The first day of May ushered in a pleasant surprise today. After early session weakness, corn and soybeans finished higher. The volume was light and buying was believed to be technical in nature. July corn closed 4 cents higher, but more importantly 7 cents off session lows. December corn closed 3 cents higher. After yesterdays big sell-off, July soybean futures found a way to stop the bleeding. July finished 7 cents higher, and 14 cents off session lows. November beans moved 5 cents higher. The winning streak stopped with wheat. July CBOT wheat closed 4 cents lower, KC down 10 and MPLS fell 2 cents.
We suspected some big moves were in store for outside markets today given the Fed’s meeting. Fed Chairman Powell said interest rates are high enough to slow inflation, and a rate hike is unlikely. Rates were left unchanged. The Dow bounced in a 533 point range and settled 87 points higher. Gold rallied $23 and the dollar sank .320 points. Oil dropped $2.77/barrel to $79.17 on rising domestic supplies. It is the first time oil has been under $80/barrel in 7 weeks.
Meanwhile, ethanol output continues to increase for the third straight week. Production was up 33,000 barrels per day to 987,000 barrels and is a three week high. Stocks were lower. That is a good combination. The USDA projections should be met, if not exceeded.
Yesterday we mentioned the updated GREET model. A lot of yesterday’s rhetoric applied to the 40B program which is SAF specific. Not very many farmers will qualify for a premium for their grain because of the new rules. With that program, a farmer would need to do ALL of the following; plant a cover crop, utilize no-till or strip till practices and use an enhanced fertilizer stabilizer. And, everything would need to be documented by a third party. The timing is terrible. The max tax credit is $1.75/bu with the processor plant likely taking half.
We are much more interested in the 45Z program which will allow ethanol plants to receive a tax credit, and give a premium to farmers for their grain. This program is set to begin in 2025, so your 2024 crop may be eligible. Rules have not been announced, but our sources indicate the documentation will be just as robust as the 40B program. However, they think the government will use a “feedstock calculator” that will calculate your carbon score by field depending on practices. This will likely allow a farmer that uses manure versus synthetic fertilizers obtain a lower score and various other practices. The lower the carbon score, the better chance of a higher premium from the ethanol plant.
Upon completed documentation, an independent party will give the producer a certificate that has each field’s carbon intensity score. The producer will sell it to the ethanol plant in exchange for a premium. Producers and ethanol plants can “mass balance” bushels, meaning they can commingle CI scored bushels versus regular bushels. The certificate is, in effect, a digital certificate for “x” bushels.
We have seen examples, depending on your carbon score, where CI bushels can demand up to a $350/a tax credit split between the producer and ethanol plant. We don’t know what the split will be, but the farmer is doing almost all the work in our eyes. But, the farmer would not be able to receive a premium without the ethanol plant and vice versa. Sources say a 50/50 split is reasonable. There is plenty to learn and evolve with this program. We will pass along more info as we get it.
A carbon score is all fine and dandy, but we have to get the crop planted first. We suspect that there hasn’t been much done in the field this week in many areas and the forecast is wet (again). Both the 6-10 and 8-14 day forecasts are wet for both the WCB and ECB thru May 11.
Below is a map of April ranked in terms of precip in the past 132 years. The number 1 is wettest out of 132 years. While trying really hard not to complain after the past couple years of drought…this rain needs to stop for a couple of weeks – especially in the dark green districts. It is not a surprise that Iowa has 39% of their corn planted as of last week versus 8% in Indiana.
The market has not reacted to planting delays yet. Maybe next week?
Good Night.
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