Update on Section 45Z Clean Fuel Production Credit Regulations

— Equities today: U.S. stock futures signal a lower open. Globally, stocks were mixed. Japan’s Nikkei 225 index added 1.1%, as the car companies Nissan Motor, Mitsubishi Motors and Toyota Motor all gained 6% or more. The yen slipped to about 157.4 a dollar, extending a recent downdraft. A weaker yen is typically good news for Japanese exporters. In China, the benchmark Shanghai Composite eked out a 0.1% gain, while the Kospi in South Korea slipped. Numerous international stock markets were closed, including those in London, Frankfurt, Hong Kong and Paris.

Equities on Tuesday: The Dow gained 390 points, +0.91% to 43,297.03. It’s now up 2.3% over four straight winning sessions. The S&P 500 rose +1.10% to 6,040.04. The Nasdaq increased +1.35% to 20,031.13. Both indexes are back to within 1% of their record highs. Just 7.4 billion shares changed hands across the New York Stock Exchange and Nasdaq, versus 11.5 billion on a typical day this year.

— Equity market forecast: 2025 peaks, 2026 challenges. Felix Zulauf, head of Zulauf Consulting, warns of a turbulent path for markets in the coming years. In a Barron’s article (link), the seasoned investor predicts that 2025 will bring a market peak, followed by a sharp downturn in 2026.

Zulauf anticipates a continuation of the current rally into early 2025, buoyed by liquidity injections from Treasury cash balances. However, he foresees a correction of about 15% in the S&P 500 before a subsequent climb to new highs. Long-term liquidity trends and historical cycles suggest that the ultimate market top will occur in 2025, setting the stage for a painful bear market the following year.

Key drivers include:

· Liquidity dynamics: Treasury cash injections and shifts in Federal Reserve liabilities.
· Currency movements: Potential yen revaluation and U.S. dollar adjustments could ripple through global markets.
· Geopolitical factors: Vulnerabilities in Europe, stagnation in China, and trade dynamics influenced by U.S. policy.

Zulauf also notes that a stock market downturn would hit consumer spending and broader economic conditions. For now, he advises holding equities but preparing to pivot in 2026. Bonds may gain appeal, and gold remains a potential hedge amid inflationary pressures.

His message is clear: adept traders can seize opportunities in volatile conditions, but long-term investors should brace for a challenging road ahead.

— Holiday retail sales surpass forecasts. Mastercard SpendingPulse reported that U.S. retail sales for the holiday season (Nov. 1–Dec. 24) grew by 3.8%, exceeding the September forecast of 3.2% and last year’s 3.1% increase. The report, which tracks both in-store and online spending across all payment methods, highlighted that the final five days of the season accounted for 10% of all holiday spending.

— Oil prices rebounded Tuesday amid market optimism and supply concerns. Oil prices rose on Tuesday, recovering from earlier losses as Brent crude gained 1.2% to $73.51 a barrel, and WTI climbed 1.3% to $70.15. Analysts pointed to steady holiday pricing, potential supply disruptions, and improved supply-demand dynamics as key drivers. Market optimism was further fueled by China’s $411 billion treasury bond plan to stimulate its economy, raising demand prospects. The EIA’s revised 2025 oil balance forecast, predicting a draw instead of a surplus, added to the upward momentum. Analysts suggest WTI crude could find near-term support at $67 a barrel.

— Ag markets today: There was no overnight grain trade, as markets remained closed for Christmas. Grain and livestock markets will resume trading at 9:30 a.m. ET. Chinese corn, soybean, soymeal and soyoil futures at the Dalian Commodity Exchange closed higher. The U.S. dollar index and front-month crude oil futures were both modestly firmer this morning.

Will cattle continue to face long liquidation? Liquidation of long positions has been a featured activity in live cattle futures since the February contract rose to the highest level since March on Dec. 16, despite strength in the cash market. With cash trade expected to be limited this week and next, and funds heavily long, there’s risk of more liquidation pressure, despite futures trading well under cash.

February hogs tracking cash index. February lean hog futures hold a modest discount to the CME lean hog index. Price action in futures is likely to remain light through the holiday period, closing tracking movement in the cash index.

Ag trade: Algeria purchased 630,000 MT of optional origin milling wheat.

— Update on Section 45Z Clean Fuel Production Credit regulations.

Current status and timeline. The Section 45Z Clean Fuel Production Credit, replacing the Section 40B credit for sustainable aviation fuel, is set to take effect on Jan. 1, 2025. While final regulations are pending, the U.S. Department of Treasury has committed to issuing guidance before the end of the Biden administration on Jan. 20.

Anticipated guidance. The Treasury Department expects to release preliminary guidance soon, enabling renewable fuel producers to demonstrate eligibility and claim the credit for 2025 production. This guidance will provide basic requirements for compliance and claims.

