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News Flash – February 27, 2014


Is USDA too optimistic on weather?

The USDA projections for supply and demand for corn show a buildup in ending stocks to 2.1 billion bushels by the end of the next marketing year. As Economic Research Service economist Mark Ash explained, that would end several years of tight stocks, which are a key reason why prices have been high. “A succession of bumper harvests worldwide may put an end to that trend in 2014-15,” Ash said. Since the USDA economists don’t really know what worldwide weather will be, their approach has always been to assume normal weather. If weather this year has more normal rainfall and doesn’t have unusually high temperatures, “yields in some of the major corn- and soybean-producing states are going to improve quite a bit.”


New threat to Brazil’s breadbasket: a pesky caterpillar

Brazilian farmers are battling a caterpillar that likely arrived from Asia, endangering its yields just as the country is on the verge of becoming the world’s top soybean producer. The caterpillar, a variety known as helicoverpa armiger thrives in dry heat, was spotted for the first time on cotton farms in drought-prone western Bahia in early 2012. Bahia, one of Brazil’s newest farming frontiers, lost 3 million tons of soy and cotton, nearly half of its usual grains production, between the caterpillar and the drought last year, according to the National Confederation of Agriculture. Still, Brazil produced an 81.5 million ton soybean crop. The caterpillar has not reduced forecasts for an even larger soybean harvest that could dethrone the United States as the world’s leading grower this year. But it has provided a wake-up call on the risks of farming in the bug-ridden tropics, especially as more farmland is put into use. It also shows how Brazil’s emergence as a major breadbasket has made it the fastest-growing market for biotechnology firms like Monsanto, which could benefit from the outbreak by selling its new caterpillar-resistant genetically modified soy and cotton seeds. Reuters



Results do talking on GM canola

Genetically modified canola has attracted its share of negative publicity during the Western Australian Supreme Court trial between an organic farmer and GM growing neighbor. But developers of the Roundup Ready (RR) trait are hoping good results in National Variety Trials (NVTs) will create some positive opinioos. Tony May, technology development manager with Monsanto Australia, said the results from last year’s NVT work showed glyphosate tolerant canola varieties were standing up well against other herbicide tolerant options such as Clearfield and triazine tolerant (TT) varieties. Nationally, at different 25 sites, RR varieties experienced better yields than TT varieties by an amount of 7.58 per cent and Clearfield lines by 6.67pc. In terms of oil content, the RR varieties also did well. The Stock


Market Spotlight: Canola

Canola is a genetic variation of rapeseed developed by Canadian plant breeders specifically for its nutritional qualities and its low level of saturated fat. Canola oil is the world’s third largest source of vegetable oil accounting for 13% of world vegetable oils, following soybean oil at 32%, and palm oil at 28%. The rest of the seed is processed into canola meal, which is used as high protein livestock feed. The climate in Canada is especially suitable for canola plant growth. Today, over 13 million acres of Canadian soil are dedicated to canola production. Canola oil is Canada’s leading vegetable oil. Due to strong demand from the U.S. for canola oil, approximately 70% of Canada’s canola oil is exported to the U.S. Canola oil is used as a salad oil, cooking oil, and for margarine as well as in the manufacture of inks, biodegradable greases, pharmaceuticals, fuel, soap, and cosmetics. The Canola contract trades at the Intercontinental Exchange (ICE). The electronic futures contract trades from 7:00 PM CT to 1:15 PM CT, Sunday through Friday. One Canola futures contract is 20 tonnes. The previous settlement price (February 25, 2014) for May 2014 Canola futures was 425.0, or CAD $85,000 per contract. The pricing unit is in cents per tonne and in Canadian Dollars. A price increment or “tick” is CAD $0.10/tonne (CAD $2.00/contract). The next tick after 425.0 upward is 425.1 followed by 425.2. Therefore, a price move from 425.0 to 426.0, would be CAD $20.The performance bond, or initial margin requirement, to initiate one futures contract is $609 (as of February 25, 2014). To control that futures contract going forward, the maintenance margin becomes $451 (as of February 25, 2014).The Daily Price limit is CAD $30.00/tonne above or below previous settlement and expandable to CAD $45.00/tonne, followed by CAD $60.00/tonne. For example, if the market closes at limit bid, or 455.0, on Wednesday, February 26, 2014, the next session’s Daily Price Limit would increase to CAD$45.00/tonne. If the following trading session fails to close at limit, the next session’s Daily Price Limit reverts to the CAD $30.00/tonne. The Canola futures contract month listings are January (F), March (H), May (K), July (N), and November (X). The futures contract’s Last Trading Date (LTD) is the business day prior to the 15th calendar day of the contract month. The May 2014 Canola futures contract LTD is May 14, 2014 for example. The First Notice Day (FND) is one trading day prior to the first delivery day or first trading day of the delivery month. This contract trades in Canadian dollars so generally it’s accounted for separately in trading accounts. Be aware of Canadian holidays as the Canola market may be closed or trade shortened hours. Daniels Trading



Soybean Oil Faces Competition Palm oil production has quadrupled; further ramp-up is likely

What happens in China and South America is crucially important to the future of U.S. soybean farmers, but it’s not just Brazil or even soybeans alone that farmers need to have on their radar. Now though, palm oil

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production has exploded across the Pacific.

