Some Good News for Ethanol and Spring Flooding Concerns
Update for March 2nd, 2020
As we look ahead to the planting and growing season of 2020 we are reminded of the large increase in corn and soybean acres forecast by the USDA. Historically these estimates are fairly accurate, barring any issues with spring planting progress.
Corn ending stocks are expected to rise to 2.637 billion bushels, the highest since 1988. Soybean ending stocks are projected to decline to 4 year lows which could sway some producers to plant soybeans on some of their previously planned corn acres. Looking at average crop prices over the past couple of decades the USDA has tended to be a bit conservative on cash price. Over the past several years the USDA has underestimated the average cash corn price over 50% of the time by an average of $0.56 per bushel. The same is true for soybeans, the agency has underestimated the cash soybean price incorrectly over 50% of the time out of the past 19 years by an average of $0.88 per bushel.
The USDA has announced it has created and funded a new program to make $100 million in grants available this year through the Higher Blends Infrastructure Incentive Program (HBIIP). This will fund the installation, retrofit and upgrading of fuel storage, pumps and other equipment deemed necessary to sell ethanol and biodiesel products to biodiesel distribution and transportation fueling facilities. More details will be made public this spring. These grants are being made available to help with the high cost of upgrading equipment which has hindered the growth of ethanol use. President Trump removed restrictions a year ago allowing the sale of E15 year round but, “Use of E15 in 2018 was limited by the small number of stations that offer E15: 1,826 of the estimated 153,000 vehicle fueling stations nationwide. Similarly only 3,617 stations offered E85 as of 2018-approximately 2.4% of vehicle fueling stations nationwide.”
Ag Secretary Sonny Perdue instructed the USDA that going forward, only vehicles that use E85 or biodiesel can be purchased when replacing conventionally fueled vehicles. This is a significant decision because one of the largest “civilian fleets” in the U.S. federal government is owned and operated by the USDA. Of course these decisions have pleased biofuels and corn groups while angering advocates of the oil industry who have stated that customer demand should be what drives infrastructure investment.
Bloomberg News reported that the EPA Administrator Andrew Wheeler told the House Energy and Commerce subcommittee that his agency will “comply with the 10th Circuit decision” and that further direction will come “soon”. The Trump administration had made an announcement a day earlier that they planned to follow the ruling as well. Going forward this also restricts future SRE’s to only a couple of oil refineries instead of to the multiple refineries seen in recent years.
Rumors have surfaced that Chinese buyers have shown some interest in the U.S. soybeans. News out of Brazil indicates they may be dealing with some logistical issues and threats of a labor strike. Signals out of Argentina are indicating a potential increase in export tariffs may soon occur. Hopes are that Chinese buyers will be attracted to U.S. suppliers during this time of global crisis.
The global crisis of Coronavirus has grown to nearly 90,000 cases world-wide. Over the past 2 months there have been over 3,000 deaths and for the first time since this outbreak began newly reported cases outside of China exceed newly reported cases within the country of China. In 2003 another coronavirus known as SARS-severe acute respiratory syndrome swept fear across the globe but since then air travel has more than doubled making this virus more mobile. There are a lot of unknowns with this outbreak including how it is spread and when it will be under control. All of this has been fueling fear and rocking markets across the world.
Consequences for U.S. agriculture:
An additional MFP payment is becoming more likely in 2020. It’s expected that the payouts will be lower than those of MFP 2 and will likely have changes that equalize current payout differences from county to county.
It’s safe to assume that Chinese purchases of U.S. ag products will be postponed until the typical buying period of late summer and fall. If the coronavirus outbreak is still uncontained at that point the ag market could suffer significant setbacks. We have seen a substantial setback in prices over the past couple of weeks as the markets are “factoring in a worst-case scenario” which may continue to influence price movement for some time to come yet.
One China expert, Bill Bishop, was asked what signs we could watch for that would indicate that the coronavirus is under control within the country. He said these are the 3 things to watch for:
Chinese leader Xi Jinping visits the epicenter of the outbreak-Wuhan China.
Dates set for the 2 most important meetings within the country which are typically held during March-the Chinese People’s Political Consultative Congress and the National People’s Congress.
Chinese students return to school.
The National Centers for Environmental Information reports that several states across the Midwest have received 2 to 3 times more precipitation than normal so far this winter. Flooding concerns are mounting along the Ohio, Mississippi and Missouri rivers along with their tributaries where many farmers are preparing for another long, waterlogged spring. The high water will once again slow the movement of grain to ports as well as other needed products that will now need to be transported by rail or roadway.