August 21, 2019

WASDE Report: Ethanol; Budget, Climate Change and “Green Payments;” Crop Insurance- Farm Bill Issues

WASDE Report: Ethanol

The World Agricultural Outlook Board (WAOB) released its monthly World Agricultural Supply and Demand Estimates (WASDE) report yesterday.

In part, the report stated that, “U.S. corn ending stocks for 2008/09 are projected 50 million bushels lower this month as higher ethanol use more than offsets a reduction in exports. Corn use for ethanol is projected 100 million bushels higher on indications of improving blender incentives and higher ethanol use. Blender margins have become increasingly favorable since late February as gasoline prices have risen relative to those for ethanol. A continuing recovery in weekly production of gasoline blends with ethanol is also supportive of ethanol demand as are the latest data on ethanol production, imports, and stocks which indicate record use in December. Corn exports are projected 50 million bushels lower on sales and shipments to date, and pressure from increased foreign supplies of corn and wheat.”

“The 2008/09 season-average farm price for corn is projected at $3.90 to $4.30 per bushel compared with $3.65 to $4.15 last month.”

Click here for a complete breakdown of U.S. corn related projections from the WASDE report.

The WAOB also indicated that, “U.S. soybean ending stocks for 2008/09 are projected at 185 million bushels, down 25 million as increased soybean exports are only partly offset by lower crush. Soybean exports are raised 35 million bushels to 1.185 billion reflecting record sales to China and reduced export competition from Argentina. Soybean crush is reduced 10 million bushels to 1.640 billion because of continued weak domestic soybean meal demand and poor crush margins. Despite lower production, soybean oil stocks are projected higher due to a sharp reduction in domestic use resulting from lower soybean oil-based biodiesel production. Soybean oil used for biodiesel is reduced 0.7 billion pounds to 2.2 billion as biodiesel producers face poor margins, reduced export prospects, and strong competition from other feedstocks.

“The U.S. season-average soybean price range is projected at $8.85 to $9.85 per bushel, up 10 cents on both ends of the range.”

Bloomberg writer Jeff Wilson reported yesterday that, “Corn fell for the first time in four sessions and soybeans declined after the U.S. government cut its global demand forecasts and raised inventory projections.

World corn reserves before this year’s harvest in the Northern Hemisphere will reach 144.62 million metric tons, up 5.8 percent from a February estimate and higher than 129.96 million tons a year earlier, the Department of Agriculture said in a report. Global soybean inventories on Sept. 30 will be 49.95 million tons, up from 49.87 million forecast in February as consumption falls 1.7 percent, the USDA said.

“‘The report indicated world demand is going to be anemic this year,’ leading to more supplies than analysts expected, said Don Roose, president of U.S. Commodities Inc. in West Des Moines, Iowa. ‘It’s a very fragile world economy.’”

The Commodity News for Tomorrow report, a publication provided by the CME Group and Dow Jones news, reported yesterday that, “The U.S. Department of Agriculture, after months of lowering its forecast for corn consumption by the U.S. ethanol sector, reversed that trend Wednesday and predicted the renewable fuel industry would buy 100 million more bushels than previously expected.”

Yesterday’s Commodity News added that, “The new corn-use estimate for ethanol producers in the 2008-09 marketing year is 3.7 billion bushels, up from the January and February forecasts of 3.6 billion bushels.

But the new forecast is still not as high as the USDA was once predicting. A forecast of 4 billion bushels of corn for use by the ethanol industry was cut to 3.7 billion in December. In January that forecast was lowered further to 3.6 billion bushels, where the level was held until the March report’s increase.”

And yesterday’s Commodity News report also noted that, “Excessive rainfall in much of the U.S. Midwest is already prompting some worries about potential delays to the U.S. corn crop, about a month before planting will be in full gear in the heart of the Corn Belt.”

However, the report indicated that, “Roger Elmore, Iowa State University extension agronomist, said continued rains could delay nitrogen applications for corn, and that some farmers could delay planting while they wait. But he said the time to worry is still a month away.

“‘We are getting floods now, and plenty of rain, but I’m not worried yet,’ Elmore said. ‘We’ve seen worse, and probably will again.’

Despite last year’s heavy flooding, which helped catapult corn futures to record highs near $8 per bushel, the U.S. corn crop was still the second largest on record, at 12.101 billion bushels. After widespread gloom-and-doom predictions about the 2008 crop, ideal late season weather and a late frost helped the crop reach the finish line.

“‘It’s amazing what we learned from last year, how bad things can get and still have yields come across pretty well,’ Elmore said.”

Meanwhile, Philip Brasher reported yesterday at The Des Moines Register Online that, “President Barack Obama says he wants to preserve the nation’s ethanol industry while developing new versions of biofuels made from feedstocks other than corn.

Obama stopped short today of saying whether his administration would bail out the struggling ethanol industry by increasing the amount of the additive that can be blended with gasoline.”

