall and cooler than normal temperatures for some of the driest parts of the Corn Belt during early July is expected to moderate the impact of June weather. For much of the crop the critical pollination period will be in the coming weeks. With supply rising fractionally and use unchanged, ending stocks are up 5 million bushels. The season-average farm price received by producers is unchanged at $4.80 per bushel.

Soybeans

U.S. oilseed production for 2023/24 is projected at 127.6 million tons, down 5.6 million from last month with reductions for soybeans and sunflower seed, partly offset by higher canola and peanuts. Soybean production is projected at 4.3 billion bushels, down 210 million on lower harvested area. Harvested area, forecast at 83.5 million acres in the June 30 Acreage report, is down 4.0 million from last month. The soybean yield forecast is unchanged at 52.0 bushels per acre. With lower production partly offset by higher beginning stocks, 2023/24 soybean supplies are reduced 185 million bushels.

Soybean crush is reduced 10 million bushels reflecting a lower soybean meal domestic disappearance forecast. Soybean exports are reduced 125 million bushels to 1.85 billion on lower U.S. supplies and lower global imports. With lower supplies only partly offset by reduced use, ending stocks for 2023/24 are projected at 300 million bushels, down 50 million from last month. The U.S. season-average soybean price for 2023/24 is forecast at $12.40 per bushel, up $0.30 from last month. The soybean meal price is projected at $375.00 per short ton, up $10.00. The soybean oil price forecast of 60.0 cents per pound is up 2 cents.

The Environmental Protection Agency (EPA) issued the final renewable fuels standards rule for 2023, 2024, and 2025. The 2023 biomass-based diesel volume mandate was unchanged from the proposal published last December. For 2024, EPA increased the non-cellulosic advanced biofuel volume mandate but lowered the implied conventional volume. USDA assumes that biomass-based diesel would be produced in excess of the advanced biofuel volume mandate to make up the shortfall in conventional renewable fuel to meet the total renewable fuel obligation. With the offsetting changes compared to the proposal in 2024, there is no change to soybean oil used for biofuel for 2023/24 this month.

Wheat

Changes this month to the 2023/24 U.S. wheat outlook increase supplies and domestic use, leave exports unchanged, and increase ending stocks. Supplies are raised on larger production, which is up 74 million bushels to 1,739 million, on higher harvested area and yields. The first 2023/24 survey-based production forecast for other spring and Durum indicates a decrease from last year. Conversely, winter wheat production is forecast higher on larger harvested area and higher yields. Gains for all wheat production are partly offset by smaller beginning stocks, which are lowered 18 million bushels to 580 million as indicated in the Grain Stocks report, issued June 30. The 2023/24 ending stocks are forecast at 592 million bushels, 30 million higher than last month. The projected season-average farm price is forecast at $7.50 per bushel, down $0.20 from last month.

This month provides the first by-class 2023/24 U.S. wheat supply and use projections. Two consecutive years of drought-affected Hard Red Winter (HRW) wheat crops reduce HRW ending stocks to the lowest level in 16 years despite decreased total use. HRW food use is forecast to be the smallest since 2010/11, while HRW exports are the lowest since by-class supply and utilization records began in 1973/74.

Source: USDA/Reuters/StoneX

June 2023 Acreage & Quarterly Grain Stocks

Bean plantings fell well short of expectations, while corn plantings exceeded expectations.

The biggest surprise in the USDA numbers came in soybean plantings. The USDA June planted acreage for beans came in 83.505 million acres, compared to the average trade guess of 87.673 million acres. The USDA bean acreage estimate fell 3.5 million acres below the lowest pre-report guess of 87 million acres.

Corn acres were above the high of the pre-report estimates at 94.096 million acres. The high of the estimate range was 93 million acres. The average trade estimate of 91.853 million acres. 

An interesting trend in the data is that total principal crop planted acres in the western states ran above their previous estimates, while crops planted in the “I-states” were down from 0.75 – 1.1% from the prior estimates.

The bigger corn acreage number indicates farmers were happy with their corn planting conditions and kept on planting.

Corn stocks were down about 150 million bushels from the average trade guess. Bean stocks and wheat stocks were just slightly smaller than expected.

Source: USDA/Reuters/StoneX

June 2023 USDA Supply & Demand

Ho Hum USDA numbers keep weather as the main market focus.

 Sunday night’s opening will be a reflection of next week’s weather forecast. All of the fundamentals given to us by the USDA today will fade by comparison. So far, prices haven’t changed much since the reports were released.

