Carbon Intensity Scores and A Late Summer El Niño
Carbon Intensity (CI) scores are an intended portion within the Inflation Reduction Act, this provision if enacted could benefit farmers that measure the carbon intensity of their grain.
The Section 45Z tax credit will encourage biofuel producers to produce low-emission fuels. According to Ag Web this is different than the carbon offset programs we are familiar with because it links each farmer’s carbon data with their crop when sold vs using the carbon as a separate asset. There’s a “catch” though, the IRS has not issued what their regulations will be which is holding up the industry from being able to inform producers what the value will be to their operations.
Mitchell Hora, a farmer from Iowa has calculated his low carbon intensity crop at a -4.4 based on his current practices and stated this could potentially be worth more than $400 per acre in 45Z tax credits. He said, “What excites me the most about this is it really opens the potential for farmers to be price makers and not price takers. With their production practices, including the long-term practitioners who were excluded from offset market participation, they can sell a digital asset associated with a physical product, their grain.” Through the use of his regenerative ag software business, Continuum Ag, Hora is able to assist farmers determine their carbon score which is calculated using a specific set of practices which include:
• Fuel/energy usage
• Cover crop-what kind or rate does not matter
• Insecticide (fungicide is not currently included)
This means that every farm will vary from others but producers will understand the set of parameters that is used to determine CI scores and what each of them amounts to when calculating the incentives. The parameters have been determined by the U.S. Department of Energy and currently the standard CI score for corn is 29.1. The Inflation Reduction Act will set the weighted average below 25.
CPA Paul Neiffer says, “The value potential here is pretty good. 5.4 cents per CI point below the industry standard. If you raise 200-bushel corn with a CI score of 0 that’s $1.57 per bushel and an extra $314 in value. Now, the ethanol plant isn’t expected to share 100%, but it could be 25% to 30%. There’s definitely potential here for material value to the farmer. I don’t think this is pie in the sky.”
Neiffer believes that this could be “transformational” for farmers and said, “This is based on what farmers are actually doing. If a farmer has done good practices, that are getting rewarded for it. This isn’t a program where a farmer has to make a change and then wait 5 to 10 years for a bonus payment.” He also noted that this 45Z provision will only be in effect for 3 years beginning January 1st, 2025. “First, the IRS needs to publish their regulations, which will help us really calculate the values. We could get that from the agency as late as December 2024.” In the meantime, Hora advises farmers to find someone that can help them start to measure their current CI scores and get all needed data ready.
The U.S./China relationship has been strained for years and is only getting worse. Unfortunately, it’s becoming painfully obvious they have the upper-hand over the U.S. when it comes to trade right now and you need not look any further than our ag market. Over the past couple of weeks China has canceled orders for millions of bushels of U.S. corn and instead is buying from about any global supplier.
Last week China received the first cargo of South African corn, facilitated by the state-owned grain trader COFCO. This original shipment of 2.1 million bushels will be followed up by more than 4.3 million bushels from South African ports headed to Chinese destinations. This is not good news for U.S. grain exports.
AgMarket.Net co-founder, Bill Biedermann says, “China and South Africa has been doing some major logistic projects together. While we’ve been out partnering with our allies on growth, China has been sitting down at the table, putting together drills and opportunities for a lot of different countries, and they’re winning over their trust.” They have also been solidifying their relationship with South America and have made huge investments in SAM infrastructure. China has made more than 20 trade deals with Brazil and are currently buying their record crop. Biedermann added, “Aside from the massive increase in not just South American production, but their logistics in order to ship it out, is the relationship they have with China and the other allies we used to have strong relationships with. Now our relationships with our own allies, quite a few of them, as well as China, who we were pretty big business partners with have really deteriorated, and I don’t think that’s going to reverse for some time.”
Garrett Toay of AgTraderTalk says the reason all of this is happening is simple. Brazil’s prices are cheaper than U.S. corn. He said, “We knew that we had a small gap of a U.S. export window in China when they came in and bought some corn from us, and that actually helped us out. But now with the cancelations this week, I think for the most part, they’ve taken that lifeline back and we’re focused on Brazilian corn offers for July and August that are $30, $40 or even $50 a ton cheaper than U.S. offers. And that’s a problem, especially when we have a demand problem in a market that is fairly convinced that we’ve done the job of demand rationing.”
U.S. House Committee on Agriculture is asking for your feedback through an online portal regarding the next Farm Bill. Committee leaders believe this new tool will give producers and consumers a forum to share experiences and priorities. Ag Committee Chairman GT Thompson, R-PA explained, “In order to craft a comprehensive, effective farm bill, we must hear from stakeholders across the country.”
The online survey asks the respondent to share information regarding their location and occupation as well as what new Farm Bill title they are most interested in, which programs are performing best, what programs need improvement and new ideas that the respondent feel should be considered. If you would like to participate and have your voice heard the online portal will remain open until June 9th and can be found at: agriculture.house.gov Follow the Policy heading and then choose the 2023 Farm Bill tab.
The odds a strong El Niño will develop by late this summer and into winter is increasing, indicated in the Sea Surface map that illustrates the extremely warm ocean temps that are located along the equatorial waters of the Pacific Ocean. Looking back to the only other 2 strong El Niño’s in the last 30 years gives us a clue regarding what this may mean for our weather this summer which generally means a cooler/wetter outlook.
This weekend a boundary line is setting up. The position of the line is expected to waver north and south throughout the weekend which makes accurately forecasting difficult because the position of the line will dictate both precipitation amounts and temperatures. A difference of only 50 miles one way or the other could determine whether you will see stormy conditions or quiet.
The abundance of available moisture will cause instability…CAPE. Current models indicate that enough atmospheric instability will be present for the development of severe thunderstorms Saturday afternoon or evening. Heavy downpours, hail and wind are the most likely concern but there is the possibility of some rotating updrafts developing tornadoes.
Rainfall amounts vary greatly between GFS and EURO models. A likely area where the heaviest precipitation will fall is near and north of the warm front. That’s where lift is most prominent and training is possible.
Sunday will be cool. Temps may not get out of the 50’s and will be accompanied with a NE wind. The forecast for Monday through Thursday next week looks quiet. Highs are expected to range in the 70’s to 80’s until Friday when highs are predicted to only reach the 60’s throughout the weekend. The GFS model actually shows lows falling into the upper 30’s Saturday morning May 20th.