Is SAF Program a Dud for Most U.S. Corn and Soybean Farmers?

Tax specialist Paul Neiffer: SAF ‘essentially worthless for most corn and soybean farmers’

Jim Wiesemeyer

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May 01, 2024 07:58 AM

Tax specialist Paul Neiffer: SAF ‘essentially worthless for most corn and soybean farmers’

Today’s Digital Newspaper

MARKET FOCUS

FOMC update: It’s what Fed Chair Powell says that is important
Tesla cuts its workforce, specifically within its EV charging business
More evidence of yen intervention
Ag markets today
New CBOT price limits start today, May 1
Argentina’s oilseeds union strike lifted
Ag trade update
NWS weather outlook
Pro Farmer First Thing Today items

BALTIMORE BRIDGE COLLAPSE

Deeper temporary shipping channel in Baltimore Harbor to reopen late next week

CONGRESS

Rep. Marjorie Taylor Greene (R-Ga.) holding news conference at 9 a.m. ET today

ISRAEL/HAMAS CONFLICT

Secretary of State Antony Blinken begins another round of talks in Israel today

RUSSIA & UKRAINE

Ukrainian grain exports reached 6.3 million metric tons (MMT) in April

POLICY

New farm bill action accelerates
Summary of House GOP farm bill released
Sen. Stabenow top unveil Senate farm bill proposals today

ENERGY & CLIMATE CHANGE

Reaction to SAF info
Tax expert Paul Neiffer: SAF ‘essentially worthless for most corn and soybean farmers’

HEALTH UPDATE

CDC issues alert due to a multi-state E.coli outbreak linked to walnuts.

OTHER ITEMS OF NOTE

Biden proposing to reclassify marijuana
Argentina’s lower house clears Milei’s revised plan for expanded executive powers

MARKET FOCUS

— Equities today: Asian and European stock indexes were mixed overnight. U.S. stock indexes are pointed to toward lower openings. In Asia, Japan -0.3%. Hong Kong closed. China closed. India closed. In Europe, at midday, London flat. Paris closed. Frankfurt closed.

U.S. equities yesterday: All three major indices slumped to close out April, registering stiff monthly losses with the Dow down 5%, the Nasdaq lost 4.4% and the S&P 500 declined 4.2%. All three had their worst monthly point and percentage losses of the year. The Dow fell 570.17 points, 1.49%, at 37,815.92. The Nasdaq fell 325.26 points, 2.04%, at 15,657.82. The S&P 500 was down 80.48 points, 1.57%, at 5,035.69.

— Tesla makes cuts to its workforce, specifically within its electric vehicle (EV) charging business, indicating a potential slowdown in the expansion of new charging sites. The layoffs include key personnel such as Rebecca Tinucci, who was responsible for the operation of this business sector. This development was highlighted by former employees and several social media posts. Although Tesla has not officially commented on the matter, Elon Musk mentioned on the social media platform X that Tesla plans to continue expanding its Supercharger network, albeit at a reduced pace for new locations. The focus will shift towards maintaining 100% uptime and enhancing the capacity at existing sites. Despite these changes, major automakers who previously arranged for their EV customers to access Tesla’s charging network have stated that their plans remain unchanged. There is speculation that Musk may be planning to restructure this segment of the business, potentially introducing a new team with more ambitious objectives.

— New CBOT price limits start today, May 1. Effective for trade date May 1, the Chicago Board of Trade will reset price limits for grain and oilseed futures. Price limits for each product are reset twice per year – on the first trade date in May and the first trade date in November. The new limits will be:

Corn: 30 cents; 45 cents for days with expanded limits.
SRW and HRW wheat: 40 cents; 60 cents for days with expanded limits.
Soybeans: 85 cents; $1.30 for days with expanded limits.
Soymeal: $25; $40 for days with expanded limits.
Soyoil: $0.035; $0.055 for days with expanded limits.

— Ag markets today: Corn and soybeans faced mild followthrough selling during the overnight session. Wheat traded mostly lower overnight, though SRW wheat futures have firmed this morning. As of 7:30 a.m. ET, corn futures were trading a penny lower, soybeans were 3 to 4 cents lower, SRW wheat was steady to a penny higher, HRW wheat was mostly a nickel lower and HRS wheat was 2 cents lower. Front-month crude oil futures were more than $1.00 lower, and the U.S. dollar index was nearly 100 points higher.