The Register article noted that, “‘Corn-based ethanol over time is not going to provide us with the energy-efficient solutions that are needed,’ Obama said during a question-and-answer session with Washington-based newspaper reporters.

“But he said he also wanted to maintain the ‘progress we’ve made in building up a biofuels infrastructure and the important income generation that has come from ethanol plants.’”

Gregory Meyer reported in today’s Wall Street Journal that, “Oil prices fell to a one-week low after the U.S. government said stockpiles of crude and fuels such as heating oil and diesel swelled…The price of the light, sweet crude-oil futures contract for April delivery fell $3.38, or 7.4%, to settle at $42.33 a barrel on the New York Mercantile Exchange, the lowest price since March 3.”

In a related research item, the Farm Foundation recently released a report entitled, “What’s Driving Food Prices? March 2009 Update.”

In part, the Farm Foundation report stated that, “In 2008, Farm Foundation commissioned three Purdue University economists to write the report, What’s Driving Food Prices? Released in July 2008, the report had two purposes: to review recent studies on the world food crisis, and to identify the primary drivers of food prices. The economists, Phil Abbott, Chris Hurt and Wally Tyner, identified three major drivers of food prices: world agricultural commodity consumption growth exceeding production growth, leading to very low commodity inventories; the low value of the U.S. dollar; and the new linkage of energy and agricultural markets. Each was a primary contributor to tightening world grain and oilseeds stocks.

Between spring 2008 and February 2009, each of these driving forces reversed direction. A world financial crisis put the brakes on world income growth. Global crop production returned to more favorable levels for both the 2007/2008 and the 2008/2009 crops, as both production area and yields increased. After July 2008, the exchange rate of the U.S. dollar appreciated by as much as 22% against major currencies. Energy prices collapsed, influenced by changes in income and exchange rates. Lower energy prices constrained the economics of ethanol, contributing to weaker commodity prices.

“While these transitions are remarkable—almost a 180-degree course change—the key drivers of food prices remain the same: supply and utilization; the exchange rate of the dollar and related world macroeconomic factors; and the energy/agriculture linkage. At the request of Farm Foundation, Abbott, Hurt and Tyner updated their analysis. That analysis verified the role of the key drivers, even as conditions changed.”

Budget, Climate Change and “Green Payments”

DTN Ag Policy Editor Chris Clayton reported yesterday that, “Speaking to members of the American Soybean Association on Tuesday afternoon, Secretary of Agriculture Tom Vilsack continued to build his case for ‘green payments’ replacing direct payments for larger farmers. He had spoken at length on this topic Monday but on Tuesday Vilsack actually put out potential numbers, suggesting that cap and trade payments could pay farmers anywhere from $25 billion to $100 billion, an interesting figure to say the least.”

Meanwhile, Ian Talley and Stephen Power reported in today’s Wall Street Journal that, “Democratic congressional leaders are encountering opposition from key Senate Democrats to the president’s plan to put a price on carbon this year, and are considering bypassing normal Senate procedures to push through legislation.

“President Barack Obama’s 2010 budget plan calls for using a carbon cap-and-trade system to raise as much as $646 billion in new revenue for the government between 2012 and 2020.

The system would set limits on how much carbon dioxide and other greenhouse gases industries could emit, and sell rights to emit those gases that could be traded among companies.”

The Journal article explained that, “On Wednesday, the chairman of the Senate Budget Committee, Kent Conrad (D., N.D.), said it is ‘unlikely’ climate legislation will pass the Senate ‘if it doesn’t have money set aside for industries that will be especially hard hit.’

“The sparring over climate change underscores the choices facing Democratic leaders, who could try to push through a cap-and-trade bill using ‘reconciliation’ rules that shield certain budget measures from filibusters. In an interview, White House Office of Management and Budget Director Peter Orszag said the administration is considering trying to pass climate legislation using such rules, which require 51 votes rather than a filibuster-proof 60.

“A spokesman for Senate Majority Leader Harry Reid, Jim Manley, said that Mr. Reid is weeks away from making a decision about how to proceed on cap-and-trade legislation.”

Walter Alarkon reported yesterday at The Hill Online that, “Following a meeting at the White House, the Democratic chairman of the Senate Budget Committee said Congress will pass a budget that addresses President Obama’s major priorities.

“Sen. Kent Conrad (D-N.D.) said that lawmakers will pass a budget resolution that addresses Obama’s priorities on healthcare, energy and education. But he said it will be different from the president’s initial $3.6 billion plan, which has come under criticism on Capitol Hill.”

The Hill article added that, “The discussion, however, didn’t delve into other controversial topics. Conrad said they didn’t discuss over whether the controversial aspects of Obama’s budget, healthcare and climate change reform, would be included in reconciliation bills that only need a simple majority in the Senate to pass. Conrad has opposed the use the use of reconciliation, arguing that it could fray bipartisan relations. And though Obama had unveiled hours before the meeting a plan to reduce earmarks in order to save money, Conrad said they discussed earmarks only ‘in passing.’”

