Record Attendance at TEGMA's Fall Symposium
Jim Barcus Photo
Held August 26-28 in Kansas City, MO
TEGMA's Fall Symposium was held in Kansas City again this year, and for the 15th year, it was held in collaboration with the U.S. Surface Transportation Board's National Grain Car Council meeting. There were 170 TEGMA members and colleagues in attendance for the event, which offered perspectives from top industry executives on key issues facing the sector. Featured speakers included Matt Erickson, Ag Economic & Policy Advisor, Farm Credit Services of America, Jefferson Hillman, Chairman & CEO, JDH, Sara Wyant, Founder & Publisher, Agri-Pulse Communications, and Susan Stroud, Analyst, No Bull Ag. The speakers addressed the downturn in the agricultural business cycle; how the political environment, elections, and farm bill stalemate will affect agriculture; and how embracing change can help the industry adapt to rapidly shifting agricultural markets dynamics.
“U.S. Economic Outlook: Navigating Normal For Longer”
Matt Erickson, Ag Economic & Policy Advisor, Farm Credit Services of America
Matt Erickson provided an update to members on the state of the overall U.S. economy and its implications for agricultural businesses. The broader economy continues to normalize, and interest rate cuts are expected, thanks in large part to strong consumption. However, the agricultural economy is softening, coming down from a period of high commodity prices. The Ag economy may hold at a plateau for some time, unless additional growth from trade, or other unforeseen supply shocks boost prices again. Click here for presentation slides.
State of U.S. Economy
Overall—the U.S. economy has been resilient thanks to consumption.
There is still a divide between “haves and have nots” in the greater economy – owners of capital are doing well and trending upwards, where as wage growth is moderating.
U.S. Economic Growth – Relationship with Consumers
Consumption is driving continued economic growth – projected to continue its current 2-3% quarterly growth.
Consumer sentiment has been trending upwards steadily since the pandemic and supply chain crises of 2020-22.
Erickson is doubtful of a price gouging problem – producer price increases have risen exactly in line with inflation more broadly.
History tells us – just look at Nixon’s price freeze in the 1970s – that government attempts to directly control prices can cause more harm than good.
Inflation-adjusted credit card debt is still at healthier levels than 2008-9, but debt levels are nonetheless high.
Interest Rate Outlook
Core inflation in June dropped to 2.5% in line with expectations, setting the table for fall interest rate cuts by the Federal Reserve
Markets have been overly sensitive to indicators like yield curve inversion and unemployment numbers, only to pretty quickly bounce back.
Agricultural Business Cycle
Agriculture is on the decline side of a boom from high prices in 2022-23. The softening of the economy will spread as producers cut capital costs and reduce use of long-term inputs like Potassium and Phosphate fertilizers.
Interest rate cuts won’t do much for producers at this point – “normal” interest rates are still harsh in the agricultural economy.
Farm program payments will keep the bottom from falling out, but could see another extended period of relatively low prices – a “plateau” akin to the 2014-2020 environment.
Going forward, improvements may be a story about free trade. People in agriculture are fair to wonder, looking at Washington right now, about who will step up to advocate for trade agreements.
“JDH: Honoring Tradition while Moving Forward”
Jefferson Hillman, Chairman & CEO, JDH
Hillman provided a history of JDH’s path from its founding 137 years ago as J.D. Heiskell and Company to its recent rebranding. Hillman discussed some of the operating principles that JDH prizes, from the decentralization of its workforce, its partnership with the dairy industry, and its investment in new and advanced processing and logistical facilities.
Hillman discussed some of JDH’s business expansion in recent years. While still focused on its core business feeding dairy herds, the company has diversified into grain processing, investing in and acquiring companies and plants that complement their existing operations. JDH likes to acquire companies with skilled, independent managers that can operate their businesses independently after acquisition or investment.
Hillman discussed how a rebranding exercise logically flowed from the expansion of JDH from a longstanding feed company into a modern, diversified agribusiness.
“Capitol Hill Update”
Sara Wyant, Founder & Publisher, Agri-Pulse Communications
Sara Wyant provided an update from Washington on the state of the 2024 elections and the current Congress, and their implications for agriculture. The elections that will determine who holds the White House and majorities in the U.S. House and Senate are extremely close, and each party holds relative strengths and weaknesses for agriculture on trade and taxation issues. The farm bill continues to be at an impasse over the budget, and Wyant predicts another extension of the 2018 farm bill is likely, unless lawmakers can rally behind a package in the lame duck. Finally, the expiration of some of the 2017 tax cuts is setting up a “Super Bowl of Tax”—a rare major congressional debate over the tax code in 2025 which will have a big effect on agriculture. Click here for presentation slides.
2024 Election
Joe Biden’s replacement at the top of the Democratic ticket with Vice President Kamala Harris has reshaped the presidential race, which now looks to be as tight a race as we’ve seen. With both candidates, there is concern that the U.S. is pulling back from negotiating trade deals that benefit agriculture, and there is particular concern that Trump’s proposed tariffs or the continuation of Biden's trade policies could invite retaliation.
In the elections for U.S. Senate, it’s a similarly tight race, but there are far more competitive seats held by incumbent Democrats than Republicans. The parties are particularly focused on Ohio and Montana, held by Democrats Sherrod Brown and Jon Tester respectively. From what Wyant has heard, Brown may be in a stronger position to hold his seat than Tester.
In the U.S. House, the election is also tight – the existing Republican majority is quite thin, and the election hinges on around 11 tossup seats.