Registration requirements. Producers must register by Jan. 1, 2025, to qualify. Registration procedures have already been outlined in IRS Notice 2024-49.

Several key aspects remain under development:
· Finalizing the 45Z-GREET model for tax credit calculations.
· Addressing climate-smart agriculture practices.
· Clarifying the application of the GREET model to various feedstocks.

The delay in finalizing comprehensive guidelines has created uncertainty within the biofuels industry, with some producers scaling back or postponing investments. Industry groups are pressing for prompt guidance to facilitate a smoother transition and enable long-term planning. While full regulations may take time, the expected guidance by Jan. 20 should establish a framework for claiming the credit, with further refinements to follow under the Trump 2.0 administration.

— Iowa farmer and agribusiness exec: Green jet fuel could boost Iowa farmers, soil health. Donnelle Eller in the Des Moines Register (link) writes about Mitchell Hora, founder and CEO of Continuum Ag in Washington, Iowa. He believes the development of green jet fuel could transform the fortunes of Iowa farmers while improving soil health. As Hora puts it, “The impact that it can make on soil health and family farms is just tremendous,” potentially providing farmers with up to $100 per acre for adopting environmentally friendly practices. Corn ethanol, along with other feedstocks, could play a pivotal role in supplying SAF for the aviation industry, which accounts for about 2.5% of global greenhouse gas emissions.

Hora has shifted his company’s focus to helping farmers calculate their crops’ environmental footprint, enabling them to capitalize on these incentives. While some advocate for carbon capture pipelines to ensure renewable fuels’ future, Hora emphasizes regenerative practices like no-till farming and cover crops. “It’s not just about carbon capture,” he notes. “It’s about water quality, biodiversity, and flood mitigation.”

However, challenges remain. Federal regulations for SAF tax credits, expected to go into effect in 2025, still lack clarity (see the item above). Hora admits, “There’s a lot of unknowns right now. Just tell us the rules, and we’re going to figure out what the opportunity is and how to make it work for us.”

Despite the uncertainty, Hora remains optimistic. Farmers adopting conservation practices could cut ethanol’s carbon intensity and make it viable for SAF, a market that doesn’t yet fully exist but holds immense promise. As Hora concludes, “If we want to make real, meaningful change ... we’ve got to have volume.”

— Will Trump cut short the Biden clean-energy boom? Investors are nervous. President-elect Donald Trump’s administration may significantly alter the trajectory of clean energy investments, raising concerns among investors, the New York Times reports (link). Since the 2022 Inflation Reduction Act under President Biden, renewable energy and electric vehicle industries have thrived, attracting record private-sector investments. However, Trump’s promises to cut clean energy subsidies, lower corporate taxes, and prioritize fossil fuel projects could shift market dynamics. While renewable energy maintains bipartisan appeal and economic resilience, policy uncertainty has prompted some banks and firms to pause new deals. The Federal Reserve’s stance on interest rates and potential tariffs further complicate the outlook, signaling a challenging road ahead for clean energy advocates.

Of note: Near the top of Trump’s agenda next year is extending his 2017 tax cuts. Says the NYT: “He will most likely need to reduce spending elsewhere to do that. Clean energy tax credits — worth about $350 billion over just the next three years, according to the Congressional Joint Committee on Taxation — would be a tempting target. The more those subsidies are pared, the more projects would no longer make financial sense.”

Quote of note: “The fundamental thing that changes is just the economics,” said Ben King, an associate director of the climate and energy practice at the Rhodium Group, who has counted $435 billion in renewable energy projects that have been announced but not yet started. “Even today, wind, solar and batteries are competing with natural gas, on the margins. A slowdown in deployment of those technologies just leaves more room for gas on the grid.”

— GOP speaker fight could impact electoral college certification. Lingering Republican infighting in the House may complicate Speaker Mike Johnson’s (R-La.) position and the smooth certification of Donald Trump’s Electoral College victory on Jan. 6. Without a speaker, the House may struggle to conduct its constitutional duties, but scholars suggest procedural alternatives could ensure the joint session proceeds, according to Roll Call (link). Key challenges include Johnson’s tenuous hold on GOP support, the need for a speaker by Jan. 3, and potential disputes delaying the certification process. Options like electing a temporary speaker or empowering the House clerk may offer solutions. Experts agree that political pressure, especially from Trump, could expedite the election of a speaker.

— Jason Furman advocates for a rules-based Federal Reserve in WSJ commentary. Jason Furman’s commentary (link) in the Wall Street Journal argues for the Federal Reserve to adopt clearer, rules-based approaches to monetary policy. Furman, a professor of the practice of economic policy at Harvard, was chairman of the White House Council of Economic Advisers, 2013-17. Here’s an overview of the article:

Key argument: Furman suggests that while the Federal Reserve has demonstrated strong judgment in some critical moments, its recent actions—such as unexpectedly cutting interest rates in December despite robust economic growth and persistent inflation—highlight the risks of relying too heavily on discretionary decisions. He proposes that the Fed embrace a more systematic, rules-based framework for monetary policy, paired with transparent reasoning when it deviates from these rules.

