Evening Report | June 1, 2022

Click here to view weekly Commitments of Traders charts.

Check our advice monitor on ProFarmer.com for updates to our marketing plan.

Corn producers: Increase 2022-crop cash sales; hedgers add hedges… Corn futures are breaking down technically and seasonals favor bears during June. As a result, we advise hedgers and cash-only marketers to sell another 10% of expected 2022-crop for harvest delivery. We also advise hedgers to hedge an additional 10% of 2022-crop in short December futures. This gets cash-only marketers to 50% forward-priced; hedgers are 50% forward-priced with another 10% hedged. Our fill on the hedge position was $6.92.

Soybean producers: Increase 2022-crop cash sales… Soybean futures rolled over at the top of the broad trading range, suggesting prices are headed toward the bottom of the range. As a result, we advise soybean hedgers and cash-only marketers to sell another 10% of expected 2022-crop production for harvest delivery to get to 50% forward-priced.

Reuters: EPA likely to retroactively raise ethanol level for 2021... The Biden administration is likely to raise ethanol blending mandates for 2021 above the figure it proposed in December to align with actual U.S. consumption levels, Reuters reported, citing two sources briefed on the decision. In December, EPA proposed refiners blend 13.32 billion gallons of ethanol for 2021. But recent government figures showed consumption was about 13.94 billion gallons – the level the administration is reportedly considering for the final mandate.

The sources said a final decision had not been reached. EPA must announce its RFS blending levels for 2022, 2021 and 2020 by Friday. EPA will also announce the small refinery proposed rule on alternative RIN retirement plan no later than Friday as well.

Perspective: This isn’t new “news.” EPA was expected all along to retroactively set its 2021 and 2020 RFS blending mandates based on gasoline consumption. And its 2022 levels will be based on expected gasoline consumption levels this year.

Ukraine grain production will plunge more than 35%... Ukraine’s 2022 grain crop will be sharply reduced as the war impeded planting and will affect harvest in some areas. The Ukrainian grain traders’ union UGA forecasts the country’s production at 19.2 MMT for wheat (down from a record 33 MMT in 2021), 26.1 MMT for corn (down from 37.6 MMT last year) and 6.6 MMT for barley (down from 10.1 MMT in 2021).

UGA says the country’s grain exports could reach 30 MMT, including 10 MMT of wheat and 15 MMT of corn, though it says current export capacity can’t exceed 18 MMT for 2022-23. It says grain stocks at the end of 2022-23 could reach a record 25 MMT due to the sharp fall in exports and may rise to 43 MMT in a worst-case scenario.

April soy crush a little stronger than expected... USDA says U.S. soy processors crushed 180.9 million bu. of soybeans in April, just above traders’ expectations for 180.5 million bu. and the second highest for the month. The April crush pace slowed 6.2% from March but increased 6.5% from last year.

For the first eight months of 2021-22, soybean crush totaled 1.492 billion bu., up 1.4% from the same period last year. The crush pace must average 180.8 million bu. per month over the final four months of 2021-22 to hit USDA’s forecast of 2.215 billion bushels.

Soyoil stocks at the end of April totaled 2.424 billion lbs., down 10 million lbs. from March but 246 million lbs. from last year.

April corn-for-ethanol use lower than expected... USDA says corn-for-ethanol consumption totaled 414.7 million bu. in April, below expectations for use of 427.4 million bushels. Corn-for-ethanol use fell 8.5% from March but increased 1.8% from April 2021. Total corn consumed for ethanol and other industrial purposes was 471.4 million lbs., down 7.5% from March but up 2.2% from last year.

Through the first eight months of 2021-22, corn-for-ethanol use totaled 3.577 billion bu., up 9.1% from the same period last year. To reach USDA’s forecast of 5.375 billion bu., corn-for-ethanol use must run 2.5% above year-ago during the final four months. Slower ethanol production during May is a caution flag that corn-for-ethanol use may fall a little shy of USDA’s forecast.

Dried distillers grains with solubles production totaled 1.705 million tons in April, down from 1.877 million tons in March and 1.768 million tons last year.

Beige Book: Continued economic growth, but labor and inflation are concerns... All 12 Federal Reserve districts reported continued economic growth during the period, according to the Beige Book, with a majority indicating slight or modest growth; four Districts indicated moderate growth. The Beige Book stated: “Contacts in most districts reported ongoing growth in manufacturing. Retail contacts noted some softening as consumers faced higher prices, and residential real estate contacts observed weakness as buyers faced high prices and rising interest rates. Contacts tended to cite labor market difficulties as their greatest challenge, followed by supply chain disruptions. Rising interest rates, general inflation, the Russian invasion of Ukraine and disruptions from Covid-19 cases (especially in the Northeast) round out the key concerns impacting household and business plans. Eight districts reported that expectations of future growth among their contacts had diminished; contacts in three districts specifically expressed concerns about a recession.”

