March Supply and Demand Report Reduces U.S. Ending Stocks for Corn, Soybeans

Monday’s World Agricultural Supply and Demand Estimates (WASDE) has had a significant impact on crop markets. Corn production remained unchanged at 13.925 billion bushels but ending stocks are reduced to 1.456 billion bushels, slightly lower than pre-report estimates of 1.487 billion bushels. The decrease in ending stocks is a result of a 25 million bushel boost in corn exports. On the global stage, production was revised up by almost 900 thousand metric tons with 730 thousand of that coming from an increase in Chinese production. Global ending stocks are up 1.17 million metric tons from last month’s estimate. Pre-report estimates were expecting Brazilian production to be revised down by almost 4.5 million metric tons, but actual numbers remained unchanged.

There were no changes to the U.S. wheat supply and demand estimates. Global production was increased, mainly due to a 1.1 million ton boost in production from India and a 0.5 million ton increase in Australian production. An increase in global demand for wheat, mainly from the Middle East, offsets the increase in production, leaving only a small increase in global wheat ending stocks.

Soybean ending stocks were revised down by 5 million bushels in the March WASDE report. Pre-report estimations were expecting soybean ending stocks of around 141 million bushels compared to the actual 145 million bushels. Soybean exports were raised by 20 million bushels to a record 1.53 billion bushels, a result of continued strong sales through the month of February. Domestic soybean crush was reduced by 10 million bushels, partially offsetting the increase in exports. Global soybean production was reduced by 2.26 million metric tons, with most of that coming from a 1.5 million ton decrease in Brazilian soybean production. Global ending stocks were decreased by 2.37 million metric tons.

On the surface, it appears as if the report should be slightly bullish but when factoring in pre-report expectations it was actually a bearish report. While U.S. exports for corn were very strong resulting in lower domestic ending stocks, global production was much higher than expected. This is particularly true for Brazilian production. Similarly, U.S. soybeans exports are at a record high, but the estimate is still lower than expected. Brazilian soybean production was also 430,000 metric tons higher than expected. What this ultimately means is that although the U.S. numbers in this month’s WASDE report were slightly bullish, the global numbers overshadowed the positive domestic numbers and the crop markets are adjusting accordingly.

Cattle Market Notes: Week Ending Mar 07, 2014

Cash Cattle:

Following last week’s new records, cash fed cattle price pulled back just a bit this week. The five-area live and dressed price ended Friday at $149.13 and $238.29, respectively down $1.51 and $1.69. All regions except Nebraska did not have enough cash negotiated sales to determine a market trend. In Nebraska, live and dressed sales were at $150 and $237-$240.

Steers and heifers in Oklahoma City were higher in, yet another, winter weather limited sale. In Mississippi auction markets steers were about $5 higher and heifers were mixed. Cull cows and bulls were $3-$5 higher.

[ … For Livestock Prices and Production Information CLICK HERE … ]

Futures:

Cattle futures were mostly higher (excluding the nearest April contract). Prices were a bit wild mid-week as they jumped higher on Tuesday before turning sharply lower the next day. The uneasiness in Ukraine and Russia put corn prices on edge, which spilled over into cattle futures. Feeder cattle futures were higher, especially as the contract month moved out. Also in the news this week was the jobs report on Friday. The U.S. added 175,000 jobs in February, higher than the expectation of 149,000, but the unemployment rate rose 0.1% to 6.7%. The extreme weather continues to be an issue as the unemployment survey indicated more respondents had to work part-time. Also, the length of the workweek was the lowest since January 2011. The report helped equity markets remain at record levels, despite the troubles in Eastern Europe.

Corn futures moved about $0.20 higher this week. The issues in Ukraine, a major corn and wheat exporter – typically in the top five for corn exports and around the number 5 spot for wheat, led to higher prices for most of the week.

Beef:

Boxed beef rallied in the wake of higher fed prices, reminiscent of the first few weeks of January this year. Choice boxed beef finished with a weekly average of $233.40, up $13.80. Select averaged $231.07, up $13.98.

Note: all cattle and beef prices are quoted in dollars per hundredweight and corn prices are quoted in dollars per bushel, unless stated otherwise.

Highlights of the Agricultural Act of 2014 for Specialty Crops

Important implications for the U.S. Specialty Crop industry can be found in several titles of the recently passed 2014 Farm Bill. Key programs to solve critical issues in the industry have been reauthorized and changes related to funding level and matching requirements have been incorporated in some of these programs. For instance, the Technical Assistance for Specialty Crops (TASC) program, the Healthy Food Financing Initiative (HFFI), the Specialty Crop Research Initiative (SCRI), the Farmers’ Market and Local Food Promotion Program (FMPP), and the Specialty Crop Block Grants program have been reauthorized. Three key farm bill programs that have formed the success of U.S. organic farmers over the past decade: The Organic Agriculture Research and Extension Initiative (OREI), the Organic Production and Market Data Initiatives (ODI), and the National Organic Certification Cost-Share Program (NOCCSP), have also been reauthorized.

