Energy bust threatens farmer earnings
Debt-laden farmers face a collapsing energy market that threatens to stunt corn demand and overall revenue after weathering last season's historic flooding and a trade war.
Plunging oil prices and waning gasoline demand during the last two weeks have further crunched ethanol production margins, forcing many manufacturers to idle operations or curtail production during the last two weeks — eroding near-term corn demand.
About 20pc of ethanol plants in the US have idled and another 40-50 facilities curbed output, according to the Renewable Fuels Association.
Between 400mn-500mn bushels of corn may not be consumed if the cuts in ethanol production stretch through May, according to INTL FCStone risk management consultant Jake Moline, amounting to $1.52bn-1.9bn in lost revenue based on the US Department of Agriculture's (USDA) average farm price in March.
Farmers will likely re-evaluate crop mixes for this season when faced with potential revenue losses of this magnitude but this is unlikely to be reflected in the USDA's acreage forecast tomorrow, Moline added.
"If you are unsure if that ethanol plant will be running, you are then scratching your head whether or not you are going to plant corn," Moline said.
The US ethanol industry consumes about 38-40pc of domestic corn production, according to the US Department of Agriculture (USDA), and has supported the US as a global leader in corn output since 2007.
The massive expansion of biofuel production in the US — kickstarted by the Energy Independence and Security Act of 2007 — bolstered farmer earnings and fueled growth in the agricultural sector as the nation slipped into the Great Recession.
The timing of the recession "came in during a period right when farm income was taking off, and then it kept going to about 2013," USDA senior economist Carrie Litkowski said.
But as the energy sector shielded the nation's corn sector from a recession 10-12 years ago, it is primed to capsize at-risk farmers still recovering from last season's flooding and the now de-escalating trade war with China.
Farmer debt this year is forecast to balloon to an all-time high of $425.3bn, according to the USDA, while bankruptcy cases continue to amass in the US heartland.
Chapter 12 filings — a form of reorganization specifically for farmers — rose to a new high at 580 cases during the 2019 government fiscal year, which runs from October to September, according to US federal courts data.
President Donald Trump has aimed to keep farmers afloat through subsidies. The Trump administration last year approved the highest amount of federal aid since 2005 after severe rains caused flooding and delayed planting, while the trade war with China severed a major, long-established destination market for soybean growers.
Farmers this year are set to receive another $23.5bn of direct federal assistance after Trump on 27 March signed the massive $2 trillion stimulus package geared to provide economic relief to various industries from the coronavirus disruption.
"We are going to keep our small businesses strong and our big businesses strong," Trump said during the signing ceremony. "And that is keeping our country strong and our jobs strong."
Related news posts
Brazil's Pelotas port resumes operations
Brazil's Pelotas port resumes operations
Sao Paulo, 21 May (Argus) — Brazil's Pelotas port, one of the three main ports in flood-swept southern Rio Grande do Sul state, resumed operations on Tuesday. Cargo handling had been suspended since the beginning of May as heavy rains hit the region in late April and caused the biggest flood in the history of the state. The port of Rio Grande, the largest in the state and one of the most relevant for grains and fertilizers in Brazil, continues to operate normally. Rio Grande did not suspend operations at any time during the floods, but cargo handling slowed in recent weeks. For safety reasons, the port authority reduced the draft to 12.8 meters (42ft) at the Bunge, Bianchini and Termasa/Tergrasa terminals. The port of Porto Alegre has suspended operations because Lake Guaiba's level is at 4m, 1m above its flood level, according to the state's civil defense. There are 77 stretches of on 46 highways in Rio Grande do Sul totally or partially blocked, including roads, bridges and ferries. Since the floods began, 464 cities have been impacted, affecting around 2.4mn people. The floods have left 161 people dead, 85 missing and over 581,600 people displaced. By João Petrini Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
ScanOcean to supply MGO-HVO blend in Sweden
ScanOcean to supply MGO-HVO blend in Sweden
London, 21 May (Argus) — Swedish bunker firm ScanOcean will supply a B30 marine biodiesel blend made of marine gasoil (MGO) and hydrotreated vegetable oil (HVO) by truck at all Swedish ports. The B30 blend will comprise 70pc MGO and 30pc HVO and meet ISO 8217:2017 MGO specifications, according to ScanOcean. The biofuel component will not contain any fatty acid methyl ester (Fame) and the blend will reportedly be accompanied by ISCC-EU certification and a proof of sustainability (PoS) document. ScanOcean added that they will supply the physical blend but that the HVO component will be sourced from the EU. The B30 blend will achieve a 25pc reduction of CO2 emissions on a well-to-wake basis when compared with conventional MGO, according to the Swedish supplier. By Hussein Al-Khalisy Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Brazil removes rice import tariffs due to floods
Brazil removes rice import tariffs due to floods
Sao Paulo, 20 May (Argus) — Brazil removed rice import tariffs to guarantee national supply amid recent flooding in southern Rio Grande do Sul state and domestic price increases. The measure, revoking tariffs ranging from 9pc to 10.8pc, encompasses three types of rice, Brazil's foreign trade council Camex said. It is aimed at preventing price hikes in the domestic market as floods reaching Rio Grande do Sul since 29 April may have harmed national rice production. The removal was requested by ministry of agriculture Mapa and national supply company Conab and will be in effect until the end of the year. The government may extend that period at a later date. The decision follows Brazil's federal government provisional measure on 10 May that authorizes Conab to import up to 1mn metric tonnes of rice. Rio Grande do Sul is Brazil's largest rice producer, responsible for 70pc of national production, but the current crop may be harmed by the historic rainfall in the state. The 2023-24 rice crop was 84pc harvested as of 12 May, just a 1 percentage point increase from 29 April. The extreme weather caused a humanitarian crisis in the southern state and has left 157 people dead, 88 missing and over 581,000 people displaced, according to the state's civil defense. By Maria Albuquerque Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Q&A: Marine CO2 goals need culture shift: TotalEnergies