Odds of higher cash cattle trade fading. Feedlots moved some cattle in the northern market around $185.00 early this week, roughly steady with week-ago. Given the sharp pressure on cattle futures, packers’ hefty purchases last week and negative cutting margins, chances for higher cash cattle prices seem to have vanished. Most cash sources now expect steady/weaker cash prices this week.

Cash hog slide continues. The CME lean hog index is down a dime to $90.26 as of April 29, marking the fourth consecutive daily decline. While losses in the cash index haven’t been sharp, they signal the seasonal rally has stalled. We expect the pullback to be relatively brief before the cash market continues its climb to a seasonal peak during summer.

— Agriculture markets yesterday:

Corn: July corn futures closed down 2 1/2 cents at $4.46 3/4 today and near mid-range.
Soy complex: July soybeans fell 19 cents to $11.63 and gave up 42 1/4 cents month-over month, while July soymeal fell $2.40 to $351.90, but rose $10.90 cents for the month. July soyoil closed 136 points lower at 43.01 cents and marked a monthly loss of 547 points.
Wheat: July SRW futures fell 5 1/4 cents before settling at $6.03 1/4, near the midpoint of today’s session. July HRW futures plunged 15 1/4 cents to $6.35 1/4. July HRS futures fell 3 1/2 cents to $7.04 1/4.
Cotton: July cotton fell 309 points to 78.43 cents, marking a 10-month low close and 13.54 cent monthly loss.
Cattle: June live cattle futures fell $2.175 to $174.975 and settled nearer session lows. May feeder futures plunged $3.45 to $244.575.
Hogs: June lean hogs closed steady at $102.475 though nearer the session low.

Market perspectives:

— Outside markets: The U.S. dollar index was slightly higher, with the euro and Japanese yen both firmer against the greenback. The yield on the 10-year U.S. Treasury note was weaker, trading around 4.67%, with a higher tone in global government bond yields. Crude oil futures were sharply lower ahead of U.S. gov’t inventory data due later this morning, with U.S. crude around $80.35 per barrel and Brent around $84.90 per barrel. Gold and silver futures were firmer ahead of U.S. trading, with gold around $2,307 per troy ounce and silver around $26.78 per troy ounce.

— While the authorities in Tokyo are refusing to confirm they stepped in to buy the yen two days ago when it dropped to the lowest since 1990, the Bank of Japan’s accounts suggest some 5.5 trillion yen ($35.1 billion) was spent to support the currency.

— Argentina’s oilseeds union strike lifted. Argentina’s oilseed sector workers lifted their two-day strike late Tuesday, despite the lower house of Congress approving contentious reforms backed by President Javier Milei but opposed by some unions. Activity at the main agricultural shipping hub in Rosario began normalizing late Tuesday (see details below). “We’re lifting the [strike] action now,” Daniel Succi, secretary general of the SOEA oilseed worker union, told Reuters. Next week a union meeting will be held “to see how we proceed,” he added.

— Ag trade update: Algeria tendered to buy a nominal 50,000 MT of optional origin soft milling wheat.

— NWS weather outlook: Severe Weather and Excessive Rainfall concerns for parts of the Central/Southern Plains and Mississippi Valley... ...Critical Fire Weather potential over portions of the Southern High Plains today... ...Cool and snowy in the Northwest; above average temperatures continue across much of the Central and Eastern U.S.

Items in Pro Farmer’s First Thing Today include:

• Grains mostly weaker overnight
• Record soy crush, big jump in ethanol use expected

BALTIMORE BRIDGE COLLAPSE

— Port of Baltimore anticipates reopening a temporary shipping channel at a greater depth to facilitate commercial vessel traffic around May 10. This comes as salvage efforts continue to remove the Dali freighter, which has been obstructing the channel since it collided with a key support pillar of the Francis Scott Key Bridge on March 26. The accident resulted in the bridge collapsing into the Patapsco River and the deaths of six construction workers.

The temporary Fort McHenry Limited Access Channel, expected to open with a depth of 45 feet, had previously operated at a depth of 38 feet for four days, allowing 19 vessels, including nine arrivals and 10 departures, to navigate through the port. This movement included ships carrying diverse goods like sugar, cement, and lumber, and involved nearly 200 members of the International Longshoremen’s Association.

