Ep #06: Transforming Farming Profitability with Regenerative Ag and 45Z with Mitchell Hora
How can regenerative agriculture reshape farming profitability while addressing sustainability? In this episode, we dive into the financial side of the regenerative movement with Mitchell Hora, CEO and Founder of Continuum Ag. Mitchell shares the journey of building Continuum Ag, now a leading soil health data intelligence company. Discover how no-till farming, cover crops, and regenerative practices can enhance soil health and reduce carbon intensity (CI) scores, creating profitable opportunities for farmers while benefiting the environment.
Listen in as we discuss how the emerging 45Z tax credit is set to disrupt traditional carbon credit and sustainability programs, driving a new wave of financial and environmental innovation. You’ll learn why Mitchell believes regenerative ag is the future, how Continuum Ag empowers farmers, and what it means to work with—not against—Mother Nature.
Listen to the Full Episode:
What You’ll Hear About in This Episode:
How Continuum Ag got started and its mission today.
The role of soil health in regenerative agriculture.
What carbon intensity (CI) scores mean for farming practices.
The financial benefits of no-till farming and cover crops.
Why the 45Z tax credit is a game-changer for carbon credits.
Common misconceptions about regenerative practices and how to overcome them.
How sustainability initiatives are attracting corporate players.
The ripple effects of regenerative farming on global supply chains.
Why collaboration between farmers and supply chains is essential for change.
Ideas Worth Sharing:
“We’re a fairly small farm; we have to be competitive. And our way to do that has been to work with Mother Nature, not against her.” - Mitchell Hora
“45Z is absolutely going to disrupt all of these other carbon credit and sustainability programs that are out there. It is going to cause a ripple effect that everyone needs to be paying attention to.” - Mitchell Hora
“Farmers are part of the ‘problem’ today, and I think we’re recognizing that we have created some unintended consequences from our actions… but we can recognize them, and we can do better and we can move forward.” - Mitchell Hora
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Read the Transcript:
Mitchell Hora: I think most farmers are aware of no till, they're aware of cover crops, they're aware of these practices, but to your point, they don't believe that they will work on their farm or they believe that they're going to lose yield or lose some money because of it. And now there's a–if 45Z goes through the way the law is written, it will see the biggest carrot out there and that'll incentivize much more farmers to go this direction.
Welcome to The Land Ledger podcast, where investing in farmland meets the future of finance. I’m your host, Brian Kearney, here to guide you through the untapped potential of farmland as an asset.
Whether you’re already investing in farmland, want to invest in farmland, or you’re just curious about safe alternatives to stocks and bonds, this is your space to learn, explore, and be inspired.
Your journey to farmland investing starts now.
Mitchell Hora: I think most farmers are aware of no till, they're aware of cover crops, they're aware of these practices, but to your point, they don't believe that they will work on their farm or they believe that they're going to lose yield or lose some money because of it. And now there's a–if 45Z goes through the way the law is written, it will see the biggest carrot out there and that'll incentivize much more farmers to go this direction.
Welcome to The Land Ledger podcast, where investing in farmland meets the future of finance. I’m your host, Brian Kearney, here to guide you through the untapped potential of farmland as an asset.
Whether you’re already investing in farmland, want to invest in farmland, or you’re just curious about safe alternatives to stocks and bonds, this is your space to learn, explore, and be inspired.
Your journey to farmland investing starts now.
Brian Kearney: Welcome to The Land Ledger. Today I have Mitch Hora, the CEO and founder of Continuum Ag. Really excited to dive into this conversation and learn a little bit about the financial side of the regenerative movement everyone hears so much about, particularly diving into carbon intensity and CI scores is gonna be really interesting. So Mitch, welcome to the show today.
Mitchell Hora: Yeah, thanks for having me. I'm excited because I think kind of what you guys have in mind as far as company vision and where, like how you go about it, and especially in terms of just sharecropping in general, or in a lot of how I've been thinking about to flex leases, I think there's going to be a lot more of that going forward because of things like carbon intensity and opportunity to diversify revenue streams going to agricultural lands. So excited to share the details of that. And I think we got a lot to talk about here so.
Brian Kearney: We’ll try to be brief because you've got a plane you got to catch, but we'll do a follow up if we need. But where I want to start is tell me a little bit about Continuum, how you initially had the idea and where it started and where it's at now.
Mitchell Hora: Yeah. So Continuum is a software company. We have a software called Topsoil. It's a topsoil.ag. So it's web based software that farmers can utilize to quantify and actually verify their carbon intensity score. And we'll go into the details of what we mean by that. But basically it's, you know, farmers pay us on an annual per acre fee to utilize the software to accumulate all of their data. We give them their carbon intensity score and calculate it, utilizing the Department of Energy model called the GREET model, and then we've developed a third part of verification that we're getting farmers what we call CI certificates, where one certificate represents one bushel of their production, and then they can sell those certificates, And earn a premium on their crop through markets like low carbon biofuel, which is being fueled by 45Z.
So lots to dig into details there, but continue my ag software company. We're based in Washington, Iowa, which is Southeast Iowa town of about 7,500 people. Like I said, I started the company as an agronomy consulting company. I'm an agronomist by background. My degrees are in agronomy and in ag systems technology from Iowa State.
I started the company while I was going to school and our original focus was soil sampling, soil health quantification, regenerative ag consulting. And then as kind of a bonus outcome was like, “Hey, maybe there'll be some kind of a carbon credit opportunity come about.” And we've helped a lot of different companies with their carbon credit programs.
