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Ag Commodity Prices- Supply, Ethanol and Oil, and Doha

Ag Commodity Prices- Supply

Bloomberg writer Alan Bjerga reported yesterday that, “Corn prices that reached a record $7.9925 a bushel last year are headed for a decade-long slump below $4 as production in the U.S., the world’s top grower, catches up with demand, according to congressional analysts.

“The average cash price will bottom out at $3.65 in the 2012-2013 marketing year, then rise no higher than $3.94 through 2019, the analysts from the Congressional Budget Office said in a document used as part of a government-wide estimate of federal spending over the next decade. Corn futures closed today at $4.165 a bushel on the Chicago Board of Trade.”

Yesterday’s Bloomberg article stated that, “Corn prices are expected to stay low even as total use rises 18 percent to 14.719 billion bushels by the end of the next decade. The analysts forecast production jumping 23 percent to 14.738 billion bushels, as a 15 percent gain in yields absorbs rising demand for the grain for exports and as a source of ethanol. Corn is the biggest U.S. crop, valued at a $52.1 billion in 2007.”

With respect to soybeans and wheat, Mr. Bjerga explained that, “Soybean and wheat prices, which also rose to records in 2008, are expected to decline from this year’s levels.

“Soybeans, the second-most-valuable U.S. crop, will average $9 a bushel this year, then fall as low as $8.44 in 2012-2013 before rising to a new peak of $9.04 in 2015-2016. Acreage, which jumped 17 percent to 75.9 million acres this year, will range between 73.6 and 75.1 million acres over the next 10 years, the CBO analysts said. The 2007 soybean crop was valued at $26.8 billion.

“The average wheat price is forecast to tumble to $5.60 next year from $6.70 during the marketing year that ends May 31, and never rise above that price over the next decade. Production, seen at 2.5 billion bushels this year, will range between 2.205 billion bushels and 2.295 billion bushels as yields rise only 2.4 percent. Wheat is the fourth-most-valuable U.S. crop, with a 2007 value of $13.7 billion, also a record, following hay at $17 billion.”

And the article also pointed out that, “The estimates, which include forecasts for crops that receive government subsidies, are separate from the U.S. Department of Agriculture’s annual 10-year baseline forecast for farm production and prices. That report, scheduled for release Feb. 12, is used to formulate the White House budget proposal.

Crop subsidies will average about $7.9 billion annually through 2019, according to the document, a copy of which was obtained by Bloomberg News.”

For more detail regarding the current forecast for total farm related government subsidy payments in 2008, as well as historic perspective on recent levels of federal farm outlays, see this Economic Research Service briefing.

For more detailed perspective on the prices farmers received for corn, soybeans and wheat, see these graphs from the USDA’s monthly Agricultural Prices report: corn graph, soybean graph and wheat graph.

Meanwhile, Bloomberg writer Jeff Wilson reported yesterday that, “Corn and soybeans dropped from at least two-month highs after farmers increased sales to take advantage of prices that rose more than 30 percent in a month.

“The average U.S. cash corn price rose 46 percent to $3.9345 a bushel from $2.689 on Dec. 8, while cash soybeans jumped 32 percent to $9.6423 during that period. Farmers have been reluctant sellers after prices fell to the lowest in more than 18 months in December.”

Mr. Wilson also explained that, “Corn futures for March delivery fell 11 cents, or 2.6 percent, to $4.165 a bushel on the Chicago Board of Trade. Yesterday, the price reached $4.29, the highest for a most- active contract since Oct. 30. Before today, corn had risen 40 percent since touching a two-year low at $3.055 on Dec. 5. The price reached a record $7.9925 on June 27.

“Soybean futures for March delivery fell 26 cents, or 2.6 percent, to $9.90 a bushel in Chicago, the biggest drop for a most-active contract since Dec. 5. The price earlier rose to $10.23, the highest since Oct. 3. Before today, the commodity had advanced 31 percent since touching an 18-month low of $7.7625 on Dec. 5. Soybeans reached a record $16.3675 on July 3.”

