Ethanol has seemed to have a run of bad luck lately. First, it hit the blend wall, the maximum of 10% of the total motor fuel supply. Then the recession curtailed some of the miles we drove and less gasoline was purchased. Then the EPA proposes that the Renewable Fuels Standard (RFS) be revised to curtail ethanol production. Then the government increases the fuel economy target for auto makers to ensure we continue on a downward trend of less gasoline being purchased. Never mind the woes of the petroleum industry, all of those dynamics combine to limit the growth of ethanol. It seems to have a bleak future, or does it?
The best rhetorical question asked on this day of significant USDA reports was, “Was there anything that surprised you?” In looking at the response of the market, there were obviously no surprises that were considered significant. That would be in relative terms to the last 5 years in which either beans or corn ended either limit up or limit down at the end of the trading day. That is the definition of a market surprise. While the March 31 Planting Intentions and Quarterly Grain Stocks reports were not surprises, they were not a yawner either.
Will acreage estimates or grain stocks estimates on Monday have a greater impact on the commodity market? Most of the market participants have anticipated increased soybean acreage and reduced corn acres, and many of the pre-report estimates have confirmed their expectations. However, the market is quite uncertain about the amount of grain stocks on hand, and in the past it has proven to be a significant market mover, whether bearish or bullish. We’ll explore the Quarterly Grain Stocks report, set for March 31 release.
Are you planning more soybean acres this year, as the market anticipates? Are you undecided? Are you staying with a normal corn and soybean rotation that is guided by agronomic issues, rather than market prices? Probably one third of those offering an answer will fall into each category. While fertility, disease, and insect pest pressures may dictate your acreage decision, those who are planting more soybeans or are undecided may need to work with the market more than usual this year. Just because current prices may favor soybeans that may not always be the case when it comes times to take it to town.
While the Farm Bill was under consideration, the USDA budget was a moving target. And for part of the three years of Farm Bill debate, the entire farm policy was close to being driven purely by the budget. In fact, the House of Representatives lopped off 75% of the USDA budget when the food and nutrition programs were shuffled off for separate consideration. But now, the Farm Bill has been enacted into law and the USDA budget can be calculated. Many of the program areas have mandatory spending levels, such as food and nutrition, crop insurance, and CCC loans, but other discretionary spending will float from year to year. For Fiscal 2015, which begins October 1, USDA proposes to spend $146.4 billion, down from$156.6 billion in the current fiscal year and down from $153.9 billion in the last fiscal year. So what appropriations were proposed for increase and what for decrease?