Evening Report (VIP) -- March 3, 2014

March 3, 2014 09:01 AM
 

Tensions escalate in Black Sea region... Russian troops moved into the Crimean peninsula, a Ukranian territory, over the weekend and Russia also launched warships around the Crimean port at Sevastopol. In response, Ukraine mobilized troops to the region, causing tensions to escalate. The flare-up between Ukraine and Russia added volatility to markets today, including the grain markets. Wheat futures posted gains in the teens to 20-plus cents, while corn futures finished mostly 4 to 8 cents higher, though both markets closed well off session highs.

For 2013-14, Ukraine is forecast to be the No. 3 global corn exporter and No. 5 global wheat exporter (No. 6 if you count EU-27 as one entity). But it goes beyond just Ukraine. The Black Sea is a major global hub for grains and other goods. If tensions in the region continue to escalate, traders believe it would drive more corn and wheat export business to the U.S. as global end-users look for a reliable supplier of grains.

Ukraine's ag ministry said today the county has exported 24.707 MT of grains since July 1. Of that total, wheat accounted for 7.4 MMT (6.1 MMT of milling wheat) and nearly 15 MMT of corn was exported. Ukraine's ag ministry expects to export 32.5 MMT of grain in 2013-14 (July-June), meaning they still expect to ship roughly 7.8 MMT of grains over the next four months. Any major disruptions to ship movement for an extended period in the Black Sea region could make that difficult. But so far, there has been no disruptions and shipments are ongoing, according to officials at Ukranian ports.

As for products outside of grains that could be impacted by tensions in the Black Sea region, Ukraine transits nearly 80% of Russia's natural gas exports to parts of the European Union via pipeline. Russia is also a leading exporter of crude oil, currently averaging 5.5 million barrels per day. Meanwhile, Ukraine is a major swing producer of nitrogenous fertilizers. The Yanukovych administration renegotiated Ukraine's natural gas agreements with Russia, reducing the price tag from $12.00 to $8.50. If Moscow increases Ukraine's natural gas price, margins for Ukrainian nitrogen producers will contract and nitrogen prices may increase. If international trade sanctions are imposed on Russia, potash flows could also be interrupted, and while North American potash inventories are currently high, a global shortfall could impact both nitrogen and potash pricing by fall 2014.

 

Lawmakers take different approach on budget... On the budget front, as President Obama and the White House finally unveil their budget framework for government spending on Tuesday, with more details to follow March 11, the House and Senate are taking different approaches on whether to do their own detailed budget plans for the fiscal year 2015 that begins Oct. 1.

Last week, Boehner said House Republicans under Budget Committee Chairman Paul Ryan (R-Wis.) would write a balanced-budget plan of their own, and the package would be brought to the floor for a vote. A day later, Senate Budget Committee Chairwoman Patty Murray (D-Wash.) announced the upper chamber would not be doing its own version. Of note, the two-year budget plan deal forged by Murray and Ryan and passed in December already sets spending levels, with top-line spending capped in Fiscal 2015 at $1.014 trillion.

 

EPA issues stricter emission standards for cars & trucks... EPA today finalized its new emission standards that "will reduce both tailpipe and evaporative emissions from passenger cars, light-duty trucks, medium-duty passenger vehicles and some heavy-duty vehicles," that are aimed at reducing pollution, improving efficiency in vehicles and preventing "thousands of premature deaths and illnesses." EPA's actions on this front were in response to a presidential memorandum request issued in May 2010.

The final fuel standards will reduce gasoline sulfur levels from 30 parts per million (ppm) to 10 ppm beginning in 2017. The new standards also include a new requirement for tailpipe emissions. While phase-in schedules will vary by vehicle class, they will generally be phased in for model years 2017 to 2025.

EPA has built in some flexibility for compliance. "The fuel sulfur standards include an averaging, banking and trading (ABT) program that will "allow refiners and importers to spread out their investments through an early credit program and rely on ongoing nationwide averaging to meet the sulfur standard. EPA is also finalizing flexibilities such as the ability to carry over credits from Tier 2 to Tier 3 and hardship provisions for extenuating circumstances, as well as flexibility provisions for small businesses (small manufacturers of Tier 3 vehicles and small refiners), small volume manufacturers, and small volume refineries," EPA's factsheet on the standards notes.

While EPA says the new standards come at a minimal cost and will provide $13 in health benefits to meet the standards, others such as the American Petroleum Institute contend the standards will unnecessarily raise costs and increase emissions. Learn more.

 

Martell: Persistent cold dashes hope for early spring... Meteorologist Gail Martell of MartellCropProjections.com says a fresh blanket of snow across the Midwest and as far south as northern Texas alleviates concerns about winterkill in winter wheat, but dashes hopes for an early Midwest spring.

She notes that producers in North Dakota would like to start seeding spring wheat in mid-April. "Spring planting feels a long way off. The normal start of wheat seeding is April 20, but this year is expected to be delayed. Snow needs to melt, then soil temperatures must warm up above 40F the threshold for wheat to germinate," she says. Click here for related maps.

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