Moreover, changes in the definition of a “Retail Food Store” in the Nutrition title allow agricultural producers who market directly to consumers (i.e. Farmers’ Markets, CSAs, roadside stands) to accept SNAP benefits. The feasibility of redeeming these benefits through on-line and mobile transactions will be tested through pilot projects. If these pilot projects prove to be successful and are implemented nationwide, agricultural producers who sell directly to consumers may be able to accept SNAP benefits through on-line and mobile transactions starting in 2017. Overall, this bill contains considerable support for direct-to-consumer marketing, locally or regionally produced agricultural products, Farm-to-School efforts, organic agriculture, and food safety initiatives – all crucial topics for stakeholders in the U.S. Specialty Crop industry. For a summary of these and other important implications, click HERE.

 

New sulfur regulations to increase gas and automobile prices

From the New York Times, the EPA will soon force oil refiners to remove all sulfur from gasoline.

 The Environmental Protection Agency plans to unveil a major new regulation on Monday that forces oil refiners to strip out sulfur, a smog-forming pollutant linked to respiratory disease, from American gasoline blends, according to people familiar with the agency’s plans.

When burned in gasoline, sulfur blocks pollution-control equipment in vehicle engines, which increases tailpipe emissions linked to lung disease, asthma, emphysema, chronic bronchitis, aggravated heart disease and premature births and deaths.

The respiratory diseases and other health effects of pollution from automobile tailpipes are known as negative externalities in economics – bad (hence ‘negative’) effects on people who neither produced nor purchased the gasoline that’s being consumed (hence ‘externalities’ because the effects are on people external to the market transaction). The purpose of the regulation is obviously to try to decrease the negative externalities so that there are fewer negative effects on human health. The story continues…

The E.P.A. estimates that the new rule will drastically reduce soot and smog in the United States, and thus rates of diseases associated with those pollutants, while slightly raising the price of both gasoline and cars.

E.P.A. officials estimate that the new regulation will raise the cost of gasoline by about two-thirds of one cent per gallon and add about $75 to the sticker price of cars. But oil refiners say that it will cost their industry $10 billion and raise gasoline costs by up to 9 cents per gallon.

The E.P.A.’s studies conclude that by 2030, the cleaner-burning gasoline will yield between $6.7 billion and $19 billion annually in economic benefits by saving lives and preventing missed work and school days due to illness.

The new rule will have a significant impact on the health of low-income Americans who live near major highways…

But oil refiners say that the new rule will hurt their industry.

There are tradeoffs associated with this policy. It should reduce costs on human health, but will decrease consumer and producer surplus in the automobile and gasoline industries. This policy is said to pass the

One last tidbit from the article:

Mr. Drevna said it was easier to comply with the earlier regulations because removing the first 90 percent of sulfur molecules from gasoline can be done without difficulty. Wringing the last 10 percent of those molecules is harder.

“They’re tough little buggers that don’t want to come out,” Mr. Drevna said. “It’s like getting the last little bit of red wine stain out of a white blouse.”

In environmental economic theory, we learn that marginal cost of reducing pollution increases. That is, it’s relatively cheap to cut back on the first units of pollution but, as you cut back more and more, each additional unit becomes more costly to eliminate. Mr. Drevna’s statement here is consistent with the theory we propagate to our students!

 

Crop Market Update, March 3, 2014

Global events have been impacting U.S. crop markets over the last few days. The turmoil in Ukraine, a major exporter in both corn and wheat, has some fearing that their exports may suffer and has contributed to a jump in both corn and wheat prices in the last few days. Corn markets are also being boosted by a strong export sales report by the USDA on Friday while increasing gas prices is helping to support the ethanol market. Nearby corn futures are up nine cents from a week ago, closing at 4.60 on Monday afternoon.

While the trouble in Ukraine has been the major driver for wheat, cold weather in the Plains states has also contributed to the price rally on fears of winterkill. Current forecasts are calling for continued cold weather throughout the Plains over the next week. Thanks to a 27 cent gain today nearby wheat futures are up nine cents from last Monday, making up for sharp losses to end last week.

