Evening Report

Posted on Wed, 12/18/2019 - 14:34

Daily Advice Monitor: Check our advice monitor on ProFarmer.com each day for updates to our marketing plan.

Corn producers: Enter standing order to sell more 2019-crop… The technical picture and market outlook for corn has improved after the U.S./China trade deal. But pushing above the October highs will still be big task for futures. Therefore, we advise corn hedgers and cash-only marketers to enter a standing order to sell another 10% of 2019-crop in the cash market if March futures hit $4.01. We’ll also likely sell an initial 10% of expected 2020-crop if that order is hit.

 

Soybean cash-only marketers: Enter standing order to sell more 2019-crop… A challenge of the October high on the weekly continuation chart would be an opportunity for cash-only marketers to get sales levels equal to those of hedgers. We advise soybean cash-only marketers to enter a standing order to sell another 10% of 2019-crop in the cash market if January futures hit $9.40. We’ll monitor price action around the October highs for additional sales for hedgers and cash-only marketers and for initial 2020-crop sales.

 

Livestock producers: Extend corn-for-feed and soymeal coverage… We believe corn and soymeal futures have upside price risk from current levels. As a result, we advise livestock producers to extend corn-for-feed and soybean meal coverage another two weeks for each in the cash market through the end of January. We would view a pullback to the low $3.80s in March corn futures and to the $303 level in March meal futures as opportunities to further extend coverage.

 

Reports EPA will stick with initial RFS proposal… EPA’s final rule on blending quotas for 2020 ethanol and 2021 biodiesel will stick to the original proposal for addressing small refinery waivers, according to sources familiar with the matter cited by both Bloomberg and Reuters. The White House reportedly told the Iowa Corn Growers Association it would use a three-year average of non-binding Department of Energy (DOE) recommendations on hardship waivers for small refineries rather than actual volumes waived in reallocating waived gallons.

Those initial recommendations from October angered the corn and ethanol sector, because EPA typically waives more blending volume than the DOE recommends. Therefore, industry stakeholders are concerned that ethanol blending will fall short of the 15 billion-gallon mandate under the Renewable Fuel Standard. Because DOE recommendations are non-binding, there is no guarantee reallocated gallons would hold ethanol blending above mandated levels. 

Agriculture Secretary Sonny Perdue’s has commented “once you understand the EPA proposal... you'll be fine.” Today’s reports do not signal that is the case, but his comments also leave us wondering if there is more to the proposal than what’s being signaled today. Adding to that idea, Iowa Senator Chuck Grassley (R-Iowa) has also indicated he was convinced blending would hold above 15 billion gallons.

The farm sector has said time and again the industry needs certainty that corn-based ethanol blending will hold above 15 billion gallons. If the final rule does not provide that certainty (and the original October proposal would not) this could have major political implications for President Donald Trump, especially in key farm states.

EPA’s final rule is expected to be released Thursday or Friday, around three weeks later than the Nov. 30 deadline.

 

Brazil likely to lose $10 billion a year in ag exports to China… Brazil could lose $10 billion per year in farm exports to China if the U.S./China Phase 1 trade deal is implemented as proposed, according to a study published by a Brazilian research center and the business school Insper. The drop would take things back near Brazil’s exports in 2017, before the trade war really ramped up. In 2018, Brazil exported $35.4 billion worth of farm products, an $8.8-billion surge from 2017, as the country’s farmers and meatpackers took advantage of high Chinese tariffs on U.S. goods. The study found that soybeans, cotton and poultry exports to China are likely to be impacted, with soybeans likely to be among the first commodities affected.

 

Burgeoning interest in corn-based ethanol production in Brazil… China’s state-owned grain buyer COFCO, the Brazilian grains group AMaggi and Shell-Cosan (jointly owns the world’s top sugar producer Raizen) are all considering building their first corn ethanol plants in Brazil. Demand for the biofuel is on the rise amid a change in the country’s biofuel policy that will increase blending of such products into Brazil’s fuel supply in the years ahead. Sugarcane has dominated Brazil’s ethanol sector for years, but the policy change and low sugar prices are helping corn-based ethanol to make some headway. Investment by some of these industry heavyweights could accelerate that effort.

Brazil currently has eight plants that convert corn into biofuel, with another six under construction and at least seven being designed. On the other hand, Brazil has 349 plants that produce ethanol from sugarcane, according to ag ministry data.  

An engineer working for COFCO on a 1.2-billion-liter-per-year corn ethanol plant in Zhaodong, China says the company is considering a similar project in Mato Grosso, Brazil, with another source cited by Reuters confirming the interest. Raizen has also held talks with equipment suppliers to evaluate an investment. And yet another source cited by Reuters says Amaggi is also working on a corn ethanol project, with an announcement likely “soon.”

This could present more competition on the ethanol export front for the U.S. and limit shipments by the U.S. to Brazil. But more corn usage in Brazil could also lead to more U.S. shipments of the grain to livestock-heavy areas of the country and fewer Brazilian corn exports.