Pro Farmer Evening Report: Dec. 7, 2021

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EPA proposes reduced biofuels blending level for 2020, 2021... The Biden administration proposed on Tuesday a reduction in the amount of biofuels oil refiners have been required to blend into their fuel mix since the onset of the Covid-19 pandemic.

EPA proposed to retroactively set total renewable fuel volumes at 17.13 billion gallons for 2020, including 12.5 billion gallons of conventional corn-based ethanol, reducing volumes from a previously finalized rule for that year at 20.09 billion gallons for total renewable fuels and 15 billion gallons for corn-based ethanol.

It also proposed to set total volumes at 18.52 billion gallons for 2021 and 20.77 billion gallons for 2022. The corn-based ethanol volumes would be 13.32 billion gallons for 2021 and return to the statutory 15 billion gallons in 2022.

EPA’s proposals for biomass-based biodiesel are 2.43 billion gallons in both 2020 and 2021, and 2.76 billion gallons in 2022.

EPA also proposed to add a 250-million-gallon “supplemental obligation” to the volumes proposed for 2022 and stated its intent to add another 250 million gallons in 2023. According to EPA, “This would address the remand of the 2014-2016 annual rule by the DC Circuit Court of Appeals in Americans for Clean Energy v. EPA.”

EPA also proposed a rejection of 65 pending applications for small refinery exemptions – waivers requested by smaller fuel producers seeking to be excused from the blending mandates for financial reasons. The action, which is not final, comes after a court decision that narrowed the situations in which the agency can grant exemptions.

USDA announced in tandem with EPA’s announcement $700 million in grants to biofuel producers as Covid-19 relief and another $100 million in support for biofuel infrastructure.

EPA will hold a virtual public hearing Jan. 4, 2022, on the proposed rules.

EPA may make electric vehicles eligible for RINs... EPA is considering making electric vehicle power generation eligible for renewable fuel credits, known as renewable identification numbers (RINs), when it unveils its 2023 biofuel blending mandates next year, a top official told Reuters. The White House has directed the agency to study how using renewable fuels to power electric vehicle charging could generate RINs under the nation’s biofuels program.

“We already are working on a proposal to set volumes for 2023 and beyond as the statute requires and right now we’re planning to address e-RINs as part of that proposal,” Joe Goffman, the acting head of the EPA’s Office of Air and Radiation told Reuters.

December crop reports should be rather uneventful... USDA won’t update its corn and soybean crop estimates this month, only cotton, in Thursday’s Crop Production Report. That will put most of the focus on the Supply & Demand Report, specifically the demand projections for the 2021-22 marketing year.

Not much change expected to the global forecasts either. As with the domestic data, USDA is expected to just fine tune its global ending stocks forecasts this month.

Farmer sentiment weakens as production cost concerns mount... The Purdue University/CME Group Ag Economy Barometer slipped five points in November to a reading of 116 as producers continued to be pessimistic about both the current and future outlook of the agricultural economy. The Current Conditions Index declined seven points in November to a reading of 128 and the Future Expectations Index fell to 110. November marked the lowest reading of 2021 for all three measures of producer sentiment and the barometer is 30% lower than in November of 2020.

Rising production costs, including those for fertilizer, farm machinery, seed and fuel, are of increasing concern to farmers. Forty-three percent of respondents said they expect farm input prices to rise by more than 16% in the upcoming year. This compares with the actual average rate of farm input price inflation over the past decade of less than 2%.

Supply-chain problems could be responsible for a seven-point drop in the Farm Capital Investment Index. Forty-four percent of producers said their farm machinery purchase plans were impacted by low farm machinery inventories. When asked what their biggest concerns are for their farming operation in the upcoming year, nearly half (47%) of survey respondents chose higher input costs.

Unlike the broader sentiment measures, the Farm Financial Performance Index rose two points to 106 in November, 10% above its low reading in June of 2021.

Producers remain very optimistic about farmland values over both the next twelve months and the next five years, as both the short-term and long-term farmland value expectations indices remain near their peaks. Fifty-two percent of corn/soybean producers expect cash rental rates to rise in 2022, compared to 43% in October.

Concerns over governmental policy and regulations remain elevated among farmers. Respondents expect more restrictive environmental regulations (74%), higher estate taxes (82%) and higher income taxes (77%) in the years ahead.

U.S. bank executives raise concerns over inflation... U.S. bank executives on Tuesday raised concerns about the impact of a sustained period of higher inflation, adding to pressure on the Federal Reserve to accelerate plans to slow down the pace of its asset purchases. Wells Fargo Chief Executive Charlie Scharf said the Fed may need to move more quickly to address inflation concerns. Goldman Sachs Chief Executive David Solomon said he anticipated a period of higher inflation.

The International Monetary Fund last week warned of intensifying inflationary pressures, especially in the U.S., and said the Fed should focus more on inflation risks. The U.S. central bank needs to be ready to respond to the possibility that inflation may not recede in the second half of next year as most forecasters currently expect, Fed Chair Jerome Powell said last week.

“My guess is now that there will be a quicker path to appropriate actions,” said Scharf.