Maryland Governor Wes Moore emphasized the importance of this temporary channel as a milestone but acknowledged it as a short-term solution, with plans to open a 50-foot channel. However, full restoration of the port and the bridge requires Congressional support, which Moore is actively seeking.

The main shipping channel, which is 50 feet deep and 600 feet wide, is being cleared of debris using a powerful hydraulic grabber capable of lifting 1,000 tons in a single pull. Over 3,300 tons of debris have already been removed, contributing to the more than 200 vessels that have managed to navigate the four alternate channels opened to date.

Officials hope to fully reopen the main channel by the end of May, with the new 45-foot channel expected to operate overnight from 8 p.m. to 7 a.m. daily. This gradual reopening is critical for resuming normal operations at one of the East Coast’s busiest ports.

CONGRESS

— Rep. Marjorie Taylor Greene (R-Ga.) is holding a news conference at 9 a.m. ET today. Greene will likely detail if and when she plans to seek a vote on Johnson’s future (motion to vacate). Of note: House Minority Leader Hakeem Jeffries (D-N.Y.) and other top Democrats said they would save Johnson if necessary. Jeffries’ statement said that he, House Minority Whip Katherine Clark (D-Mass.) and House Democratic Caucus Chair Pete Aguilar (D-Calif.) would vote to table any motion to vacate.

ISRAEL/HAMAS CONFLICT

— Secretary of State Antony Blinken began another round of talks in Israel today as the U.S. seeks to ratchet up the pressure on Hamas to accept a ceasefire and hostage release deal. “We’re determined to get a ceasefire that brings the hostages home, and to get it now,” Blinken said during a meeting with Israeli President Isaac Herzog, adding that the U.S. remains committed to addressing the humanitarian crisis in Gaza. Blinken reiterated Tuesday that he believes a deal is “achievable because the Israelis put a strong proposal on the table,” and that the U.S. wants to see such an agreement come together “in the coming days.”

RUSSIA/UKRAINE

— Ukrainian grain exports reached 6.3 million metric tons (MMT) in April, according to Agriculture Ministry data, up from 5.5 MMT in March. The April total included 4.1 MMT of corn, 1.9 MMT of wheat and 231,000 metric tons of barley. So far in 2023-24, the shipments stand at 41.4 MMT, including 22.9 MMT of corn, 15.8 MMT of wheat, and 2.2 MMT of barley.

POLICY UPDATE

— The slow-moving new farm bill is now on a far faster track. The House GOP new farm bill proposals were officially released in a five-page summary released by the Ag Committee (link). The summary is largely in line with what we have been reporting. The House Ag panel wants to markup the Chairman’s mark on May 23.

Over in the Senate, Ag Chair Debbie Stabenow later today will release a section-by-section summary of Senate farm bill proposals.

ENERGY & CLIMATE CHANGE

— U.S. Treasury and IRS update SAF tax credit guidance, release new 40BSAF-GREET model to enhance carbon reduction and support climate-smart agriculture. On Tuesday, the U.S. Treasury (link) and IRS issued updated guidance (link) on the Sustainable Aviation Fuel (SAF) tax credit, aligning with the Inflation Reduction Act’s goal to boost SAF production by providing incentives based on lifecycle greenhouse gas (GHG) reductions. This guidance includes the release of the now called 40BSAF-GREET 2024 model, designed to calculate these GHG reductions more accurately, incorporating new data and methodologies including climate-smart agricultural practices for soybeans and corn as a feedstock for SAF. GREET stands for Greenhouse gases, Regulated Emissions, and Energy use in Technologies.

Link to our special report on the information released.

The measures were met with general approval from the ag sector, but environmentalists are less enthusiastic. They are concerned a flood of ethanol-based SAF will hinder development of fuels that are even greener that the corn-based product.

Sen. Chuck Grassley (R-Iowa) is not happy with the SAF info. He said USDA “needs to show Washington bureaucrats how our corn and soybeans are handled.” Grassley said, in part: “Here are two main issues with the Biden administration’s GREET Model decision: First, this new formula is going to be easy to violate. Second, without grain in the formula, there won’t be enough feedstock to make all the Sustainable Aviation Fuel environmentalists are crying for. To put it bluntly, this GREET Model update is a stupid approach. Widespread use of Sustainable Aviation Fuel will help fight global warming. But rejecting grain feedstocks will impede efforts to produce that fuel on a commercial scale. Some people might argue this decision won’t impact farmers’ bottom lines, because they can sell their corn and soybeans elsewhere. That’s hogwash, and it shows the people saying it don’t know much about how farmers deliver their grain. These new barriers to entry will strip farmers of a significant market opportunity.”