Specific to agriculture, the districts noted:

• Atlanta: “Agricultural conditions remained mixed. Most of the district remained drought free. On a month-over-month basis, the May production forecast for Florida's orange and grapefruit crops were below last year's production. USDA reported year-over-year prices paid to farmers were up for cattle, corn, cotton, eggs, milk, soybeans, rice, and broilers. On a month-over-month basis, prices increased slightly for cattle, corn, cotton, boilers, milk, and soybeans, but decreased for eggs; rice was unchanged.”
• Chicago: “Farm net income expectations for 2022 were little changed overall during the reporting period, as prices and costs increased by similar amounts. Corn, soybean, and wheat prices were all up, as were prices for diesel and propane. Cool, wet weather slowed spring planting for corn and soybeans. In addition, concerns lingered about whether fertilizer would arrive at farms on time. Strong dairy exports helped boost milk prices. Bird flu continued to ravage poultry farms, pushing up egg prices. Hog prices moved sideways, while cattle prices were lower. As with crop farmers, livestock producers also faced higher input costs. Agricultural land prices continued to rise strongly.”
• St. Louis: “Agriculture conditions have improved slightly since our previous report. Contacts reported thin margins despite increased commodity prices due to rising input and labor costs, but remain optimistic due to persistent high demand. Contacts noted that rising energy prices have created an unprecedented opportunity for alternative energy products and other new technologies in the sector. The percentage of row crops planted has increased since the previous reporting period, but is down from this time in 2021. Progress of acres planted is down this year for every crop and all states in the district, which reflects production issues due to staffing and supply chain concerns.”
• Minneapolis: “District agricultural conditions remained strong. According to the first-quarter (April) survey of agricultural credit conditions, 87% of respondents reported increased farm incomes relative to the same period a year earlier. Farmland values increased briskly. However, due to an exceptionally cold and wet spring, crop planting and progress were well behind schedule in much of the district, except for Montana and western portions of the Dakotas, where drought conditions were rampant. District oil and gas activity increased modestly since the last report, as drilling and production gradually responded to surging crude prices.”
• Kansas City: “Agricultural commodity prices remained at multi-year highs, providing ongoing tailwinds to the Tenth district farm economy. Market conditions remained favorable for prices of all major commodities in the region and prices of wheat, corn, soybeans, cotton and cattle increased modestly from the previous month. Farm income and credit conditions also improved further during the most recent survey period. However, contacts expected conditions to soften slightly in the coming months and many cited concerns about rising input costs, broad inflationary pressures and severe drought. The western and southern portions of the region have been most exposed to drought, affecting wheat, hay and grazing conditions that could reduce profit opportunities for both crop and livestock producers in those areas.”
• Dallas: “Drought intensified over the past six weeks, particularly in the western part of the district. Crop conditions generally declined, with increased risk of reduced yields for this year’s row crops. Forage conditions suffered from the lack of moisture, putting additional strain on livestock grazing amid highly elevated supplemental feed costs. This has led to increased culling of herds and lower calf prices. Agricultural product prices showed mixed movements over the reporting period but generally remained high. Despite high prices, contacts noted increased financial risk this year due to drought and higher input costs.”
• San Francisco: “Conditions in the agriculture and resource-related sectors deteriorated a bit. Exporters of agricultural products faced more challenges due to further shipping bottlenecks and container shortages stemming from an appreciating dollar, the war in Ukraine, and the lockdowns in China. Growers throughout the district noted rising costs for labor, fertilizer, and transportation, and one contact expected costs to continue accelerating in the near future. Another contact in the Pacific Northwest mentioned that these export challenges have led them to look at markets within the United States or Canada and Mexico. While demand for energy remained stable over the reporting period, a public utility contact noted that price increases in natural gas have not yet been passed on to consumers due to regulatory lags—once they do, demand is expected to decrease.”

Transforming the U.S. food system... USDA Secretary Tom Vilsack revealed the administration’s plan to transform the U.S. food system by improving supply chains and addressing issues exposed by the Covid-19 pandemic. The package includes previously announced funding to expand meat and poultry processing, but there is $600 million in new aid to support food supply chain infrastructure outside meat processing. The plan also includes $400 million for regional food business centers, up to $300 million for a new organic transition initiative and $75 million to support urban agriculture. The initiatives are funded through the American Rescue Plan that was enacted in March 2021 and other relief legislation. On Thursday, Vilsack will be in Ohio with Democratic Rep. Marcy Kaptur to visit a full-service grocery store in central Toledo called Market on the Green.

The package includes $650 million in funding and loan assistance for meat and poultry processing projects, including $275 million to help entrepreneurs who have had trouble getting credit. Another $100 million would go toward training workers in meat processing. Another $600 million is earmarked for improving food supply chain infrastructure, including cold storage and refrigerated trucks, outside of meat and processing.

Other funding in the plan:

• $200 million to help fruit and vegetable growers comply with food safety regulations.
• $400 million to create regional food business centers that will provide coordination and technical assistance and other support to small and mid-size businesses involved in processing, distribution and aggregation.
• $155 million to expand USDA’s Healthy Food Financing Initiative, which is aimed at reducing food deserts.
• $90 million to prevent and reduce food loss and waste.
• $60 million farm-to-school programs that increase markets for smaller-scale farmers through child nutrition programs.