EPA Leaves Almost No One Happy

Published on: 21:06PM May 29, 2015


Market Watch with Alan Brugler

May 29, 2015

EPA Leaves No One Happy

After an extensive delay from the mandated release date, EPA today announced the biofuels use targets for 2014, 2015 and 2016. Despite 2014 being over, obligated parties are just now being told how much ethanol and biodiesel they had to use last year (15.93 billion gallons). To cover the risk of a larger mandate, they had bought RINs to turn in as needed. Since EPA chose a level below that specificed in the 2007 legislation (but up from the earlier 15.21 billion figure), RIN certificates sold off 19% today as no longer needed certs were sold back into the market.  EPA put the renewable target at 16.3 billion gallons for 2015 and 17.4 billion for 2016.

The biodiesel requirement was larger than expected, boosting soybean oil, while the corn based ethanol requirement of 14 billion gallons for 2016 is compatible with existing production capacity. We said nobody was happy. The refiners want to sell more actual gasoline, as improved fuel efficiency has killed volume. Cuts in ethanol use result in direct market share gains for gasoline. The anti-ethanol crowd, led by grocery chains and corn users, insists that every acre of corn used for ethanol keeps food and feed prices higher than they would be otherwise. Ethanol and corn grower groups aren’t happy because there is surplus corn available both here and around the world, and the proposed targets are below what the actual law required. Lawsuits are expected. In the meantime, USDA today rolled out a small $100 million program to assist gas stations in installing blend pumps which could use more ethanol outside of the mandate.

Corn was down 2.4% for the week. Planting progress and emergence are both still running ahead of year ago and the 5 year averages.  Bears are also cocky because of expected above normal rainfall for the next two weeks and the old saying that “rain makes grain”. Weekly corn use for ethanol production rose back above 104 million bushels, with ethanol stocks shrinking 300,000 barrels due to tank filling ahead of the Memorial Day weekend.  Corn export sales commitments still lag the average pace (89% of the WASDE forecast vs. the averae of 96% for this date) after an “as expected” showing this week.

Wheat futures were pounded at all three exchanges. July KC HRW futures were down a huge 9.6% for the week. US winter wheat crop condition ratings were UNCH this week, but ample moisture is seen boosting yields at the expense of protein. Russian production forecasts have crept up to 55 MMT, still below the 59 MMT from last year. Russia also sold 3/4 of the wheat purchased by Egypt this week for new crop July delivery.  The marketing year for old crop wheat is wrapping up on May 31st.  Export sales commitments are only 93% of the USDA full year estimate of 860 million bushels. It looks like we are falling short, but don’t forget that the official figures are from Census, and often larger than those shown in the Export Inspections or Export Sales reports

Soybeans gained almost 10 cents per bushel this week in the July contract, despite touching new life of contract lows during the week. Most of the gain (8 cents) came on Friday courtesy of the biodiesel mandate and a sharp 127 point rally in soy oil.  November beans touched $9.00 3/4 before buying kicked in. Soybean export sales commitments continue to run comfortably near the level needed to meet the USDA forecast for the year.  Outstanding (unshipped) soybean meal sales are still 87% larger than last year at this time. That is a two edged sword, bearish if they are cancelled or deferred to 2015/16, but bullish if crushers have to continue to scramble for beans to meet those orders. The Commitment of Traders report showed the large spec funds further building their large short position. They added 13.692 shorts, bringing the total to -103,963 contracts as of May 26.














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 Live cattle futures continue to be choppy, but posted a new gain of 20 cents for the week in the nearby June contract. Cash cattle trade was nil until Friday, when we started to see some activity at $159. Asking prices were as high as $163. Weekly beef production was down 7.15% from the previous week due to Memorial Day, but up 0.1% from the same week in 2014. Beef production YTD is still down 4.6% from last year. Slaughter has been down 7%, with higher weights making up the difference. Wholesale beef prices backed off of record highs, with Choice down 2% for the week and Select down 1.5%.  Weekly beef export sales were the largest of 2015 at 20,800 MT.  This was for the week ending May 21.

Lean hog futures were 0.12% higher for the week, a victory for the bulls given the sell off earlier in the month. Carcass weights are now an estimated 3# below year ago. Pork production YTD is up 5.6% from last year at this point. Weekly pork production was down 13.4%  from the previous week because of the holiday. However, it was still up 5.0%  from the same week in 2014. The USDA pork carcass cutout value was up another 1.43% this week.  

July Cotton was up 1.6% this week. The US dollar sold off on Thursday and Friday, but was higher on the week. USDA showed in its weekly report that US cotton export sales last week totaled 197,200 running bales, including 174,800 RB of upland.  Pima sales totaled 22,400 RB. The managed money spec funds were still net long 27,475 cotton contracts as of May 26, but had cut the position by another 14,598 in the preceding 7 days. USDA put the AWP for this week at 50.04 and the LDP at 1.96 cents.

Market Watch

The market will get back on a normal 5 day schedule. The USDA will release Export Inspections and Crop Progress on Monday, with weekly Export Sales on Thursday morning. Weekly ethanol stocks and production will be out on Wednesday. June cattle options will expire on Friday. The news lineup will otherwise be pretty light. With the monthly USDA crop production report coming out a week from Tuesday we will see some trade estimates popping up.

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