Monthly Archives: August 2013


What Happens to Corn Prices without the Ethanol Mandate?

JULY 23, 2013
By: Ed Clark, Top Producer Business and Issues Editor

The debate about the future of biofuels mandates is running hot and heavy in Congress with the outcome too close to call. What would be the impact on corn prices if the ethanol mandate were wiped out entirely?
Not great, so far as current ethanol use is concerned, says Bruce Babcock, Iowa State University ag economist.

(Click to read: What Farmers Need From Biofuels Policy in 2014)

“The mandate increases corn prices by about 25¢ per bushel,” Babcock says. He spoke July 17 at the Federal Reserve Bank of Kansas City’s Agricultural Symposium. “The impact of policy mandates on 2013/14 producer profitability is modest,” he says. This year’s Renewable Fuels Standard (RFS) mandate is 13.8 billion gallons of ethanol, increasing to 14.4 billion gallons next year, and 15 billion gallons by 2015. A 15 billion gallon mandate has only a modest increase on corn prices as well, in Babcock’s view.
His outlook assumes favorable weather now through 2014/15, thus big crops and much lower corn prices than this year, potentially reaching sub-$4 levels for 2014/15.
“Without a 2014 drop in acreage, stocks could grow to 2.5 billion bushels,” he says. That would represent a tripling in stocks from the current 2012/13 marketing year. Obviously, with or without a mandate, continued ethanol demand is important.
What gives and why does he believe the mandate would only have a minor impact on corn prices and ethanol demand?
“If you didn’t have the mandate, ethanol would still be 9% to 10% of the nation’s fuel supply,” Babcock says. While oil companies did not welcome the mandate in the RFS, they found themselves making money by using ethanol as a cost-effective octane booster, taking lower octane petroleum and increasing it to required octane levels for ultimate sale, he says.
Ironically, at the same time oil companies are fighting the ethanol industry over higher blends in the future, ethanol is making them money today. “Since it’s profitable for oil companies to use ethanol, I assume that even without a mandate, they would continue to be rational when it comes to buying it,” Babcock says.
Still, there are two variables that could, without a mandate, cause lower ethanol use. “If gasoline prices—caused by a major decline in crude oil prices—drop precipitously, then mandates have a larger impact,” Babcock says.
If weather conditions are unfavorable and moves corn prices higher, mandates will boost corn prices by more than under unfavorable weather, he adds.
Eliminating the mandates would have another impact, Babcock says. The value of RINs, or ethanol production credits, that oil companies purchase to meet the mandate, currently are valued at $1.35 per gallon. Without the mandate, the RIN price would fall to zero, Babcock says. Even with a mandate, he sees RIN prices declining.
Babcock says that without question, the mandates contained in the RFS have been important in creating 3 billion bushels in additional annual corn demand, or net 2.25 billion bushels, factoring in distillers dried grains.
Corn ethanol production has increased by 8.5 billion gallons […]

By |2013-08-23T15:07:48-05:00August 23rd, 2013|Articles|0 Comments

Will Illinois Corn Yields Outperform Iowa?

