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Your Pro Farmer newsletter is now available... USDA’s initial winter wheat crop condition ratings were the second lowest ever, which suggests acreage abandonment will be high and/or yield will suffer. Rains fell on HRW and SRW areas last week, but more will be needed amid the expanding drought. Other major global wheat producers also have struggles, including Russia, but the market has not responded. The surge in corn and soybean export demand continued, but that also sparked muted price response. Brazil’s soybean planting accelerated after rains fell on central production areas. That could mean less safrinha corn will be planted after the ideal window. On the economic front, the Fed’ preferred inflation gauge rose slightly in September, while Friday’s jobs report may not have given a true read on the labor situation as the data was impacted by recent hurricanes and union strikes. The financial downturn in the ag sector has the focus of lawmakers, lenders and farm groups. How Washington will deal with some of those issues depends on results of Nov. 5 elections and congressional leaders to lead. Our News page 4 feature focuses on the post-election congressional agenda, including key items for agriculture. We encourage everyone to exercise your right to vote on Nov. 5. We cover all of these items and much more in this week’s newsletter, which you can access here.
Soy crush a little lower than expected but still a record for September... U.S. processors crushed 186.5 million bu. of soybeans during September, which was a record for the month but 1.1 million bu. less than the average pre-report estimate. The crush pace increased 19 million bu. (11.3%) from August and 11.7 million bu. (6.7%) from year-ago.
Soyoil stocks declined to 1.501 billion lbs., down 128 million lbs. from August and 106 million lbs. from September 2023.
Corn ethanol use lower than expected... Corn-for-ethanol use totaled 440.2 million lbs. during September, 7.6 million lbs. less than the average pre-report estimate. Corn ethanol use declined 39.4 million bu. (8.2%) from August but was 11.7 million bu. (2.7%) above year-ago.
U.S. job growth slows sharply in October... The U.S. economy added only 12,000 non-farm payrolls in October, the slowest jobs growth since December 2020, though the data was likely skewed by hurricanes and labor strikes. The Fed is widely expected to cut interest rates 25 basis points following its Nov. 6-7 monetary policy meeting.
Republicans push California to pause refinery storage mandate, proposed LCFS update... Assembly Republicans James Gallagher and Joe Patterson urged Governor Gavin Newsom to halt California’s refinery storage mandate and the proposed Low Carbon Fuel Standard (LCFS) update, warning of economic fallout and job losses. Their appeal followed Phillips 66’s decision to close its Wilmington refinery, impacting over 900 jobs and 8% of the state’s refining capacity. Newsom’s office defended the regulations as necessary for protecting consumers from price hikes and reducing pollution.
The debate comes in the wake of Newsom signing a new law aimed at preventing gasoline price spikes. This legislation allows the state to require oil refiners to maintain a minimum fuel inventory and authorizes the California Energy Commission to require refiners to plan for resupply during maintenance outages.
The proposed update to California’s LCFS would have significant impacts on the oil industry:
· The update aims to tighten the carbon intensity reduction targets for transportation fuels. The current goal is a 20% reduction by 2030, but the proposal would increase this to a 30% reduction by 2030 and a 90% reduction by 20454. This more aggressive timeline would put increased pressure on oil companies to reduce the carbon intensity of their fuels or purchase more credits to comply.
· The stricter targets are likely to drive up the cost of LCFS credits, which oil companies must purchase if they cannot meet the carbon intensity requirements. This could substantially increase compliance costs for refineries and fuel suppliers.
· Higher compliance costs may be passed on to consumers, potentially raising gasoline and diesel prices. Estimates of the price impact vary:
o The California Air Resources Board (CARB) initially projected potential increases of 47 cents per gallon for gasoline and 59 cents for diesel by 2025, though they have since distanced themselves from these figures.
o An independent analysis suggested price increases could reach 65 cents per gallon in the near term and up to 85 cents by 2030.
· The tightened standards are designed to accelerate the transition away from fossil fuels. This could lead to a gradual reduction in market share for traditional petroleum-based fuels as lower-carbon alternatives like biofuels, electricity, and hydrogen gain ground.
· Oil companies may need to reassess their investments in California refineries and fuel production facilities. Some companies have already warned about potential supply restrictions and the need to be cautious about new measures that could affect fuel availability in the state.
· While challenging for traditional oil operations, the updated LCFS could create opportunities for oil companies investing in low-carbon fuel technologies. The program has historically incentivized the production of biofuels and other alternatives.
· The oil industry has expressed concerns about the potential economic impacts of the proposed changes. This regulatory uncertainty could affect long-term planning and investment decisions for operations in California.
· CARB anticipates a significant rise in electricity and hydrogen as zero-emission fuels, with a gradual decline in renewable diesel and a significant decrease in ethanol use through 2045. This projected shift could require oil companies to adapt their product portfolios and infrastructure.
In summary, the proposed LCFS update would likely increase regulatory pressure and compliance costs for the oil industry in California, potentially affecting fuel prices, market share and long-term business strategies. While challenging for traditional operations, it may also create incentives for diversification into lower-carbon fuel alternatives.
New Canadian port strikes... A new strike began midday Thursday at the Port of Montreal, affecting two key container terminals and causing significant disruptions to port operations. The strike began on Oct. 31 at 11:00 a.m., targeting two container terminals operated by Termont: Viau and Maisonneuve. Port of Montreal CEO Julie Gascon warned of widespread economic impacts if the stoppage continues. The union stated it was willing to call off the strike if an agreement could be reached on scheduling issues.
Meanwhile, Talks between ports in British Columbia and the foreman’s union have failed to reach agreement and an industry wide strike called on Nov. 4. Strike action would impact both the ports of Vancouver and Prince Rupert, major container gateways on the Canadian West Coast. The strike does not seem to affect bulk grain shipping... only container traffic.