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CMR Special | Rewriting the RFS Playbook · Closing Market Report

• 0:00
  Todd Gleason: The following is a special edition of the closing market report.
• 0:07
  Todd Gleason: Todd Hubb's agricultural economist at Oklahoma State University now joins us to take up the marketplace and to talk about an article that he and Scott Irwin penned on RVOs and biomass based diesel production. We'll get to the second part in just a moment, but thanks, Todd for being with us. Todd, of course, an agricultural economist here on campus, has worked with USDA as well and, is now at Oklahoma State. First, tell me about Oklahoma State. How are things there?
• 0:39
  Todd Hubbs: Oh, it's fine, Todd. It's It's a beautiful state. It is dry as a bone down here right now, so that's not good, but, we could use some rain. But, no, I'm enjoying it.
• 0:49
  Todd Gleason: Let let's talk a little bit about crop acres as we're going forward into the new crop year to begin with. Of course, you have done a lot of work on corn and soybeans, still do. Can you tell me about the forecast USDA made at the Ag Forum and what you might be
• 1:09
  Todd Hubbs: You know, when you look at the three major crops, corn, soybeans, and wheat, they raised the wheat acreage planted acreage forecast from what they'd put down last fall. And that makes sense because the winter wheat seedings reports came a little stronger than expected in January, and some of that was because of the state of Oklahoma. We planted more winter wheat than I think a lot of market observers expected. USDA put, like, a 94,000,000 acres on corn. I think that's sort of a consensus due to trade.
• 1:43
  I'm not so sure. I wouldn't be surprised if it came in a little higher. You know, we'll see how it all plays out when we get to perspectives planning reports in March. I think everybody's expecting stronger soybean acres. Just how many will people plant and how many do we really need?
• 1:59
  You know what I mean? The biofuels policy stabilizing is a positive thing, but the trade outlook for soybeans is a little bit spooky, I think. So we'll see how it plays out. I'm leaning a little bit higher on corn acres than USDA, a little bit lower on soybean, but not much difference. Not much difference.
• 2:21
  Todd Gleason: Tell me about how you see prices through this coming marketing year, and maybe currently as well and and the expectations. There has been building optimism particularly for soybeans, I think, and even for corn to some extent. Is that what producers and others should be thinking?
• 2:44
  Todd Hubbs: I mean, when you look at the harvest prices, we've been building through February. These corn prices have been going up quite a bit from where they were. We still haven't really got back to where we were before that January report and all that production, you know, over 18,500,000,000 bushels of corn supply took it out of the market. We have seen strong demand. USDA raised the export number again.
• 3:09
  I think we're gonna track to hit 3,300,000,000 bushels of exports, which is great. Know, ethanol grind has been pretty good. I think they might be a little bit high on that number, and it just comes back to feed and residual. For me, the USDA has put down a number that is quite strong given the livestock levels. I get it.
• 3:32
  There's a lot more supply out there. But, basically, I think they're a bit high on that. I think a lot of people in the market think they're a bit high. The only reason they wouldn't be high is if those NASS numbers they dropped in January are wrong. And I guess we're gonna find out as the stocks reports come in this year, but I'm leaning a little bit lower on that.
• 3:54
  But the demand is good for corn. You know, we'll see how the weather plays out over this summer. Even 94,000,000 acres with another good crop supply is gonna be an issue. So I think when you're looking out forward on corn in December, maybe think about how you're gonna market it as we move through the early spring and into the summer. If we get these rallies on weather, might wanna take advantage of it.
• 4:20
  Soybeans, the biofuels policy is supportive for soybean oil in particular. Crush is really strong, and I don't see that slowing down because we're able to move the meal. You know, we produce a high quality meal. It's really cheap in the world. I mean, we'll have competition from Argentina, of course, but I think a lot of livestock producers around the world like to put our soybean meal in their ration.
• 4:46
  I don't see that slowing down. So I think we can support the crush numbers you see put forth by USDA and others. There's a trade off though in my mind, Todd, about, you know, if we elevate the interior prices for soybeans to export crush, we're gonna be less competitive in the export market, particularly, you know, Brazil did a 6,600,000,000 bushel crop this year. There's rumors about Argentina's crop being a little dry and maybe won't be there, but from what I've seen, they're getting a little bit of rain. We're a ways away from that being settled.
