Evening Report | May 26, 2021

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Livestock producers: Extend soybean meal coverage… Soybean meal futures dropped below our downside target today. As a result, we advise livestock producers to cover the final 50% of July needs in the cash market and an initial 25% of September needs in cash. These moves push cash coverage for the third quarter to 100% for July, 50% for August (previous coverage) and 25% for September.

U.S.-based ag company announces plans to build canola facility in Saskatchewan… Ceres Global Ag Corp. today announced it will build a $350 million canola crushing facility in Northgate, Saskatchewan, which is near Canada’s border with the U.S. The Minneapolis-based company plans to crush 1.1 MMT of canola annually, yielding 500,000 MT of canola oil to be used for food and fuel. The facility will open in 2024. The Ceres plant will connect directly to BNSF Railway Co., giving the company a faster path to ship canola byproducts to U.S. refiners and feed users. Ceres CEO Robert Day says the facility will source two-thirds of its canola from Canada and the remaining third from North Dakota.

This is the latest in a string of announcements of new facilities or facility expansions aimed at capitalizing on the surge in oilseed demand. Of note, EPA has not approved canola for use as a feedstock in renewable diesel, but Ceres CEO Robert Day says he expects that designation to occur before the plant opens.

Food prices continue to rise… The all-items consumer price index (CPI) climbed 0.8% from March to April (before seasonal adjustment), with the gauge of economy-wide inflation now up 4.2% from year-ago levels, according to USDA’s Economic Research Service (ERS). It reports the CPI for all food rose 0.5% from March to April, with food prices now up 2.4% from April 2019 levels. The level of inflation varies based on where the food is consumed.

ERS reports the food-away-from-home (restaurant purchases) CPI increased 0.3% last month and was 3.8% higher than April 2020. The food-at-home (grocery store or supermarket food purchases) CPI increased 0.6% from March and was 1.2% higher than last year

So far this year, food at home prices have climbed 1.2% and food-away-from-home prices have risen 2.4%, for an average all food price rise of 1.7%. Fresh fruits have climbed the most, while beef and veal prices have seen the smallest relative price increase. No 2021 price categories are down compared to 2020.

ERS expects food-at-home prices to climb 1.5% to 2.5% in 2021. That’s up from its forecast last month for prices to climb 1.0% to 2.0%. But the agency maintained its forecast for restaurant prices to climb 2.5% to 3.5% in 2021. “Despite these predicted increases, inflation for most food categories is expected to be at or below their 20-year historical averages, with exceptions for nonalcoholic beverages and fresh fruit,” ERS says.

China warns metal industry of ‘zero tolerance’ for speculation as commodity prices soar… The powerful National Development and Reform Commission (NDRC) has told key players in the metal industry it is cracking down on illegal activity. At a meeting on Sunday, companies were told they must take the lead in maintaining ‘orderly prices’ for commodities that hit record highs early this month.

“Many parties have given feedback that there has been excessive speculation and hype, which has disrupted the normal process of production and sales and contributed to the price spike,” NDRC said in a statement posted to its website on Monday. The commission and four other ministerial departments told the companies at the meeting, including several state-owned firms, they must take the lead in maintaining “orderly prices” for commodities.

Domestic prices for iron ore, steel rebar, coal and copper hit record highs early this month, with the producer price index (PPI) — a gauge of factory-gate prices — rising 6.8% from a year earlier in April, the highest reading in three and a half years.

U.S. requests dispute settlement panel under USMCA regarding Canada’s dairy quotas… The Biden administration announced it has requested the first dispute settlement panel under the U.S.-Mexico-Canada Agreement (USMCA) be formed to review Canada’s dairy import quotas. The Office of the U.S. Trade Representative alleges Canada has improperly allocated USMCA tariff-rate import quotas on 14 dairy products, diverting some of them to Canadian processors and limiting export opportunities for U.S. dairy farmers and processors.

Canada’s Trade Minister Mary Ng expressed disappointment with the request and said she is confident the country’s policies are “in full compliance” with its tariff-rate quota obligations.

USMCA allows 30 days for the panel to form. It will file an initial report in roughly 120 days and a final report 30 days after that.

USDA seeking proposals for quantifying climate benefits of CRP…  Today, USDA’s Farm Service Agency (FSA) announced an initiative to quantify the benefits of Conservation Reserve Program contracts. “This multi-year effort will enable USDA to better target CRP toward climate outcomes and improve existing models and conservation planning tools while supporting USDA’s goal of putting American agriculture and forestry at the center of climate-smart solutions to address climate change.”

FSA will invest $10 million through Monitoring, Assessment and Evaluation projects to measure and monitor the soil carbon sequestration and other climate and environmental benefits of conservation practices over the life of CRP contracts. USDA hopes this will help it “better target climate outcomes through CRP while gaining critical data to calibrate, validate and further improve quantification methods within existing models and tools.”

