FarmPolicy

August 21, 2019

Crop Estimates (Corn Use for Ethanol Drops), Doha and Cabinet Issues

Crop Estimates (Corn Use for Ethanol Drops)

Yesterday, the World Agricultural Outlook Board released their latest World Agricultural Supply and Demand Estimates (WASDE) report.

With respect to wheat, the report stated that, “Projected U.S. wheat ending stocks for 2008/09 are raised 20 million bushels this month on higher imports and lower food use. Wheat imports are projected 10 million bushels higher as abundant foreign supplies of feed quality wheat and extremely low ocean freight rates provide incentives to import wheat for domestic feeding. Wheat food use is projected 10 million bushels lower based on the latest mill-grind data from the U.S. Bureau of Census…The all-wheat season-average farm price is projected 15 cents lower on both ends of the range to $6.40 to $7.00 per bushel.”

(In a related article regarding wheat, Reuters news reported yesterday that, “Russia faces a grain glut in 2009 as it prepares to harvest another bumper crop, putting domestic prices under pressure and overwhelming storage capacity already stretched by this year’s crop, the biggest in about 15 years…[F]armers in Russia, the world’s fifth-largest grain grower and exporter last year, have invested in new technology and land to increase their harvests and take advantage of booming world commodity prices that have since plummeted sharply.”)

While addressing oilseed variables, yesterday’s WASDE report noted that, “Soybean crush is reduced 30 million bushels to 1.715 billion, reflecting weak domestic soybean meal consumption and lower soybean meal export prospects, especially to Canada. Projected soybean ending stocks are unchanged at 205 million bushels.

“Soybeans and soybean product prices for 2008/09 are projected lower this month. The U.S. season-average soybean price range for 2008/09 is projected at $8.25 to $9.75, down $0.85 on both ends. The soybean meal price is projected at $240 to $300 per short ton, down $15 on both ends of the range. The soybean oil price range is projected at 31 to 35 cents per pound, down 6.5 cents on both ends.”

Perhaps most interesting was the World Outlook Board’s assessment on corn. The report indicated that, “Projected U.S. feed grain ending stocks for 2008/09 are raised this month with increases for corn, barley, and oats. Corn use is projected lower with increased feed and residual use more than offset by reductions in ethanol use and exports. Ethanol use is projected 300 million bushels lower this month as prospects for blending above federally mandated levels decline. Financial problems for ethanol producers are reducing plant capacity utilization for existing plants and delaying plant openings for those facilities still under construction. Falling gasoline prices have also resulted in high relative prices for ethanol, reducing blender incentives. Despite reductions in expected meat production, corn feed and residual use are raised 50 million bushels as lower ethanol production reduces the availability of distiller grains. Corn exports are projected 100 million bushels lower reflecting strong competition from larger foreign grain supplies and the slow pace of sales to date. Projected ending stocks are raised 350 million bushels. The season-average farm price is projected at $3.65 to $4.35 per bushel, down on both ends of the range from last month’s $4.00 to $4.80 per bushel.”

A complete overview of U.S. corn variables was included on page 12 of yesterday’s WASDE report- ethanol for fuel use was projected at 3.7 billion bushels, down from four billion last month.

A news release issued yesterday by the American Farm Bureau Federation stated that, “‘The most dramatic change in the December WASDE report was the big drop in corn used for ethanol production,’ said Terry Francl, senior crops economist with the American Farm Bureau Federation (AFBF). ‘I am surprised that corn use for ethanol dropped by that much. Demand for ethanol is down, just like demand for gasoline is down, but I just don’t think the decline is that large. I believe 3.8 billion bushels to 3.9 billion bushels is closer to the mark.’

“Francl explained that a number of ethanol plants are idled due to weak demand, which explains the drop in corn used for ethanol. However, the Renewable Fuel Standards would seem to imply that at least 3.8 billion bushels of corn will be utilized for ethanol production in 2008/09.

“The December WASDE report also showed a 100- million bushel drop in exports from November, to 1.8 billion bushels. ‘The drop in corn exports is more on target due to the weakening global economy,’ Francl said.”

The AFBF release added that, “The AFBF economist expects a further weakening in corn exports in 2009 due to the economic slowdown. The drop in exports and ethanol usage in the December report puts U.S. corn carryover supplies at 1.474 billion bushels, up 350 million bushels from the November report.”

Meanwhile, Brian Baskin reported in today’s Wall Street Journal that, “Light, sweet crude for January delivery settled $4.46, or 10%, higher at $47.98 a barrel on the New York Mercantile Exchange.

