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BRIAN HOOPS

By Staff | Jun 5, 2015

EPA and RFS

The Environmental Protection Agency proposed significant reductions in the amount of biofuels petroleum refiners are required to blend into the fuel supply as part of a proposed rule to set blending mandates for 2015 and 2016. The volumes the EPA proposed for those years are below the levels required by the Energy Independence and Security Act as the agency grapples with the so-called ethanol blend wall.

For 2015, the EPA is proposing a blending mandate of 16.3 billion gallons rather than the statutory level of 20.5 billion gallons.

In 2016 the EPA is proposing that refiners blend 17.4 billion gallons of renewable fuels into the fuel supply. The law had required 22.25 billion gallons that year.

The proposed reductions come after the petroleum industry has argued the market cannot bear more than 10 percent ethanol be blended into the gasoline supply, the so-called ethanol blend wall.

Section 211 of the Clean Air Act allows the EPA to use its waiver authority to reduce the annual renewable fuels blending mandates below the levels set out in the Energy Independence and Security Act if implementing them at those volumes would cause economic harm or during instances of inadequate domestic supply.

TPA

After two weeks of debate, the U.S. Senate passed trade promotion authority with a vote of 62 to 37. The fast track authority legislation gives the President the ability to submit trade agreements to Congress for an up-or-down vote without amendments.

A controversial amendment offered by Sen. Rob Portman, R-Ohio, and Sen. Debbie Stabenow, D-Michigan, dealing with foreign currency manipulation was rejected with a vote of 48-to-51.

WTO: COOL not cool

The World Trade Organization has ruled against the United States country of origin labeling law. The office of the U.S. Trade Representative says the WTO rejected a final U.S. appeal, deciding the U.S. labels put Canadian and Mexican livestock at a disadvantage.

Agriculture Secretary Tom Vilsack said if the WTO ruled against the U.S., Congress will have to weigh-in to avoid retaliation from Canada and Mexico.

CORN ANALYSIS

Corn closed the week 9.75 cents lower. Last week, private exporters did not announce any private sales.

Weekly export sales showed corn sales at 26 million bushels. Annual corn sales now have reached 1.678 bb and sales, down 154 mb a year ago.

The USDA’s weekly crop progress report showed corn planting is nearly complete nationwide, while U.S. corn is 74 percent emerged compared to 62 percent on average.

The USDA reported the first U.S. corn crop conditions at 74 percent good-to-excellent versus 76 percent last year.

Trade was looking for 70 to 75 percent to be rated g/e. The 10-year average is 70 percent g/e for this time of year so the crop is off to an excellent start.

The COT report remains bullish for corn futures and weekly charts show prices are near a potential double bottom. Weekly charts show $3.69 as a chart breakout point the market will need to rally above to start a bullish trend.

The heart of the growing season is upon us and all it would take to spark a massive rally is a drought, some extended heat or both. A ridge is setting up in the Southeastern U.S. A bend in the jet stream allowing that ridge to move into the key growing states would certainly be the bullish catalyst needed for a rally.

If such a rally develops, producers need to be using the rally to hedge and/or sell old inventories and new crop prospects.

Strategy and outlook: Producers are 100 percent sold of the 2014/15 crop, re-owned 50 percent with July options and 50 percent with September calls.

Sold 10 percent of 2015 production. Sell 15 percent at $4.65 December.

SOYBEANS ANALYSIS

Soybeans closed the week 9 cents higher.

Last week, private exporters reported sale of 202,000 metric tons of soybeans to an unknown destination for 2015/16.

Weekly export sales of soybeans were 11.8 mb old crop and only 2 mb for new crop sales.

Annual sales are still record large at 1.839 bb and already above the USDA’s May forecast.

The weekly crop progress report showed U.S. soybean planting is 61 percent complete compared to the five-year average of 55 percent complete.

Emergence is 32 percent. Next week, the USDA will issue the first soybean g/e rating of the year.

There remains a lot of soybeans left to plant in Missouri, Kansas and Southern Iowa with wet conditions prohibiting farmers from heading to fields.

The market has fallen to major support levels, but bounced off it as the market has anticipated good growing conditions to start the year, would lead to increased ending stocks.

Currently, the USDA is forecasting ending stocks at 500 mb which, if realized, would be the third largest in the last 45 years.

No doubt, that is bearish and prices will get worse unless the growing crop is threatened. Adverse weather will be needed to threaten the crop and curtail ending stocks.

If a rally does develop this summer due to adverse weather, producers will need to market old and new crop supplies and pass risk off risk to someone else through the options market.

Strategy and outlook: Producers are sold 100 percent of 2014/15 production. Bought calls on 50 percent of 2014/15 production to re-own previous

sales. Sold 10 percent of 2015/16 production. Sell 15 percent at $10.95 November.

The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment.

Brian Hoops can be reached at (605) 660-1155.

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