Sustainable Aviation Fuel Demand Could Help Buoy Corn Prices

With interest in critical minerals gaining momentum, with a push toward alternative energy sources, greater demand for agricultural commodities could follow suit. In particular, sustainable aviation fuel could be the catalyst for higher corn prices in the coming years.

Household names in the aviation industry are already getting on board with the idea of sustainable fuel use. With the backing of the federal government in the form of the Inflation Reduction Act (IRA), the idea of sustainable aviation fuel could be an industry standard, with ethanol usage at the forefront.

“Major U.S. airlines and aviation companies joined ethanol companies to send a letter to the Biden administration on Wednesday backing a regulatory change that would make it easier for sustainable aviation fuel (SAF) made from corn-based ethanol to qualify for federal subsidies,” a Reuters report said, noting that the IRA “requires SAF producers to use an emissions model developed by the International Civil Aviation Organization (ICAO), or a ‘similar methodology’, to show their fuel cuts emissions over gasoline by 50% to secure the subsidies.”

For investors looking for opportunities, demand for biofuels could have a spillover effect into strength for agricultural commodities. These assets could help add a growth component along with diversification to any portfolio.

An Inflection Point for AG Commodities

Of course, there will be some political hurdles to clear. For example, land preservation groups may push back against the idea of using land specifically to grow corn for aviation fuel use. Either way, it’s certainly an inflection point for the agricultural and energy sectors that could have tangible impacts for both.

“With the right market signals, we can de-carbonize aviation and spur a new wave of U.S. innovation and clean energy jobs. However, modeling uncertainty today is a multiyear development problem,” stated a letter to Treasury Secretary Janet Yellen from the likes of aviation companies like Delta, JetBlue, Southwest, GE Aerospace, and Boeing.

As mentioned, with more demand for biofuels, it could be the supply shock that agricultural commodities need to raise prices. In the case of increased ethanol usage, this could certainly help prop up the Teucrium Corn Fund (CORN). The fund tracks three futures contracts for corn traded on the Chicago Board of Trade. It includes 35% second-to-expire contracts, 30% third-to-expire contracts, and 35% December following the third to expire. The various contract exposures help the fund limit the negative effects of rolling contracts, especially during a market in contango.

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