AUGUST 21, 2013
By: Jen Russell, Managing Editor

The top two corn-producing states go head-to-head on the Pro Farmer Midwest Crop Tour.
It’s Day Three of the 2013 Pro Farmer Midwest Crop Tour, and as scouts make their way through Iowa and Illinois, the word that keeps coming up is “variability.”
“The problems we’re seeing over here all go back to the planting process and the conditions that this crop was planted into,” says Pro Farmer editor Chip Flory, reporting from the Western leg of the Tour.
He said corn fields in Iowa were all over the map in terms of maturity.
“We were in one field that literally had four different levels of development on the corn that we were in–everything from very late milk to early dough on one ear, down to ears that we really couldn’t even count because they were just shooting silks,” Flory says. “The range of development in some of these fields is really astounding and more dramatic than I expected to see.”
Flory says that the weather this year hasn’t done Iowa any favors, either.
“It’s so strange to be going through fields that have planting issues because it was so wet during the planting season, and you’ve got cracks that are eight inches into the ground now,” he says.
Similar Story in Illinois
On the Eastern leg of the Tour, Pro Farmer senior market analyst Brian Grete says corn samples on his route so far have been anywhere from 100 bu. per acre to over 200 bu. per acre.
“It’s been all over the board in terms of variability, not only from field to field but within each field,” Grete says. “A lot of the stuff that I’ve noticed here has been corn on corn acres are underperforming the corn that was planted on soybean acres from last year.”
He says he’s still seeing some dry conditions.
“Soil conditions are probably a little bit better than what I saw yesterday, but I came through a really dry area in eastern and northeastern Illinois. So, while it’s better, it’s not great by any means,” he says.
So will Illinois’ corn crop do better than Iowa’s this year?
“There’s potential there,” Grete says, “but it’s not uniform across the state, at least on the route that I’ve been on. We’ll see what the numbers spit out when all of the routes are tabulated tonight.”

By |2013-08-21T14:52:13-05:00August 21st, 2013|Articles|0 Comments

WTI Crude Declines Sixth Day in Seven as Japan Economy Slows

AUGUST 12, 2013
By: Bloomberg
(For Bloomberg fair value curves, see CFVL )
Aug. 12 (Bloomberg) — West Texas Intermediate crude fell for the sixth time in seven days as Japan’s economy slowed in the second quarter and the dollar strengthened.
Prices fell as much as 0.8 percent as Japan’s gross domestic product rose an annualized 2.6 percent, down from 3.8 percent the prior quarter, the Cabinet Office said. The dollar gained versus the majority of its 10 most-traded peers, reducing crude’s investment appeal. Bijan Namdar Zanganeh pledged to raise Iran’s output if he becomes the country’s oil minister.
“We had weak GDP data out of Japan,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The strong dollar is probably where some of the pressure is coming from. We are back to the trading band between $103 and $108.”
WTI for September delivery slid 76 cents, or 0.7 percent, to $105.21 a barrel at 9:14 a.m. on the New York Mercantile Exchange. The volume of all futures traded was 20 percent below the 100-day average.
Brent for September settlement dropped 60 cents, or 0.6 percent, to $107.62 a barrel on the London-based ICE Futures Europe exchange. Volume was 4.4 percent below the 100-day average. The European benchmark ’s premium to WTI was as little as $1.62, the narrowest on an intraday basis since Aug. 5.
Japan’s Economy
Second-quarter growth in Japan, the third-largest oil- consuming country after the U.S. and China, was slower than the 3.6 percent gain predicted by 32 economists in a Bloomberg survey. Consumer spending, which accounts for about 60 percent of the economy, contributed 1.9 percentage points to the annualized real growth rate.
The Bloomberg U.S. Dollar Index rose for the first time in seven days before a report tomorrow that may show a fourth straight monthly gain in retail sales, based on the median estimate of 64 economists. An increase might back the case for the Federal Reserve to reduce stimulus.
Fed Bank of Chicago President Charles Evans, who has been among the most vocal proponents of record monetary accommodation, said Aug. 6 that the central bank may begin curbing the $85 billion a month bond purchases in September.
Iranian Output
Zanganeh, a former Iranian oil minister nominated by President Hassan Rohani to take the post, said his “first action will be to bring the country’s oil production capacity back to 2005” levels, according to Shana, the Oil Ministry’s news website.
Iran, once the second-biggest producer in the Organization of Petroleum Exporting Countries, after Saudi Arabia, has slipped to sixth place, producing 2.56 million barrels a day in July, according to a Bloomberg survey of producers and analysts. Its 2005 production averaged almost 4 million barrels a day.
Money managers reduced their bullish positions on WTI for a second week on speculation that the Fed will scale back stimulus. Hedge funds cut net-long positions, or wagers that prices will rise, by 2.5 percent to 310,827 futures and options combined in the seven days ended Aug. 6, the Commodity Futures Trading Commission said in its […]

By |2013-08-13T07:58:17-05:00August 13th, 2013|Commodities|0 Comments