In a closer look at crop production totals and supply estimates for this year’s corn and soybean crops, John Perkins reported yesterday at Brownfield that, “2008 was a trying year for corn and soybeans, and that’ll be reflected in next week’s final production figures from the United States Department of Agriculture. The reports are due out Monday, January 12 at 7:30 AM Central.

For corn [related graph], the average of all analysts’ estimates is 11.982 billion bushels, according to Dow Jones Newswires, in a range of 11.880 billion to 12.078 billion. In November, the USDA put corn at 12.020 billion bushels and 2007’s crop was a record 13.074 billion bushels. Only four of the fourteen analysts surveyed by Dow Jones see corn at or above 12 billion bushels. The average yield is pegged at 153.3 bushels per acre, down a half a bushel from November, but up 2.2 from 2007. Expectations range from 152.3 to 154.5 bushels per acre. Corn planting was down from 2007 to 2008, had a late start to planting, got hit hard by summer flooding and then saw harvest delays.

Soybeans [related graph] are expected to come out around 2.910 billion bushels, compared to November’s guess of 2.921 billion and the 2007 total of 2.676 billion. Analysts’ estimates range from 2.879 billion to 2.940 billion bushels. 2008’s larger planted area should offset crop loss from flooding. However, yields suffered, with the average estimate for yield at 39.1 bushels per acre. That would be down two tenths of a bushel from November and 2.6 less than 2007. Estimates run from 38.7 to 39.6 bushels per acre.”

Ethanol and Oil

DTN writer Todd Neeley reported yesterday that, “In 2009 the ethanol industry is on the ropes.

“Tight credit markets, volatile corn prices, a shrinking ethanol market, questions about ethanol companies’ ability to make up for 2008’s losses, and maybe even doubts as to whether the industry can produce the mandated 10.5 billion gallons of production as required by the Renewable Fuel Standard all point to an industry continuing to change in 2009.

“What may not change in the near future are the tight profit margins that dogged the industry throughout 2008, brought on by higher corn prices and stagnant ethanol prices.”

Mr. Neeley noted that, “What the industry does have going for it heading into 2009 is more-than-adequate corn supplies and lower prices — two things that came into question last year after spring rains wiped out many corn fields in Iowa and Illinois.

“Ron Litterer, chairman of the National Corn Growers Association Board, said 2009 corn prices are not likely to return to the $6 level — making it cheaper to produce ethanol than it was in 2008.”

Yesterday’s DTN article also indicated that, “The blender’s tax credit for ethanol will drop from 51 cents to 45 cents in January. The credit will stay in effect until at least 2010. Ethanol producers say the tax credit is important because it provides incentive for gasoline blenders to use ethanol.

“The price of crude oil has fallen from a high of about $147 a barrel last summer, to less than $40 in recent weeks. Lower crude oil prices mean lower gas and ethanol prices — good news for consumers, bad news for the ethanol industry.”

In more detail regarding the market price of crude oil, Javier Blas reported yesterday at the Financial Times Online that, “Oil prices plunged $5 back below $50 a barrel on Wednesday, dragging most of the rest of the commodities sector lower, after the US government reported a hefty increase in crude oil and products inventories.”

The FT article noted that, “The drop in oil and products prices was exacerbated by gloomy economic news.

“The US private sector shed 693,000 jobs in December, according to a closely watched survey of business employment published on Wednesday. The monthly ADP Employer Services survey, which tracks private non-farm payroll employment, was much worse than economists expected and a surprising increase from the 476,000 jobs lost in November.”

Brian Baskin reported in today’s Wall Street Journal that, “Light, sweet crude for February delivery settled $5.95, or 12%, lower at $42.63 a barrel on the New York Mercantile Exchange [related graph]. It was the biggest single-day drop in percentage terms since September 2001.