Carbon intensity is not a carbon credit program. It's a tax credit program, but the quantification of your carbon footprint is part of the mechanism. And again, we'll go into some details there. Last little, last other thing, you know, how it came about is I'm a farmer. I'm seventh generation on my family's farm.
We farm just north of Washington here. Ainsworth is technically the hometown. It's a town of about 600 people. And so my family has been farming here in Southeast Iowa for 151 years. 2025 will be our 152nd crop. We grow corn and soybeans for the most part, but we've done rye and wheat and barley and mustard and heirloom corn and lots of different stuff that we've been trying to do on our farm.
But number one on our farm, It's corn, soybeans, and we do it in a soil health minded system. So we use all no till we've been using no till since 1978. That's where we don't disturb the soil and tear it all up and stuff. So it helps to avoid erosion and that kind of thing. But yeah, since 1978, my family has been using no till and since 2013, we've been using cover crops, which is the basics of that is we would typically harvest our crop, the corn and soybeans.
We would harvest that in say October. Normally you would leave the field and come back in April and plant the next crop. But what we do is we plant a cover crop, usually cereal rye. It's a grass that grows about five foot tall, can grow to be five foot tall. We plant that in October right after we harvest.
That way there's something green and growing over the winter time to sequester carbon, build soil health, protect against erosion, and that kind of thing. So, that's kind of the basics of the farm, but it's a fairly small family farm. We farm about 700 acres. We'll have a little bit more than that next year, just shy of 800 acres, then we custom farm another 400.
So the farm wasn't ever big enough for me to just go farm, plus I've always been extremely entrepreneurial and always have a lot of different things going on. So able to be back here close to the family farm. I bought a farm in 2017. I'm using the beginning farm alone and luckily my local bank and stuff and kind of had to figure it out on my own at that point.
Now, my brother and I are going to be farming a piece of ground together next year as well, a piece that we're renting, just a cash rent agreement from a neighbor. That's kind of the overview of where we're at.
Brian Kearney: Oh, that's awesome. I love ag startups in small towns as well. We're in a small little town in central Illinois called El Paso, kind of in between Bloomington and Peoria. 2,300. I always tell people, so I went to University of Illinois, actually, and it's, everyone's from Chicago or foreign, actually, but mostly Chicago. And they would ask me about my town and I'd tell them and I'm like, “Well, you know in Cars where they have the one blinking stoplight? That's the stoplight in our town.” Like that is, and yeah, it's awesome.
So it's good to see that innovation coming out of towns similar sized, but yeah, there's a lot to dive into there. When you talk about, and I'm going to switch a little bit. Typically, our audience is, it's a breakdown of farmers and investors. But when you talk about cover crops and no till, there's still a large group of farmers that do not think the ROI is there. If you've been doing it since the 70s, it sounds like the ROI is there in some way, shape, or form. So can you dive a little bit into that?
Mitchell Hora: Yeah. The basics of that, you know, we've been using the Haney soil health test to quantify what's going on below the soil. And we've seen our biological activity more than triple. So really ramp up the biological activity, kind of the function of the soil. We've seen incredible increase in our water infiltration rate. The national average is a half of an inch of water infiltration per hour. We can infiltrate four inches in under five minutes.
Brian Kearney: Whoa. Okay.
Mitchell Hora: Yeah. So we don't have issues with flooding. We don't have issues with having to replant. We don't have major issues with crop insurance type stuff. We're not as susceptible as what we were before we added a lot of these practices. And as a outcome of that, we've been able to decrease our fertilizer by nearly 50%. We decreased our pesticides by about 75%, decrease our needs for crop insurance. We're on the bare minimum for crop insurance just to continue to participate, but we're not, we haven't taken any crop insurance payments in years now. Like I said, no replant. We've been able to decrease the need for horsepower and get newer tractors, but smaller, so more affordable, less fuel usage, but better technology in them. But we don't need as aggressive a horsepower as what we used to. So just seeing a lot of things like that with a bottom line focus on we're fairly small farm, we got to be competitive in our way to do that. It's been work with mother nature, not against her, really make these regenerative systems go.
So I think that's unique about us too. Like we–root of our company is in soil health. And our mission is to help a million farms improve their profitability via improving their soil health. That's our mission. So, but we have really deep, thorough understanding of like how to actually implement this stuff.
Like we, of course, we still make plenty of mistakes, but like, we really know how to go and implement this and avoid that concern that you pointed out, which is, “Well, I'm going to add these practices that are viewed as kind of hippie, weird practices.” “Well, I'm going to implement these things and I'm going to lose money.”
Well, if you do it wrong, or if you go into it with that kind of attitude, yeah, you're going to lose money. But, and we did in our first year, ‘cause we had no idea what the heck we were doing. We've been able to learn, figure it out ourselves, learn from others. And you really can switch and implement more of these soul health practices and not go backwards.
Now it takes knowing how to do it and working with some folks to help you to overcome the logistic risks. And then of course, a better carrot to overcome the economic risks gets more farmers to move in that direction. And that's why I'm so excited about 45Z and carbon intensity, that it is by far the biggest carrot.
I think a lot of farmers are understanding. I think most farmers are aware of no till. They're aware of cover crops are aware of these practices, but to your point, they don't believe that they will work on their farm or they believe that they're going to lose yield or lose some money because of it. And now there's a, if 45Z goes through the way the law is written, it will see the biggest carrot out there.
