News/Markets/Policy Updates: Sept. 23, 2024
— Why is it taking so long to get more guidance on the 45Z tax credit program? There are a few key reasons why guidance on the 45Z clean fuel production tax credit program is taking a long time to be issued: • Complexity of the program: The 45Z credit is a new, technology-neutral credit based on carbon intensity scores, which is more complex than previous biofuel tax credits. Developing the emissions rate tables and carbon intensity scoring methodology is technically challenging. Impact of delay. The lack of full guidance is causing uncertainty for fuel producers trying to plan investments and production for when the credit takes effect in 2025. However, the government has issued some initial guidance on registration requirements to help producers prepare.
— The 45Z Clean Fuel Production Credit differs from previous fuel production credits in several ways: • Technology-neutral approach: Unlike previous credits that targeted specific types of fuels, the 45Z credit is technology-neutral and applies to any transportation fuel that meets the emissions reduction criteria. • Carbon intensity-based: The credit amount is calculated based on the fuel’s carbon intensity score, rather than a flat rate per gallon. Fuels with lower emissions receive a larger credit. • Producer credit vs blender credit: The 45Z credit goes to the fuel producer, whereas some previous credits like the $1/gallon biodiesel tax credit went to fuel blenders. • Emissions rate requirement: To qualify, fuels must have an emissions rate no greater than 50 kg of CO2e per mmBTU. • Registration requirement: Producers must be registered with the IRS before claiming the credit, which is a new requirement. • Limited duration: The 45Z credit is currently set to apply only to fuels produced from 2025-2027, whereas some previous credits were repeatedly extended. ˆ• Replaces multiple credits: The 45Z credit will replace several existing fuel credits that are set to expire, including those for biodiesel, renewable diesel, and alternative fuels. • Potentially larger credit amounts: For fuels meeting certain labor requirements, the credit could be up to $1.75 per gallon for sustainable aviation fuel or $1.00 per gallon for other fuels, which is potentially higher than some previous credits. — The 45Z Clean Fuel Production Credit has several important implications for sustainable aviation fuel (SAF) production: Bottom line: While the 45Z credit has the potential to significantly boost SAF production, the current lack of detailed guidance is causing some uncertainty in the industry. Producers and investors are eagerly awaiting further clarification from the Treasury Department to make informed decisions about SAF production and investments. |
MARKET FOCUS |
— Equities today: Asian and European stock indexes were mixed overnight. U.S. stock indexes are pointed to slightly higher openings. In Asia, Japan closed. Hong Kong -0.1%. China +0.4%. India +0.5%. In Europe, at midday, London -0.1%. Paris -0.3%. Frankfurt +0.5%.
U.S. equities Friday and the week: A late move to the upside allowed the Dow to finish modestly higher Friday, notching a new record finish while the S&P 500 and Nasdaq both ended the session lower. But all three registered weekly gains for the second week in a row, with the Dow up 1.6%, the S&P 500 rose 1.4%, and the Nasdaq advanced 1.5%. On Friday, the Dow closed up 38.17 points, 0.09%, at 42,063.36. The Nasdaq declined 65.66 points, 0.36%, at 17,948.32. The S&P 500 fell 11.09 points, 0.19%, at 5,702.55.
— Oil prices were lower Friday but traded higher week over week. Rising tensions in the Middle East, raising the risk of supply disruption, further boosted the oil market. For the week, both benchmarks settled up more than 4%. On Friday, WTI traded down $0.03 or -0.4% to close at $71.92. Brent traded down $0.39 or -0.52% to close at $74.49.
— Ag markets today: Corn, soybeans and wheat traded solidly higher overnight, led by double-digit gains in the soybean market. As of 7:30 a.m. ET, corn futures were trading 4 to 5 cents higher, soybeans were 11 to 12 cents higher and wheat futures were 7 to 10 cents higher. The U.S. dollar index was more than 200 points higher, and front-month crude oil futures were modestly firmer this morning.
