Evening Report (VIP) -- August 8, 2013

August 8, 2013 10:02 AM

WHAT'S AHEAD FOR 2014 CORN-ETHANOL MANDATE?... By statute, the Environmental Protection Agency (EPA) must issue the annual Renewable Fuel Standard (RFS) volume requirements by Nov. 30 of each year. The agency issued its final 2013 standard Aug. 6 -- more than eight months late. EPA has said it intends to start working on the 2014 requirements immediately, with the agency citing September 2013 as the likely initial announcement.

The petroleum industry urged EPA to move expeditiously with the 2014 RFS because the agency said in its 2013 rule that it would consider lowering the blending requirements stipulated in the Energy Independence and Security Act of 2007 to avoid hitting the blend wall next year. The blend wall is when gasoline demand slows to the point where it becomes unattainable for blenders to blend enough ethanol into the gasoline supply to meet the mandate. EPA said it would consider the lack of consumer demand for gasoline containing 15% ethanol (E15) or 85% ethanol (E85) that has limited refiners' ability to meet the rising blending requirements.

Outlook: Some sources signal that when EPA issues its 2014 corn-based ethanol volume requirements the mandate could be lowered from the 14.4-billion-gallon figure previously established to no lower than the 2013 volume requirement of 13.8 billion gallons. Like EPA did for the 2013 RFS, participants could be given time beyond Feb. 28 (in this case Feb. 28, 2015) to comply with the 2014 RFS requirements. EPA likely will want to see the August and perhaps the September USDA corn crop estimate before making its initial 2014 RFS volume requirement for corn-based ethanol.



VILSACK HAS MORE FLEXIBILITY THAN HE IS ACKNOWLEDGING RE: BRAZIL COTTON PAYMENT... It appears USDA Secretary Tom Vilsack is using a potential trade skirmish with Brazil to continue to goad the U.S. Congress into passing a new farm bill. But a look at the facts signals Vilsack is either misunderstood, or isn't telling everything he knows.

The issue: Vilsack has suggested that a continued stalemate over farm bill legislation could lead Brazil to retaliate against U.S. exports. The U.S. government has been paying Brazil $147 million a year to temporarily settle a trade challenge the Brazilians won against U.S. cotton subsidies. The payments are supposed to continue until Congress replaces the subsidies, but Vilsack told key officials in Brazil this week that the monthly installment in September would be cut in half due to the budget sequester and that he had no authority to make further payments after the federal fiscal year ends Sept. 30.

But our sources say Vilsack does, indeed, have the authority. USDA from the onset of the payment to Brazil has used the Commodity Credit Corporation (CCC) Charter Act for such payouts. So it appears Vilsack is again playing farm bill politics and this time is using a trade policy issue in an attempt to accomplish his goal.



DROUGHT MONITOR REFLECTS PARCHED CONDITIONS IN WESTERN CORN BELT... The U.S. Drought Monitor drought monitor, released today and current through Tuesday, Aug. 6, acknowledges the drying state of Iowa and other western Corn Belt soils. The monitor updated soil conditions in the western third of Iowa to moderate drought levels from abnormally dry. Plus, it expanded the drought footprint over portions of Missouri and Minnesota into Wisconsin.

"Western Iowa had moderate drought conditions introduced, while the area rated abnormally dry was pushed farther to the east," states the monitor. "Portions of southern Missouri recorded very heavy rain during the current week, allowing for some trimming of the southern edge of the abnormally dry area in the state. The moderate drought region in Missouri was also trimmed along the west edge, but pushed farther to the south as well," it states. "In Minnesota, abnormally dry conditions were expanded while in Wisconsin, a new area of abnormally dry was introduced," it concludes. With near-term forecasts tuning down the chances for precipitation in these areas, next week's drought monitor map should show continued expansion of the drying conditions.



CPC: ENSO-NEUTRAL CONDITIONS TO PERSIST... ENSO-neutral conditions (neither El Nino nor La Nina) are projected to continue into the fall, states the Climate Prediction Center (CPC), following the continuation of ENSO-neutral conditions through July. ENSO conditions focus on average sea surface temperature across the equator in the Pacific Ocean ranging from Australia to South and Central America. Changes in these temperatures can lead to El Niño and La Niña conditions, which can impact weather in the United States. Some meteorologists have been looking for a return to La Niña conditions, but those conditions have so far failed to develop.



FAO FOOD PRICE INDEX FALLS FOR THIRD CONSECUTIVE MONTH... The United Nations Food and Agriculture Organization (FAO) food price index fell during July, marking the third consecutive monthly drop in the index. FAO says the index averaged 205.9 points in July 2013, 4 points (nearly 2%) below its revised value for June and 7 points (or 3.3%) lower than in July 2012. The decline was largely driven by lower international prices for grains, soy and palm oil while sugar, meat and dairy prices were also down from the previous month. While the decline is hardly headline-making, it does suggest a decline in political pressure to control food prices and restrict exports which is ultimately positive for global trade -- normally a good thing for U.S. grain growers and livestock producers.


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