“Oil prices have changed course after opening 2009 with the biggest rally since September. Most of the previous week’s gains, built on cautious optimism that the worst of the economic downturn was over, quickly evaporated with new signs that the U.S. recession is deepening.

“Profit warnings from some of the country’s largest companies and a new estimate of rising unemployment sent both equities and commodities markets lower.”

In a related article regarding the future price level for oil, Reuters news reported yesterday that, “Texas billionaire T. Boone Pickens said on Tuesday that oil prices will rise above $100 a barrel by the end of 2010 as the global economy recovers.

“Oil prices in the $40 a barrel range are ‘not going to be around much longer,’ Pickens told a gathering at the James A. Baker III Institute for Public Policy at Rice University in Houston.”

Yesterday’s Reuters article added that, “By late 2010, Pickens sees a rebound in oil demand sparked by a global recovery, pushing prices higher.

“If the U.S. continues to rely on imported oil for 70 percent or more of its supply, prices could reach $200-$300 per barrel in another decade, Pickens said.”

Doha

An AFP article from yesterday reported that, “Outgoing US Trade Representative Susan Schwab said Wednesday that negotiations on a global trade round should step back from the limelight over the coming year and focus on quiet confidence-building.

“‘I think there is an opportunity right now to step back, review where we are in the Doha Round and take some time to move forward,’ she told journalists after a farewell meeting with World Trade Organisation Director General Pascal Lamy here [Geneva].”

The article stated that, “Schwab admitted that there were still ‘a variety of irreconcilable differences’ that had prevented a new ministerial meeting taking shape at the WTO last month.

“She suggested that rapidly growing emerging economies, which are ranked among developing nations in the WTO, should be able to make more concessions in the Doha round of talks.

“‘There is a big difference between what we should expect of a China, Brazil or an India and what we should expect of a Kenya, for example. There is a difference in terms of the contribution that the emerging markets should make.’”

Frances Williams, writing today at the Financial Times Online reported that, “The big emerging economies such as China, Brazil and India hold the key to success or failure of the long-running Doha round of global trade talks, Susan Schwab, the outgoing US trade representative, said on Wednesday.

“The next few months, while the new Obama administration settles in, provided an opportunity ‘to step back, review where we are in the Doha round and to take some time to move it forward,’ Ms Schwab told journalists in Geneva.”

And Reuters news reported yesterday that, “The United States is committed to a deal on cotton in the long-running Doha trade talks, but has not yet reached an agreement, the outgoing U.S. trade chief said on Wednesday.

“U.S. Trade Representative Susan Schwab, who steps down on January 20 with the change of administration, said cotton would have been part of a deal if ministers had reached an outline agreement last month at the World Trade Organisation (WTO).

Cotton had been one of the most difficult issues in the Doha talks, launched in late 2001, but Schwab’s comments indicated that cotton would not be an obstacle to a broader trade deal.”

The Reuters article explained that, “Developing country cotton producers want the United States to cut its politically sensitive subsidies, which have become a symbol of what they see as unfair international trade practices that squeeze their farmers out of markets.

“WTO members agreed in Hong Kong in 2005 to cut subsidies on cotton faster and more deeply than supports on other agricultural goods. But that cotton deal is dependent on a broader agreement on agriculture.

“Four African cotton producers — Benin, Burkina Faso, Chad and Mali — have made a proposal that would see U.S. subsidies fall 82.2 percent over about two years against a 60 percent cut over five years for U.S. farm support generally.

“The United States has not made a counter-proposal.”

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Lastly today, the Associated Press reported yesterday that, “Purdue professor Jay Akridge has been named dean of the university’s College of Agriculture. 



“Akridge is former director of the Purdue and Indiana University Kelley School of Business graduate program in food and agribusiness management. He has been interim agriculture dean at Purdue since Randy Woodson was named university provost in May.

“Akridge also was Purdue’s interim vice provost for engagement and was director of the Center for Food and Agricultural Business.”

Keith Good