Evening Report | May 17, 2022

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Wheat producers: Finish old-crop sales; hedgers lift hedges… Wheat futures gapped higher and then pulled back. With just two weeks left in the 2021-22 marketing year, it’s time to finish old-crop sales. We advise hedgers and cash-only marketers to sell the remaining 10% of old-crop inventories to get to 100% sold in the cash market. Hedgers should also exit the 10% hedges held in July SRW futures.   

 

Ukraine: Sea access vital for grain movement... Ukraine is making progress in developing grain exports over land to the EU but will need to regain sea access blocked by Russia’s invasion to avert a worsening crisis for food importing countries, the country’s deputy economy minister said. Administrative and logistical delays are being resolved at transit points at Ukraine’s western borders with European Union countries, notably for rail freight. However, even if Ukraine managed to double monthly grain exports to around 2 MMT via land routes, that would not compensate the loss of its seaports.

Diplomatic efforts have intensified to free up grain stocks in Ukraine, which previously exported up to 6 MMT per month through seaports that have been closed since Russia’s invasion in February. Failure to re-establish sea trade in the coming months from Ukraine could prolong global food tensions by discouraging farmers from sowing winter wheat for next year.

 

Egypt/India wheat deal agreed to but not signed yet... Egypt’s supply minister said a deal with India to directly purchase 500,000 MT of wheat outside the usual tender system had been agreed but not signed yet. India’s government confirmed today it would still allow shipments awaiting customs clearance and exports to Egypt.

 

ERP payment calculation... The following payment calculation for the Emergency Relief Program (ERP; formerly called WHIP+) comes from Combest-Sell & Associates:

“ERP Phase 1 payments will be prorated by 75% to ensure adequate funding for all disaster programs. The ERP Phase 1 payment calculation will depend on the type and level of crop insurance coverage obtained by the producer. The table below outlines the factors that will be used to calculate ERP. RMA and FSA will calculate each producer’s loss consistent with the loss procedures for the type of coverage purchased but using the ERP factor in place of the coverage level. The loss procedures will include the use of the Harvest Price Option (HPO). This calculated amount would then be adjusted by subtracting out the net crop insurance indemnity or NAP payment., which is equal to the producer’s gross crop insurance indemnity or NAP payment already received for those losses minus service fees and premiums paid by the producer. (Note: This netting of premium is a big improvement relative to WHIP and WHIP+.)”

Crop insurance level

ERP factor (percent)

Catastrophic coverage

75

More than catastrophic coverage but less than 55%

80

At least 55% but less than 60%

82.5

At least 60% but less than 65%

85

At least 65% but less than 70%

87.5

At least 70% but less than 75%

90

At least 75% but less than 80%

92.5

At least 80%

95

NAP coverage level

ERP factor (percent)

Catastrophic coverage

75

50%

80

55%

85

60%

90

65%

95

 

 

 

 

 

Payment limitation: If at least 75% of the person or legal entity’s average AGI is derived from farming, ranching, or forestry related activities the payment limitation will be $900,000 for each program year for specialty crops and $250,000 per program year for all other crops. If at least 75% of AGI is not derived from farming the payment limitation will be $125,000 per program year for specialty crops and $125,000 per program year for all other crops.  To request the increased payment limitation a producer needs to file form FSA-510 and a certification from a licensed CPA or attorney.

ERP Phase 2 will be announced at a later date to cover losses that were not covered under Phase 1. This will include producers who saw a shallow loss but were not able to collect an indemnity from crop insurance or NAP. It will also include producers with area-based policies (SCO, STAX, ARPI, ECO, etc.) as indemnities for those policies have not yet been calculated.

 

Iowa governor signs bill expanding E15... Gov. Kim Reynolds (R-Iowa) signed legislation Tuesday that will subsidize and expand sales of E15 gasoline and other renewable fuels. The “Biofuels Access” bill requires retailers “with compatible infrastructure” to offer E15 by Jan. 1, 2026, from at least one dispenser, while newer retailers and those that install new tank designs must offer E15 from at least 50% of dispensers after Jan. 1, 2023. The bill provides for some waivers, including for small retail locations. The bill also funds grants for upgrades to help businesses meet the requirements and establishes new tax credits for B20 and B30 biodiesel.

Reaction: Iowa Renewable Fuels Association Executive Director Monte Shaw called the bill a “nation-leading policy that will greatly expand consumers’ ability to find lower-cost biofuels at pumps across the state.” Opponents argued the move would do little to affect prices because E15 is sold at fewer than 3,000 retail stations nationwide.

 

OMB as usual is holding meetings on the RFS... This time it concerns mandatory biofuels levels for 2020, 2021 and 2022. One of the nearly 20 groups consulted was from a major RFS opponent, the American Bakers Association. There is a June 3 court-ordered deadline to announce final RFS levels and EPA Administrator Michael Regan said the agency will meet that deadline. Frankly, arguments from both RFS proponents and opponents are well known after years of similar meetings.

 

Cargill to build soy processing plant in Missouri... Cargill unveiled plans to build a new soybean processing facility located in Pemiscot Co., Missouri to support growing domestic and global demand for oilseeds driven by food, feed and fuel markets. The facility will be the first of its kind for southeast Missouri with an annual production capacity of 62 million bu. of soybeans. Cargill anticipates breaking ground on the project early next year with plans to be operational in 2026.

“Cargill’s new facility, with its location on the Mississippi River, will operate year-round and provide farmers opportunity to take advantage of increased domestic demand versus relying solely on seasonal exports,” said Tim Coppage, Regional Commercial Lead, Cargill Agricultural Supply Chain North America. “Access to both river and rail will provide more flexibility and market access for farmers.”

The new location expands Cargill’s efforts to modernize and increase capacity across its North American oilseeds network. Last year, Cargill announced a series of projects across North America including significant improvements to its soybean crush facility in Sidney, Ohio and construction of a new canola processing facility in Regina, Saskatchewan.

 

No signs of U.S. consumers slowing based on port activity... There are no imminent signs of a slowdown in demand by American consumers judging by the number of shipping containers coming through the Port of Los Angeles, according to Executive Director Gene Seroka. Imported cargo can be a leading indicator on the health of the economy, and there’s “nothing just yet” hinting the U.S. is heading for a recession, Seroka said on Bloomberg Television. He also indicated ocean freight flowing through the country’s busiest ports from China appear consistent despite lockdowns in the Asian nation. “There’s really not a look here that says consumer buying is going to slow down any time soon,” he said. “All indications from the retailers are strong in the continued shipment volume as we look forward.”

 

USDA extends deadline to comment on competition in ag sector... USDA announced a 30-day extension to the public comment period to identify the impacts of concentration and competition challenges in seed, fertilizer, other agricultural inputs and retail markets. The new deadline is June 15, 2022. USDA is seeking information about competition matters as they relate to: (1) fertilizer; (2) seed and agricultural inputs, particularly as they relate to the intellectual property system; (3) food retail, including access to retail for agricultural producers and small and medium-sized food processors through wholesale and distribution markets.

 

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