Price volatility in grain and oilseed markets is here to stay, despite USDA’s release of its World Agricultural Supply and Demand Estimates (WASDE) for March, which held no big surprises. The department left both its U.S. corn and soybean estimates for the 2010-11 carryout unchanged from February, and raised ending stocks of wheat.
“The biggest threat to current markets is the political uncertainty and unrest in the Middle East. That’s the reason we’ve seen funds reduce their positions,” says Mike Krueger, president of the Money Farm, a brokerage firm in Fargo, N.D. “Corn prices have not been high enough to ratchet demand. Volatility will not be going away.”
USDA put U.S. corn ending stocks at 675 million bushels and soybean ending stocks at 140 million bushels. The corn estimate was slightly higher than the average trade estimate of 667 million bushels. Bean stocks were slightly lower than the average trade expectation of 141 million bushels.
U.S. wheat ending stocks were raised from 818 million bushels in February to 843 million bushels, mostly the result of a 25-million-bushel reduction in U.S. wheat exports. “We have lots of sales on the books, but shipping has been slow,” says Krueger. “It’s going to take a heroic effort to move all the wheat we have sold by the end of the wheat marketing year (May 31).” Due to short or poor-quality crops around the word, the U.S. has become the main supplier of high-protein wheat.
World ending stocks of corn rose slightly, from 122.51 million metric tons in February to 123.14 million metric tons in March, which is still substantially lower than last year’s 144.54 million metric tons. The increase in corn ending stocks was the result of a 1.5 million metric ton increase in Brazil’s corn crop.
“World production of corn is off a little but ending stocks are up. We are seeing a slight rebalancing,” says Chad Hart, economist with Iowa State University. “The demand hit seems to be coming from the smaller countries, not the countries in the actual report.” Developing countries in Africa and elsewhere have likely reduced their consumption of both feed and food grains, but particularly corn used for feed, Hart says. He thinks next month’s report, released April 8, could possibly show more rationing.
USDA also increased world soybean ending stocks slightly, from 58.21 million metric tons in February to 58.33 million metric tons, also the result of a larger Brazilian crop. World soybean stocks remain slightly below year-ago levels.
Uncertainty over ethanol blenders’ tax credit
Overriding the report was yesterday’s news that two U.S. senators, Tom Coburn, R-Okla., and Ben Cardin, D-Md., had introduced a bill to repeal the Volumetric Ethanol Excise Tax Credit given to companies that blend ethanol into gasoline. The subsidy gives blenders a 45-cent per gallon federal tax credit worth nearly $6 billion in 2011. The credit was due to expire last December, but late last year Congress extended it through the end of 2011, providing the issue is fully debated this year, says Hart.
Sen. Dianne Feinstein, D-Calif., is working on her own version of a bill to eliminate the ethanol blenders’ subsidy. Her plan, unlike the bill introduced by Coburn and Cardin, would leave the incentive intact for next-generation biofuels not made from corn.
Even if the blender credit is repealed, Hart doubts it will have much impact on future ethanol production if the federal mandate is left intact. “Eliminating one of the two doesn’t pull the floor out from under the market if the other remains in place,” he notes.