Sen. Joni Ernst (R-Iowa) says the updated model would unfairly penalize certain domestic feedstocks used for the development of SAF — particularly corn and soybeans. “The Biden administration is deciding to play politics with what crops can be used in the SAF market and unfairly penalizing domestic producers for their farming practices,” said Ernst. “This decision will ultimately hinder America’s ability to compete in this new alternative fuel market and force our country to be more reliant on foreign feedstocks for expanded biofuel production. I will continue pushing back on the greenies in Biden’s White House and demand that Iowa farmers have a seat at the table.”

Biofuel groups were mostly favorable in their assessments, but with some caveats, including:

Renewable Fuels Association: “We are encouraged that, for the first time ever, this carbon scoring framework will recognize and credit certain climate-smart agricultural practices,” says Geoff Cooper, CEO of the Renewable Fuels Association (RFA). “We’re also pleased to see the integration of other carbon reduction strategies — like renewable process energy and carbon capture and sequestration — into the model. However, RFA believes less prescription on ag practices, more flexibility, and additional low-carbon technologies and practices should be added to the modeling framework to better reflect the innovation occurring throughout the supply chain.” Cooper said his group views the 40BSAF announcement “as the starting point — not the ending point — for additional modeling improvements, further integration of individual climate-smart agriculture practices, and emerging biorefinery technologies. 45Z is where the rubber really meets the road. We look forward to working with USDA and other agencies across the administration to ensure 45Z is implemented in a way that truly swings the door wide open for farmers and ethanol producers to participate in the enormous decarbonization opportunity.”

Growth Energy: “This guidance crosses an important threshold in carbon modeling, recognizing for the first time that farming techniques can reduce the carbon intensity of crops, and, by extension, bioethanol production,” says Emily Skor, CEO of Growth Energy. “It’s also the first time Treasury has used the Argonne National Laboratory’s GREET model in federal tax policy. These are promising big-picture developments and signal that agriculture is a key part of our nation’s climate strategy. ... Still, the administration’s restrictive all-or-nothing approach to recognizing the value of climate-smart agriculture practices may ultimately limit innovation and make farmers, blenders, and producers less — not more — likely to invest in emissions-reducing technologies.”

American Coalition for Ethanol: While the announcement “is a step in the right direction, ethanol-to-jet continues to face headwinds such as artificially inflated land use change penalties in 40B GREET and the initial all-or-none requirement to bundle three CSA [climate-smart agriculture] practices in order to produce qualifying corn ethanol feedstock for SAF,” says Brian Jennings, CEO of the American Coalition for Ethanol. “With the 2024 planting season underway and the expiration of the 40B credit on Dec. 31, 2024, Treasury’s SAF guidance speaks more to the administration codifying the important role CSA practices play in decarbonizing liquid fuels than the amount of ethanol-to-jet that will qualify for the 40B credit.”

Clean Fuels Alliance America: Kurt Kovarik, vice president of federal affairs for Clean Fuels Alliance America, says: “U.S. farmers and SAF producers will continue to work with the agencies to rapidly expand SAF production over the next few years. Biodiesel, renewable diesel, and SAF producers are already negotiating feedstock and fuel offtake contracts for 2025, so we look forward to working with Treasury and USDA to quickly turn attention to guidance for the Clean Fuel Production Credit that begins on Jan. 1 next year. We believe there are additional climate-smart agriculture practices and industry data that can be incorporated in the GREET model to support the continued sustainable growth of the entire clean fuel industry.”

An interesting comment came from the American Soybean Association: “For growers like me here in North Dakota, short growing seasons and unpredictable fall weather make the cover crop requirement alone next to impossible,” says Josh Gackle, president of the American Soybean Association. “Growers in the Northern Plains do so when possible. However, employing both no till and cover cropping is contrary to what Mother Nature will allow, no matter what the guidance specifies.”

