800 326 9054As U.S. ethanol producers race to find new markets, a single slide at an agricultural gathering in Iowa this month showed three drastically different paths for corn farmers through 2034.
The first showed stagnant corn prices in the state, hovering around $4 a bushel, a level at which most farmers aren’t profitable, said David Miller, agricultural economist at Decision Innovation Solutions, during a talk earlier this month at the Iowa Renewable Fuels Summit. The scenario is based on a USDA outlook for 10% fewer corn acres.
A second path had both a pullback in plantings and zero demand growth, sending corn plummeting to around $2.20 a bushel, the floor at which government-guaranteed loans kick in. At that point, only an extreme event like a major drought would revive the market, Miller said.
The third option featured corn climbing as high as $6 a bushel on demand from year-round sales of higher-ethanol fuel blends, known as E15, and a robust market for ultra-low carbon ethanol. The first possibility, currently stalled in Congress, is seen as a temporary solution to declining demand for liquid motor fuels due to more use of electric vehicles. The latter is considered the key to long-term health of the U.S. ethanol industry and the massive amounts of corn used to make it.
“The demand that can come off of ultra-low carbon ethanol as a feedstock is unlimited,” Miller said at the Feb. 5 conference in Altoona, Iowa.
Just a couple of days before the summit, the Treasury Department issued long-awaited proposed rules for a tax credit, dubbed 45Z, aimed at encouraging production of lower-emitting fuels made from North American crops. They include sustainable aviation fuel, or SAF, which can be made from a variety of materials, including ethanol.
Roughly 40% of each year’s U.S. corn harvest goes into producing ethanol that’s mixed with gasoline to power cars under the federal mandate in the Renewable Fuel Standard. Demand, though, for conventional ethanol may have already peaked, according to Miller. That’s why hard-to-electrify transportation sectors like aviation and marine are thought to be crucial for the longevity of U.S. corn-based ethanol.
Iowa farmer Mitchell Hora, founder of Continuum Ag, a soil health data company, said he’s been beaming since the 45Z proposal came out. That’s because the Trump administration said it intends for low-carbon feedstock to have a role, with farm practices like reduced or no tilling, cover crops and more efficient nutrient use contributing to lowering the carbon intensity of ethanol, Hora said.
The base value of 45Z is based on a the carbon footprint, or CI score, of a fuel’s entire production chain, replacing a previous flat $1-a-gallon credit.
U.S. corn, especially in the top growing state of Iowa, has faced intensified pressure in the last few years to decarbonize as ethanol from Brazil has had a lower CI score, making it the preferred feedstock for the world’s first commercial ethanol-based SAF plant that recently began operations in the state of Georgia.
Decisions still to come on 45Z
There are still key 45Z questions for the Trump administration to clarify, including whether producers can use a “book and claim” system that allows them to sell low-carbon data certificates to fuel producers separate from their physical grain, said Hora. But overall, the forthcoming government feedstock calculator is what his firm has been waiting for and is expected to give producers that have invested in sustainable farming a strong competitive edge.
“It will help create a nice 45Z credit that’s a big enough pie to make it worth it,” he said.
Yet for a farm sector that for decades has seen grand plans, including around low-carbon opportunities, come and go, a lot must happen before widespread momentum takes off.
“Adoption of regenerative systems today is minimal,” Hora said, noting that cover cropping nationwide is only at about 5%. “But now these practices can be highlighted as not only building soil health, but also lowering our carbon footprint.”
Former USDA Chief Economist Seth Meyer said he was a “bit disappointed” that the proposed 45Z tax credit guidance didn’t fully embrace the “climate-smart” ag recommendations made during the last days of the former Biden administration.
“We put a lot of effort [at USDA] into addressing the producers’ concerns, getting everything in order and really putting out there a solid concept,” Meyer said at the Iowa summit. “They could have referenced our preliminary rule … but they didn’t.”
The Treasury Department has indicated it would fold the guidelines into the rules, but didn’t provide timing or other specifics.
There’s also the thorny issue of how the Trump administration handles existing or proposed policies that have a whiff of “green” – or climate control – motivation. For example, the Energy Department early last year changed references to “sustainable aviation fuel” on its website to “synthetic aviation fuel.”
Ongoing interest in regenerative ag, climate mitigation
USDA’s Natural Resources Conservation Service in December launched a regenerative pilot program and said it is investing $700 million to bolster its mission of “helping people help the land.” A draft farm bill unveiled last week by the Republican-led House Agriculture Committee includes references to climate mitigation and resilience, and also calls on USDA to come up with a strategy to help advance production of “sustainable aviation fuels.”
“There’s a bipartisan moment happening with sustainable agriculture,” Mike Aquino, director of ESG at the International Dairy Foods Association, said at a panel discussion on Capitol Hill last week hosted by the Environmental Defense Fund. “You can call an initiative whatever you want, but most farmers want to pass on good soil to the next generation.”
Hora, speaking at the same event in Washington, said he agreed, while also adding he thinks there’s an opportunity to join forces with the “Make America Healthy Again” movement on some regenerative agricultural issues.
“It’s just the talking points of how to do things has changed a little bit,” he said. “It’s just framing things a bit different.”
*Sourced from Agri-Pulse.