CONSULTANT LOWERS CORN YIELD, RAISES QUALITY CONCERNS... Pro Farmer crop consultant Dr. Michael Cordonnier says variability from field to field and within fields is going to make it very difficult to come up with an accurate yield estimate before this year’s corn crop is harvested. He says harvest losses will be greater-than-normal this year and poor grain quality could also be a factor. “The worst thing for this corn crop would be a prolonged period of heavy wet weather before harvest,” he says. “Not only would the wind and rain cause additional stalk breakage, lodging and ear dropping, it would also expose the crop to additional fungal infections resulting in even lower grain quality.”
Dr. Cordonnier lowered his corn yield estimate by 2 bu. per acre to 121 bu. per acre for a crop of 10.04 billion bushels.
CONSULTANT LOWERS SOYBEAN YIELD ESTIMATE... Dr. Cordonnier also notes a “tremendous amount of variability” in the soybean crop and says the number of pods this year is going to be below normal, with fewer seeds inside the pods due to drought stress. He says late-season rains should help the later maturing soybeans maintain their yield and help with seed size. Dr. Cordonnier lowered his soybean yield estimate by 0.5 bu. per acre to 35.5 bu. for a crop of 2.6 billion bushels.
USDA SEES RECORD NET FARM INCOME IN 2012... Despite extreme drought conditions that have drastically cut projected corn and soybean yields, USDA projects record net farm income in 2012, as it says higher prices for crops will boost income.
USDA sees net farm income topping $122 billion and net cash income exceeding $139 billion -- both which if realized would be records. Meanwhile, it says farm equity is expected to increase to a high of almost $2.3 trillion in 2012. Median total farm household income is expected to increase by 1.2% in 2012 to $57,762. Click here for more detail, including charts.
NEARLY 280 MIL. NET 2012 CROP ACRES COVERED BY CROP INSURANCE... Farmers have crop insurance coverage on 279.266 million net acres for 2012 under the federal crop insurance program, according to data from the Risk Management Agency (RMA). The prior high-water mark for net acres covered had been in 2008 when 272.260 million net acres were covered. For 2011 crops, producers covered a net 265.655 million acres via the program and received payments totaling a record $10.832 billion against premiums paid in of $11.957 billion for a loss ratio of 0.91. Since 1999, that loss ratio is the highest since a 0.95 mark registered for 2003 crops.
RFS LANGUAGE NEEDS CHANGE... When the Renewable Fuels Standard (RFS) mandate for corn-based ethanol first surfaced in 2005 legislation and when the mandate amount virtually doubled via 2007 legislation, not much if any impact analysis surfaced, especially from sectors like the U.S. animal industry that has been one of the most impacted by those mandated levels. That lack of economic analysis at the time the energy legislation was written continues to bite the industry most impacted by the mandate law.
In recent weeks, several analyses have concluded that even if the RFS is waived, it would not generate much corn for food and livestock feed. But others say any RFS waiver would at least have a psychological, short-term bearish impact in the market, as index fund traders and others would race to take profits ahead of any potential further changes in the mandate.
Fear of additional changes beyond any initial, temporary waiver is why some veteran traders predict a potential $1 plunge in corn futures -- until the market sees any such price drop would prompt buying by not only livestock feeders but also by ethanol processors who would likely extend their coverage for months ahead. (The irony, of course, is that any corn-price plunge would have corn users scrambling to get coverage for the months ahead, thereby limiting any short-term plunge and perhaps resulting in the need for accelerated price rationing that would likely lead to more significant demand destruction and political pressure to “do something.”)
Others note that even if the RFS is waived, a third of the U.S. gasoline supply must contain ethanol to meet unrelated clean air rules, mostly in California and on the East Coast. Reason: No other available substance in any quantity like corn can oxygenate gasoline as effectively, helping it burn more cleanly. Plus ethanol is as much as $1 cheaper than other types of octane boosters like reformates, alkylates and aromatics.
Another key factor in the use of corn-based ethanol is the rising margins processors are receiving for a major byproduct -- DDGs. In fact, some ethanol plants that had previously been shut down were recently reopened once their owners saw that feedlots and livestock producers were willing to pay premium prices for the much-needed byproduct.
While some ethanol proponents, including USDA Secretary Tom Vilsack, have said the solution is to let the market work, veteran observers of the issue say the solution is to go back to the initial legislation and base mandate levels on forecast gasoline consumption, with annual reviews on that calculation. Observers also say the Department of Energy forecast on which the framework for the policy is set should be given a closer look for accuracy.
The Obama administration could have an easy way out on this matter: Reject the waiver requests, but note it will work with Congress in coming up with a more flexible RFS mandate. A perfect solution that would likely please no one at the present time, but would serve as a far better “market solution” than the existing non-market-oriented mandate. For more in-depth analysis of the issue, click here.
The most recent development on this front is Governor Bob McDonnell (R-VA) today added his name to the list of those petitioning for an RFS waiver, making Virginia the eighth state to file such a request.
