January 30, 2015

Reviewing the Pace of Corn & Soybean Exports

Following the January 12 USDA Crop Production and Grain Stocks reports it has becoming increasingly clear that the story in the corn and soybean markets for the foreseeable future will be the ongoing pace of consumption.


Consumption of corn produced in the United States can be tallied as corn for used for ethanol, fed to livestock, or exported. The soybean consumption numbers are derived from an item called the crush… that’s when a soybean facility crushes the bean to extract the oil and meal from it. There is also the feed and residual number, and again exports. University of Illinois Ag Economist John Newton has explored the export numbers.

He says, holding all else constant, a lower rate of corn and soybean exports relative to current USDA projections would increase carryover stocks, and could produce downward pressure on prices. USDA, as of the January reports, expects corn exports will be 1.75 billion or 1750 million bushels for the current marketing year. Newton also says right now the actual numbers suggest corn exports will need to pick up to make it to seventeen-fifty.

With nearly 40 percent of the marketing year in the books, corn exports need to accelerate in order to reach the 1,750 million bushel WASDE projection. Based on the implied GATS estimate of 602 million bushels, 1,148 million bushels need to be exported during the remainder of the marketing year to reach the WASDE projection. On a weekly basis this total represents approximately 37 million bushels per week, and would require an increase of 57 percent over the current 10-week average export volume.

Again, in order to meet the USDA projected yearly exports total of 1.750 billion bushels the pace of corn exports needs to average 37 million bushels per week from mid-January forward. Using a similar set of calculations John Newton reports cumulative soybean exports for the 2014/15 marketing year total 1.312 billion bushels, up 18 percent from last year.

Based on the FGIS totals, then, to reach the 1,770 million bushel WASDE projection it’s implied that 458 million bushels of soybeans need to be exported during the remainder of the marketing year. On a weekly basis this total represents approximately 15 million bushels per week.

While corn exports are accelerating, the pace of soybean exports from U.S. ports is slowing down. Combining the outstanding sales with the remaining balance needed, Newton expects sales could come up 42 million bushels short of the WASDE projection. He thinks soybean exports will struggle to meet the lofty 1.77 billion bushel USDA estimate, but that it is entirely possible.


January 24, 2015

Issues Stemming from January USDA Report

The final 2014 crop production numbers delivered by USDA in the January reports leave three issues unresolved.The three problems, as identified by University of Illinois Ag Economist Darrel Good, center on the number of corn and soybean acres planted, the surprisingly small amount of corn used in the first three months of the marketing year, and the surprisingly large number of soybeans consumed in that same time frame. 

The first issue is that the difference between the total number of planted acres USDA NASS has reported over time and those officially reported by farmers to FSA has grown. The number of acres planted to wheat, corn, and soybeans as tallied by USDA NASS has steadily grown larger than the number of acres farmers are telling FSA they've sown. USDA has not offered an explanation. The difference in 2014 is nearly 9.3 million acres over the three crops says Darrel Good. 

He says the changing relationship between NASS acreage estimates and acreage reported to FSA may make early FSA reports less useful in anticipating NASS final acreage estimates.

The second issue is related to how much corn was used in the months of September, October, and November. Those are the first three months of the marketing year. USDA totals 4.25 billion bushels of disappearance of which feed and residual use accounted for 2.198 billion. This number is a 114 million bushels lower than the usage in the same period last year after it was revised down. The problem says the U of I number cruncher is that over time the range of usage represented in the first quarter figure as compared to total usage for the year has gotten wider.

First quarter use is no longer a reliable forecaster of total marketing year consumption.

It means a lot of uncertainty will persist in the marketplace about how much corn is being fed to livestock.The numbers do get better as time passes during the marketing year. The expectation is the March 31 Grain Stocks report will be more accurate.

The third issue with the January USDA figures is also in the consumption numbers. The implied residual disappearance of soybeans in the first quarter set a record. This might mean the size of the 2014 soybean crop was over estimated. While this is an issue, it will not be resolved for several months. Some insight will be forthcoming from the March Grain Stocks report. 

Time will eventually fix all three issues, but it is important to recognize them and the potential changes these may bring to the commodity markets.

Read Darrel Good's Original FarmDocDaily Post


January 19, 2015

Dramatic Changes in the Ethanol/Gasoline Relationship

The plummeting price of gasoline has caused a dramatic change in the relationship between the price of corn and the price of gasoline. However, this means little for how much ethanol will be produced and consumed.
 


January 17, 2015

Farmers May Not Benefit From Bumper Crops

Corn and soybean farmers harvested a bumper crop in 2014 — a record 14.2 billion bushels of corn and a record 3.97 billion bushels of soybeans, according to the U.S. Department of Agriculture. Here & Now’s Jeremy Hobson spoke with Chad Hart, an agricultural economist at Iowa State University, about what the record crop means for the farmers’ revenue, since they’re selling the crops at a lower price.

Here & Now airs during the noon hour on WILL AM580.


January 10, 2015

Riding the Feeder Cattle Roller Coaster

Futures prices were limit-down for 5 days in a row in mid-December 2014, the most limit-move days in a livestock contract since the BSE (mad cow) selloff in December 2003. Daily price limits in feeder cattle futures were increased from 3 cents per pound ($3/cwt) to 4½ cents per pound ($4.50/cwt), with provisions for additional expansions if needed; complete details are presented here.