And that'll incentivize much more farmers to go this direction. Some last final numbers are as across the country, only about 30 percent of the farms are using no till today, about 70 percent are in some type of a reduced tillage system, but only 30 percent no till, and then only about 5 percent are using cover crops.
Now, these practices are being adopted more, but still very, very small. It's very much still the minority picking up, but very much the minority.
Brian Kearney: Yeah. and I want to dive into the 45Z in a second. But the first thing I want to hit before that, it's kind of two parts. The one is the kind of elephant in the room when you start talking about no-till and cover cropping is the yield hit.
So I wanna talk about that and. How much of that is true and how much of it might be a little bit overblown. And then I want to dive into the size of an operation that this can also work on, because I can also hear some of our farmers I know saying, “Well, you know, I farm 2,500 acres, that obviously maybe it'll work on 800, but it's not going to work for me,” or maybe that works in Iowa, it's not going to work in Illinois, even though it's pretty comparable with a lot of things, but let's dive into the size first and then the yield.
Mitchell Hora: I think all that stuff there, it's just, that's the old way of thinking. And if you want to continue to think that way, totally fine. And my response is I like making money. And here's a new opportunity to go make some money. And if you don't want to go after it, that's fine. Continue to do what you're doing and let's see how this works out in the end. I believe that the writing's on the wall, that we're going to need to continue to go more and more in this direction.
We still have the carrot. We do not want the stick. And it's going to, the stick is going to happen in Illinois sooner than it happens in Iowa.
Brian Kearney: Very much so.
Mitchell Hora: I'd bet a lot of money on that. Like I understand the risks and I understand some of these people's thought process, but the understanding of how to do it is so much more available than what it was.
Maybe when people tried in the 80s or when people tried in the 90s, when they Did it have good equipment? They didn't have YouTube and Twitter. They didn't have all these field days and all these resources out there and all this information. So I think things have changed a lot. Now, can you still lose yield?
For sure. We lost 20 bushels of the acre in our first year. We had no idea what we were doing. This was a decade ago. And still a lot of those resources were not available a decade ago, but we were able to learn from the mistake. Luckily, we tried it small scale. We learned from it and now we've never had those type of issues since.
But by learning from that, we've been able to help, I don't know, a couple hundred farmers adopt more of these practices and not go backwards, not have a yield hit. You absolutely can do this correctly, not see any yield hit, not go backwards financially. You absolute can. You absolutely can get this done without some of those, the negatives and it's any kind of size too.
We've got a farm that's 40,000 acres. It's going and doing all this stuff. One here, and they've got a bunch of stuff over in Illinois doing it. No tilt cover crop. They've basically switched everything over. I've got a 33,000 acre operation that is now, they've had not done any cover crops a couple of years ago.
Now they're doing thousands of acres of cover crops. Tens of thousands of acres of no till. Another operation that's about 9,000 acres that was only baby step dabbling in cover crops a couple years ago. Now they're doing cover crops on like almost every acre after just a couple of years.
And these are 10,000 acre, you know, almost 10,000 acre farm. Lots and lots of stories like that can go into. So I think it's also just this fallacy of the size. You can free up a lot of time, a lot of equipment when you're not running the deep ripper and the chisel plow, and a field cultivator on top.
Like you can really utilize the resources around you. Now I understand that experimenting and dorking around with projects is tough when you're a larger farm, but that's what I'm getting at that now there's enough resources out there. There's enough knowledge that you can take a bigger first leap.
Because we're avoiding some of the risk of going backwards where before it was tough to say, “All right, I'm 2,500 acres. So if I'm going to go and do this, I'm going to do a thousand acres in year one.” Well, before that was really scary and, but dorking around with 20 acres to try to learn, I understand when you get large, like you can't dork around with a 20 acre project. It screws up the domino effect of everything else. But now there is enough out there that you can take a serious crack at this, even in the first year and have some security and some risk avoidance. So I think it's going to keep moving in that direction. And like I said, we've got lots of stories and lots of data to back that up.
Brian Kearney: Yeah, and I imagine that equipment is a big part of it because equipment keeps getting more and more expensive. And when you were talking about being able to get newer tractors, but less horsepower, that's I think very interesting to people because that and land values are the difficulty right now.
Mitchell Hora: Yeah, we had a 295. Now we're at a 245, so right size and equipment being able to get more bang for our buck really with better technology, but not have to spend it all on horsepower and fuel. Obviously fuel is better right now, and hopefully we'll continue to get better in the coming years, but these things add up.
So it takes, you know, if you can trade just brute strength for technology and better efficiencies and stuff, I think there's a multiplier effect to that so.
Brian Kearney: Yeah. That, that makes sense. But now I want to Pivot a little bit and dive into the 45Z tax credits.
And earlier, our first episode of the podcast, actually, we had Bruce Everly on to talk a little bit about Boa Safra side. And before that, we had Bruce Rastetter on to talk about the ethanol side. So it'll be interesting to hear from you all where 45Z is super impactful to your business. I want to dive in a little bit there.
Mitchell Hora: Yeah. We're betting on 45Z real hard, but the story on that, right, is that I have been involved in the carbon credit stuff since 2019. I was actually one of two farmers that was on the working group with the climate action reserve. So there's three main registries where you can develop carbon credits.