Cash cattle optimism. Cash cattle traded as much as $2.00 higher late last week, though official data won’t be released until later this morning. The expected uptick in the average cash cattle price gives bulls optimism for higher cash prices again this week.
Uptick in cash hog index proves short-lived. The CME lean hog index is down 2 cents to $84.36 as of Sept. 19, following a one-day 16 cent uptick. October lean hog futures finished Friday at a $2.135 discount to today’s cash quote.
— Agriculture markets yesterday:
• Corn: December corn futures fell 4 cents to $4.01 3/4, marking an 11 1/2 cent loss on the week.
• Soy complex: November soybeans fell 1 1/4 cents to $10.12 but rose 5 3/4 cents on the week. December soymeal fell $2.40 to $319.20 and marked a $3.70 decline from a week ago. December soyoil rose 43 points to 41.36 cents, notching a 243-point gain week-over-week.
• Wheat: December SRW wheat futures rose 3 cents to $5.68 1/2 and nearer the daily low. For the week, December SRW lost 26 1/4 cents. December HRW wheat dipped 1/2 cent to $5.64, nearer the daily low and hit a three-week low. For the week, December HRW fell 36 cents. December spring wheat futures rose 1/4 cent to $6.08 and fell 27 1/2 cents on the week.
• Cotton: December cotton rose 49 points to 73.52 cents and gained 370 points on the week.
• Cattle: October live cattle futures rose $2.50 to $182.475, near the session high and hit a five-week high. For the week, October cattle rose $4.875. October feeder cattle futures gained 12 1/2 cents to $243.90, near mid-range and scored a six-week high. On the week, October feeders were up $4.775.
• Hogs: Hog futures ended on a mixed note, with nearby October skidding 2.5 cents to $82.225. The closing quote represented a weekly advance of $3.775.
— Quotes of note:
• Fed’s Kashkari backs further rate cuts as inflation cools, labor market weakens. Minneapolis Federal Reserve President Neel Kashkari has voiced support for another half percentage point of interest-rate cuts this year, following the Fed’s recent half-point reduction. In an essay published Monday, Kashkari cited cooling inflation, which is now close to the Fed’s 2% target, and signs of labor market weakness as reasons for further cuts. Although not a voting member on the Federal Open Market Committee, Kashkari’s comments align with Fed forecasts for additional rate cuts in 2023. He also raised his long-term forecast for the neutral interest rate to 2.9%, reflecting the economy’s ongoing resilience.
• Fed Governor Christopher Waller said favorable inflation data, and not worries about the labor market, led him to support this week’s larger interest-rate cut. His concern is that inflation might now be running below the central bank’s 2% target. “We’re at a point where the economy is strong, inflation is coming down, and we want to keep it that way,” Waller said during an interview with CNBC on Friday. what inflation there is, Waller said, is narrowly concentrated in housing: If shelter costs had climbed on target at a 2% annualized rate over the past four months, core PCE price inflation would be under 1%. “So that got me to say, ‘Wow, inflation is falling much faster than I thought it was going to,’” Waller said. “And that’s what put me over the edge to think [cutting by half a percentage point] is the right thing to do.”
• As for Michelle Bowman, the lone dissenter to cut rates by 50 basis points, in a statement on Friday explaining her decision, Bowman said that she agreed that it was time to start easing monetary policy, but preferred starting smaller. “I see the risk that the committee’s larger policy action could be interpreted as a premature declaration of victory on our price stability mandate,” Bowman said. “We have not yet achieved our inflation goal,” Bowman said. “I believe that moving at a measured pace toward a more neutral policy stance will ensure further progress…This approach would also avoid unnecessarily stoking demand.” As for the labor market, Bowman said Friday that the employment data had become harder to trust in real time lately, due to measurement challenges and later revisions and the uncertain impact of recent immigration to the U.S. Some slowing in the jobs market was to be expected and is part of the process of getting inflation down, she said. “I see the normalization in labor market conditions as necessary to help bring wage growth down to a pace consistent with 2% inflation given trend productivity growth,” Bowman said. She also noted that consumer spending has continued at a strong pace, suggesting a healthy labor market.