“Oil has fallen $100 a barrel over the past five months, largely over concerns that weakening economic conditions would result in a supply glut. Crude futures traded as low as $40.50 a barrel last Friday, a four-year low.

The gain in crude futures Thursday raised the possibility that $40 marks a bottom for the market, as production falls in line with lower demand. However, participants were quick to warn that the global economic downturn, including the highest new jobless claims in the U.S. last week since 1982, leaves open the possibility of further declines.”

And AP writer Sara Lepro reported yesterday that, “Grain prices closed mostly higher on the Chicago Board of Trade, as investors largely overlooked a discouraging report from the Department of Agriculture and focused instead on oil’s advance and the dollar’s decline.

“The report forecast a larger-than-expected supply of corn and wheat at the end of the crop, said Vic Lespinasse, an analyst at research firm GrainAnalyst.com. Futures prices would have likely been sharply lower if not for a spike in crude prices and a drop in the dollar, he said.

“‘The more oil goes up, the more demand there is for alternative fuel, and the more the dollar goes down, the more cheap U.S. grain exports look to foreign buyers,’ Lespinasse said.

“Corn for March delivery rose 9.5 cents to $3.5150 a bushel. January soybeans jumped 27 cents to $8.5650 a bushel, after hitting a high of $8.6450 earlier in the day.

“March wheat futures slipped 2 cents to settle at $5.0750 a bushel, after earlier rising as high as 7.5 cents to $5.17 a bushel.”

For additional perspective on U.S. ethanol, Joshua Boak reported in today’s Chicago Tribune that, “Record corn prices drove VeraSun Energy into bankruptcy. Shares in Aventine Renewable Energy are trading for less than 50 cents, down 99 percent from their peak. Plans for 19 ethanol refineries were recently canceled, including nine in Illinois.

“And because of its lower energy content, ethanol blend E85 effectively costs drivers about 30 cents more per gallon than gasoline, hurting its acceptance as an alternative fuel.

“Promises of additional government support for ethanol producers from President-elect Barack Obama might not be enough to immediately rescue a business near and dear to farmers. Ethanol is a crucial part of Obama’s pledge to limit the use of foreign oil, a policy that connects energy to national security and economic development.”

Mr. Boak stated that, “‘Now’s not the time to pull the rug out from under the ag policies that help you find profitability in the marketplace,’ Heather Zichal, the Obama campaign’s policy director for energy, environment and agriculture, said at the ribbon-cutting of an ethanol refinery in Marion, Ohio, a week before the election.”

The Tribune article indicated that, “Sanjay Shrestha, an alternative-energy analyst for Lazard Capital, said Obama’s victory was an ‘incremental positive’ for ethanol, but he cautioned, ‘We shouldn’t draw the conclusion that it’s going to revitalize the corn-based ethanol industry.’”

The article also pointed out that, “As president, Obama will have to parse through these types of conflicting interests to arrive at a policy. That could distance him from the interests of a Corn Belt that helped the former Illinois senator win the White House.”

Doha

Reuters writer Jonathan Lynn reported yesterday that, “Faltering talks at the World Trade Organization (WTO) need a positive signal from U.S. President-elect Barack Obama to save them from failure, Brazil’s foreign minister, Celso Amorim, said on Thursday.

“Such a move would be justified because a successful Doha round deal at the WTO would offer one solution to the global financial crisis that originated in the United States, he told reporters after meeting WTO Director-General Pascal Lamy.

“‘I think an encouragement from the incoming administration would be a very positive signal and would be probably what we need in this very last stretch,’ Amorim said.”

Mr. Lynn added that, “WTO spokesman Keith Rockwell said Lamy would decide on Friday whether to call a ministerial meeting next week, after a further round of calls with the major players.”


Cabinet Issues

Dan Looker reported earlier this week at AgricultureOnline that, “President-elect Barack Obama hasn’t yet announced his pick for Secretary of Agriculture, but already his transition team is working on briefing papers for that person.

“On Monday of this week, the transition team in Washington heard from a cross section of groups interested in conservation, rural development and commodity policies, according to several who participated.

“Anyone looking for hints of direction would have been hard pressed. The transition team leaders spent most of their time listening. And the groups represented don’t agree on all issues.”