The Fed’s current approach: The Fed’s decision to cut rates contrasts with the economic environment of higher-than-expected growth (2.5%) and persistent core inflation (2.8%). Furman views this as a missed opportunity for the Fed to align its actions more closely with its stated goals, such as inflation control.
Strengths and Weaknesses of Rules-Based Policy

Critics of rules argue that they oversimplify monetary policy, ignoring complex and dynamic economic variables. However, Furman counters that historical examples (e.g., the delayed rate hikes before inflation spiked to 5%) demonstrate that rules like the Taylor rule could have led to better outcomes.

Furman outlines a three-part strategy for the Fed:
1. Clarify intermediate targets: Use a consistent metric for inflation, such as the market-based core PCE index, to guide short-term decision-making.
2. Adopt and publish rules: Pick a rule (e.g., a Taylor rule variant) and publicly share what it dictates at each Federal Open Market Committee (FOMC) meeting, with explanations for deviations.
3. Neutral deviations: Ensure that deviations from the rule are unbiased, avoiding a tendency to prioritize lower rates, which can contribute to inflationary bias.

Benefits of rules-based policy: Improved predictability and transparency in monetary policy could stabilize markets and foster better investment decisions. A rules-based system would counteract decision-making biases, ensuring more balanced adjustments in monetary policy over time. Clearer guidelines would preserve the Fed’s ability to exercise judgment while promoting accountability and reducing public skepticism.

— RFK Jr. eyes early influence on U.S. Dietary Guidelines. If confirmed as the Secretary of Health and Human Services, Robert F. Kennedy Jr. could shape the upcoming revision of the Dietary Guidelines for Americans, a powerful tool for influencing public nutrition. While his role won’t encompass all aspects of food policy — largely governed by the USDA — Kennedy would appoint key individuals to the advisory panel and federal team responsible for the guidelines.

Kennedy has criticized corporate influence on nutrition policy and may advocate for tougher stances on ultra-processed foods, food additives, and sugar consumption. His team is reportedly exploring bold reforms, such as reshaping agriculture subsidies and promoting regenerative farming. However, achieving lasting change will require navigating significant opposition from mainstream industry interests and regulatory hurdles.

— Russia’s wheat exports to decline further in 2025-26. Russia will remain the world’s leader in wheat exports in 2024-25, though IKAR agricultural consultancy projects its share of global wheat trade will fall to 20% from 25% the previous year. IKAR projects Russia will export 41 MMT of wheat in the upcoming 2025-26 marketing year.

— Indian rice export prices fall to 17-month low. Indian rice export prices extended declines to a 17-month low this week on depreciation in rupee to a record low and muted demand. India’s 5% broken parboiled variety was quoted at $439.00 to $445.00 per ton, down from the last week’s $440.00 to $446.00. Indian 5% broken white rice was quoted $446.00 to $453.00 per ton.

— World Bank raises China’s GDP forecast for 2024, 2025. The World Bank raised its forecast for China’s economic growth in 2024 and 2025, but warned that subdued household and business confidence, along with headwinds in the property sector, would keep restricting growth. Thanks to the effect of recent policy easing and near-term export strength, the World Bank sees China’s GDP growth at 4.9% this year, up from its June forecast of 4.8%. Although growth for 2025 is also expected to fall to 4.5%, that is still higher than the World Bank’s earlier forecast of 4.1%. Slower household income growth and the negative wealth effect from lower home prices are expected to weigh on consumption into 2025.

— China’s “Two Sessions” set for March 2025. China’s National People’s Congress (NPC) will convene its annual meeting on March 5, 2025, in Beijing, while the Chinese People’s Political Consultative Conference (CPPCC) is set to begin on March 4. Collectively known as the “Two Sessions,” these gatherings are pivotal in China’s political calendar. The NPC meeting draws significant attention as it traditionally includes the announcement of the nation’s annual GDP growth target.

— China escalates military purge amid anti-corruption drive. China’s top legislative body, the Standing Committee of the National People’s Congress, has intensified its campaign against corruption within the military. General You Haitao and Vice-Admiral Li Pengcheng were reportedly dismissed for “serious violations of laws and discipline.” President Xi Jinping, who has long sought to eliminate corruption in the armed forces, also replaced the general overseeing political loyalty in the military earlier this week, signaling a broadening of his anti-corruption efforts.

— China’s sow herd, hog slaughter continue to decline. China’s sow herd totaled 40.80 million head at the end of November, according to its ag ministry, down 1.9% from last year. For the first 11 months of this year, China slaughtered 296.11 million head of hogs, down 2.6% from the same period last year.