There's gold standard, there's Vera, and there's climate action reserve. And I was one of two farmers that was there when the protocol was written, like a thoroughly understand what's going on with these carbon credits. And then continue, I've been involved in these programs for a number of years, but then, but we never really jumped all in, like I'd never done any on my farm. We never really had a program that we could recommend to our farmers. We were always just doing the consulting or helping on the data or doing soil sampling for other people's programs. But we really never had one that we liked that we would encourage our farmers to go and participate in at mass.
And a lot of things we were involved in, they were small scale or they were, you had to be a customer and those kinds of things.
Brian Kearney: Yeah.
Mitchell Hora:So none of them were really working, but in August of 2022, the inflation reduction act got passed. And part of that was this 45Z credit. So I became aware of that and started really digging into it in late 2022.
And especially over Christmas, kind of Christmas lull type of time of 2022, I really got into 45Z running the numbers, running the greet model on my own farm. And it was just the light bulb moment for me of, “Okay, wow. Like I can. Actually quantify my farm's carbon footprint,” and it blew my mind and all these old carbon credit programs that it wasn't ever about what's your actual carbon footprint.
It was always about can you add a new practice, check a new box, and then they compensate you based on the Delta.
Brian Kearney: Right.
Mitchell Hora: But then I was like, that's so screwy that you could still be having all kinds of emissions, but get some kind of a carbon credit payment because of how the rules were set up.
And again, I understand why they were that way. I was there when the rules were written. I understand how screwed up they were. The problem was I was 2019 and I was like 12 years old at that time. I was a little bit older than that, but not by much. But now, you know, see the rules come out, ran the math. And again, libel moment for my own farm was like, wow, like my family farm, that's been an early adopter in these things. We're disqualified for a lot of the carbon credit programs. The money wasn't very good. They, the contracts weren't good to now 45Z is like, wow, you can do this with no contract.
You can actually quantify your whole story, your whole footprint. The financial opportunity is so much better than any of these other things. And you can have the flexibility to work with whoever you want to work with. So just a lot of the items added up and now what I relate it to is 45Z and a farm's carbon intensity score really provides the new scoreboard for agriculture. Okay. So what I mean by that is the scoreboard traditionally has always just been the yield monitor.
Brian Kearney: Right.
Mitchell Hora: Where the scoring mechanism is the bushel. We understand how to get more bushels because we can test it, right? Hybrid A versus hybrid B, this fertilizer program versus that one with cover crop versus without, right?
And be able to see, okay, well, how's the one metric on the scoreboard? How's it shaped up? And that's yield. And we're incentivized to drive that one metric on the scoreboard because that's how we get paid. All right. Farmers, we get paid by the bushel, not based on how you farmed that bushel. But now for the first time, there's a new scoreboard.
There's a transparent point system called the GREET model. It was developed by the Department of Energy. They've been, they first launched it back in 1994. Like this has been around for a long time and continues to improve and get better. And then, there's finally a new financial mechanism to reward a point other than a bushel.
And that's how 45Z works is that the lower you take your carbon intensity score, the more financial opportunity you bring to the table for the biofuel producers, and therefore the bigger the tax credit pie. And as we slice up the pieces of that pie, the bigger the pie, the bigger the slice for each person that's involved.
And that's why I like it so much. And a lot more details to dig into from that, but that was, everything that I've built here at Continuum Ag, I've built it for myself. I've built it for my own family farm.
And when I ran my score, our score last year was a negative 4.1 CI score for our corn. The default for corn in the U.S. is 29.1. So most people, 29.1 meaning losing carbon at a rate of 29.1 kilograms of CO2 equivalent per MMBTU of ethanol, which is a big, long thing, but that's what's laid out in the law. The point being 29.1, losing quite a bit of carbon agriculture is like 10 percent of the U.S. is carbon footprint.
We're losing quite a bit through our practices, but on our farm, our score is a negative 4.1. So we're actually sequestering and drawing down more carbon than what we emit with our fuel usage, our fertilizer usage, because we're still going after, you know, our typical, whole farm average that we're targeting is 245.
So we're still trying to grow 245 bushels of corn. Some of our fields, individual fields, we have yield goals that are 280 on some of our fields. So we're trying to grow big, consistent yield, but do it now in a manner that has a lower footprint to it, not because we really care that much about the footprint, but because it's how do we be efficient with our money and now drive this, the score that we can get paid for.
Brian Kearney: Yeah. Oh, and it sounds like the 45Z kind of incentives are aligned, but if you don't look at it as these people in the big cities are telling me how to farm. You look at it as, well, actually, if I do this, I have to pay less in inputs and I get similar yield and I get a payment. Like it is a business decision at that point.
Mitchell Hora: Yeah, to me, that's what it has to boil down to. Like, don't do any of this stuff, but also don't do it because there's a government program there. Like, farmers, as far as we like to complain about government programs, government handouts, right? Even though we take a heck of a lot of them. What I like about this is it's not a direct payment from the government though.
You're creating a tax credit. And most of the ethanol plants in this country, they–so in 45Z, I should have backed up. 45Z is a biofuel production tax credit. So the farmers don't get the tax credit, the ethanol plant, biodiesel manufacturer, renewable diesel manufacturer, sustainable aviation fuel producer, they get the tax credit. It's for transportation biofuel producers, but in order for them to create the tax credit, they have to quantify the carbon intensity of the grain or the feedstock that they utilize in producing that fuel. Well, that data about the grain is where the value is. And what we are advocating for is that farmers are putting in the hard work to get this improved score and to create this data based on their practices.