— Economist Vince Malanga analyzes FOMC rate cuts, economic challenges, and global risks. Dr. Vince Malanga, president of LaSalle Economics, provided insights on the recent Federal Open Market Committee (FOMC) rate-cut decision and its economic implications. The FOMC reduced its benchmark rate by 50 basis points, setting it between 4.75% and 5%. They anticipate an additional 50 basis points of cuts this year, followed by a 100-basis point reduction in 2025. Market rates have been declining in anticipation of these moves.
Economic outlook. Malanga notes that Fed Chair Jerome Powell expressed confidence in controlling inflation but noted uncertainty regarding the labor market and real economy. Malanga highlighted several key factors influencing the economic landscape:
Housing market response. Recent weeks have seen a sharp increase in mortgage applications due to falling market rates. However, long-term rates may become sticky, and it’s unclear whether a housing rebound will be driven by increased supply or demand.
China’s economic impact. Malanga says China’s anemic economy and attempts to export excess capacity pose a global deflationary risk. The country’s reluctance to implement large domestic stimulus and its efforts to dominate industries worldwide have led to manufacturing PMIs signaling recession in many regions.
U.S. fiscal condition. The federal deficit is approaching $2 trillion for the second consecutive year, about 6% of GDP. Interest payments on the debt have reached $1 trillion annually, surpassing the defense budget.
Challenges and risks. Malanga outlined several challenges facing the economy:
• Political promises of increased federal spending and tax cuts despite high deficits.
• The potential need for the Fed to become the buyer of last resort if financial markets object to the supply of debt.
• The impact of artificial intelligence on productivity and labor demand.
• The risk of overregulation in the technology sector.
Bottom line: Malanga stresses that while the Fed has tools at its disposal, they are not unlimited, and caution is necessary as it navigates these complex economic conditions.
— Yellen highlights Biden/Harris economic achievements, outlines growth strategy, and warns of policy risks. Janet Yellen’s commentary in the Wall Street Journal (link) highlights the economic achievements of the Biden/Harris administration and outlines their strategy for continued growth. Key points:
Economic achievements. Yellen says the U.S. economy has experienced a combination of positive developments:
• Inflation reduction: Inflation has decreased significantly.
• Low unemployment: The unemployment rate remains near historic lows.
• Strong growth: Economic growth has been robust, supported by consumer spending and business investment.
• Wage increases: Wages have risen faster than prices, particularly benefiting lower-income earners.
• Improved equity: The black unemployment rate reached a historic low, and the gap between urban and rural unemployment rates has narrowed.
Biden/Harris administration’s strategy. Yellen attributes these successes to the administration’s policies:
• Pandemic response: Provided financial support to households and prevented an eviction crisis.
• Crisis management: Navigated challenges such as the energy shock from Russia’s invasion of Ukraine.
• Investment focus: Made critical investments in infrastructure, manufacturing, and workforce training.
• Modern supply-side economics: Boosted the economy’s long-run potential output through strategic investments.
Comparative performance. The U.S. economy has outperformed expectations and other advanced economies:
• Faster labor market recovery compared to previous recessions.
• Economic growth surpassing private-sector predictions.
• Greater real GDP growth and faster inflation decline while maintaining a strong labor market compared to other advanced economies.
Future policy priorities. Yellen emphasizes the importance of continuing their economic strategy:
• Cost reduction: Focus on lowering prices of essentials like energy, housing, and healthcare.
• Housing investment: Build more housing to address long-standing challenges.
• Childcare support: Expand support to bring more Americans into the labor force.
• Infrastructure and innovation: Continue investments in infrastructure, clean energy, and semiconductors.
Potential risks. Yellen warns against policy changes that could jeopardize economic progress:
• Permanent tax cuts favoring the wealthy.
