Evening Report (VIP) -- October 11, 2013

October 11, 2013 09:58 AM

FUNDING, DEBT LIMIT STANDOFF CONTINUES, BUT... The market remains cautiously optimistic that the debt ceiling and government funding impasse could soon come to an end. Late last night following a meeting with President Barack Obama, House Republican leaders offered a plan to lift the debt ceiling and reopen the government. The plan would set up immediate negotiations to reopen the government and extend the debt ceiling for six weeks, allowing for a broader budget reform deal. The House is waiting on the administration's response to the framework and whether the president is willing to commit to broader deficit reduction steps. The president has indicated he would accept a short-term debt limit increase if no partisan riders are attached.


GOV'T SHUTDOWN DURATION REMAINS KEY TO OCTOBER REPORTS... How long the partial government shutdown lasts is seen as the key factor in whether or not USDA will issue the October Crop Production and Supply & Demand Reports, according to sources. Many of the issues outlined by sources familiar with the survey and data-gathering procedures used by the National Ag Statistics Service (NASS) are still key unknowns. These include how much data NASS has already gathered but has not been tabulated/analyzed; how many samples are at the NASS lab in St. Louis for processing there; whether or not field enumerators followed or ignored the cease and desist order issued upon the commencement of the partial government shutdown; and how much of the farmer survey portion of the data gathering effort remains to be completed and compiled. Check "Inside Washington Today" for more.


IMPACT OF SHUTDOWN ON OTHER REPORTS... Long-time sources provide some perspective about the likely path for other upcoming reports:

  • Crop Progress: The weekly Crop Progress data was last published on Sept. 30 for the week ended Sept. 29. Contacts signal they would expect at this stage that NASS would not be able to "fill in the blanks" on progress in the period covering the government shutdown so whenever that data is published, there could be a "gap" in the data from the shutdown.
  • Other NASS reports: Data preparation for the monthly Cattle on Feed Report typically takes place in Washington the week of the report. Unless the government reopens by early next week, that report currently scheduled for release Oct. 18 could be delayed.
  • Data User's meeting: USDA/NASS each October hold a data user's meeting in which the public attends and receives presentations on the USDA data and provide feedback to the agencies on how the data is viewed in the marketplace. That is currently scheduled for Oct. 21, so that could be affected if the partial shutdown stretches into that week.


But the key question that won't be able to be answered until after the partial government shutdown ends is the impact the situation will have on the November Crop Production Report, typically the last estimate of U.S. corn and soybean production that is released prior to the Annual Production Summary that is scheduled for Jan. 10, 2014. "That report still remains a big question in my mind," said one source. "If NASS has 'lost' data due to harvest activity, etc., that makes the November data that much harder to compile given the normal procedures NASS uses. That would likely put more weight on the farmer portion of the data gathering and could mean that a harvest loss may not be as clear at that stage."


SOMETHING STINKS ABOUT THIS... We find it a bit strange that the flow of information from USDA has been cut off and a draft proposal from the U.S. Environmental Protection Agency (EPA) dated Aug. 26 was "made available" to news outlets by an industry representative. There is no way of knowing (without confirmation from the Obama administration) if what's in the draft proposal was actually submitted to the Office of Management and Budget (OMB) for consideration. The report's date was a week before the actual proposal was sent to OMB.

EPA Administrator Gina McCarthy today said a final decision has not yet been made regarding the 2014 biofuel blending requirements and that EPA is currently only developing a draft proposal. "No decisions will be made on the final standards without a full opportunity for all stakeholders to comment on the EPA's proposed 2014 Renewable Fuel Standards and be heard on how to best foster a growing biofuels industry that takes into account infrastructure- and market-related factors," McCarthy said.

The matter brings up a number of questions. For one, why is a document dated Aug. 26 being made available now? It could be the source of the document was looking for maximum impact with USDA's data flow of information stamped out. Another unanswered question is, what industry released the document? Someone from EPA? Someone from the ethanol industry? (Not likely.) A representative of the oil industry? (Hmmm...)

Regardless of where the document originated, there should be some jail time coming for whoever made the document "available." The Commodity Futures Trading Commission (CFTC) reportedly has been asked to see whether some traders, trading companies or others traded on confidential information and who or what agency in the Obama administration released the market-sensitive document.



PERSPECTIVE ON REPORTED 2014 RFS REQUIREMENTS... According to the leaked document, EPA has proposed a 15.21 billion gallon Renewable Fuels Standard (RFS) for 2014, including a 2.21 billion gallon level for advanced biofuels and 23 million gallons for cellulosic ethanol. Indications are that the document has three options on the level for corn-based ethanol -- 12.36 billion gallons, 13.00 billion gallons and 13.15 billion gallons -- with the 13-billion gallon level expected to be proposed. The advanced biofuel component would be adjusted in each scenario to result in a total 15.21-billion-gallon RFS level. The draft proposal might be what was actually sent to EPA. Therefore, it is worth conducting some initial analysis on the data:

  • Corn-based ethanol usage could be even less than 13.0 billion gallons if this is finalized, and imports of Brazilian ethanol would be minimal. However, Brazilian ethanol still is quite useful/needed for meeting the California LCFS. If there were a couple hundred million gallons of Brazilian ethanol imported into California in 2014, on top of the biomass-based diesel consumed in the U.S., this would be even worse for corn-based ethanol.
  • If our calculations are correct, the effective allocation to undifferentiated advanced biofuels (category historically met by Brazilian ethanol) would shrink to 60 million gallons. If the biomass-based diesel mandate is kept at 1.28 billion gallons, more biodiesel (and renewable diesel) than this can be produced, meeting the entire advanced biofuel mandate (1.28 billion gallons at 1.5 RINs/gallon is 1.92 billion "RIN-gallons"), assuming the total advanced mentioned is 2.21 billion RINs, not physical gallons (high likelihood this assumption would be correct).
  • If more than the roughly 1.45 billion gallon of biodiesel/renewable diesel production necessary to meet the total advanced biofuel mandate can be produced, the overage would eat into the effective allocation for corn-based ethanol (generally at 1.5 RINs per physical gallon of biodiesel produced). Remember, the effective allocation to corn-based ethanol is simply the difference between the total RFS and the total advanced biofuel standard, though all gallons of advanced biofuels (corn-based ethanol cannot be advanced) also count toward the total RFS.
  • EPA will have to substantiate a partial waiver of at least the total RFS. If this is proposed, the ethanol industry will very likely fight hard against it and file a lawsuit as soon as it can. It would not be surprising if UNICA also filed a lawsuit on behalf of the Brazilian ethanol industry.


Even if the draft proposal is 100% correct, it will still have to be posted for public comment. Comments will be used as EPA makes its decision on 2014 RFS required usage levels. That announcement likely will not be made until summer 2014 (at the earliest). Read more.

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