• 5:21
  But Paraguay, Uruguay, Brazil, really nice bean crops. There's a lot of beans coming out of South America, and they don't seem to be slowing down. So when we look at the world market for beans, yeah, there's continued growth in demand for beans around the world. But it seems like our supply, particularly South America, is outpacing it. We'll see.
• 5:42
  Todd Gleason: We'll get to those RVO numbers as it's related to the crush in biomass based diesel fuel and production. However, I want to take up the crush itself. You mentioned that bean meal exports were good. If the interior price, domestically is pushed higher, we're crushing for oil to service a production need in bio based biomass based diesel, and we have a lot of meal to move. Do we have an infrastructure issue related to the railways and cars not being available to move that much meal?
• 6:26
  It's just a different product to move than whole grain.
• 6:29
  Todd Hubbs: It is. I think that, you know, we've seen investment along the PNW line out to Washington and, you know, the the ports out in the Northwest. I think they've developed that supply chain pretty well. I think we can move it, TUD. I really do.
• 6:45
  Very real. Now if we're getting a big harvest and we're really moving corn and beans and wheat and, you know, we get some clustering in, there may be slowdowns. But, I mean, we're on pace to hit this. We've been expanding meal exports for the last few years, and every year, we're able to hit that expansion. So I'm pretty optimistic about us being able to do it.
• 7:09
  Others can disagree.
• 7:11
  Todd Gleason: Okay. On the corn side, you mentioned the feed and residual number. Along with the exports. Both are big. Is there an issue there related to feed needs for the beef cattle industry?
• 7:28
  Because it appears that the feed and residual number is including a fairly large beef cattle herd, maybe or maybe not, and maybe poultry and pork are making up for that. And then, of course, there's also the export market largely led by Mexico. It is the number one export destination for US corn, and part of that is being fed to cattle there which are coming back across the border. So how do you put those two things into context?
• 7:59
  Todd Hubbs: Well, the the beef herd is down, and it looks like it's gonna be a while before we get some build back in it. USDA's feed residual number is is feed and residual. So I don't know. Your listeners probably know this, but if they don't, I'll hit on it briefly. We don't really know how much corn goes into every steer, pull it, you know, hog in the country.
• 8:25
  It's not tracked by USDA. It's a it's a derived demand. We know exports, and we know all the other uses, and we know the stocks. So feed and residual comes out of that. That's why after every stocks report, you see probably adjustments or no adjustment to feed residual.
• 8:42
  The residual part is just, you know, the bigger the supply, the more, you know, incidental losses you have all across all the supply chains for corn usage and other grains. So if you put a big feed residual in there, you can be saying it's the residual or it's the feed. I think USD right now is penciling pretty strong residual. Does that make sense?
• 9:04
  Todd Gleason: But is the residual used somewhere? Or I I I'm trying to figure out how you manage that residual part of it, I guess.
• 9:13
  Todd Hubbs: It's just derived. It's losses. It's stuff that just disappears in the supply. You know what I'm saying? It's just usage that falls through the cracks in some sense.
• 9:22
  So it's always somewhat you just think about any corn supply chain that if you can just, in your mind, think about coming from the field to the elevator, to a train, to a barge, to a ship. You see what I'm saying? And how much
• 9:43
  Todd Gleason: It's just that sloppy.
• 9:44
  Todd Hubbs: Yeah. Yeah. It's not real sloppy, but there's always, like, bin losses and stuff. It just it's not a huge thing, but it it's it's there across all these different like, going from the bin to the ethanol facility. You know, there's this stuff there, and that's that's the idea.
• 10:07
  It's residual across all these supply chains. So when you see huge huge usage numbers, and they're they're expecting some big residual numbers apparently, bigger than I think. So I don't think it's that sloppy. Let's put it that way. So that leaves the idea of, you know, maybe the production number is too high for twenty twenty five on corn Because since it's derived, if we see a smaller stocks number, it's gonna have to go into feed and residual because we know all the other uses.
• 10:46
  Does that make sense?
• 10:47
  Todd Gleason: It does. And that wouldn't get fixed until we get to the end of the marketing year.
• 10:50
  Todd Hubbs: Yeah. And it might be down the road before they would adjust that stuff.
• 10:54
  Todd Gleason: Okay. Well, we'll have to watch that. Let's turn your attention to the article that you and Scott Irwin penned for the PharmDoc Daily website. Again, this one is titled Rewriting the RFS Playbook, the impact of no half ren, and then it goes on. I want to start out with the half ren.