• Repealing investments in future industries.
• Pursuing non-strategic international economic policies
Bottom line: Yellen presents the administration’s economic strategy as successful in navigating global challenges and building towards the future, emphasizing their commitment to sustaining and expanding on this progress.
Market perspectives:
— Outside markets: The U.S. dollar index was higher, with most foreign rival currencies weaker against the greenback. The yield on the 10-year U.S. Treasury note was firmer, trading around 3.75%, with a mixed-to-firmer tone in global government bond yields. Crude oil futures shifted higher, with U.S. crude around $71.30 per barrel and Brent around $74.70 per barrel. Both were weaker in Asian trading. Gold and silver were narrowly mixed, with gold firmer around $2,647 per troy ounce and silver weaker around $30.99 per troy ounce.
— Potential dockworker strike could disrupt us supply chains ahead of election. A possible strike by 45,000 dockworkers at major ports along the U.S. East and Gulf coasts threatens to cause significant supply chain disruptions just weeks before the election. The labor talks have stalled, with workers prepared to strike starting Oct. 1. A weeklong strike could halt the flow of goods such as auto parts, fresh meat, and fruit, potentially costing the U.S. a $4.5 billion to $7.5 billion hit, according to Grace Zwemmer at Oxford Economics. Zwemmer expects that the drag would be made up once the strike is resolved and ports process any backlogs.
Of note: Two-thirds of bananas are unloaded at East and Gulf Coast ports. “Any fruit that arrives after Oct. 1 will be condemned to the trash can” if dockworkers walk out, produce importer Peter Kopke, Sr. told Bloomberg. “And all of the people who have invested in that business will lose a fortune.”
— Low Mississippi River levels threaten grain transport, soybean and corn prices. For the third consecutive year, unusually low water levels in the Lower Mississippi River are disrupting grain transportation just as harvest season begins. Farmers worry that slowing barge traffic could lower soybean and corn prices or delay essential fertilizer shipments. Despite a strong growing season, some fear being unable to transport their crops if the river remains too shallow. The low water levels, exacerbated by drought and heat, have reduced barge loads, increasing transport costs and potentially causing delays in grain exports. About 60% of U.S. grain exports move down the Mississippi River. Link for more via the Chicago Tribune.
— Neutral Cattle on Feed report. USDA estimated there were 11.198 million head of cattle in large feedlots (1,000-plus head) as of Sept. 1, up 71,000 head (0.6%) from last year. August placements declined 1.4%, while marketings fell 3.6% from year-ago levels. All of the categories were close to the average pre-report estimates, so there should be limited market reaction.
— Indian refiners cancel palm oil purchases amid price and duty hikes. Indian refiners have canceled around 100,000 metric tons of palm oil purchases for October-December delivery due to rising Malaysian palm oil prices and a 20-percentage-point increase in India’s import tax on crude and refined edible oils, according to Reuters. The new duty on crude palm oil has surged to 27.5%, up from 5.5%. With India importing about 750,000 metric tons of palm oil monthly, the cancellations represent approximately 13.3% of monthly imports. This shift may lead to higher soybean oil prices as refiners switch to alternative oils.
— USDA daily export sale:
• 165,000 MT soybeans to unknown destinations, 2024-2025 marketing year
— Ag trade update: Algeria purchased an unspecified amount of corn expected to be sourced from Brazil or Argentina. Indian refiners cancelled 100,000 MT of palm oil purchases for delivery between October and December.
— NWS outlook: Threat of heavy rain and locally strong to severe thunderstorms will slowly shift from the southern Plains this morning to the Ohio Valley, central Appalachians and lower Great Lakes on Tuesday into early Wednesday... ...Watching the western Caribbean Sea for tropical cyclone formation that could bring strengthening winds and passing squally downpours into the Florida Keys Tuesday night into Wednesday morning.