And with that data, the biofuel producer can create a tax credit. Well, the farmer should get their equitable share. Now we don't know exactly what that's going to be. I've personally though conversed with 120 ethanol plants and most of them are saying that they'll share probably between a third and half of the money with the farmer, but really it's going to be the market's going to sort itself out and farmers who have really rigorous data, farmers who have been through verification and are able to avoid risk and fraud, and farmers that already have good scores and a lot of certificates, they're going to be at the front of the line here to capitalize on this program and fully knowing that it's a tax credit could go away at any point, may not even get off the ground and get started, obviously, there's a lot of indications coming out that it will go.
And we have, I've got all kinds of info I can share there, but you're right. I mean, I think it's the first time where farmers can really get compensated based on how we are farming. And we've got an amazing story to tell that farming we're doing pretty dang good already. Now there's a carrot.
And I think we've got an amazing opportunity here to work together. Farmers and biofuel producers working together. And at least in my perspective, Ag, row crop Ag looks pretty rough going from that couple of years if you take 45Z out of the equation. Like prices aren't going to get any better on the value of the commodity side of things.
Price of fertilizer and inputs, I don't think it's going to go down that terrible much anytime soon. Usually those things go up. They don't really come down. So I think 45Z is going to be really important just for the ag economy in general as we look at the next couple of years.
Brian Kearney: Yeah, I agree with that. And earlier you said a little bit about how you think there's going to be more. Crop share arrangements coming about. Is it because of this? You think that has more of an impact? Can you dive into that a little bit?
Mitchell Hora: You got it. Yeah. So a lot of, I'm sure you have way more data on this than I do as far as what percentage of ground is just cash rented, but it's something like what, almost 60 percent of the farmland is operated by somebody that doesn't, that's not the owner, right?
So already the majority of the crop is rented or in some type of a lease agreement. A lot of it today is just a flat, you know, cash rent and you pay a flat amount and the farmer gets to go and create whatever upside they want, whether it be with carbon credits or anything else. But now, here with 45Z, the financial opportunity could be quite substantial, and I think a lot of the landowners, investors, I think they're going to want a piece of that upside, and I like that you guys already have your system set up that way, that it's a partnership here between the investors and the farmer, we got to go at this together and we're going to go make money together.
We're going to share in the risk, but we're going to share in the upside. What I like about this is, sure, there's definitely risk, but the upside is a lot more than what it has been historically. So I think there's going to be a lot of sharecropping or at least flex leases to account for that, where the landowner gets at least a minimum flat amount, but then it flexes based on the increased yield or increased profitability coming in.
To put some numbers to it, at Continuum Ag, we've been scoring farms, right? Based on their carbon intensity score. As we sit today, we have scored over 340 million bushels of corn. 340 million bushels. In the U.S., there's about 15 billion that's produced though, and 5.4 billion goes to ethanol, 5.4 billion bushels annually, about a third of the crop. The default CI score is 29.1.
The average that we are seeing on those 340 million bushels is currently at 11.5. So 29.1, we're seeing an average of 11.5, almost two thirds lower. And that's why, I mean, farmers have an amazing story to tell. We're already doing quite a bit better than what the government thinks that we are.
So again, if we don't get 45Z to work the right way or farmers say it's a bunch of BS. We're not going to do it. Well, the government currently thinks that we're polluting like at this rate of 29. It's just not the case. We're doing significantly better.
Brian Kearney: Yeah.
Mitchell Hora: So anyway, instead of being 29, we're seeing the average farms, 11.5. That is a 17.6 CI point reduction. 17.6. I think you talked with Bruce Rastetter. He's very involved in carbon pipelines and stuff. Carbon pipelines can reduce the CI score by about 30 points. So a lot of reduction. But what I'm saying is the average farmer that we've scored today would create a 17 point reduction. Pretty dang good.
Then he could stack it. You can have a pipeline, 30 points and low carbon corn, seven, an average of 17 points. Now we're getting pretty dang close to carbon neutral. Really exciting, but anyway, 17 point reduction, each point on average is worth about 5.8 cents per point or bushel. So you take the 17.6, multiply that times 0.058 equals a dollar and two cents per bushel. Now, every single ethanol plant, the math is going to be a little bit different. I'm running some generalities that one bushel of corn produces 2.9 gallons of ethanol, which is the current national average.
So you take 2.9 gallons multiplied by two cents per point per gallon, which is the math for 45Z.
That means that the average farmer would create a value of about a dollar and a dollar two. Say we're getting 240 bushel corn, that is 245 per acre of tax credit pie. Now, again, we don't know how the math is going to work for each individual plant. Supposed to have some rules by January 20th, but we're recording this in December of 2024.
So, I'm running some general math. So but if we're creating a tax credit pie of 245 bucks an acre and say the farmer gets a third of that. So say the farmer gets a third, the ethanol plant gets a third, and there's costs of about a third, you know, you're talking about value there of 80 bucks an acre going to the farm.
And I think that type of increased money, there's enough of a shareable value there, that everybody can really go in and participate. Our farm's corn this year averaged a score of 2.3, so the average bushel is 11.5. We were at 2.3 this year. Just for fun, let's run the math.
Brian Kearney: That's all the farms working with Continuum?
Mitchell Hora: That’s all the farms. The 340 million bushels that we have scored through Continuum, the average is 11.5. But on my personal family farm, we were at a 2.3, right? We're cover cropping, no tilling, low fertilizer. So we have an even lower score than the average. That would create a total value of about a 1.55 on 240 bushel corn is 373 bucks an acre.
