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Corn producers: Extend 2024-crop sales, make initial 2025-crop sales... March corn futures hit our sales target of $4.75 during the overnight session. While 2024-25 ending stocks are now projected to be borderline tight, we feel it’s prudent to maintain a disciplined approach when sales targets are hit. We advise corn hedgers and cash-only marketers to sell another 20% of 2024-crop production to get to 50% sold in the cash market. We also advise selling an initial 10% of expected 2025-crop production for harvest delivery. Our next upside sales target is the $5.00 level.
Livestock producers: Extend meal coverage... Soybean meal futures strongly rebounded above the $300.00 level and are showing signs of a technical bottom, especially if soybeans extend their recent strength. We advise livestock producers to extend meal coverage by two weeks in the cash market through the end of February.
Biden administration 45Z announcement: more questions than answers... U.S. biofuels and corn groups criticized the overall guidance on the Biden administration’s announcement for 45Z clean fuels as lacking details on what qualifies for tax credits. Geoff Cooper, chief executive officer of ethanol trade group Renewable Fuels Association, said it fell short of expectations and doesn’t give producers of corn-based U.S. ethanol the certainty they seek. Emily Skor, CEO of ethanol lobbying group Growth Energy, said the guidance “still lacks the critical details that are needed to help ensure that American biofuel producers and their farm partners can lead the world in clean fuel production.” The National Corn Growers Association said more clarity is needed about the specific environmental practices that will be required for accessing the credit. “What a missed opportunity for growers,” said President Kenneth Hartman Jr., an Illinois farmer.
The only real news from the Treasury Department seems to be that foreign origin used cooking oil (UCO) will not qualify for 45Z tax incentives under the so-called GREET model, a Department of Energy tool used to determine the full sweep of greenhouse gases emitted from the transportation and energy industries. But some question whether the CORSIA model could be used for imported UCO, though it cannot be measured for GHG reductions under the 45ZCF-GREET model. The globally accepted Corsia standard established by the United Nations governing body for aviation, green jet fuel made with foreign feedstocks would have access to the credit, some note.
Others say UCOs still qualify for the Renewable Fuel Standard (RFS) program and California’s LCFS. Fuel made with UCO is highly valued in low-carbon fuel markets like California because of its relatively small carbon footprint. Some details and alerts:
Under the RFS program administered by EPA, UCO is an approved feedstock for producing renewable fuel. Specifically: UCO falls under the “Biomass-Based Diesel” category of the RFS. Fuels produced from UCO must demonstrate a life cycle greenhouse gas emissions reduction of at least 50% compared to petroleum diesel. Biofuel producers using UCO can generate Renewable Identification Numbers (RINs), which are credits used for RFS compliance.
UCO also qualifies under California’s LCFS program: It is considered a low-carbon intensity feedstock for renewable diesel production. UCO-derived renewable diesel can generate LCFS credits due to its lower carbon intensity compared to petroleum diesel. The California Air Resources Board (CARB) has approved fuel pathways for renewable diesel produced from UCO. However, it’s important to note that there are some recent developments and potential changes regarding UCO in these programs:
- EPA has been conducting audits of supply chain documentation for imported UCO used in renewable fuel production. This is to ensure the legitimacy of UCO sources and prevent potential fraud.
- CARB is proposing new requirements for feedstock traceability and sustainability certification, although these may focus more on crop-based feedstocks rather than waste oils like UCO.
- There are discussions about potentially capping the use of certain biofuel feedstocks in the LCFS, but these proposals have primarily focused on crop-based oils rather than waste oils like UCO.
Germany dealing with FMD outbreak... Germany is dealing with a major disruption to its meat and dairy exports following the first outbreak of foot-and-mouth disease (FMD) in nearly 40 years. The outbreak, confirmed on Jan. 10, occurred in a herd of water buffalo in Brandenburg, near Berlin.
The loss of Germany’s status as free from FMD under World Organization for Animal Health requirements, means many veterinary certificates for exports outside the EU can no longer be issued, Germany’s agriculture ministry said.
Consequently, exports of milk and dairy products, meat and meat products, hides and skins and blood products are “currently hardly possible,” the ministry said, adding that it “assumed third countries would immediately impose bans on such goods from Germany.”
Germany’s primary meat export destinations are within the EU. Germany’s meat exports have declined by 19.3% over the past five years, partly due to export restrictions to China, a previously significant market.
