Latest on the RFS & Slow Harvest Pace - Friday, 27 October 2017

Weather delays are causing crops to remain in the fields considerably longer than normal.  The slow harvest is bringing with it quality concerns and lower yields.  The weekly USDA report showed the U.S. corn harvest only advanced +10% from the previous week to 38% vs the normal 5-year pace of 59% completed by this date.

It seems as though soybean yields in the majority of recently harvested fields has been dropping off when compared to yields reported initially.  Some analysts feel that this may cause an overall decrease in total production and in future supply and demand reports. While this is possible it is not probable since early yields are likely high enough to off-set these later yields.

Debate continues over 2018 crop acres in the U.S. Currently soybean profits are $50.00/acre higher than corn, while typically the opposite is true.  This has many analysts thinking that producers will shift more of their acres to soybean production in 2018.  Since many producers have opted for spring applied fertilizer vs fall their options remain open making spring values more impactful than in previous years.

There is always a lot of news out of Washington D.C. but recently a lot of the information has centered on agriculture.  One of the most important topics has been the EPA’s consideration to reduce the federal mandate for biofuel quotas. Following pressure from “Corn Belt” senators the EPA Administrator Scott Pruitt was directed by President Trump to drop the two potential changes to the current mandate that were under consideration. The changes that the EPA had deliberated would have 1. Counted exported renewable fuels towards the domestic quota and 2. Reduced the biodiesel requirements. Bloomberg reported that the President called Iowa Governor, Kim Reynolds last week and reassured her of his commitment to the RFS program which he pledged to protect during his campaign last year.

Reuters reports that in response 9 U.S. Senators from big oil states have also sent a letter to President Trump asking for a meeting to discuss issues with the countries biofuels policies and changes they want to see. Refiners have an issue with the RFS, a law that requires them to blend increasing amounts of ethanol into the fuel supply each year.  Senators Ted Cruz from Texas, Jim Inhofe from Oklahoma and Pat Toomey from Pennsylvania and others signed the letter. These senators argue, “If your administration does not make adjustments or reforms on matters related to the Renewable Fuel Standard, it will result in a loss of jobs around the country, particularly in our states.”  The letter requests a meeting within the next 3 weeks to “discuss a pathway forward toward a mutually agreeable solution” between themselves, the President, and several lawmakers from the Midwest. In addition, and as a form of retaliation against the Midwest corn lobby, former presidential candidate Senator Ted Cruz has placed a “hold” on the confirmation of Bill Northey, of Iowa, to the USDA.

Another important topic to agriculture that is in the spotlight is the development of the 2018 Farm Program. Politico reports a ranking member of the Senate Agriculture Committee, Debbie Stabenow from Michigan is working to protect the new farm bill from any potential cuts in funding that may occur as a result of the budget reconciliation process.  Stabenow filed an amendment which would spare all farm bill programs from budget cuts from 2019 through 2028.  The current budget resolution from the Senate already saved the Ag committee from having to deliver any cuts but the House’s budget resolution calls for $10 billion in cuts over the next 10 years.  The two budget resolutions will have to be reconciled at some point but the senator believes that farm programs should not be the target.  More than $100 billion in savings is expected under the 2014 farm bill with the majority of that coming from SNAP.

The USDA’s Economic Research Service released their new expectation regarding New Farm Income in the U.S. and for the first time in 4 years the group predicts and increase from the previous year.  Over the past 3 years the group estimates net farm income has fallen by 50% so a reversal to the upside is crucial.

In order for farm incomes to increase demand must remain strong.  The most recent USDA outlook indicates that demand for U.S. corn will continue to remain strong in 2017/18.  Japan continues to be a valuable customer of U.S. grown corn.  The country producers very little coarse grains but is a very large producer of meat and because of this, they are a consistently searching for supplies of high quality grain.  For many years South Korea has been the 2nd largest importer of global corn supplies, since the country is very price-conscience they are willing to purchase needs from the cheapest source. Mexico is a larger importer of corn as well.  Mexico is a large producer of white corn but the majority of those bushels are processed into human food products. The country imports its supply of yellow corn and sorghum used for livestock feed and increased meat production.  Mexico is the largest importer of U.S. corn with Japan coming in a close second. 

While strong exports of U.S. corn is very important, it accounts for a very small part of the overall demand of the crop.  “This low demand for exports account for a relatively small share of demand for U.S. corn—less than 15%.  This low demand for exports means that corn prices are largely determined by supply-and-demand relationships in the U.S. market, and the rest of the world must adjust to prevailing U.S. prices.”(Source: USDA, FAS-Global Trade Atlas)

The first snow for the Midwest has arrived and is expected to blanket a portion of the northern Plains, upper Midwest and western Great Lakes into the weekend.  A low-pressure system moving through will push the jet stream southward allowing colder air to make its way into the nation’s mid-section.  Temperatures are expected to moderate somewhat into next week.

 

 

NOAA and The Weather Company have published the maps shown below indicating their forecast for the winter of 2017/2018.  As you can see clearly from the graphic there will be a nationwide split between colder than average temperatures and above average precipitation.  This will be an adjustment for all of us in the northern tier, last winter most of the East, Midwest and South experienced one of the warmest winters on record.  Last year (2016/2017) was the 7th warmest and 2015/2016 was the all-time warmest ever recorded.  

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