And say we get a third of that 125 bucks an acre as a hypothetical scenario. Again, we don't know how the splits are going to work. I think transparency in the market and some of the things that we are building out with our CI certificate marketplace will allow for the price discovery to happen. But that point being is just, I've never seen a carrot that's this big. We don't know what the 45Z final rules are going to be. We should have some clarity by January 20th by inauguration, but running the math like that is why we went all in two years ago, flipped the company on its head because it's game–that we're talking dollars like that game changer for agriculture.
Brian Kearney: Yeah. Yeah, it really is. And to some of the investors listening, that might not sound crazy. But when you talk that a farm income, you're shooting for, you know, if you get a thousand bucks an acre in income, that's what you're shooting for. So if you add another 12 percent on that, that really is game changing for a low margin industry that expands your margins like crazy.
Mitchell Hora: You call it, you know, 80 bucks an acre and could say that's the payment, 80 bucks an acre. That was the quick, average math that I did there. Every single farm is going to have a range, right? And every ethanol plant is going to be different, but say if it is, 80 bucks. I mean, even a lot of years, that's what doubling the bottom line for a lot of farms or like in a year like this, it takes you from being in the red to actually having some profit that can be shared.
So I think big, big impact. Now, another, I don't know if we need to go down this rabbit hole right now, but 45Z is also because of the money like that and how the program is going out, it is absolutely going to disrupt all these other carbon credit programs that are out there. All these other sustainability programs that are out there.
It's going to cause a ripple effect that everybody needs to be paying attention to. And what I mean by that is currently this tax credit is for biofuel, right? So it's biofuel producers that get the tax credit, meaning that you're going to have some of these row crops that are going into biofuels that would be subject to some of this money.
So maybe people on the coast and something like, “I mean, especially crops and this doesn't pertain to me.” But again, the ripple effect and the precedent that this program would set, it is going to influence all of food and ag. I think globally, I'm already seeing a lot of those things happening, especially down in Brazil.
I just think the world is going more and more in this direction. So it might be more near term for certain farms that are in row crop production and it's subject to this biofuel tax credit. But again, the ripple effect is what makes me so excited about it.
Brian Kearney: Yeah. And can you dive in for the audience what the typical breakdown is for the carbon credit market as a whole? ‘Cause focusing in on biofuels is an interesting aspect of 45Z, like you said, because they're not the only player in the other carbon credit markets. Can you dive a little bit into that?
Mitchell Hora: Yeah. And again, like those carbon credits, mostly those have been fueled by CPG companies, right? Like in work, I'm bundling together.
There's carbon offsets and there's carbon insets. And so a lot of carbon offsets, you know, that's where they're being bought by Microsoft or Boeing or FedEx or whatever. Those type of companies are buying carbon credits. Carbon insets, we've been working in a project mostly with Nestle, but Nestle, ADM, Cargill, those type of guys are mostly doing carbon insets. And again, mostly it's like kind of more consumer facing food products and stuff that are mostly those that are participating in these carbon credit programs. Not biofuels, it's gas that goes in your tank and just like everybody else's. And it's another commodity, right? So nobody's really cared.
But again, this is going to impact that farmers have been, they're being recruited to sign a contract with a carbon credit company, sign a contract with one of these CPG or food companies. And usually those contracts are multiple years. Usually they're paying 20, 30 bucks an acre at best, which not bad.
Like definitely not complaining. Like, thank you. And I think they are, they've been, we've seen some real positives out of those, but now you got to compete against the government. Government's coming in to say, “Here's what this data is worth. Here's what these carbon reductions are worth.” And it's way different than what companies have been paying here today.
And again, I think it's just going to change how we approach carbon to not have it be based on tons of carbon and carbon credits, but be based on the product's actual carbon footprint in terms of grams or kilograms of CO2 equivalent. So I think it's just going to change how carbon is accounted for how it's approached and therefore changes well how it's transacted upon.
And I think for the better to be able to get everyone more on the same page and all ships rowing in the same direction. And the final kind of piece I'll say on it, I'm in Washington County, Iowa, right? We're the number two pork producing county in the country. My corn and soybeans on our farm, it doesn't go to biofuel. It goes to feed pigs.
Brian Kearney: Right.
Mitchell Hora: In our county, we got 20,000 people, 2 million pigs. We are importing corn to this county. So my corn doesn't go to the ethanol plant, but 45Z could end up being based on a book and claim system where I could sell the data to a biofuel producer, sell the corn to the local hog producer.
We don't know all the details yet, but my point being is that my corn, my actual corn goes to feed pigs. Those pigs actually go to JBS and JBS is one of these big companies who has corporate sustainability goals that they need to figure out how to hit at some point. And for a JBS, again, just as an example, the mass majority of JBS is carbon footprint comes from the pigs that they're buyin.
Brian Kearney: Right.
Mitchell Hora: Of a pig's carbon footprint, about 58 percent of the carbon footprint of that pig comes from the feed that it eats, namely the corn. And the corn today, because it's got a score of 29.1, it's a big part of that equation. But you got corn like mine that's right around zero and in some years negative, that could really offset their footprint.
So if JBS actually is going to meet their goals, they have to account for their biggest part of their footprint, which is the pigs. And if the pigs are going to be low carbon, they have to account for their, the biggest part of their equation, which is the corn, But if all the low carbon attribute from that corn goes to the biofuel producer, what are they going to do?
