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News

Technology, Feedstock, and Land

The passage of the 2005 Energy Policy Act and the 2007 Energy Independence and Security Act (EISA) mandated the use of biofuels under the renewable fuels standard (RFS), creating a rapid acceleration in the growth of the biofuels industry.  EISA provides for the use of 36 billion gallons of biofuels by 2022, but caps corn-based ethanol at 15 billion gallons by 2015.  With corn ethanol production projected to reach 14 billion gallons in 2011, the question is: Where will the next generation of biofuels come from?

The answer to that question necessarily will come in three parts involving the state of the technology, the supply of feedstocks, and the availability of land.  The 215-page report accompanying the recently passed FY2012 House Energy and Water Appropriations bill, at least indirectly, recognizes this.  The Appropriations Committee's report notes with regard to feedstocks,

Increased demand by the energy sector for food crops can put upward pressure on crop prices, disrupting other industries and increasing food prices domestically and abroad. The Department (of Energy) is directed to conduct only research, development, and demonstration activities advancing technologies that produce fuels and electricity from biomass and crops that could not otherwise be used as food.  The Committee supports efforts to develop cellulosic feedstocks and directs the Department to consider a broad portfolio of options, including biofuels sources such as the non-food components of biomass sorghum and continue research on biomass grasses.

...

Over the next 10 years, the U.S. will have to add about 21 billion gallons of biofuel use to meet the RFS. As the chart below shows, most of that biofuel is scheduled to come from cellulosic ethanol specifically.

RFS 2012-2022

To keep pace with the RFS, cellulosic would have to grow from less than an expected 13 million gallons of production next year to 16 billion gallons by 2022. Coming anywhere close to that goal requires addressing issues with technology, the supply of feedstocks, and the availability of land.



(This article, including a complete analysis of the future for biofuels, was originally published in full in the July 2011 issue of Ag Review. Click here to find out more about subscribing to Ag Review.)

FINDING THE COMMON THREAD

When it comes to commodity markets, the meaning of the word "collapse" is in the mind of the user.  However, it would be hard for anyone to object to the use of "collapse" to describe what has happened to grain and soy futures markets recently.  The price washout has been one of epic proportions.  From their high points during June until mid-session today (as we write this) CME July Corn has fallen $1.38 after setting a new all time high on 10 June.  CME July Wheat has plunged $1.43, and the July Soybean price has dropped $1.08.  No matter what one's market bias might be, the grain and soy price collapse has been stark and spectacular!  With the massive liquidation of long positions held by managed money, the market is now lean and mean.

With this severe reversal the 10-month long bull market has hit a major roadblock.  More than a few observers have declared that it is over.  Perhaps someday hindsight will show they were correct in making this assessment, but we doubt that the situation is quite so simple.  Markets do not perform in response to on and off switches like electric appliances.  There are too many widely varied and often contradictory influences swirling around them to have much faith in this kind of instant "sound bite" judgments.  What we do have faith in are the markets themselves.  Markets are never wrong.  They are ever-changing.

Given what has happened, we would like to step back and take stock.  Here is the way we look at the individual corn market in light of some of the current and potential fundamental influences and macro issues it faces or may face in the near future.  As always, these are our views and opinions, and they are for whatever they may be worth – if anything.

Corn

Since, comparatively speaking, corn futures prices have soared the highest, it is probably fitting that they have fallen the farthest.  Prices climbed earlier this year as protection against a combination of factors: the prospect of very tight supplies for the balance of the 2010/11 crop year, the need for additional planted acreage, weather-delayed planting, fear of lost acreage to floods and other crops, and fear that corn yields would fall below trend causing the 2011 crop to fall below projected demand.

What has happened to all of these concerns?  Well, the corn crop finally got planted albeit late enough to cause a drag on yields without a near perfect growing season.  Planted corn acreage has fallen.  In June the usually conservative USDA already reduced estimated plantings from 92.2 million to 90.7 million acres.  We think that late flooding and wet conditions have probably caused the loss of an additional 400,000-600,000 acres.

Once the corn crop got planted, most of it has enjoyed good weather.  The exception is the South where drought threatens serious damage to the earliest harvested portion of the crop – the bridge between the old crop and the Corn Belt harvest.  However, the weather models hint at a lengthy stretch of above-normal temperatures for the Midwest during July, which would not be good for the late seeded crop. Perhaps even more than usual, weather promises to be a key influence on corn market price action during the summer.



(This was originally published in Ag Perspectives on 23 June 2011 as part of Bob Kohlmeyer's weekly analysis feature "Common Thread." Click here to find out more about subscribing to Ag Perspectives.)

A spring update on corn in China

Although the Chinese government has taken a series of measures to quicken the procurement of local corn to replenish reserves, the overall procurement pace is still very slow, as most farmers in China are holding no higher than 20 percent stocks of corn at hand and they are not in a hurry to sell now in expectation of higher prices and with attention now focused on spring planting.

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Supplying soybeans and soymeal to export markets is key

For most of the last 30 years it has been the growth in domestic demand for soymeal and soyoil that has been the prime driver behind investments by U.S. oilseed processing firms. 

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How Oilseed Supply Can Meet Burgeoning Demand

If global soybean demand continues to grow at the pace of the last two decades, then world soybean supply will need to increase by 70 mmt in a decade to meet demand. That is a lot considering it is about equal to this year's forecasted production of soybeans in Brazil, the world's second-largest producer. It also is equal to about 27 percent of forecasted global soybean production in 2010/11.

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The Uncertain Political Situation Continues to affect Markets

The main news in the Mediterranean region is still Libya, and military actions against Libya are continuing as this report is written. The military action following the U.N resolution is limited to military targets and should not, one hopes, have any effect in other areas.

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WPI Spotlight

  • August 24, 2017
    During his presidential campaign, candidate Donald Trump often characterized the 23-year-old North American Free... NAFTA Renegotiation Begins
  • June 20, 2017
    Farmers in India want the Swaminathan Report recommendations implemented, including the suggestion that Minimum... Loan Waivers and MSP Issues in India