The View from the Bayou

Last week, I had the opportunity to travel to New Orleans for the 2022 Commodity Classic and cover the event from the booths of UPL and Intelligent Ag, and it was invigorating! Both the brisk morning walks through the one mile long convention center, but also the conversations that were taking place all over the trade show floor and in the meeting rooms. There were lots of discussions of reasons to be optimistic about the short and medium term; but there were notes of concern looking out further in to the future.

One topic that came up repeatedly was the rapidly shifting outlook for biofuels. As expected, the Biden Administration has spoken frequently about the need to “de-carbonize” America’s energy supply; though they have been slow to embrace ethanol and biodiesel as solutions. However, as the war in Ukraine has intensified and oil prices globally have continued their march higher, the value proposition of ethanol grows. By saving drivers money at the pump and providing a less carbon intense form of liquid fuel; ethanol and biodiesel look well poised to grow market share, and to help extend the reformulated gasoline supply. The Admin has not been loudly cheering biofuels, but they have made some positive steps – by revoking the 65 Small Refinery Exemptions issued by President Trump’s administration, Biden’s EPA appears to working to uphold the RFS. Those revocations haven’t been finalized, yet, which is another point of uncertainty for the industry.

Another prominent topic of conversation was Sustainable Aviation Fuel, or SAF. The broad goal behind SAF is to develop a biobased liquid fuel that could be dropped in to aircraft fuel tanks without expensive modifications to the engine. Several companies are working on the development of SAF, and almost all of the major air carriers have signed on to purchase SAF as production comes on line. Very little production is currently happening, however, and the industry still seems to be developing the best practices to allow them to scale. If production can scale, the opportunity here Is exceptional. The US Department of Energy currently has corn ethanol-based SAF as 15% less carbon intensive than Jet A fuel; and that number will continue to get better, as the industry focuses on managing that carbon intensity score.

Carbon markets also came up quite a bit, though the enthusiasm was more muted. Most farmers seem intrigued by the idea of being paid for their practices on the farm, but the cacophony in the market has most of the folks I spoke with hesitant to sign up. On the March 18 episode of AOA, I spoke with Jack Jeworski, of Ecosystem Services Market Consortium, about the challenges they’ve seen with these programs and how they could work better for farmers. Over the next several years, that market place is going to have to find a way to work for both carbon credit sellers and buyers, but I’m not sure anyone has the silver bullet quite yet.

Overhanging all of these positive interactions at Commodity Classic were fears of skyrocketing input costs, lack of product, and concern over interest rates. In addition to those concerns, many commodity group leaders were growing wary of demand destruction from high priced ag commodities. With everything screaming higher in price, end users might be willing to pay up now, but where does that go when the music stops? The next few years will see new challenges for growers across the ag supply chain, but they’ll also see several new opportunities.

-Mike Pearson

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