Items in Pro Farmer’s First Thing Today include:
• Grains firmer to start the week
• Northern states remain dry, wetter pattern for southern areas
• Eurozone PMI contracts in September
CONGRESS |
— House introduces 12-week funding extension to avoid government shutdown. House Republicans introduced a 49-page bill to extend federal funding for 12 weeks, aiming to prevent a partial government shutdown. The stopgap measure, which would continue current funding levels through Dec. 20, is expected to receive strong bipartisan support in both chambers of Congress.
Timeline: The House will consider the bill this week, with the Senate expected to act shortly after. House Speaker Mike Johnson (R-La.) plans to bring a rule for consideration to the floor by Wednesday. Congress must act by the end of September to avoid a shutdown.
Funding details:
· The bill includes $231 million in new appropriations for Secret Service protection of presidential candidates.
· It provides $47 million for Washington D.C. emergency planning and security costs related to inauguration activities.
· The legislation allows FEMA to access $20 billion starting October 1, addressing a recent shortfall.
· The measure includes an extension of authority for USDA’s mandatory livestock reporting system, the Food for Peace program and domestic food assistance. It extends a USDA program that replaces stolen food stamp benefits. The legislation calls for a one-year study of the risks to SNAP from EBT card skimming and card cloning and how to improve security.
There is no supplemental disaster aid package attached to the CR, nor another extension to the 208 Farm Bill.
The bill omits a higher funding rate for the Special Supplemental Nutrition Program for Women, Infants and Children (WIC), though it would allow USDA to tap into existing WIC funds faster if needed to avoid disruptions.
Bottom line: If the House can pass the bill Wednesday, the Senate will only have five days to pass it to avoid a partial government shutdown, and only two remaining days of session before the upcoming October recess. The CR will eventually pass both chambers and be signed into law.
ISRAEL/HAMAS CONFLICT |
— Israel launches extensive strikes on Hezbollah targets, plans Gaza Siege amid intensifying conflict. Israel has begun conducting significant strikes on Hezbollah positions in Lebanon following a weekend of heightened clashes between the two sides. The Israeli military has urged civilians to evacuate areas near Hezbollah operations, warning of imminent “precise strikes” across Lebanon targeting the Iran-backed group. Simultaneously, Israeli Prime Minister Benjamin Netanyahu is considering a plan to relocate all Palestinians from northern Gaza as part of a broader siege strategy to pressure Hamas and secure the release of hostages. The plan does not specify when displaced civilians may return.
Of note: The fighting has spurred concerns about wider instability in the Middle East. For now, markets are ignoring the escalation.
RUSSIA/UKRAINE |
— Ukraine’s grain exports reach 9.4 MMT for 2024-25 season, exceeding last year’s pace. As of Sept. 25, Ukraine’s 2024-25 grain exports have totaled 9.4 million metric tons (MMT), according to the Ukrainian Agriculture Ministry. This includes 5.4 MMT of wheat, 2.6 MMT of corn, and 1.2 MMT of barley. From Sept. 1-25, grain exports reached 1.97 MMT, up from 1.57 MMT during the same period in 2023.
CHINA UPDATE |
— China cuts key policy rate, injects liquidity to boost flagging economy. China’s central bank reduced a key short-term policy rate (the 14-day reverse repo, by 10 basis points) and injected additional liquidity into its banking system, sparking speculation of increased efforts to revive the struggling economy. The moves come ahead of a press conference by Pan Gongsheng, the central bank’s governor, scheduled for Tuesday, raising expectations of further measures aimed at economic recovery.
TRADE POLICY |
— EU challenges China’s dairy product probe at WTO. The European Commission launched a challenge at the World Trade Organization (WTO) against China’s investigation into EU dairy products. China initiated its anti-subsidy investigation on Aug. 21, targeting EU liquid milk, cream with a fat content above 10% and various types of cheeses. The commission said it was confident EU dairy subsidy schemes are fully in line with international rules and not causing injury to China’s dairy sector. This is the first time the EU has taken such action at the start of an investigation, rather than wait for it to result in trade measures against the bloc. Proceedings at the WTO start with a mandatory period of 60 days for the parties to consult each other. The commission said it would ask the WTO to set up an adjudicating panel if the consultations did not lead to a satisfactory solution.