Solomon anticipates inflation will be higher for a period but doesn’t expect a repeat of the cost rises seen in the 1970s, he said in an interview with CNBC.

Carbon price surge triggers U.K. ‘cost containment’ market mechanism... U.S. carbon price watchers take note because an energy crunch in Europe is driving the price paid by polluters to new highs and could mean the U.K. government must act. Under the scheme, governments set a cap on the maximum level of emissions and create permits, or allowances, for each unit of emissions issued under the cap. Heavy polluting companies are obliged to buy credits granting them permission to emit one metric ton of carbon. A gas shortage has led some energy producers to switch over to cheaper but dirtier coal. Since coal is more carbon intensive than gas, demand for allowances has increased.

In the U.K., credits have surged and last week came near a record of more than £75 per metric ton. Meanwhile the price under the EU system hit a high of more than €81 on Monday. This compares with about €32 per metric ton at the start of the year. High prices triggered the UK’s “cost containment mechanism” (CCM) for the first time, which obliges policymakers to consider whether to intervene in the market. The government said it would announce whether to take action by Dec. 14.

Vilsack pushes back against calls for halt to imports of Brazilian beef... USDA Secretary Tom Vilsack said it would not be appropriate for the U.S. to halt imports of Brazilian beef even though the country was late in reporting two atypical cases of BSE earlier this year. “At this point in time, there isn’t a scientific reason or basis” to halt trade, Vilsack told Politico. He also noted there is a “misunderstanding” about the issues with Brazil. “There’s the belief that there is something a bit more serious than in fact is,” Vilsack said.

Several lawmakers have called for the halt of imports of Brazilian beef, calling on USDA to act. “If we were to do that, then we would expose our own beef industry to significant restrictions worldwide under similar circumstances, which we don’t want to do,” Vilsack noted. While the atypical cases are not an indicator of major issues with BSE in Brazil, some lawmakers contend the delay by Brazil in notifying on the cases raises questions on how they would respond to a BSE outbreak or outbreaks of other animal diseases. Vilsack is relying on guidance from the World Animal Health Organization (OIE), which does not call for such a ban from atypical cases of BSE — ones that spontaneously occur at a low rate and do not pose a risk to other animals.

Announcement detailing supplemental DMC payments expected soon... USDA should soon announce details of supplemental Dairy Margin Coverage (DMC) payments as the Office of Management and Budget (OMB) has completed its review of the payment effort that was approved in December 2021 and forwarded to the White House for review Sept. 30.

Some details emerge. “Eligible dairy operations with less than 5 million pounds of established production history may enroll supplemental pounds based upon a formula using 2019 actual milk marketing,” according to a summary of the information sent to OMB. “Supplemental DMC coverage is applicable to calendar years 2021, 2022, and 2023. Participating dairy operations with supplemental production may receive supplemental payments besides payments based on their established production history.”

Other changes coming. Beyond the DMC payments, the package also includes changes to the Marketing Assistance Loan (MAL) and Loan Deficiency Payment (LDP) regulations to make them consistent with the 2018 Farm Bill. The rule also covers the $9 million in assistance that was in the Consolidated Appropriations Act of 2019 to make payments to producers impacted by an Oriental Fruit Fly Quarantine in Florida. There was $9 million appropriated for the payments that may cover crops intended to be harvested in the 2015 and/or 2016 crop growing seasons.

Indonesia court rejects bid to reinstate palm oil permits in Papua... An Indonesian court on Tuesday rejected a bid by two companies to reinstate permits for palm oil plantations in its easternmost region of Papua, in what was seen as a test of the government’s pledge to halt such land conversions to contain deforestation. The verdict comes two months after Indonesia said it would not approve new palm oil permits even after the lapse of a moratorium on plantations.

PT Papua Lestari Abadi (PLA) and PT Sorong Agro Sawitindo (SAS) had permits for about 70,000 hectares (172,973 acres) of land. The firms had sued the head of the Sorong district in West Papua overseeing their permits, arguing that revoking them had harmed the companies.

Indonesia last month joined 127 other nations pledging an end to deforestation by 2030, but just days later appeared to back track, saying that a zero-deforestation goal was at odds with development interests. Instead, Indonesia promised a “carbon net sink” goal for its forestry sector by 2030, meaning that the sector will absorb more greenhouse gas emissions than it emits.

Meanwhile, Indonesia’s parliament approved a law that would allow a new levy on palm plantations to protect the environment, with Sri Mulyani, Indonesia’s finance minister telling parliament it would be established in the next two years. There was no mention of how much the new levy would be, but it is aimed at boosting finances for provinces and cities.

“The law provides an option to introduce a new levy to support regional fiscal capacity in order to provide quality services to the community ... in the context of public interest and environmental sustainability, such as a levy for the management of palm plantations,” Mulyani said. The law would also allow for raising of some tax rates including on land and buildings, noting it would potentially boost revenues by about 50% after taking effect. The ability to issue municipal bonds to fund development projects is also part of the legislation. Timing and size of the new levy on palm plantations will be key to assessing the potential impact.