CFTC Agriculture Advisory Committee Meeting

On April 5th 2023, the Commodity Futures Trading Commission (CFTC) Agriculture Advisory Committee (AAC) held a public meeting.  The meeting agenda included agriculture data and analytics, sustainable biofuels production, and maritime issues impacting the agricultural economy addressed by the Federal Maritime Commission (FMC).

• There are still persistent issues with food inflation caused by a continuing trend of rising food prices that were exacerbated by the pandemic, a strong dollar, and Russia’s invasion of Ukraine.  A stronger dollar has made foreign currency denominated debt increasingly expensive, leaving the countries with high short-term debt-to-GDP ratios most vulnerable to food insecurity.  Fertilizer prices have continued to decline throughout the year, though they remain high globally.  Looking at market positions, speculators are short wheat and bean oil but long on soybeans and soybean meal, and producers are the opposite.  We are also seeing significant concerns from drought and high snow levels on wheat and corn production in the U.S.  Droughts in the Middle East and Europe are also having a significant impact on wheat production. 
• There have been structural shifts in global grain demand as a result of China becoming the world’s leading grain importer.  While there was some slowing in the latter parts of the pandemic, as China reopens it will return to record levels.  Brazilian corn exports to China are surging, reaching a double-digit share of China’ corn imports for the first time. 
• Biofuel demand continues to rise sharply.  We are seeing a demand for palm and soybean oil continue to rise, significantly competing with vegetable oil for human consumption and increasing competition for limited or protected arable land. 

Discussion: 

Mark McHargue, American Farm Bureau Federation:  Do you have an idea of the percentage of grains the U.S. is exporting to China compared to other major exporters?  Menker:  We have not seen a decline in share for the U.S. yet, but that is primarily because the volume of Chinese imports has grown so much. 

Ed Prosser, Scoular Company:  What will vegetable oil numbers look like in coming years?  Menker:  We will follow up with these numbers. 

Behnam:  How do you see these weather patterns change?  Menker:  We will need to monitor this if we enter an El Nino period.  This should relieve some drought-affected areas.  One factor we consider is the predictability of climate, and we believe variability has increased significantly over the last decade. 

Tom Haag and Kathy Bergren, National Corn Growers Association

• 5 million bushels of corn per year are required to satisfy ethanol needs, and this has revitalized farmers and created new jobs.  Looking ahead, we believe biofuel demand will continue to grow.  Based on federal, state, and market incentives, we believe demand for oilseed crops will continue to rise.
• The Inflation Reduction Act (IRA) tax credits will be a significant boost for low-carbon crops.  We need to ensure that these credits account for carbon-intensity changes, so that we are incentivizing the most effective crops.  There are policies helping drive towards these goals including the Low Carbon Fuel Standard (LCFS) in California.  It has been successful in reducing carbon intensity.  We need to ensure that these incentives allow farmers to take advantage of these new profit opportunities.

Michelle Mapes and Devin Mogler, Green Plains

• The ability to create additional value for a corn kernel through biofuel demand is an important way to help American producers weather market events.  The Renewable Fuel Standard (RFS) has allowed the biofuel industry to grow and thrive.  The RFS has been arguably one of the most successful climate and farm policies ever implemented in terms of its impact on GHG emissions, creation of value for producers, and impact on decreasing American dependence on imported oil.
• The 45z clean fuel production credit under the IRA helps continue the results of the RFS.  Along with the LCFS, these climate policies are creating an arms race in changing on-farm practices and technology development for biofuels.  Farmers have historically been hesitant to adopt climate-smart practices due to lack of adequate incentives and not receiving credit for past credits, but the 45z credit helps address these concerns.

Jered Hooker and Alexa Combelic, American Soybean Association

• Soybean oil produces the vast majority of oil for biomass-based diesel and sustainable aviation fuel (SAF), and we are seeing a boom in demand for this fuel spurred by the LCFS programs on the West Coast.  The RFS and new tax credits for biofuels are contributing to continued growth and demand that we believe will continue to grow in coming years.  We are seeing the transportation sector continue to demand more low-carbon intensity score fuels as well, creating market incentives outside of policy.  There are challenges in tracing carbon intensity from the farm all the way to the final fuel product to ensure that farmers are receiving all the value they are creating on-farm.  We would also benefit from federal level policies like the LCFS to help provide clarity to the current patchwork policy.

John Duff, National Sorghum Producers

• There are carbon intensity standards in place in many global jurisdictions in line with the LCFS.  We are also seeing other states in the U.S. adopt such policies.  To meet these goals, we need to place a particular focus on on-farm practices because they account for between 1/4 and 1/3 of the final carbon intensity score of a biofuel.  We have all the necessary policies in place today, we just need to understand how they will all work together.