USDA says it is seeking proposals for projects to survey, sample and measure the climate benefits of land enrolled in the following CRP practice types over time:

1. Predominately Perennial grass with legumes and shrubs, depending on the practice
2. Tree
3. Wetland, including both mineral and organic soils and both floodplain and non-floodplain wetlands

A project can cover one or more of the above practice types and should be for a three- to five-year term, with the potential for renewal. Projects should be a minimum of $1 million and not exceed $9 million, according to USDA. The department says applications from all types of organizations are welcome, and that applications from or in partnership with “Historically Black Colleges & Universities (HBCU), Tribal Colleges & Universities (TCU) and Hispanic-Serving Institutions (HSI) or organizations will be considered as part of the selection process.” The deadline for proposals is July 2, 2021.

Ag Secretary Tom Vilsack has been working to expand CRP via higher rental rentals and other incentives—an effort that could distort the farmland market—as a way of advancing the Biden administration’s climate change agenda. CRP is capped at 25 million acres this fiscal year and that cap will rise gradually to 27 million acres by 2023. There are currently nearly 21 million acres enrolled in CRP.

The go-slow carbon credit strategy continues… The National Academy of Sciences estimates agricultural soils could take in 250 MMT of atmospheric carbon dioxide annually, which would offset 5% of U.S. emissions. Some caution against overselling farmland's potential. Iowa State University Ecologist Steven Hall says that at some soil depths, microbes convert carbon absorbed by cover crops into gas that returns to the atmosphere. “It may make sense to pay farmers to do this,” he said. “But I would go into it a bit more suspicious that we'll get a maximum performance on all farms.”

USDA Secretary Tom Vilsack has pledged bigger payments for pulling marginal lands out of crop production to make way for carbon-absorbing grasses, trees and wetlands. He announced $330 million for local climate partnerships and $25 million for testing new ideas. Supporters say unless the actions are mandatory, which farmers oppose, more financial incentives will be needed.

Pending U.S. Senate and House bills would help farmers get started and provide third-party inspections to verify improvements.

Environmentalists say electricity from wood biomass, gas captured on farms and landfills shouldn’t qualify for e-RINs under RFS... EPA is being urged not to allow electricity from wood biomass and methane captured from farms and landfills to qualify for e-Renewable Identification Numbers (e-RINs) under the Renewable Fuel Standard (RFS), according to a letter sent from several environmental groups to EPA Administrator Michael Regan. The groups label electricity from these “dirty” industries incompatible with the Biden administration’s commitment to environmental justice in climate policy. “Impacted frontline communities already bear the disproportionate brunt of harm from the processing and burning of woody biomass, factory farm gas, and landfill gas,” the letter said.

The groups argue that factory farms and deforestation are not compatible with the current administration’s policies, and they contend that methane captured from those agricultural operations is not a renewable source. “Our greatest safeguard against climate change is to incentivize and reward a rapid transition to genuinely clean and renewable sources of energy,” said Gayle Goldsmith, Board Chair of the NC Climate Solutions Coalition. “Our nation must halt all subsidies and other financial support for costly and dirty methods of energy production.”

The White House directed EPA to look into incorporating electricity for EVs obtained through biofuels in RFS credits, Reuters reported last month.

Unlikely set of companies looking to cash in on growing business push toward renewable power… Major European oil companies, including BP and Royal Dutch Shell, are building wind and solar projects and striking deals to supply electricity to big corporate buyers such as Amazon and Microsoft. The Wall Street Journal reports the moves are treading into the domain of traditional power companies as more businesses look to limit carbon emissions. Oil companies are making a financial play, saying they are securing long-term deals to supply electricity to provide a new source of income as they prepare for a lower-carbon economy. Power supply has historically been a regional business managed by utilities, but corporate procurement in the renewable power market is growing fast. Renewable energy purchasing rose 25% last year, and BloombergNEF estimates the number of new deals increased by 75% in the first four months of this year.

EPA top officials intruded on dicamba decision making… Three EPA officials altered scientific documents to support their 2018 decision to keep the weedkiller dicamba in use, according to EPA’s Office of Inspector General (OIG). The decision to extend registration of the herbicide for two years, was overturned by a federal appeals court because EPA ignored or underestimated the risks associated with dicamba. EPA scientists told the OIG that senior managers in the Office of Chemical Safety and Pollution Prevention (OCSPP) were more involved in the dicamba review than typical for a pesticide registration decision. “This led to senior-level changes to or omissions from scientific documents, including omissions of some conclusions addressing stakeholder risks,” said OIG. The actions “left the decision legally vulnerable,” said the report, pointing to the appellate decision last June.

The Trump administration announced a five-year EPA approval of dicamba with additional safeguards a week before the 2020 presidential election. Andrew Wheeler, then EPA administrator, said the agency examined new scientific material and considered comments from stakeholders before issuing the new registration.

EPA said it stands by the 2020 decision “made with the input of career scientists and managers” and it was taking steps to assure pesticide decisions are based on science.

A disused Chinese mine has become a touchpoint for escalating calls to more thoroughly seek the origin of Covid-19… After six miners mysteriously fell ill in 2012, scientists from the Wuhan Institute of Virology took samples from bats in the mine and identified several new coronaviruses. Unanswered questions about the illness, the viruses and the research done with them have led to calls by leading scientists for a deeper investigation into whether the pandemic virus could have been in the institute's labs and escaped.