They're going to be stuck with this really crappy metric. That's in there and not able to meet their goals unless they figure out how to compete within that space, figure out how to utilize that data. And it's not to have it all come out of the expense side of the equation, but to keep that attribute in their supply chain in order to meet their corporate goals in order to satisfy their investors and satisfy the consumer and be able to make money and be able to make money on the thing, not have it just be an expense.
Brian Kearney: Right. So, trying to wrap my head around that is the idea that, and again, this is just, this might be coming down the road, but you think it seems likely is a market for this company to be able to sell that credit to said like biofuel company. And is that what you all are doing with your marketplace or?
Mitchell Hora: Yep. So our business model today is two pronged. Number one, we have to create the certificates, create the CR certificates. We call it CI certification. We currently charge the farmer $7 per acre and we help them to integrate all their existing data into our platform. We score them field by field. We create certificates field by field where one per bushel.
And we get them third party verified through an ISO process and an accredited third party verifier. We're the only ones going direct to Pharma to do that. And the only ones that have a verification protocol of this sort that I'm aware. So number one, we got to create the certificates. Number two, we got to move them from here's the field that they were created upon to ultimately here's the biofuel producer who utilizes them and creates the tax credit and you have to avoid fraud, avoid double counting, all that kind of thing. So that's where we're building out a marketplace. The marketplace would enable some price discovery for farmers to see who's paying what. And therefore who would I like to sell my certificates to also create that traceability and avoid fraud in the space. So we've got to have some mechanisms there to be able to account for that. I think it could end up being much more robust if these CI certificates do become more of a industry-accepted system rather than just be based on a tax credit. Then the certificate, maybe it could be bought by a pork producer or a poultry feeder or whatever it may be.
I don't care. Or even export at some point. What if we're exporting based on low carbon values and such. Now those other industries, they aren't being aggressive on this because they don't have tax credits to pay for it today.
Brian Kearney: Right.
Mitchell Hora: But what I'm suggesting is I see a future here where these companies, they're going to need to figure out how to meet their sustainability goals because the way that they have been attempting to do it, it's not going to work going forward.
Because again, you got to compete against the government now, so they're going to have to figure out how to play within this new sandbox here. And I think it ends up being better for them and better for the farmer. Because it's more real and it's not the wild West anymore, right? It's becoming more regulated, not that the government would not be the overseer of it, but they're the one setting the rules and setting the precedent that then the free market can again utilize as precedent to go and build systems that can really work and actually be more real. Yeah, because I think there's a lot of greenwashing in this space, and yes, by going about it more in this direction, I think it makes it a lot more real.
Brian Kearney: Yeah. No, I agree with that. But the one question I have, it's not–I wouldn't even really call it a pushback.
I just want to hear your kind of view is while this seems like it should be a bipartisan issue, when you're talking about the government it's not at all, which is kind of funny actually because you have one side of the aisle that's kind of pushing this and traditionally they don't actually really care about farmers at all and I still don't think they do.
I think it's for other reasons and then you have the other side of the aisle that's saying this is kind of like you're saying it's just ridiculous. It's not useful. And they do care more about farmers. So where do you see that disconnect? It confuses me.
Mitchell Hora: Yeah. This particular 45Z thing, we're actually seeing really good bipartisan support.
Brian Kearney: Really? Okay.
Mitchell Hora: Obviously the Inflation Reduction Act itself was definition of not partisan, right? I mean, Kamala Harris was literally the type where you can vote. But 45Z in particular, very good bipartisan support. So to back that up, there was already a bill introduced in the house and Senate to extend 45Z to be a 10 year program, bipartisan support, but co-sponsored by a Republican and Democrat.
Yep. And both. So very good bipartisan support for 45Z to extend it and to make it where it is a good thing for farmers. And I think it does really hit on things for both sides. On the left, you've got that it was part of the Inflation Reduction Act. It could be a big win for the left. It does decarbonize agricultural energy, which are big emitters.
So it actually does some green stuff in what I like about ag being a solution for that is like it actually is legit. Like it's not just, you know, actually can really lower our carbon footprint. Now we really can do some stuff there, but then on the right, it's, this is very much a lot of red States that are going to benefit from this.
A lot of farmers and also liquid fuels that's going to benefit from this. We're still going to have liquid fuels for a long, long time here in this country. And this is a way to be able to do it with the lower carbon footprint, but be able to strengthen that industry. And also it's done based on tax credits, not direct government spending and direct government handouts where these tax credits can be utilized by the biofuel producer if they paid taxes like a Valero or Anderson's or a poet, some of those guys, but then there's a lot of ethanol plants that are farmer owned co-op type ethanol plants that don't pay federal income tax. Instead, the shareholders get the tax liability passed through on the K1s. So the farmers get a dividend and they get the tax liability that then the farmers or the shareholders, the investors, they pay the taxes, right? So what'll happen in that case, or create more credit than what you can use.
These tax credits are transferable. You can sell them to a different corporate who wants to buy your tax credits. They currently are going at an average rate of about 92 cents on the dollar. So say for example, you create a million dollars worth of tax credits, you can sell them for $920,000 worth of cash.
You utilize that cash to then finance the whole program and be able to make some money yourself as a biofuel producer, but that corporate buyer just bought 10 or just bought a million dollars worth of tax credits that they can utilize to reduce their quarterly estimate payment. So instead of paying a million bucks to the government, they paid $920,000 bucks to a tax credit producer.
They just gained an extra $80,000 bucks right there or scale it up instead of paying 10 million bucks in taxes on 9.2 million worth of tax credit. You just saved yourself $800,000 straight to the bottom line that you can then go reinvest. And that can be done on a quarterly basis, at least on the estimates and how you can save the money there.
