Todd's Take

As I write this column on Thursday, Feb. 29, from the Commodity Classic event in Houston, Texas, I am anxiously waiting to hear what the Treasury Department and four other government agencies decided in terms of specifying what fuels will be eligible for the Sustainable Aviation Fuel (SAF) tax credit. The credit is no small matter, ranging from $1.25 per gallon for fuels that are deemed to have 50% less greenhouse gas (GHG) emissions than petroleum-based jet fuel to $1.75 for fuels that have no GHG emissions. The aviation industry has a goal of reaching net-zero carbon emissions by 2050, meaning they will also likely be buyers of carbon credits.

For corn and soybeans, having another new market for biofuels is an exciting opportunity to ward off the return of large surplus supplies that is taking place in 2023-24 and that USDA expects to increase even more in 2024-25. With surplus crops come unprofitable prices for producers. For U.S. agriculture, the primary problem is that it is becoming increasingly difficult to compete with the persistent expansion of cropland in Brazil.

In February's Ag Outlook Forum, USDA projected a U.S. corn surplus of 2.53 billion bushels (bb) in 2024-25, the largest since the 1987-88 season. For soybeans, USDA expects U.S. ending stocks to increase to 435 million bushels (mb), the largest surplus in six years. A higher surplus is possible, as soybean exports in 2023-24 are lagging USDA's estimated pace.

There's no need for me to speculate on what might be announced Friday, as the details will be out soon enough. I would like to point out that for corn and soybean production, only a small slice of the SAF pie is needed to make a big difference in corn and soybean prices. If corn had just another 400 mb of demand in 2023-24, we wouldn't be quoting DTN's national index of cash corn prices below $4 as we are today.

Over the past 20 years, an ending stocks-to-use ratio below 12% for corn and below 10% for soybeans gives producers better chances for profitable prices during the season. USDA currently estimates the 2024-25 ending stocks-to-use ratios at 17% for corn and 10% for soybeans.

The one thing we won't know on Friday is how long it will take actual SAF production to pick up, should corn-based ethanol and biomass-based diesel get green lights. I still see a possibility that Friday's announcement could help lift the heavy bearish mood on today's corn and soybean prices. Without increased biofuel production to counter the persistent decline of U.S. export share, the outlook for heavy corn surpluses could persist for years. With some light at the end of the tunnel, traders will have reason to eventually change their excessively bearish tune.

Stay tuned to DTN as we cover Friday's announcement.

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The comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.

Todd Hultman can be reached at Todd.Hultman@dtn.com

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