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Some Outlooks for the USDA November Report & Latest News re: Ethanol, Fertilizer and Nitrogen

Update for November 5th, 2021

Next week the USDA will release their November reports and as usual various agencies are publicizing their U.S. crop estimates ahead of the official release. One of the highest corn yield estimates so far is from HIS Markit (Informa). This group is projecting the U.S. corn yield at 178.7 bushels per acre which is considerably higher than the USDA’s October number of 176.5 bushels per acre. A poll of analysts conducted by Reuters reveals an estimated average U.S. corn yield of 176.9 bushels per acre. Demand has been steady but has seen some improvement with weekly net sales up 37% from the previous week but lags by 53% off the same week from a year ago. Mexico was the largest buyer this week accounting for 54% of total sales while China remained out of the market. The absence of the Chinese in the corn market is raising concerns as to whether they will ultimately take what they have purchased or if they will begin to make cancellations at some point going forward.

The average trade guess for 2021/22 soybean carryout is up from the October estimate of 320 million and now sits at 362 million bushels. HIS Markit has estimated a U.S. soybean yield of 51.5 bushels per acre which is unchanged from last month. Domestic crush numbers are strong and will help offset some of the decrease in export demand that we have had over the past several weeks. This past week though export sales rebounded and are 58% higher than sales from the previous week and 19% higher than the previous 4-week average. Compared to 2020 sales for this same week are up 22% this year but in total, sales for the marketing year are 33% lower than a year ago. (Keep in mind that the USDA currently estimates only a 7% decrease this year.) The two big stumbling blocks for soybean exports right now are:

· Damage caused to U.S. ports along the Gulf from Hurricane Ida which has setback exports 4 to 6 weeks.

· Brazil produced a record soybean crop last season. Now that the value of the Brazilian Real is falling these bushels are now more attractive to Chinese buyers than higher priced U.S. soybeans. So, we are still seeing Brazil involved during the window of time that typically belongs to U.S. soybeans.

The market expects a negative report next week vs the October data. The current USDA estimated soybean carryout for 2021/22 is 320 million bushels, analysts are now looking at the possibility of a carryout number closer to and possibly over 500 million bushels.

November estimates from Stone X for both corn and soybeans are shown in the map below.

Ethanol production in the U.S. continues to increase and this week the EIA reported production reached the 2nd highest production level on record due to strong margins. (The first week in December 2017 is 1st ) Production levels are now 15% higher than a year ago and 9% above this same week in 2019. And while ethanol production levels have greatly increased, ethanol stocks are only up marginally and are currently at the 2nd lowest level seasonally in 5 years.

A bipartisan group of U.S. governors from states across the Corn Belt are searching for ways they can expand biofuel sales at the state level. The group sent a letter to the Biden administration yesterday asking for ways in which they could help expand fuel sales that include higher blends of ethanol. “In the wake of the court decisions (which struck down year-round E-15 in July), we are exploring all of our options to ensure retailers are able to sell E-15 to consumers all year long without interruption.” The governors, including Iowa’s Kim Reynolds (R) are collaborating in hopes of developing a solution at a state-by-state level, since the Federal government seems unconcerned and non-cooperative regarding the matter.

A group of 5 agriculture groups have filed a court brief with the U.S. Court of International Trade asking they overturn the tariffs that have been placed on phosphate fertilizers from Morocco. The ag groups claim that the tariffs have given Mosaic Co a “near monopoly” in the phosphate fertilizer market. Last March the International Trade Commission imposed a 19% tariff of phosphate fertilizers from Morocco for 5 years. These tariffs were put in place due to a recommendation made by the U.S. Department of Commerce following a petition filed by Mosaic Co. The brief filed by the ag groups states that the ITC incorrectly blamed a 2019 supply imbalance on imported phosphate fertilizers from Morocco. At that time U.S. fertilizer companies Mosaic and Nutrien were idling plants, reducing production by approximately 2.1 million short tons, while also growing an export market for their surplus supplies. Wet weather conditions found in 2018 and 2019 lowered planted acres during those growing seasons which largely contributed to the supply imbalance and the demand issues.

Shortages currently found in the nitrogen fertilizer industry are due in large part to the escalating price of the key ingredient natural gas. The increasing costs of natural gas is causing some companies to reduce production amounts. Chief Executive Tony Will of CF Industries, a major producer of the product said “There’s going to be a lot of unmet demand that’s going to be pent-up. And so, we do think yield is going to be, on a global basis, off next year. Not because of demand destruction, just because there’s not enough tons available.” Prices for the nitrogen fertilizer are now at their highest level in more than a decade. Russia has announced their plan to limit exports of nitrogen fertilizer for 6 months in an effort to limit any additional increases in food prices within the country and in addition, China is also limiting exports of nitrogen. CF Industries Senior Vice President of Sales Bert Frost says he expects the strong global fertilizer demand will remain an issue into 2023 perhaps longer. (Source: Reuters)

Rainfall is expected to return to the Corn Belt next week. Most of the precipitation shown in the map below is forecast to fall between next Wednesday and Friday.

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