The transactions of buying the credits may not happen quarterly, but how you can account for them on a quarterly withholding basis, really stimulating the economy and really driving a lot of these efforts, especially what Trump, I think, wants to see in this next administration of more energy, energy, energy, right?
We're going to drill for a lot of it, but low carbon American made renewable, you know, right here plays to his policy, driving the economy and getting more tax credits in the system as well to just drive other industry and other corporates that can reinvest into jobs and all that, I think plays really well to both sides.
Brian Kearney: Yeah. Yeah. Not very ofte do I hear actual win wins on both sides, but this does seem like it's one.
Mitchell Hora: Well, another couple of things. Okay. So the current ethanol industry is about 17 billion gallons a year. Okay. Like I said, 17 billion gallons of production, a third of the corn going into that.
Biodiesel is about 3 billion gallons a year, renewable diesel is about 3 billion gallons a year. Okay. So call it 23 billion gallons total. The maximum that this tax credit could be is a dollar a gallon. Sustainable aviation fuel is additional, but it's a fairly small market today. So I'll leave it out for the purposes of this, but 23 billion gallons, maximum of a dollar a gallon.
We're talking a maximum tax credit program, 23 billion dollars a year. It's a freaking hell of a lot of money when you're talking about ag and biofuels and how this can be impacted. But from the federal government, they spent, I mean, we're recording this in the morning. They already spent 23 billion dollars today.
So the amount of credit that's actually going to be created at the beginning here is minuscule compared to the total maximum amount of 23 billion. The reality is it's going to be significantly less, you know, let's call it the roundabout dollar per bushel that I laid the math out on before, dollar per bushel on 5.4 billion bushels. We're talking 5 billion bucks total. That's like all farmers participating that sell into ethanol. Like even that is a very aggressive number of 5 billion. And in 5 billion bucks going into a shareable credit there between farmers and biofuel producers, game changing amount of money.
Brian Kearney: Yeah.
Mitchell Hora: But 5 billion bucks on the federal government ledger, it's a very small amount. So
Brian Kearney: Yeah. We've lost that before.
Mitchell Hora: Yeah. So I think it does a lot of good for a fairly small actual government impact.
Brian Kearney: Yeah. Oh, I agree. And I'll pause the rest of the questions, maybe for a follow up down the road. This has been really fascinating.
Mitchell Hora: I think we'll definitely have to follow up because as you know, we're doing this, like I said, December 2024. We still don't know all the rules. So once we get more clarity, hopefully by January 20th, then we'll be able to really provide some more specifics. So everything I'm sharing today is based on my direct conversations with the folks in the administration in DC, my conversation with biofuel producers, my own knowledge and understanding of this, and definitely all subject to change based on government.
Brian Kearney: Yeah, that let's follow up down the road, but my final question then I'll let you get going. This has been it's been great It's helped me a lot with understanding 45Z and I ask everyone coming through if there was a current college student either at one of the ag schools, maybe not at one of the land grants, but likes the industry, where would you recommend they look if you couldn't choose 45Z and your business specifically? What industry should they be looking out for?
Mitchell Hora: Oh, outside of agriculture?
Brian Kearney: No, sorry. What subset of agriculture?
Mitchell Hora: Yeah, I think it's technology for sure. So, it's helping farmers to utilize their data and helping to scale that up. So, more automation of data collection, telling our story. I think 45Z or not, farmers are part of the quote unquote problem today.
And I think we're recognizing that we've created some unintended consequences based on our actions, right? And based on the scoreboard being the bushel and the only financial driver being more bushels, right? We've definitely, we've led to dead zone issues in the gulf. We've led to flooding. We've led to soil erosion.
We've led to carbon footprint. I think farmers are understanding. Okay. We've created some outcomes that we're not, we don't love. Okay. But we can recognize them and we can do better and we can move forward. But this is how the industry was set up to incentivize us and yeah, it came with some unintended outcomes.
So now as farmers look to improve, it takes data, it takes technology. And I think especially as young people in ag, we can really help with that because a lot of these farmers are not amazing at it or they're freaking busy. They've got a lot going on.
So being able to help farmers with their technology and helping them to integrate into these is, that's where I think the answer is.
Brian Kearney: Yeah. Yeah. No, I appreciate that. Well, again, this has been a great conversation. Thanks for jumping on the show. Well, touch base maybe February when things shake out a little bit, I'd love to dive in a little deeper and see what it looks like post-inauguration.
Mitchell Hora: Yeah. That sounds good. Hopefully, we're really rocking and rolling by then. And I would say like the investors to like understand like between now and then plenty of risk, right? And plenty of risk with this. Ag is subject to these types of risks all the time. Like policy, we were what? Almost two years later on a farm bill. Then two years later on a farm of the worst. Once you're like, there's a lot of just unknowns and policy implications within agriculture. The key is that farmers are really good at, “Tell me the rules and I'll figure out how to make them work for my operation.” And this is just, again, by far the biggest thing that I see we can really capitalize on. So that'd be my final message to the investors.
Brian Kearney: Yeah. No, agreed. Appreciate it. Well, hey, touch base soon and have a safe flight soon.
Mitchell Hora: Yeah. It's been great. And looking forward to talking more in the future.
Brian Kearney: Absolutely. Thanks, Mitch. Thanks for jumping on the show.
And that’s a wrap on this episode of The Land Ledger.
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