Does sustainable aviation fuel opens doors for US farmers?

Oct 28, 2024
By Farms.com

The potential of sustainable aviation fuel in US agriculture

Sustainable aviation fuel (SAF) presents a significant opportunity for growth in the U.S. biofuels sector, particularly for agricultural feedstocks. The potential success of SAF will rely heavily on appropriate market and regulatory incentives that encourage farmers' participation.

A report from CoBank’s Knowledge Exchange highlights that the guidance for the 45Z tax credit, part of the Inflation Reduction Act, will be a crucial factor in determining agriculture's role in SAF production. The 45Z tax credit, effective January 1, 2025, aims to incentivize the domestic production of clean transportation fuels and replaces the less effective 40B tax credit.

Jacqui Fatka, a farm supply and biofuels economist with CoBank, remarked, “The 40B tax credit guidance for SAF fell short in effectively incentivizing farmers to adopt the prescribed set of on-farm conservation practices required to be eligible for the credit.” Farmers are hopeful that the new guidance will allow for more adaptable practices relevant to their operations.

The introduction of low-carbon biofuels has opened new avenues for U.S. agriculture, with ethanol, biodiesel, and renewable diesel leading the way. While SAF may not provide an immediate solution for low commodity prices, it could offer long-term benefits for rural economies.

For SAF to realize its potential, both farmers and renewable fuel producers seek long-term policies that create market certainty. The Inflation Reduction Act only offers the 45Z tax credit for three years, which could hinder growth.

The administration's Sustainable Aviation Fuel Grand Challenge aims for substantial SAF production by 2030 and 2050, but success will depend on supportive policies and market flexibility that allow producers to scale their operations.

As of now, the final guidance for the 45Z tax credit is pending, contributing to uncertainty for farmers and biofuel producers. Fatka indicated that “biofuel producers are unlikely to move forward on any expansion plans until the new guidance is published,” which affects farmers' preparations for upcoming planting seasons.

Video: Will the 2025 USDA December Crop Report Be a Market Mover/Surprise?

Historically, the USDA December crop report is a non-event or another dud report as the USDA reserves any final supply changes to the final report in January of the following year in this case 2026. But after the longest U.S. government shutdown in history at 43 days and no October crop report will they provide more data/surprise and make an exception?
Our China U.S. soybean purchase tracker is now at 26.6% or a total of 3.2 mmt but for traders it’s taking too long to unfold.
The final Stats Canada production report was bearish canola and wheat projection a record crop in both (it adds to the global glut of supplies) and bullish local corn and soybean prices in Ontario/Quebec thanks to a drought. It will not help the fund flow short-term, the USDA may need to offset it?
A U.S. Fed interest rate cut of another 25-basis point next Wednesday (probability 87.1%) could help fund flow and sentiment in stock and ag commodities into year end.
More inflows into Bitcoin this past week saw prices rebound back above 90,000 with support at 82,000 and resistance at 96,000.
A V-shaped bottom in cattle suggest the lows are in after Mexico reported another new world screwworm case. Lower weights, seasonal demand and higher U.S. beef select/choice values with a continued closure of the Mexican border to cattle will result in a resumption of higher cattle futures into yearend.
Australia is expected to produce its 3rd largest wheat crop ever at 36 mmt adding to the global glut of supplies.
Reports of ASF in hogs in Spain the largest pork exporter in Europe could see the U.S. win more pork export business long-term.
If the rains verify into next week of 3-5 inches for Brazil it would go a long way to fixing the dry regions from the last 2-months, but the European weather model has been wrong for the past 2-months!
Natural gas futures are surging to the 3rd price count as frigid hold temps set in.
CDN $ is also surging to end the week on a very resilient economy and better employment numbers suggesting no interest rate cuts next week.
Finally, the CFTC report showed funds were net buyers of soybeans but sellers of corn, canola and wheat. In real time the funds have gone back to selling as they take some profits.