• 11:13
  This has to do with used cooking oil, and we need to put that into context before we do some analysis, your and Scott's analysis and the discussion about that. So tell me about a half RIN and what that proposal is or was.
• 11:27
  Todd Hubbs: Well, when the EPA put out the proposal last June, one of the provisions in it was a half RIN on imported feedstock and imported bio mass based diesel imported fuels. And that means they would only get half the value of a RIN. So for, like, biodiesel, you know, methyl ester biodiesel made in Illinois, they get 1.5 d four RINs. If you imported a similar thing, you would get half that or point seven five. Does that make sense?
• 12:02
  And so that was the initial proposal, which would really benefit domestic feedstocks. It seems like, you know, based on all the news coming out that they just moved forward Wednesday night, and we're we're gonna find out the March what the final proposal is, that they dropped the heifer in and moved to an expanded, physical gallon RVO for biomass based diesel.
• 12:28
  Todd Gleason: So to clarify that, this is the RIN is stands for Renewable Identification Number, but it is how the US government subsidizes the production of these gallons, and it is essentially the payment that the company who produces them would get.
• 12:49
  Todd Hubbs: Yeah. The RINs are the currency of the renewable fuel standard. Right? So when a domestic producer produces a gallon of, say, biomass based diesel, the RIN gets generated, and it's a it's a 1.5 RIN for methyl ester, and so that RIN goes with that gallon, and then when it gets blended into the fleet, it gets separated, and the obligated parties, which are the blenders and others that are on the hook for the RFS, they have to use these RINs to meet their obligations. And so they can either buy them or blend it, separate it, and cash them in.
• 13:31
  Does that make sense? It's sort of like the currency of the program.
• 13:34
  Todd Gleason: It it does. So the point was to try to stem the flow of outside sources from outside the country into the supply, Bob Yeah. By making them worth half as much. That apparently may not be the case, but they're doing the opposite by upping the price tag for certain inputs that are domestically produced?
• 14:00
  Todd Hubbs: No. They're upping the physical gallon volume obligation for biomass based diesel.
• 14:07
  Todd Gleason: Oh, they're just upping how many gallons need to be produced, not the cost of the rent. I'm sorry.
• 14:13
  Todd Hubbs: Yeah. No. That's alright. This is confusing to everybody. I don't recommend it.
• 14:17
  Those of us crazy enough to dig into this stuff is we're Scott and I are strange birds. Let's put it that way. They have the physical gown. So when they originally did the proposal, they put it in ring gallons. Everything was in RIN gallons, and now they're going back to physical gallons.
• 14:34
  And it looks like and part of the reason Scott and I did this update of this series is it looks like they're pegging the physical gallons to what actual capacity is with some slack in the in the country. Does that make sense? So they're up in the physical gallons for biomass based diesel based on how much renewable diesel and methyl ester biodiesel we can actually produce. And that should and then I guess that's the trade off to get away from the half or in. I understand both sides of this.
• 15:11
  It does in it does increase the feedstock demand when you go to this really strong jump in physical gallons over what we've done before. The question is, how does that play out with imported feedstock and imported fuels?
• 15:25
  Todd Gleason: Yeah. So tell me about the jump. What's the difference in current and what you think the proposed might be?
• 15:31
  Todd Hubbs: Well, it sounds like they're gonna do and we don't know for sure. Right? It sounds like it's gonna be about 5,250,000,000 physical gallons in 2026 and five point six one billion gallons in 2027. You know, that's that's quite a jump over what we have been doing in recent years. It really does increase the feedstock demand necessary to meet these obligations even if there's no half RIN.
• 15:58
  You know, so on average over the 2325 RVO, we were doing around 40,000,000,000 pounds of feedstock per year. This varied. We didn't do near as much in 2025 because we built up a huge d four RIN bank as renewable diesel expansion went beyond what the RVO mandated. And so we've been working through the stockpile of RINs in 2025, and there's still a little bit leftovers going to 2026. But these increased volume obligations, they are quite bullish.
• 16:36
  What Scott and I were trying to figure out is how does this differ from if the half RIN was in place? And we have to make a bunch of assumptions about imported fuel and feedstock to do this. So and there's a whole suite of policies that play into this. So the uncertainty is quite high. I want your listeners to understand that.