Mr. Looker stated that, “Some 40 groups participated in the session on commodity programs, says Katy Ziegler Thomas, vice president for government relations at National Farmers Union. Besides NFU, the session included the American Farm Bureau Federation, commodity groups representing corn, wheat, soybeans and pork. Sometime rivals, the National Cattlemen’s Beef Association and R-CALF USA, were there.”

The article also explained that, “Ferd Hoefner of the Sustainable Agriculture Coalition was one of eight people asked to present ideas at a session on conservation.

Hoefner warned that unless funds for food assistance for women, infants and children (the WIC program) are included in the next economic stimulus package, the new administration could be forced to spend less on conservation and rural development.

“Some USDA programs such as commodity payments and food stamps are entitlements and get funded no matter what the budget is. But the WIC program competes with other ag-related programs in each year’s annual appropriations process in Congress. With rising unemployment and poverty, WIC will cost more than $7 billion this year. The entire agricultural appropriations bill will be around $20 billion, Hoefner said.

“‘If we were smart, we would put WIC in the stimulus package where it belongs,’ Hoefner told Agriculture Online.”

Interestingly, Bob Meyer reported yesterday at Brownfield that, “When the groundwork for the 2008 Farm Bill was first being done, there was a lot of talk that this farm bill would be totally different, a break from traditional farm program payments with more focus on conservation and environmental projects. One of the staunchest advocates for change was Wisconsin Congressman Ron Kind, to the point of where he offered an alternative farm bill. But in the end, the 2008 Farm Bill ended up being quite similar to traditional farm bills.

A couple of weeks ago, a report from the General Accounting Office found some farmers received farm program payments even though their income exceeded the limits of eligibility as stated in the farm bill. One of the problems was the fact USDA does not have access to income information from the IRS so they cannot verify reported income. Kind says he will introduce legislation shortly to allow USDA access to IRS income information. But the report also rekindled calls for enforcement of stricter payment caps on farm programs.

Given the GAO report and the looming budget crisis in Washington, President-elect Obama’s agricultural transition team sat down with Congressman Kind this week to talk about what needs to be done. ‘We had a very healthy, constructive conversation of where I think farm policy needs to go under the Obama Administration.’ The Democratic Congressman says President Obama wants a more multi-lateral approach to his trade agenda, ‘But in order to do that, we’re going to have to revisit these farm subsidy programs.’ Kind says there is going to be a reduction in government spending and that could mean a reopening of the Farm Bill. That means less funding and prioritizing of where the remaining dollars go, ‘I would hate to see funding cut under the Conservation Title because we want to maintain large subsidies to big entities in agriculture.’”

Mr. Meyer added that, “There have been hints Kind is being considered for Secretary of Agriculture in an Obama Administration, the Wisconsin Democrat says he can’t really comment on that other than to say, ‘Never say never.’”

The Brownfield link also included a five-minute audio clip from Rep. Kind.

Anne C. Mulkern reported today at the Denver Post Online that, “The Rocky Mountain West played a key role in U.S. Rep. John Salazar landing a seat on the House Appropriations Committee, a plum assignment where the Democrat will help script how Congress spends money.

“House Speaker Nancy Pelosi backed Salazar for the job, he said Thursday, as Democratic leaders sought to ensure continued representation for the West.

“Gaining the seat ‘is critical for the Rocky Mountain region,’ Salazar said. ‘The speaker thought about what nationwide different regions need.’

“Colorado last month gained new importance for Democrats when it voted for Barack Obama for president. Putting Salazar, of Manassa, in the Appropriations seat allows him to secure money for the state.”

The article added that, “Securing the seat appears to indicate that Salazar is no longer in the running for agriculture secretary in the Obama administration. His name has been on the short list of potential choices.

“Salazar said he has not talked to Obama’s transition team for about a week.”

The Denver Post article stated that, “‘If President-elect Obama asked me to serve, I would have to consider it, but this committee assignment would make it very difficult to leave my House seat,’ Salazar said.

“But he is not taking his name out of contention for the agriculture post.

“‘As a member of the Cabinet, you could also do a lot of great things for Colorado agriculture,’ Salazar said.”

An update posted yesterday on a Denver Post Editorial Blog noted that, “What is better than Ag Secretary? A coveted spot on the Appropriations committee, as far as we’re concerned. Congressman John Salazar recently was rumored to be a finalist for Agriculture secretary under Barack Obama. That sounded good to us, given Colorado’s pine beetle problem and forest health issues. But even as Salazar notes here, winning a spot on Appropriations can really benefit Colorado, financially.”

Keith Good

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