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Impressive Sales to China, EPA and the Future of Ethanol

Update for January 28th, 2021


U.S. acreage estimates for the 2021 growing season are starting to emerge. IHS Markit (Informa) has projected a 3.4 million acre increase in corn acres for 2021, raising the 90.8 million corn acres from last season up to 94.2 million. Soybean acre estimates are expected to make a large jump as well, current projections call for soybean acres to increase from 83.1 million acres in 2020 to 90.1 million for 2021. These estimates raise the overall corn/soybean acreage for the new crop by 10.4 million over last season. These outlooks brought some pressure to the grain markets last week but this week prices have surged higher on news of huge corn and ethanol sales to China.


This week the USDA confirmed the largest flash sale of U.S. corn since July with Chinese buyers purchasing 53.5 million bushels. Currently, U.S. corn is the cheapest available on the global market and will remain the preferred source until a cheaper source emerges. ADM CFO told Reuters that China has made a purchase of “roughly 200 million gallons” of U.S. ethanol for delivery during the first half of this year. Typically, China has not been a large ethanol customer but increasing demand within the country, a shortage of domestic corn supply plus an environmental push towards the use of more biofuels has led to this sizable order. Ed Hubbard, general counsel and vice president of government affairs with the Renewable Fuels Association said, “This would be a significant purchase. It would be something that would shake the industry up. The challenge, though, is that we have to wait and see whether or not it actually materializes.” The last time we received a Chinese purchase of U.S. ethanol even close to this amount was in 2017 when annual purchases hit 198.1 million gallons. “We were seeing volumes from starting in 2013, rising from about 23 million gallons to about 50 million gallons and then by 2017, they peaked at 198.1 million gallons. We just topped it with this commitment, which is huge. I mean 2017 was a peak, and now China has the potential to be our number one, two or three market. This is key for the industry, it’s something to be positive about.”

The American Farm Bureau has voiced their concerns to the USDA/NASS regarding the declining accuracy of reports from the agency. Farm Bureau President Zippy Duvall stated that, “While NASS may have a gold standard reputation for agriculture statistics globally, U.S. farmers’ confidence in their reports has unfortunately declined.” He explained that some the large changes in some of the data over the past few years has “left farmers questioning the agency’s ability to respond quickly to rapidly changing conditions on the ground.” Duvall also stated that NASS has responded to Farm Bureau’s concerns telling them that, “We feel confident the items recommended in the report either are being addressed or are underway, and we look forward to enhancing our communications in the near future.”


The U.S. Circuit Court of Appeal for the D.C. Circuit has put a hold on three biofuel waivers that the EPA had granted to small oil refineries on January 19th. The unanimous decision came as the Renewable Fuels Association filed a lawsuit and emergency motion for a stay, explaining that such an exemption would harm the ethanol industry by suddenly depressing the mostly corn based fuel’s prices. This court order also prevents the EPA from processing any additional small refinery waiver requests until the court has time to consider the emergency motion.


The EPA is not required to disclose the identity of what refineries have received waivers but the RFA noted that the two waivers granted for 2019 combine for a loss of 150 million gallons of biofuel demand. RFA also noted that the EPA website indicates that a 2018 waiver that had earlier been denied was reversed, amounting in and additional loss of 110 million gallons of biofuel demand. Geoff Cooper RFA CEO said in a statement, “This midnight-hour attempt by the Trump administration to damage the Renewable Fuel Standard and sabotage the ethanol industry’s recovery from the COVID pandemic simply cannot be allowed to prevail. With just hours remaining in his shameful term as EPA Administrator, Andrew Wheeler couldn’t stop himself from doling out a few more Clean Air Act compliance exemptions to his well-connected friends. But the fact remains that today’s action by EPA is completely without legal merit. It flouts both the statute and recent court decisions that clearly limit EPA’s authority and ability to grant these exemptions. And while this action comes as one last sucker punch from the Trump administration, we are confident it will be a hollow victory for the politically connected oil companies receiving today’s waivers, as the new Biden Administration will most certainly act quickly to restore the volumes erased by these waivers.” Currently the EPA website shows that there are still 30 outstanding small refinery exemption applications for compliance year 2019 and 15 for 2020.


Growth Energy CEO, Emily Skor said in a press release, “Farm families and biofuel workers across the country have worked tirelessly to make a living over the past few months despite a global pandemic. And yet, the Trump Administration’s SRE abuse has piled on to the uncertainty and difficulty that rural Americans are facing every day. Given President-elect Biden’s commitments on the campaign trail, we’re confident his incoming team will swiftly work to reverse the damage these oil handouts have done to rural America by this midnight maneuvering.”


Former Ag Secretary from the Bush Administration, Mike Johanns told Chip Flory on AgriTalk that he is not overly confident that the Biden administration will be supportive of biofuels as many had hoped but also doubts that he will push for the extreme “Green New Deal” some from the far-left support. Johanns told Flory that he is concerned about the future of biofuels. “I just wonder if the Biden administration is going to push biofuels like the Bush administration did when I was the Secretary of Agriculture. The bloom kind of went off the rows. And I'm not sure that Biden scores a lot of points with the green elements and his party if he moves in the direction of biofuels. So that one I put in the category of pay attention. I'm worried about it.


The Small Business Administration has reopened the Paycheck Protection Program (PPP) and has also opened the Second Draw PPP Loan Program for eligible businesses to apply to for a second PPP loan. The rules and loan calculation formula for this latest program have made it easier for farms without an actual “payroll” to receive forgivable loans through the PPP program. For more information you can check out the SBA’s website and talk to your local lending institution for further details.


Another weekend, another winter weather system. Again, the highest snowfall totals are expected to fall across central and southern Iowa and eastward.


The EURO

The EURO model is shown above with estimated snow totals. The odds that this system will bring with it an inch or more of snow is illustrated in the map below, the model has 90-100% confidence of 1 inch plus of accumulation in the red zone.

The 6-to-10-day outlooks for January 31st-February 4th are shown in the maps below.

6 to 10 Day Forecast...


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