— Biden administration moves to ban Chinese software in U.S. cars over security concerns. The Biden administration announced plans to ban Chinese-developed software in internet-connected cars in the U.S., citing national security risks. Officials fear that China could use vehicle electronics to monitor Americans or access critical infrastructure, similar to concerns that led to the Huawei ban. This initiative is part of broader efforts to limit Chinese tech influence, alongside moves like Congress pushing TikTok to cut ties with its Chinese owners. The administration’s focus on preventing cyber vulnerabilities reflects growing bipartisan support for tightening restrictions on Chinese technology.
ENERGY & CLIMATE CHANGE |
— USDA study reveals minimal impact of renewable energy projects on agricultural land. A recent USDA study (link) found that the majority of agricultural land near solar and wind farms remains in agricultural use, despite the expansion of renewable energy projects. This finding challenges concerns about potential land use competition between renewable energy development and agriculture.
Solar and wind farmland use:
• Renewable energy projects occupied an estimated 424,000 acres of rural land in 2020.
• Most projects installed in recent years are located on agricultural land
Land cover changes:
• Cropland or pasture-rangeland typically maintained the same land cover after the addition of solar or wind development.
• Land cover changed on approximately 20% of solar sites and only 4% of wind turbine sites
Agricultural land persistence:
• About 85% of crop and pasture-rangeland near solar farms remained in agricultural production.
• Wind turbine development showed even higher compatibility with agricultural production
Regional differences and project distribution
Solar Projects: • Most common in the West, mid-Atlantic, and Northeast regions.
• 43% of rural solar projects installed from 2012-2020 were on cropland.
• The Midwest had the highest share (70%) of solar installations on cropland
Wind turbines: • Concentrated in areas with consistent, high wind speeds.
• Most prominent in the Plains, followed by the Midwest and West.
• Installations in the Plains and West were primarily on pasture and rangelands.
Implications. The study suggests that renewable energy development can coexist with agricultural production in many cases. However, the researchers noted that these projects have local socioeconomic effects on rural communities, providing benefits such as leasing and tax revenue while also potentially imposing costs related to landscape changes, noise, and altered views. As the United States continues to expand its renewable energy capacity, with wind and solar accounting for 10.7% of electricity generation, this research provides insights into the relationship between renewable energy development and agricultural land use.
LIVESTOCK, NUTRITION & FOOD INDUSTRY |
— Panel recommends USDA streamline meat plant inspections with new technology. The National Advisory Committee on Meat and Poultry Inspections (NACMPI) urged USDA to adopt new technologies to streamline inspections in meat and poultry plants. Recommendations include providing inspectors with government-issued phones and tablets to document findings, allowing video chat for communication, and using technology that converts voice or handwriting into digital text. These measures aim to reduce inspectors’ workloads and speed up inspections. While some changes, such as remote inspections, may reduce delays and costs for companies, others, like video recording inside plants, could raise competitive concerns.
— First bird flu outbreak in nine weeks. Highly pathogenic avian influenza was confirmed at a turkey farm with 62,800 turkeys in Merced County, California, the first U.S. outbreak of bird flu in a commercial flock since July 19.
KEY LINKS |
WASDE | Crop Production | USDA weekly reports | Crop Progress | Food prices | Farm income | Export Sales weekly | ERP dashboard | California phase-out of gas-powered vehicles | RFS | IRA: Biofuels | IRA: Ag | | Russia/Ukraine war, lessons learned | | SCOTUS on WOTUS | SCOTUS on Prop 12 pork | New farm bill primer | | Gov’t payments to farmers by program | Farmer working capital | USDA Ag Outlook Forum |