The reduction we have seen in farm-stored inventory being sold recently is being credited to the drop that has taken place in commodity values.
While this is one factor in the total situation, it is not the entire cause. What could be more of a reason is the large amount of deferred money that has been rolled over to this year, and the fact farmers are not being fiscally pressured into selling inventory.
This is a development that could limit the amount of sales that would have taken place even if futures were not depressed such as they are.
This decision to hold inventory off the cash market could have two negative implications for farmers.
One is that if they become lethargic in their marketing they could easily miss a chance at a profitable sale.
Another possibility, and one that could have a greater impact on revenue, is that inventory can easily go out of condition if not properly checked. This means not only could a farmer miss a chance at making a profitable sale, but could also take an unnecessary quality discount as well.
We are once again hearing debate take place over what the United States should be blending ethanol.
There is a group that is asking for a total reform of the current Renewal Fuels Standard, including the capping of ethanol blending at 10 percent.
Opponents of a higher blend rate claim it will raise food and feed grain costs to unprofitable levels. Ethanol supporters claim these accusations are unfounded, and a higher blend rate is needed to keep the industry profitable.
A recent report issued by the University of Michigan is also causing concerns in the biofuel industry. According to the study, current biofuel policies actually increase emissions that are harmful to the environment.
This is mainly from increased crop production and fertilizer use, as well as fuel manufacturing processes.
The report claims the current models used to determine environmental impacts are incorrect, and once they are updated, they will show a less favorable picture for biofuels.
There is increased talk in the market surrounding U.S. ethanol exports and how they are needed to provide economic support to the industry.
According to recent Census data, the United States exported 836 million gallons of ethanol in 2014. While this was less than the record 1.2 billion gallons exported in 2011, it was well above the 85 million gallons exported in 2013.
U.S. ethanol exports seem to depend heavily upon Brazilian needs, which some economists believe will continue to grow.
Census data also gave a positive outlook on distiller grain exports.
In 2014 the United States exported 11.3 million metric tons of DDGs, up from 9.7 million metric tons in 2013. What was most positive in the report was that even with GMO concerns and obstacles, China imported 4.37 million metric tons of DDGs last year, very close to the 4.49 million tons in 2013.
Trade continues to take this year’s possible corn-ending stocks and new crop yield estimates, and determine what a fair market value is. Given the current stocks-to-use on corn, economists believe futures will trade near $4.20 per bushel into spring.
At the same time, a new crop yield estimate below 165 bushels per acre will likely cause new crop futures to rally, even if old crop holds steady.
The threat of acreage loss as we head in to the spring planting season could easily have the same impact on futures values.
The same type of scenario is being done on soybeans, but projections are much different.
Even though carryout was reduced in last week’s balance sheets, it is still considerably larger than a year ago.
There is also a likelihood of global soybean reserves by March 1 being 20 to 25 million metric tons larger than a year ago.
Forecasters believe this will pressure soybean values to the $9 per bushel range this summer barring a significant weather event.
Karl Setzer is a commodity trading advisor/market analyst based in the West Bend office of MaxYield Cooperative. He can be reached at (800) 383-0003.
The opinions and views in this commentary are solely those of Karl Setzer. Data used for this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position.
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