“Conrad on Tuesday told Obama’s top budget aide, Office of Management and Budget Director Peter Orszag, that he had spoken to enough senators with enough criticism of the budget to assure that it wouldn’t pass in its current form. Conrad himself called for more aid to energy-producing states such as North Dakota that would be hurt by Obama’s plan to cap carbon emissions. He also chastised Obama’s proposal to cut direct payment subsidies to farmers who have gross sales of $500,000 or more,” the Hill article said.

And the article added that, “A number of Democratic senators from rural and industrial states — North Dakota, Ohio and Michigan — have voiced reservations over Obama’s carbon emissions plan.”

A news release issued earlier this week by the National Farmers Union noted in part that, “Delegates to National Farmers Union’s annual convention in Washington, D.C., today urged agriculture’s role in renewable energy production and combating climate change be expanded. The delegates outlined provisions that should be included in future energy and climate change legislation.”

“‘America’s farmers also combat climate change by sequestering and storing carbon dioxide. Any legislation should recognize this contribution of rural America and facilitate its growth,’ [NFU President Tom Buis] said.”


In other policy developments, a news release issued on Tuesday by the Congressional Rural Caucus noted that, “Today the Congressional Rural Caucus sent a letter to President Barack Obama, calling for the White House to establish an Office of Rural Policy. The letter, authored by Co-Chairs Reps. Travis Childers (D-MS), Adrian Smith (R-NE), Vice-Chairs Reps. Glenn Thompson (R-PA) and Tim Walz (D-MN), as well as Caucus member Rep. JoAnn Emerson, comes in response to the recent announcement by President Obama creating a White House Office of Urban Policy. The letter also marks the first order of business carried out by the Caucus as a reestablished body.”

Crop Insurance- Farm Bill Issues

University of Illinois agricultural economist Gary Schnitkey noted on Monday (“GRIP Provides Superior Price Protection to CRC Or RA”) that, “Many farmers are concerned with the possibilities of low prices and want to pick a crop insurance policy with the possibility of low prices in mind. ‘Low price’ concerns likely result from price declines during the past six months and because of general pessimism concerning the U.S. economy.

“If lower prices are a primary concern, Group Risk Income Plan (GRIP) at a 90% coverage level will provide superior protection compared to Crop Revenue Coverage (CRC) or Revenue Assurance (RA). Given ‘average’ yields, GRIP will begin to make payments at higher harvest prices than CRC or RA. Moreover, GRIP will make larger payments than CRC or RA at the same harvest price.”

Dr. Schnitkey indicated that, “Net insurance payments for GRIP and CRC are shown in Figure 1 for corn in Christian County [Illinois]. GRIP payments are shown at a 90% coverage level for two protection levels: 100% and 60%. The 100% protection level policy provides the maximum payments and has a farmer-paid premium of $67.49 per acre. The 60% protection level policy is the lowest available level. Its payments and premiums will be 60% of the 100% protection level policy. The 60% coverage level policy has a premium of $40.50 per acre.”

Monday’s item stated that, “If price declines are a concern, GRIP should be considered. Given the same price decline, GRIP will tend to pay more than CRC or RA. Payments under the products can be examined using the 2009 Crop Insurance Decision Tool. This is a Microsoft Excel spreadsheet available for download…”

An item from yesterday’s USDA Radio Newsline (“To A.C.R.E. or Not to A.C.R.E.? That Is the Question”), which included comments from Ohio State University agricultural economist Carl Zulauf noted that, “An expert says farmers in the Midwest cannot afford to simply ignore the new revenue based ACRE program.” To listen to this one-minute segment, just click here.

And The Center for Agricultural Law and Taxation at Iowa State University recently issued an extension item entitled, “Payment Limit Rules under the 2008 Farm Bill – Planning Implications for Producers,” which noted that, “The Food, Conservation and Energy Act of 2008 (Act), generally effective for the 2009-2012 crop years retains many of the features of the 2002 Farm Bill, but did make several significant changes to the payment eligibility and payment limitation provisions of previous farm bills. The Act adds the Average Crop Revenue Election (‘ACRE’) program and replaces the former ‘three-entity’ rule with a rule of direct attribution.

“Also, the Act utilizes a revised adjusted gross income (AGI) definition that is applicable to both individuals and entities. The changes to the payment eligibility and payment limitation rules have important planning implications for individual producers and farming entities.”

The report added that, “As mentioned above, the Act eliminates the ‘three-entity’ rule and replaces it with a rule of direct attribution. Under the direct attribution rule, farm program payments are directly attributed to a producer’s social security number. Thus, each individual or entity is limited to $40,000 of Direct payments (32,000 under the ACRE program). FSA will no longer make ‘person’ determinations.”

Keith Good

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