Cutler: Trump could strike a new trade deal with China... A Phase Two negotiation isn’t out of the question, but Washington must get it right this time, writes former Acting Deputy U.S. Trade Representative (USTR) Wendy Cutler, now a vice president at the Asia Society Policy Institute. Writing in Foreign Policy, Cutler says as the U.S. administration under President-elect Donald Trump prepares to revisit its trade strategy with China, the possibility of a “Phase Two” negotiation emerges. The Phase One trade agreement, signed in 2020, addressed significant issues like intellectual property rights and agricultural barriers but fell short in achieving China’s promised purchase commitments. Since then, economic tensions have escalated, with both nations imposing trade and technology restrictions.
Cutler believes the upcoming challenge lies in overcoming entrenched trade disparities, including subsidies, state-owned enterprises and cross-border data flows. A new agreement should aim for more realistic purchase commitments, better enforcement mechanisms and expanded areas of negotiation, such as cloud computing and third-country investments.
Despite hurdles, Trump’s reputation as a dealmaker and China’s economic pressures might pave the way for renewed talks, provided both sides are willing to compromise and prioritize durable solutions.
IMF warns of rising global rates amid Trump tariff concerns... International Monetary Fund (IMF) Managing Director Kristalina Georgieva cautioned Trump’s tariff threats are already driving up long-term borrowing costs globally. She highlighted the unusual economic pattern of rising long-term rates paired with declining short-term rates, attributing this to uncertainty surrounding Trump’s trade policies. Trump’s proposed tariffs on imports from both adversaries like China and allies such as Canada and Mexico have raised fears of supply-chain disruptions and inflation. IMF Chief Economist Pierre-Olivier Gourinchas warned earlier that such trade policies could cut global output by 0.5%. The U.S. dollar’s recent strength and soaring global bond yields reflect market apprehension, with higher borrowing costs posing challenges for emerging markets and low-income nations.
While the IMF anticipates steady global growth at around 3.2%, Georgieva noted regional disparities, with the U.S. performing better than expected, while the EU, India, and China face mounting pressures.
USTR Tai: The real purpose of trade policy... In her Foreign Affairs article, U.S. Trade Representative Katherine Tai outlines the Biden administration’s efforts to reshape trade policy in line with a “middle-out economics” approach, reminiscent of Franklin Roosevelt’s vision of shared global prosperity. She emphasizes the administration’s policies aim to correct decades of trickle-down globalization, which widened inequalities and jeopardized democratic principles. By integrating trade policy with domestic industrial strategies, fostering fair competition, and empowering workers globally, Tai argues that the administration is rebuilding a system that prioritizes economic security for working people over corporate concentration and laissez-faire principles.
The article traces the historical roots of U.S. trade policy, highlighting the International Trade Organization’s unrealized potential and the harmful legacy of Reagan-era neoliberalism. Tai critiques China’s economic practices, discusses supply chain vulnerabilities and underscores the importance of diversifying global supply chains and advancing labor rights. By fostering fair competition and reducing dependency on autocratic regimes, the administration’s trade agenda seeks to promote durable peace, economic justice and freedom from want.
Malanga on economic trends and market dynamics amid policy shifts... Dr. Vince Malanga, president of LaSalle Economics, discusses the state of the economy as it closed December on a strong note. He says a surge of enthusiasm from small businesses post-election, alongside aggressive fiscal policies by the Biden administration, have buoyed economic activity. However, he warns the specter of widespread tariffs under Trump is influencing pricing and inventory behaviors. Malanga’s insights on key topics:
- Labor market: December’s labor report showcased a jobless rate drop to 4.1%, with growth in services and government payrolls. Wage growth softened, hinting at productivity gains.
- Sectoral insights: While manufacturing shows signs of recovery, housing remains sluggish, compounded by rising mortgage rates exceeding 7%.
- Inflation and commodities: December saw accelerated inflation, particularly in staples like coffee, eggs and heating fuels, driven by adverse weather conditions. These effects may reverse in early 2025 as weather stabilizes, although tariff policies add uncertainty.
- Bond market & fiscal policy: Multi-trillion-dollar deficits at full employment strain bond markets, reflected in increased mortgage rates and deteriorating housing affordability. Addressing government spending and market expectations through DOGE’s fiscal actions is critical to reversing these trends.
- Federal Reserve: While inflation and labor conditions will influence monetary policy, the Fed’s role is expected to diminish, with its focus on yield curve trends rather than long-term rate levels.
Bottom line: Malanga underscores that resolving fiscal challenges and stabilizing inflation are crucial to restoring economic stability.