For the 22 trading days in December 2014, the January 2015 feeder cattle futures contract had 10 days with price moves up or down of 3 cents per pound or more. And on the first trading day of January 2015, prices closed limit-up at the new 4½ cent daily limit, starting out the New Year with a bang (Figure 1). In contrast, February 2015 live cattle futures have had just 2 limit days (both down) since December 1, and February 2015 hog futures have had none.

So why have feeder cattle prices been so volatile lately? It helps to think about feeder cattle prices as the "shock absorber" between fed cattle prices on one end, and corn prices on the other. When buying feeder cattle, feedlots look at the gross feeding margin, which is the difference between the amount received when fed cattle are marketed and the amounts paid for corn and feeder cattle, the two major inputs.

Cattle feeders have little direct influence over fed cattle prices and corn prices, but feeder cattle prices are different. If the gross feeding margin is positive, feedlots have room to bid up feeder cattle prices; if the margin is negative, feedlots eventually back away, which puts downward pressure on feeder cattle prices. A concise overview of cattle feeding margins with detailed examples is available here and the importance of feeding margins was highlighted in an earlier farmdoc daily article (farmdoc daily, September 12, 2014).
 
With this in mind, let's look at what has been happening to fed cattle and corn prices. Fed cattle prices climbed to record levels in 2014 (Figure 2), due to tight supplies of beef and strong demand from domestic and overseas consumers. However, beef prices stalled at the beginning of December (Figure 3), leading to the downturn in fed cattle prices shown by the red arrow in Figure 2, and the selloff in feeder cattle futures in Figure 1.
 
In contrast, beef prices fell nearly twice as much in August and September 2014 (blue arrow in Figure 3) as in December 2014 (red arrow in Figure 3), and lower beef prices dragged down fed cattle prices, but it caused only a blip in feeder cattle prices. What made December different?

The answer is corn prices, which dropped 50 cents per bushel or more between early August and the mid-September harvest lows. Those lower corn prices offset the effects of lower fed cattle prices in the gross feeding margin calculation, so that feeder cattle prices remained firm. It was a much different story in mid-December. Corn prices were $1.00 per bushel higher than the harvest lows and had been putting pressure on feeder cattle prices. When beef and fed cattle prices weakened, feeder cattle prices had nowhere to go but down.

Feeder cattle futures have since recovered about one-half of the mid-December losses, and the question on many minds is, "Where do we go from here?" The events of the past month are a useful lesson to buyers and sellers of feeder cattle. While it's tempting to watch just fed cattle prices or just corn prices, it's important to keep an eye on both markets - or better yet, on gross feeding margins - to gauge the future direction of feeder cattle prices.

December 20, 2014

RFS2 Set to Ramp up Biodiesel Usage

U.S. EPA has stalled the release of the annual usage mandates for bio fuels in the United States. These are due out each November, but neither the 2014 or 2015 figures have been released. EPA says it will put forth new numbers next spring. In the meantime, it might be important to consider just how using the default numbers would play out for the production of ethanol and biodiesel.



The United States congress set renewable fuels mandates a few years ago. It also gave U.S. EPA the power to adjust those mandates. EPA hasn’t done so for the 2014 calendar year, or for 2015. We’ll dispose of the political baggage and simply focus on the results of using the default statutes written into the law.


December 14, 2014

Ethanol Production Profits Dim as Gasoline Prices Plummet

The magnitude of the decline in crude oil and gasoline prices has taken nearly everyone by surprise. NYMEX nearby crude oil futures this week touched $60 per barrel, almost $50 less than peak prices last summer. This is a major economic event with potentially far-reaching impacts for biofuels markets. We examined some of these impacts in two recent farmdoc daily articles (November 12, 2014; December 4, 2014). Our conclusion was that current high ethanol prices relative to gasoline prices, as illustrated in Figure 1, might slow the growth in domestic ethanol consumption, but would not likely result in consumption that is less than the 10 percent blend wall.


November 25, 2014

Corn Used for Ethanol Ramping Up

The price of ethanol has rallied over the last month, spurring greater production. If the pace were maintained for the marketing year total consumption could push 5.4 billion bushels says K-State Extension Ag Economist Dan O'Brien, with the caveat that this is not likely to happen. Still, as you'll hear, he concedes it is possible.


November 21, 2014

U.S. EPA Delays 2014 RFS Rule Making

Scott Irwin, University of Illinois Ag Economist specializing in the Renewable Fuels Standard, discusses the U.S. EPA announcement to delay an RFS decision until 2015.

U.S. EPA’s Janet McCabe - she’s an Acting Assistant Administrator - today signed a document and submitted it for publication in the Federal Register… that’s the document of record in Washington, D.C. The document says U.S. EPA will not finalize rule making for the 2014 RFS before the end of the calendar year. The agency was supposed to wrap that up at the beginning of the calendar year, but became mired in policy and technical issues related to changes proposed about a year ago. 

It now says the 2014 rules will be made before or in conjunction with the 2015 announcement. 

Logistically there are some log jams that will need to be dealt with related to RINs certificates from 2012. Those expire after two years. EPA says it will extend the expiration, but that the certificates will be in limbo until a new way to move them can be developed. 

So, again the big news in at the ag world today is related to ethanol. U.S. EPA has decided it will not make an RFS announcement for compliance and usage numbers until sometime in 2015. 


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