• 16:58
  We've got policy stacks that are at the state, federal, and even overseas. There's different kinds of policies that can come into play for these type of fuels. What does it look like under the 45 z? You know, comes into play because the producers get something out of the 45 z for producing biomass based diesel and ethanol and such. But in the diesel space, that's true.
• 17:26
  These renewable diesels, producers that are quite large and are set up on the coast in the Gulf Of California to del develop supply chains for low CI feedstock. Most of that's fed into the LCFS states. Their credits have been quite low because they've built up a big bank of LCFS credits. So how this all plays out really depends on what the policy stack looks like and how foreign feedstock prices relate to domestic feedstock prices. Does that make sense?
• 17:56
  Todd Gleason: Yes. Well, it does to me, meaning that, particularly the West Coast had is built to take in feedstock from not the interior of The United States, but that is shipped in from other places. And the hafarin was meant to keep that out, but clearly, that may not be the case. And then it's about how how the interior competes against the imports there, and the LCFS or the low carbon and CI scores might might really play into what those West Coast producers are wanting and capable and and willing to use as the feedstocks.
• 18:42
  Todd Hubbs: Well, and you can't forget, like, as of January, the 45 z payouts for producing domestic biofuels is limited to North American feedstocks. And those are quite can be quite substantial depending on what your CI score is. So there's this real dynamic, like, will the 45 z curtail imported feedstocks? But it's all relative to, like, what kind of CI score feedstock you need to maximize your policy stack if you're a a biomass based diesel producer. So it's really uncertain.
• 19:21
  Scott and I made a bunch of assumptions that we thought were reasonable, but we are open to criticism as always.
• 19:27
  Todd Gleason: So then the point really is that it depends on how well these subsidized domestic supplies, and they could come from, I suppose, corn oil, soybean oil, canola oil as well, and they all have to compete, against one another, but then they have to compete against the international or imported supplies, and and that will be in play working, I suppose, to get their piece of that pie.
• 19:59
  Todd Hubbs: I will say, like, yes, all those vegetable oils are in the in the plate, particularly distillers, corn oil, canola oil, and soybean oil, domestic tallow, white grease, all that's in there. What we saw last time when we got a big run up in domestic feedstock prices because the RVOs sort of went up quite a bit was there was a gap that formed between our domestic feedstock prices and the world feedstock prices, which makes a lot of sense. Right? The demands there, we run up our prices domestically and the gap forms between say, Argentinian soybean oil and what we're, you know, pricing soybean oil at here in The United States. And that goes out on the world market, and what we saw was our exports plummeted as we increased biomass based diesel production.
• 20:48
  The question for some of these low CI feedstocks is what kind of gap will open up between our domestic prices for those and the world price, and is that gap big enough to make up for the difference in what the policy stack may be for a given individual producer?
• 21:03
  Todd Gleason: And so we'll have to wait and see what the final looks like and how it plays out. I mean, because because on one hand, you're losing exports potentially, but making up for that Yeah. Internally. And the question really is, do you make up internally for all the exports that are lost?
• 21:22
  Todd Hubbs: Right. And we have been. Right? We even when we have been expanding crush, we've either use it in biofuels or domestic food uses and other industrial uses where we've exported it. It's the price, right, that's changed for us.
• 21:36
  We when we get sort of saturated in the market and biomass based diesel production slowed down, soybean oil prices dropped back in the low forties. Now they've been running back up in the low sixties, and and there might be some room to run there. And this all gets back to the crush margin and how that plays into soybeans and what that means for the soybean market in general and our competitiveness on the world market for soybeans. We won't be competitive for soybean oil. We probably will be highly competitive for soybean meal.
• 22:11
  But yeah. I mean, we need to see what the final ruling is from EPA, and we'll go from there. But we were just trying to read the tea leaves a little bit about what this could mean for domestic feedstock demand. And it is lower under our half rent scenario, but, you know, we're open to the idea that we could be wrong on some of these assumptions, but you have to make some, and we sort of assumed you would still see a decent import level of particularly low CI feedstock from overseas.
• 22:47
  Todd Gleason: Todd, thank you much.
• 22:48
  Todd Hubbs: Yes, sir.
• 22:49
  Todd Gleason: That's Todd Hubbs. He's an agricultural economist at Oklahoma State University and penned an article with Scott Irwin from here on campus at the University of Illinois for the PharmDoc daily website. It's entitled part rewriting the RFS playbook. I'm University of Illinois Extension's Todd Gleason.