Palm oil competes head on with soybeans in key markets, from the food industry to biodiesel. While soybean production has been ramping up globally, palm oil has been increasing even more. During the past 15 years, palm kernel production has increased by 7.4% per year, more than double the 3.5% growth rate for soybeans. Canola, particularly in Canada, has also been growing, with a 4.3% annual growth rate. Canola is the No. 2 oilseed worldwide comprising 14% of oil production—still behind soybean’s 58% dominance. World consumption of all fats and oils is a huge success story, as it’s more than doubled in the past 20 years. But palm oil and palm kernel oil’s annual growth rates more than double those of other oils and fats. These oils account for 33% of total fats and oil consumption and 63% of exports, says Thomas Mielke, of Oil World stated. AgWeb



World Soybean Harvest Forecast Cut by IGC on South America Crops

Global production of soybeans will be smaller than estimated a month ago after prospects for harvests in South America have deteriorated, the International Grains Council said. Farmers worldwide will harvest 284 million metric tons of soybeans in the 2013-14 season, ICG reported, 1.4 percent less than a January estimate of 288 million tons. Brazil, the world’s biggest exporter, will produce 88 million tons, 2.5 percent less than previously forecasts, while still the highest on record. Argentina’s crop at 53.5 million tons will be 1.8 percent less than the prior estimate. Soybean futures on the Chicago Board of Trade, the global benchmark, rose as much as 3.5 percent today to $14.455 a bushel, the highest since June 6. The oilseed has increased 10 percent this year on concern about South American supplies. The IGC’s projection for Brazil is below the 90 million tons estimated by the U.S. Department of Agriculture and by Conab, the South American country’s official forecaster. The researcher Oil World cut its forecast this week to 85 million tons for Brazil. World soybean production this season will still be larger than output of 271 million tons in the prior 2012-13 marketing year, the IGC said. World inventories of soybeans will be 27 million tons by the end of the 2013-14 season, below last month’s estimate and compared with 26 million tons the prior year, the IGC said. China’s imports will be 68.5 million tons, 15 percent higher than a year earlier, Cooper said. “At the end of the season, things will be fairly tight, even if record crops are achieved in Argentina and Brazil,” Cooper said. “That’s why there’s so much bullishness at the moment in soybeans.” Corn production in the 2013-14 season will be 959 million tons, unchanged from last month’s estimate and up from 861 million tons a year earlier, the IGC said. The group cut its forecast for inventories at the end of the season to 154 million tons from an earlier estimate of 158 million tons. Bloomberg



Ethanol’s Victory could be Ethanol’s Ruin

Investors expect the Environmental Protection Agency to back down from a proposal to reduce the amount of ethanol blended into gasoline this year—but reducing ethanol content may be the only way to save the ethanol industry, an energy economist said in Chicago last week. “The EPA has a method to save the ethanol scheme, but now they’re being scared off by the very industry that would go down with it,” Colin Carter, director of the Gianinni Foundation of Agricultural Economics at UC Davis, told about 65 people at the University of Chicago on Thursday. In November the EPA proposed scaling back the amount of corn ethanol required in gasoline this year from 14.4 to 13 billion gallons, citing decreased demand for motor fuel and a constraint on the percentage of ethanol that can be blended into gasoline. Move up t Move down Corn growers, ethanol refiners and farm-belt politicians have pressured the EPA to abandon this plan, The Renewable Fuels Association threatened to sue, and market signals suggest the pressure is working. Carter believes this short-term victory for the ethanol industry could send gasoline prices soaring by 50 cents per gallon, enough to discredit and ultimately dismantle the government’s ethanol policy. That price goes up dramatically if the percentage of ethanol in gasoline passes “the blend wall” —10 percent, he said. It reached 10 percent last year. “The warranties on most cars are invalid if you go above a 10 percent blend,” he said. In 2007, the Bush Administration implemented the ethanol scheme—a series of annually mandated ethanol volumes— based on the assumption that the demand for gasoline would continue to increase, Carter said, but demand has dropped by about 6 percent. As a result, the EPA has to force increasing volumes of ethanol on the market each year while the volume of petroleum declines—raising the percentage of ethanol past the 10 percent blend wall. “If you require more than 10 percent, oil companies are going to export diesel. Because if you export it you don’t have to blend it. If you sell it domestically you have to blend it. And how can they blend more than 10 percent? It’s very very difficult to blend more than 10 percent. So that’s going to send the price of gasoline higher.” So much higher, Carter said, that gasoline prices could spike, drawing negative attention to ethanol. “If the EPA goes ahead with their proposal it could actually save the ethanol scheme because it’s not going to draw the attention to the scheme that you would see if gasoline prices went up 50 cents a gallon,” Carter said. “Yet the ethanol backers are fighting it.” The Renewable Fuels Association calls the 10 percent blend wall a fiction perpetuated by the petroleum industry. It contends that 75 percent of cars on the road today can safely burn up to 15 percent ethanol. “EPA has apparently bought into the oil industry’s fictitious 10 percent ethanol ‘blend wall’ concept,” the agency said in a January response to the EPA’s proposal, “and the Agency’s proposal effectively halts the transformation of the liquid fuels marketplace just as it was beginning in earnest.” Forbes