Kailee Buller, chief executive of the National Oilseed Processors Association, also said the new guidance has shortcomings. “We are concerned the requirement to implement climate-smart ag practices simultaneously will limit this opportunity, particularly in parts of the country where it may not be possible to plant a cover crop or the cost to implement new practices is too steep,” Buller said.

Environmental Defense Fund: “The science matters and we are concerned this decision may have missed the mark, but we are carefully reviewing the details before reaching any final conclusions,” said Mark Brownstein, a senior vice president for the Environmental Defense Fund.

Dan Lashof, Director, United States, World Resources Institute: “Powering planes with crop-based biofuels is anything but sustainable. The United States missed a major opportunity to focus incentives on climate-friendly fuel to help the aviation industry decarbonize. At a time of increasing demands on limited global land, we cannot afford to use food to fuel airplanes. Research has shown that crop-based biofuels have lifecycle greenhouse gas emissions factors that are as bad, or worse, than fossil fuels. Tax credits for corn ethanol or vegetable oil to make jet fuel is not the solution for decarbonizing aviation, and any policies that subsidize use of such fuels benefits wealthier air travelers at the expense of average consumers who will pay more for food. WRI analysis shows that using corn ethanol to meet the anticipated demand for aviation fuel would require an unviable amount of cropland, and using vegetable oil, such as soy biodiesel, would cause devastating deforestation. The Biden administration should use the best available science, which shows that crop-based biofuels do not meet the 50% emissions reduction threshold required to qualify for the SAF tax credit under the IRA. By bowing to pressure from the ethanol industry the administration has put the U.S. aviation industry out of step with its international competitors and made its own climate protection goals harder to achieve.”

— Are SAF program details a dud for most U.S. corn and soybean producers? Tax expert Paul Neiffer writes (link): “In my opinion, this is essentially worthless for most corn and soybean farmers to get any value out of this since almost no farmers will meet the safe harbor. As I mentioned in the post for 2024, a SAF producer should just import Brazil sugar ethanol, take the IRS credit and move on. They need to make it easier for 2025 for the Section 45Z credit or this will not work. I hope I am wrong, but I don’t think so.”

HEALTH UPDATE

— CDC issued an alert due to a multi-state E.coli outbreak linked to walnuts. Twelve individuals in two states have been affected by this outbreak, with two cases leading to a severe form of kidney failure. Investigations have traced the source of infection to organic walnuts purchased from bulk bins in natural food stores and co-ops, specifically located in California and Washington state. Consumers who have purchased these walnuts are advised to discard them and thoroughly sanitize any surfaces the walnuts may have contacted.

OTHER ITEMS OF NOTE

— President Biden is proposing to reclassify marijuana to reflect its lower danger level compared to more severe drugs. According to the Associated Press, the Drug Enforcement Administration (DEA) plans to reschedule marijuana to align it with controlled substances like ketamine, anabolic steroids, and Tylenol with codeine. This shift represents the most significant change in marijuana policy by the DEA in fifty years. While the proposal still requires White House approval and would not legalize marijuana outright, it aims to acknowledge the drug’s medicinal benefits and reduce restrictions on its purchase and sale. Additionally, it suggests that marijuana has a lower potential for abuse compared to drugs like heroin. This move is seen by Biden’s allies as a strategy to appeal to younger voters, who are generally more in favor of relaxing marijuana laws. Impact: Pot stocks surged.

— Argentina’s President Javier Milei has won approval from the lower house of Congress for a scaled-back version of a significant legislative package that aims to enhance his executive powers. This package, which now moves to the Senate, grants Milei expanded powers in administrative, economic, and energy sectors, including the authority to privatize nearly a dozen firms. The approval comes after the initial proposal was rejected in February, leading to revisions in the 232-page document. Key aspects of the package include the ability for Milei to remove state workers, reduce subsidies, and dissolve certain government entities, as part of efforts to balance the government’s budget.

Additionally, the package proposes changes to labor regulations, such as extending the trial period before hiring workers permanently and removing penalties for companies employing “informal” workers. Concurrently, a port strike that began on Monday over concerns about changes to income tax thresholds in the package ended on Tuesday after the legislative approval in the lower house. Despite the lack of a majority in the lower house, Milei’s party managed to secure enough support through negotiations and amendments. The package now faces uncertainty in the Senate, where Milei’s party holds only seven of the 72 seats, and further amendments may be necessary to secure its passage.

KEY LINKS

Policy Updates