Ethanol Prices and Crop Production in Brazil - Tuesday, 26 January 2016

Last weekend’s snowstorm along the east coast has managed to shut-down business in Washington D.C. until sometime later tomorrow afternoon.  This has forced a delay for the hearing that was scheduled for today, Agriculture Committee members from the House had planned to question the EPA Administrator Gina McCarthy.  Chairman of the Ag Committee, Michael Conaway has been quoted in a statement describing the agency as, “an agency addicted to writing regulations that ignore congressional intent and public input.”  Tomorrow two panels of the House Oversight Committee were planning a joint hearing on the Renewable Fuel Standards which has also been postponed, details on new meeting dates and times have not been made public yet.

The fall in crude oil prices over the last 18 months has brought gas prices down to levels not seen since 2003.  Generally the price of ethanol has been cheaper than gasoline due to its lower energy content, but now we are beginning to find the opposite situation and because of this there has been a +20% increase  in ethanol supplies.  In spite of this current situation though the ethanol industry is remaining optimistic for the future.  Exports grew last year by more than +25%, and ethanol producers feel that if ethanol demand can stay at current levels near 13.5 billion gallons and domestic use can stay at or near last year’s levels then the industry will be able survive the current downturn.  If oil prices don’t begin to climb though there are concerns that many plants may have to cut production levels or even become idle. 

The Mato Grosso soybean crop is continuing to worsen.  Row crops are suffering as high temperatures over the weekend were in the 90’s to low 100’s F.  Producers are trying to remain optimistic though as beneficial rainfall is predicted this week.  As a result of the hot and dry weather production forecasts have been lowered for 2015-2016 to 99.2 million tons down from an earlier estimate of 100.6 million tons by Agroconsult.  Weather problems during key production times are the issue, “there are places in Mato Grosso where the harvest is worse than last year’s.  It’s a region where rainfall in November and December was below normal and poorly distributed.”

A possible new twist has been added to the corn market.  Agroconsult has estimated that Brazil will ship a record 34 million metric tons of corn this season.  This increased interest in Brazilian corn is due in part to the countries weak Real which will likely keep global demand high through this year.  While this is a windfall for exporters it is believe that it will create a domestic shortage during the second half of 2016.  This oversight is bringing with it the possibility that Brazil may need to import corn, Argentina and the United States would likely be the beneficiaries if this situation holds true.

Above average temps are expected for much of the U.S. into early next week.  This weekend a major storm complex is expected to move onshore in the west and continue across the Rockies, a strong surface storm is then expected to form over the Plains early next week.

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