Corn

The 2023-24 U.S. corn outlook is little changed from last month with increases to both beginning and ending stocks. Corn area and yield forecasts are unchanged.

Beginning stocks are up 35 million bushels reflecting a forecast decline in exports for 2022-23 that is partly offset by lower imports. Exports were lowered 50 million bushels. With no supply or use changes for 2023-24, ending stocks are raised 35 million bushels. The season-average farm price received by producers is unchanged at $4.80 per bushel.

The USDA cut their Argentine corn production estimate 2 million tons and raised their Brazilian estimate 2 million tons, canceling out the change in South America this month.

Soybeans

This month’s U.S. soybean supply and use projections for 2023-24 include higher beginning and ending stocks. Higher beginning stocks reflect reduced exports for 2022-23, down 15 million bushels to 2.0 billion based on lower-than-expected shipments in May and competition from South America.

With increased supplies for 2023-24 and no use changes, soybean ending stocks are projected at 350 million bushels, up 15 million. The soybean price is forecast at $12.10 per bushel, unchanged from last month.

The USDA also cut their Argentine bean production estimate 2 million tons, while increasing their Brazilian estimate by 1 million tons.

Wheat

Winter wheat production is forecast at 1.14 billion bushels, up 1% from the May 1 forecast and up 3% from 2022. As of June 1, the United States yield is forecast at 44.9 bushels per acre, up 0.2 bushel from last month but down 2.1 bushels from last year’s average yield of 47.0 bushels per acre. Hard Red Winter production, at 525 million bushels, is up 2% last month.

The outlook for 2023-24 U.S. wheat this month is for larger supplies, unchanged domestic use and exports, and higher stocks. Supplies are raised as all wheat production is projected at 1,665 million bushels, up 6 million from last month on higher

Hard Red Winter production more than offsetting reductions in Soft Red Winter and White Winter. The all wheat yield is 44.9 bushels per acre, up 0.2 bushels from last month but remaining below last year. Total use is unchanged with all of the production increase added to ending stocks, now projected at 562 million bushels.

The 2023-24 season-average farm price is lowered $0.30 per bushel to $7.70 on larger U.S. and foreign wheat supplies.

Source: USDA, Bloomberg

May Supply & Demand

New crop corn and beans posted new lows but wheat surged higher

US old crop corn carryout increased 75 million bushels from last month, which was 50 million bushels larger than the trade expected. Old crop bean and wheat carryout were virtually unchanged as the trade expected.

In the USDA’s first estimate for 2023-24, corn carryout came in at 2.22 billion bushels, up 800 million bushels from this fall’s forecast. Bean carryout for 2023-24 at 335 million bushels is up 120 million bushels from this fall’s estimate. Wheat carryout for next year was pegged down 42 million bushels from this year.

One of the biggest number changes came in the Brazilian corn crop, now estimated to be 130 million tons, up 5 million tons from last month. The 2023-24 world corn carryout was projected up 15.5 million tons from this fall’s estimate.

The 2023-24 world soybean carryout came in at 122.5 million tons, up 21.5 million from this year’s estimate.

World wheat carryout for 2023-24 slipped about 2 million tons year over year.

The market reaction has been negative for new crop corn and beans with these larger than expected production and carryout numbers. Kansas City wheat surged up to its resistance at $9/bushel for the July 2023 contract.

This week prices tried to rally but only Kansas City wheat and Minneapolis wheat were able to make gains. Technical selling pressure, better than normal planting progress, and a decent weather forecast stopped the corn and bean rally this week. Today’s report drove prices to new lows.

Source: USDA, Bloomberg, StoneX

April USDA Supply & Demand

Few changes in US numbers from last month. Smaller Argentine crops.

The government's US numbers were virtually the same as a month ago, with smaller crops in Argentina, and a slightly larger bean crop in Brazil. Today's estimates were no surprise to the traders. 

Look at the prices we've traded during the past month. Traders have no fundamental reason to move prices beyond that range. The Argentine crop is still an uncertainty because its in the early stages of harvest, but the Brazilian bean crop is nearly in the bin and the second crop corn is off to a good start.

The new risk is in the United States and all the northern hemisphere where planting has just started. Next month's prices will trade based on how traders view the crop plantings and weather risk. Today's numbers told us again that we need big crops. 

Traders will turn their attention to the weekly planting progress numbers, exports, and ultimately the May USDA report where we see the first official 2023/24 crop estimates.

Source: USDA, Bloomberg