Soybean markets are being boosted by the corn and wheat markets, but are also being driven by short supplies and strong demand. The Brazilian soybean harvest is estimated to be around 30% complete, but progress is being slowed by rainy weather. Nearby soybean futures are up 19 cents from a week ago at 14.05

Summary of the Agricultural Act of 2014

The recent passage of the 2014 Farm Bill (formally known as the Agricultural Act of 2014) brings about some significant changes in agricultural policies, specifically within Titles One and Eleven in the legislation. The following summarizes the key changes that were made, the new programs that are being made available to landowners and producers, and the decisions that these individuals or firms will need to make.

First, from Title One, the new bill eliminates Direct Payments, the Counter-Cyclical program (CCP), the Average Crop Revenue Election program (ACRE), and the supplemental revenue assistance program. Marketing loans are retained and unchanged.

New offerings for 2014 through 2018 are Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC). PLC and ARC cannot be chosen for the same base acres and committing to either PLC or ARC is locked for the duration of the current Farm Bill (5 years). Also, for 2014 only, transition payments for current cotton base acres and yield will be available.

Two new Title Eleven products are Stacked Income Protection Plan (STAX) for planted cotton acres and Supplemental Coverage Option (SCO) for other covered program crops. Both STAX and SCO are an “insurance styled” revenue protection coverage.

For more detail on these new offerings click HERE and for a breakdown on each individual program click the acronym: ARC, PLC, STAX (including information on 2014 transition payments), and SCO.

With respect to base acres, landowners are provided the opportunity to reallocate the current base acre allotment. This attempts to bring current base allotment more in-line with recent plantings. The reallocation of covered commodities will be in proportion to the 4-year average of the planted acres (actual planted and prevented plantings) from 2009 to 2012 crop years. Also, yields can be updated to reflect 90% of the 5-year average from 2008 to 2012.

Given that cotton is no longer a covered (Title One) commodity, current cotton base can be converted to “generic” base. In any year that generic base is planted to a covered commodity, that base will fall in-line with the program choice for that commodity. For example, if soybeans are allocated to generic base in 2015 then the generic base will be follow the soybean program chosen (ARC or PLC). Then if corn were planted to the generic base in 2016, the generic base would follow the corn program chosen (ARC or PLC).

Cattle Market Notes: Week Ending Feb 28, 2014

Cash Cattle:

After a short pause cash cattle prices built some steam last week and that momentum continued this week, pushing cash prices to new record levels. The five-area fed steer prices finished the week at $150.66 and $239.98, respectively for live and dressed, up $8.66 and $9.98. On Wednesday the Southern Plains sold live cattle at $150, while Nebraska traded at $152 live and $240 dressed. Western Cornbelt prices were $150 and $240 for live and dressed.

Steer and heifer calves in Oklahoma City were steady to $2 higher. OKC feeder steers were steady to $2 lower, while feeder heifers were steady to $1 higher. In Mississippi auction markets all steers and heifers were mostly steady.

[ … For Livestock Prices and Production Information CLICK HERE … ]

Futures:

Cattle futures were mildly higher this week, taking cues from the cash market. With the February contract rolling off, the new nearby (April) showed the most strength, up $3.35. The futures market continues to have a wait and see approach for deferred contracts, meaning it will push the nearby contract in-line with cash, but keeps all other contract months in a holding pattern. Equity markets saw some strength on the week, with the S&P 500 hitting a new record. Analysts keep blaming the dismal last few weeks of economic data on frigid weather (cold with lots of snow and ice). The excuse seems a little to easy, but how likely would you brave the past conditions to walk through a car lot to make a purchase, or contend with dangerous road conditions to eat out, shop, or view homes for sale? I for one would probably have done the bare minimum and stayed home. [This is a perfect opportunity to shine a light on our nation’s cattlemen and cattlewomen, whose bare minimum in these conditions is far beyond so many other’s extreme maximum. Thanks! … Stepping off of soapbox.]

Corn futures were about a nickel higher this week. The week was somewhat of a roller coaster with decent gains on Tuesday, losses on Thursday and finally a reversal on Friday. Exports are the major news maker lately and this week’s data were positive for corn prices. U.S. growers are slowly pulling planters out of the shop. The month of March will end with the planting expectations report and that number will be highly anticipated as corn has tried to give up some acres to both soybeans and cotton this winter.

Beef:

While boxed beef has not regained all of it’s recent losses like cash cattle prices have, they have managed to make up some ground. Choice boxed beef finished with a weekly average of $219.60, up $6.62. Select averaged $217.09, up $6.40.

Note: all cattle and beef prices are quoted in dollars per hundredweight and corn prices are quoted in dollars per bushel, unless stated otherwise.