Q&A: Marine CO2 goals need culture shift: TotalEnergies
Amsterdam, 20 May (Argus) — A cultural change in buying behaviour and supply patterns is necessary for the shipping sector to meet its decarbonisation targets and may be the biggest hurdle to overcome, strategy and projects director for TotalEnergies' marine fuels division Frederic Meyer told Argus. Edited highlights follow: What is the biggest challenge standing in the way of the maritime industry in meeting decarbonisation targets and the fuel transition ? A cultural change is required — for decades the maritime sector has relied on by-products with high energy density from the crude refining process such as fuel oil. The industry will now have to pivot its attention towards fuels developed for the purpose of consumption within the maritime industry. This will also require time as the sector looks to level up, and it remains to be seen whether there will be enough time to meet the International Maritime Organisation (IMO)'s net-zero by or around 2050 targets. But we have seen some good progress from cargo owners who are seeking scope 3 emissions related documents. How does TotalEnergies see marine biodiesel demand moving in the short term? In the short term, there is little incentive for the majority of buyers in the market. This is due to a lack of any regulatory mandates, as well as limited impact from existing regulations such as the IMO's carbon intensity indicator (CII) and the EU's Emissions Trading System (ETS). Despite providing a zero emission factor incentive for biofuels meeting the sustainability criteria under the EU's Renewable Energy Directive (RED), EU ETS is still on a staggered implementation basis beginning with only 40pc this year, rising to 70pc next year and 100pc in 2026. Further, EU ETS prices have been quite low, which also weighed on financial incentives for marine biodiesel. Therefore, many buyers are currently waiting for further incentives and signals from the regulators before purchasing marine biodiesel blends. Another point impacting demand is the current edition of ISO 8217, which does not provide much flexibility when it comes to marine biodiesel blend percentages and specifications. The new 2024 edition will likely provide greater flexibility for blending percentages, as well as a provision for biodiesel that does not meet EN14214 specifications. This will provide greater flexibility from a supply point of view. However, there remains stable demand from buyers who can pass on the extra costs to their customers. And how do you see this demand fluctuating in the medium to long term? If the other alternative marine fuels, such as ammonia and methanol, that are currently being discussed do not develop at the speed necessary to meet the decarbonisation targets, then marine biodiesel demand will likely be firm. Many in the market have voiced concerns regarding biofuel feedstock competition between marine and aviation, ahead of the implementation of sustainable aviation fuel (SAF) mandates in Europe starting next year. With Argus assessments for SAF at much higher levels than marine biodiesel blends, do you think common feedstocks such as used cooking oil (UCO) will get pulled away from maritime and into aviation? With regards to competition among different industries for the same biofuel feedstock, suppliers may channel their feedstock towards aviation fuels due to the higher non-compliance penalties associated with SAF regulations as opposed to those in marine, which would incentivise greater demand for SAF. An area that can be explored for marine is the by-product when producing SAF, which can amount to up to 30pc of the fuel output. This could potentially feed into a marine biodiesel supply pool. So it's not necessarily the case that the two sectors will battle over the same feedstock if process synergies can be found. Regarding fuel specifications, market participants have told Argus that the lack of a marine-specific fuel standard for alternatives such as marine biodiesel is feeding into uncertainty for buyers who may not be as familiar with biofuels. What impact could this have on demand for marine biodiesel blends from your point of view? Currently, mainstream biodiesel specifications in marine biodiesel blends are derived from other markets such as the EN14214 specification from road diesel engines. But given the large flexibility of a marine engine, there is room to test and try different things. For "unconventional" biofuels that do not meet those road specifications, there needs to be a testing process accompanied by proof of results that showcase its safety for combustion within a marine engine. Some companies may not have the means or capacity to test their biodiesel before taking it into the market. But TotalEnergies always ensures that there are no engine-related issues from fuel combustion. Suppliers need to enact the necessary testing and take on the burden, as cutting out this process may create a negative perception for the product more generally. Traders should also take on some of the burden and test their fuels to ensure they are fully compatible with the engine. With many regulations being discussed, how do you see the risk of regulatory clashes impacting the industry? The simple solution would be an electronic register to trace the chain of custody. In the French markets, often times the proof of sustainability (PoS) papers are stored onto an electronic database once they are retired to the relevant authority. This database is then accessible and viewable by the buyer, and the supplier could also further deliver a "sustainability information letter" which mirrors the details found in the PoS. It is important for the maritime sector to adopt an electronically traceable system. What role could other types of fuels such as pyrolysis oil potentially play in the maritime sector's decarbonisation targets? We have teams in research and development at TotalEnergies which are studying the potential use of other molecules, including but not limited to pyrolysis oil, for usage in the maritime sector. It may become an alternative option to avoid industry clashes, as pyrolysis oil would not be an attractive option to the aviation sector. We are currently exploring tyre-based pyrolysis oil, but have only started doing so recently so it remains an untapped resource. We need to figure out the correct purification and distillation process to ensure compatibility with marine engines. For the time being we are specifically looking at tyre-based pyrolysis oil and not plastic-based, but we may look at the latter in a later stage. The fuel would also have to meet the RED criteria of a 65-70pc greenhouse gas (GHG) reduction compared with conventional fossil fuels, so we are still exploring whether this can be achieved. By Hussein Al-Khalisy Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Business intelligence reports
Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.
Learn more