Evening Report (VIP) -- April 12, 2013

April 12, 2013 09:53 AM

NWS OUTLOOK STAYS COLD AND WET... The National Weather Service (NWS) 6- to 10-day forecast for April 18-22 calls for below-normal temps to continue across the entire Corn Belt and Plains. Above-normal precip is forecast during the period for the entire eastern Corn Belt, along with the northern two-thirds of Minnesota. Other areas of the Corn Belt are expected to see normal precip during this period.

The NWS 8- to 14-day forecast also calls for below-normal precip for the Corn Belt and Plains April 20-26, though the intensity is reduced some. But this forecast adds more precip, with all but the southern and southwestern Corn Belt expected to see above-normal precip. Click here for related maps.


RENEWABLE FUELS OUTLOOK... Bills were introduced in the House this week that would eliminate the corn-based ethanol mandate and limit ethanol blending to E10 and eventually discard the Renewable Fuels Standard (RFS). Hearings will take place this summer. There has been a lot of rhetoric on these topics, but we don't expect any final bill to be sent to President Obama. If we are wrong, he wouldn't sign it anyway.

We were one of the few to accurately predict the retroactive extension of the $1 biodiesel tax incentive through 2013. We expect another extension for 2014 to be tied to another tax extenders bill. Lawmakers will try to eliminate those taxpayer subsidies via any major tax reform bill to use those savings, but doing so would take time.


FSA NOTIFIES OF REVISED GUARANTEED LOAN INTEREST RATE POLICY... USDA's Farm Service Agency (FSA) today announced that its new policies for determining the maximum interest rates charged on loans guaranteed by the agency will become effective May 3, 2013, though it is still accepting comments on the new rule through June 3, 2013. The changes to previous program regulations include the elimination of the term "average agriculture loan customer" and the establishment of "easily determined rates" that can be charged on FSA guaranteed farm loans by tying the rate to one's formal written risk-based pricing practice if applicable. In that case, the rate must be at least one risk tier lower than the borrower would receive without the guarantee.

For those who do not use a risk-based pricing practice, the maximum interest rate allowed will be tied to spreads over widely published indices. Specifically, if the interest rate is variable or fixed for less than five years, the interest rate charged to the borrowed can't exceed 6.5% above the three-month London Interbank Offered Rate (LIBOR). If the interest rate is fixed for five years or more, the interest rate cannot top 5.5% above the five-year Treasury. If the three-month LIBOR falls below 2%, the maximum allowable spread for both indices would increase by 100 basis points.

FSA says farmers will not have to change the index they use to price loans so long as the rate does not fall above the rule parameters outlined above. Compliance to the new rule is required only on the day the guaranteed loan closes or on the day a guaranteed loan is restructured.


FARM BILL UPDATE... The Senate Ag Committee will mark up its farm bill version this month or early May, and the House Ag Panel will follow. An important factor will be agreeing to a unified savings number; that may not happen until debt limit hike talks end in late July/early August. One key farm bill issue will be the amount of food stamp savings. This will likely be determined via an agreement between congressional leaders and the White House. The farmer safety net of the final farm bill will likely consist of crop insurance (including the Supplemental Coverage Option) and an optional target (reference) price option. There will not be a shallow loss/Ag Risk Coverage program due to cost factors.


CHINA BIRD FLU UPDATE... There are now 43 known cases of the H7N9 bird flu in China, with 11 of those resulting in deaths, according to Xinhua news agency. The source of the disease remains unknown, though positive samples of some birds in poultry markets remain the focus of investigations by China and the U.N. Food and Agriculture Organization.

Concerns with the H7N9 bird flu virus have eased in the grain and soy complex. While this will undoubtedly reduce Chinese feed demand, the issue has been brushed aside for now.

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