— China extends EU brandy antidumping probe amid trade tensions. China’s Ministry of Commerce announced a three-month extension to its antidumping investigation into European Union (EU) brandy imports, citing the complexity of the case. The probe, now set to conclude on April 5, follows preliminary findings that EU brandy imports, primarily from France, threaten China’s domestic industry. Provisional duties of nearly 40% have been imposed since October. The EU, contesting these measures, has taken the matter to the World Trade Organization (WTO). Analysts view the investigation as retaliation against France, which supported EU duties on Chinese electric vehicle (EV) imports. French brandy accounted for 99% of China’s $1.7 billion brandy imports in 2023.

— USDA relocations show challenges in Trump’s federal job moves. The Trump administration’s previous attempts to relocate federal jobs from Washington, D.C., to less expensive areas caused significant disruption, according to a Washington Post article (link). The relocation of USDA’s Economic Research Service (ERS) and National Institute of Food and Agriculture to Kansas City in 2019, aimed at cutting costs, resulted in a 50% loss of staff and reduced agency output. Employees and analysts described the move as a “kneecapping” of the agencies, citing a “brain drain” and lack of cost savings. A Government Accountability Office report (link) highlighted inefficiencies and attrition from the move.

From the WaPo article: “According to a cost-benefit analysis by the Department of Agriculture, released in June 2019, moving the workers to the Midwest would save taxpayers nearly $300 million over 15 years, mostly through lower payroll and office costs. But a separate review (link) that month by the Agriculture and Applied Economics Association, a professional trade group, argued that the USDA analysis overstated the price of D.C.-area office space and failed to account for the lost value of the research that would have been conducted by employees who would leave the agency. As a result, the association said, the move would not save money but would instead cost taxpayers at least $83 million.”

The GAO released a report in 2022 (link) that called into doubt many of the touted benefits of the move, writing that top Agriculture officials overlooked key evidence. For example, “it didn’t factor in potential costs related to the attrition of staff or the disruption of agencies’ activities due to the relocation.” Of about 550 workers expected to make the journey to Kansas City, only 85 did, according to union officials.

The Bureau of Land Management’s partial relocation to Colorado faced similar issues, with most employees choosing to resign rather than relocate. Critics argue these moves created operational delays and diminished agency expertise. Proponents, however, say such moves decentralize power and save taxpayer money.

With plans to move 100,000 federal jobs in a second Trump term, these past experiences highlight significant logistical and operational challenges for the government and its workforce. The America First Policy Institute, a Trump-aligned presidential transition group, said moving 100,000 jobs and relocating entire agencies from D.C. would pierce the “Beltway bubble” and save $1.4 billion a year in payroll costs.

— Virginia Dems brace for special elections as 2025 test. Democrats in Virginia are gearing up for critical special elections on Jan. 7 in Loudoun County’s Senate District 32 and House District 26. These races, seen as safe Democratic holds, carry significant weight, as losses could tie the House of Delegates and undermine Democratic control in the Senate. The elections are viewed as a litmus test for party momentum ahead of pivotal 2025 contests, including the gubernatorial race.

Amid signs of waning Democratic support in the region, party leaders are investing heavily in candidates Del. Kannan Srinivasan (Senate) and JJ Singh (House), with a focus on turnout and key issues like gun safety, Medicaid expansion, and abortion rights. Republicans downplay the contests, framing them as non-indicative of broader trends, while Democrats emphasize their importance in countering GOP gains and protecting state-level policies.

— Key spy-world scientists argued Covid-19 was caused by a lab leak. The dominant view within the U.S. intelligence community’s analysis of Covid-19’s suspected origins concluded with “low confidence” that the virus had emerged when it leapt from an animal to a human. A Wall Street Journal investigation (link) shows that the disagreements among intelligence experts over what should be included in the report ran deeper than is publicly known.

— Boxing Day: A holiday of generosity, not the sport. Boxing Day, celebrated on Dec. 26, is a public holiday in the United Kingdom and several Commonwealth nations, including Canada, Australia, and New Zealand. Despite its name, the day is rooted in generosity, not boxing. First referenced in 1743, Boxing Day’s origins are linked to traditions of charity, such as distributing church alms to the poor on St. Stephen’s Day or providing household staff with “Christmas boxes” of food and gifts as a reward for their service. Modern Boxing Day customs include sports events, such as soccer matches, and retail sales akin to Black Friday, offering shoppers a chance for post-Christmas deals or to exchange less-than-ideal gifts.

— NWS outlook: Continued rounds of heavy rain and mountain snow for the Pacific Northwest... ...Heavy rain and strong thunderstorms return for eastern Texas into Louisiana on Thursday... ...Relatively mild conditions across the majority of the country through Friday.

(NWS)