Farm Bill
An additional farm bill extension appears likely. Legislators are running out of time, and the core budget fight around the farm bill is tough to resolve – lawmakers want to put more money into commodity programs, but there is no new budget authority, setting up the ongoing partisan fight over how to fund those program increases.
For the first time, the Farm Bill’s spending is in the trillions of dollars.
Labor Issues in the Ag Economy
Strikes affecting rail carriers CN and CPKC were resolved temporarily, but additional steps in the process are ahead – disruptions may not be over.
Additionally, 25,000 dockworkers represented by the ILA have a contract set to expire on September 30 with USMX. If strikes or lockouts occur, it could significantly affect products exported via container, including soybean meal, and meat and dairy products. Bulk soybean and grain exports from the gulf and east coast are not expected to see significant effects.
Tax Legislation in 2025
The 2017 tax cuts signed by President Trump include several provisions which will sunset in 2025, setting up a major debate next year – including cuts to the individual income tax, the corporate tax rate, and the estate tax.
If all the sunsetting provisions expire, the farm economy will be substantially affected according to a USDA report.
The status quo is popular with Republicans, who advocated for the 2017 bill, but Democrats are unlikely to do away with it altogether if Harris is elected because she has committed to the common party line of not raising taxes of households with under $400,000 in income. There is some overlap in the recent tax proposals of both candidates, including on the child tax credit and exempting tips from income tax.
Lots of lobbying is already going on in the background.
“Beyond Disruption: Where Change Meets Opportunity”
Susan Stroud, Analyst, No Bull Ag
Stroud provides an analysis of the quickly-changing global marketplace for biofuels, encouraging producers and businesses to embrace and adapt to change to maximize their competitiveness. The rise of Brazilian export competition, slowing demand from China, and new government programs under the Inflation Reduction Act have dramatically reshaped the biofuels business environment. U.S. producers and policymakers will need to address logistical and infrastructure challenges, and shift production and processing capacity, in order to realize opportunity from change. Click here for presentation slides.
California's Low Carbon Fuel Standard (LCFS)
Initiated by Governor Arnold Schwarzenegger in 2007-2008.
Aims to reduce the carbon intensity of transportation fuels sold in California.
California's large economy amplifies the LCFS's impact on national and global markets.
Renewable Diesel vs. Biodiesel
Renewable Diesel:
Chemically identical to petroleum diesel; a direct "drop-in" replacement.
Can be used in existing engines and infrastructure without modifications.
Production has surpassed traditional biodiesel since November 2022.
Impact on Soybean Oil:
Increased demand for soybean oil due to renewable diesel production.
Soybean oil's value has doubled, shifting industry focus from meal to oil.
Over one billion bushels in added soybean crushing capacity have been announced.
Feedstock Imports and Market Shifts
Significant increase in imports of alternative feedstocks like tallow, used cooking oil (UCO), and canola oil.
Used Cooking Oil (UCO):
China supplies over 50% of U.S. UCO imports.
Concerns about potential fraud and quality issues have prompted legislative interest and discussions.
Canola Oil and Tallow:
Canola Oil is preferred due to higher oil yield per acre and lower carbon intensity scores. Like UCO, tallow is a preferred feedstock due to its low CI score as a waste product
Benefit from higher subsidies under current environmental policies – sliding subsidy scale takes effect Jan 1, 2025 providing further incentive to use lower CI feedstocks
Challenges with Surplus Soybean Meal
Increased crushing for oil leads to excess soybean meal production.
The U.S. needs to find new markets or increase exports to manage the surplus.
There is potential for the U.S. to become a larger exporter of soybean meal.
Shift in Soybean Oil Value
Soybean oil now represents a larger share of the soybean's value, exceeding 40%.
The market has transitioned from being meal-led to oil-led due to biofuel demand.
Soybean oil prices are increasingly linked to energy prices, particularly diesel.
Global Competition and Export Dynamics
Brazil:
Harvesting over 100 million acres of soybeans annually for the past four years.
Continues to expand soybean acreage by about 5% annually.
Has surpassed the U.S. in soybean production and exports, doubling the U.S. export volume.
China:
Reliance on South American supplies and Chinese stocks at an all-time high raise concerns for U.S. exporters.
China's economy shows signs of slowing, affecting global demand.
Brazil's competitive pricing affect U.S. market share.
Corn Market and Ethanol Production
The U.S. is the world's largest ethanol producer but has a lower blending rate compared to countries like Brazil.
Sustainable Aviation Fuel (SAF):
Projected to grow significantly due to government initiatives aiming for 3 billion gallons by 2030.
U.S. corn ethanol currently does not meet carbon intensity requirements for federal tax credits unless carbon capture and storage are implemented.
Carbon sequestration projects are essential for the future viability of U.S. ethanol in SAF production.
Infrastructure limitations pose challenges for widespread carbon capture implementation. Carbon sequestration is only possible in certain geographies, leading to the need for pipelines to transport CO2 from Midwest ethanol plants to sequestration sites in western states.
Infrastructure and Logistical Challenges
Low river levels have disrupted barge traffic, increasing transportation costs, affecting export competitiveness due to higher costs of moving commodities.
Record crops in certain regions exacerbate transportation challenges.
Policy-Driven Demand and Future Outlook
Reliance on government policy creates vulnerability to legislative changes and political shifts.
The biofuels market is experiencing transformative changes driven by policy decisions, market demand, and global competition.
The shift from meal-led to oil-led soybean processing highlights the need for strategic adaptation.
Embracing change and proactively addressing these factors are essential for sustaining growth and competitiveness in the biofuels sector.
The agricultural sector should focus on innovation and proactive strategies to navigate the evolving biofuels market.