Discussion: 

McHargue:  It does not seem that we have a system where the producer has access to all available incentives.  Capturing all of these opportunities is difficult for farmers.  How confident are you that carbon pipelines will become a reality?  Mogler:  There are challenges for carbon pipelines, but we have seen a tremendous amount of progress in obtaining voluntary easements.  There are concerns about tracking farm data, but there are a number of companies working to crack this issue.

Tommy Hayden, Commodity Markets Council: The IRA 45z tax credits are in conflict with the Global Minimum Tax.  This could prevent significant biofuel producers from obtaining the benefits of the credits and therefore stand in the way of climate goals.  Mogler:  If there is a coalition working on this issue, I am not aware of it.

Scott Herndon, Field to Market:  What is the growth path for SAF?  Mapes:  We are seeing significant interest from the airline industry.  A key issue is ensuring we are building the best technology.  When that technology is available at mass scale, we believe this ramp up will be significant;  Mogler:  The 45z credits will give biofuel production credits that will significantly benefit the SAF sector;  Bergren:  To meet these goals, we will need production of a wide variety of oilseed crops.  We must ensure that tax credits do not preclude any of these oilseed crops at this time.

Behnam:  Biofuels are a real opportunity for ag producers, and the CFTC needs to consider what it can do to encourage these markets.  There is a clear need for a public-private partnership in this space to create a level playing field for producers.

• We have seen unprecedented pressures from escalating fees for detention and demurrage that were completely unreasonable because it was impossible to return boxes.  There were also unprecedented issues with chassis.  In the height of the pandemic, the volume of imports completely crowded out exports and many carriers refused to even carry ag exports.  Skyrocketing fees and crowding have abated, but this does not mean that the underlying problems have been solved.  We need to address these to be prepared for the next crisis.  The FMC is working to hold ocean carriers accountable for unreasonable practices.  The Ocean Shipping Reform Act (OSRA) sent a message that we will no longer tolerate unfair practices by ocean carriers.  It is becoming increasingly challenging to predict market events that will impact our supply chains.  We have also monitored concerns with low water levels in the Mississippi, but we do not have the authority to change these issues.

Discussion: 

Buddy Allen, American Cotton Shippers Association:  It is encouraging to see the FMC and CFTC working together.  We advocate for the FMC having clear and expanded jurisdiction throughout the entirety of the maritime bill of landing.  We also see confusion and inconsistency from ocean carriers that prevent us from efficiently planning our shipping, especially regarding early return dates.  Does OSRA give you the authority you need to create this clarity, or do we need additional legislation?  Maffei:  It is hard to know whether the OSRA gives us this authority.  I think we likely do, but the problems are incredibly complex.  The main issue is transparency, because shippers deserve to know when they should be in each position.  There needs to be additional communication to put shippers in the best position possible.  Our authority does not stop at the water’s edge, but we are limited by our inability to fine interior transporters or facilities.  To do this, either we or the Surface Transportation Board require additional authority.  The issue is that no agency has this authority at this time.

Hayden:  I am glad the CFTC is including FMC in these discussions around supply chain disruptions because they have a significant impact on commodity markets.  We need to focus on chassis choice so that shippers can be efficient in intermodal transportation.  The exclusive agreements that prevent merchant haulers from having a selection in chassis are unfair and detrimental to shippers.  Maffei:  Ag groups have worked closely with Congress and the FMC to help hold these carriers accountable.  I cannot comment on chassis choice issues, but we are very involved in studying this issue.

Behnam:  Given that China is a large importer of ag goods, what are your thoughts on U.S. ports’ response to Chinese imports?  Maffei:  There has been a lot of discussion about diversifying our import and export markets, but we cannot give up on China as a trade partner.  We are inherently linked to China for both import and export, and we subject Chinese ocean carriers to the same rules as any other carrier.  We have seen strong improvements from Chinese-owned carriers.

AAC Member:  It would be helpful to take a deeper dive on CME’s updated SPAN margining system.

Prosser:  The macro view of the industry on biofuels has been interesting.  I would like to see the Committee dig deeper on getting biofuel credits and what the Commission’s role is in price discovery for these assets.  The Commission has a clear role to play in price discovery for assets generated from biofuel crop production.

McHargue:  I would be interested in a better understanding of why some CFTC disseminated data is free to the public and some is behind paywalls.

AAC Member:  I would like to see the Committee focus on new products such as ICE’s new RIN futures contract.