USDA released its 10-year baseline that was put together in November, with that month’s supply and demand forecasts as the starting point. The report assumes that the Farm Security and Rural Investment Act of 2002 (the 2002 Farm Act), the Energy Policy Act of 2005, and the Agricultural Reconciliation Act of 2005 remain in effect through the projection period. Projections do not reflect the Energy Independence and Security Act of 2007. The projections are not intended to be a Departmental forecast of what the future will be, but instead are a description of what would be expected to happen under a continuation of current farm legislation, with specific external circumstances.

Back in November, USDA was looking for soybean stocks to increase slightly over the course of the 2008-09 marketing year from a carryin of 5.72 million tonnes to a carryout of 5.96 million tonnes. This assumes planted area of 28.7 million hectares, a yield of 2.83 tonnes per hectare and 2008-09 total usage of 80.2 million tonnes.

The only number that is confirmed to be in the 2008-09 balance sheet in the February USDA S&D report is the carryin of 4.35 million tonnes. USDA is unlikely to materially change its 2008 yield forecast, but could drop its acreage from 28.7 million hectares because of how new-crop corn futures have out performed newcrop soybean futures since last fall. USDA’s projected 2008-09 demand of 80.2 million tonnes may be nudged higher in light of larger 2007-08 demand. USDA’s current forecast for South American soybean stocks as of October 1, 2008 to be 4 million tonnes below the previous year versus USDA’s expectation that those stocks would be 2.5 million tonnes lower back in November.

On biofuels, the long-term baseline notes that expansion in the industry is projected to continue, particularly over the next few years, exceeding 12 billion gallons by 2010.

Although a complete quantitative analysis of the effects of the 2007 Energy Act’s RFS for ethanol derived from corn starch and biomass-based diesel is not presented in the report, general qualitative effects would include:

• Increased demand for corn and soybean oil raises prices for those commodities; soybean prices would be higher as well.
• Higher commodity prices raise overall acreage planted to crops, with a greater combined share of the total going to corn and soybeans; acreage planted to competing crops, such as cotton and wheat, would be expected to be lower, raising their prices.
• With a greater share of output going to biofuels, higher crop prices would lower other uses of crops, including exports and domestic feed use of feed grains; in contrast, soybean meal would be more plentiful as increased soybean crush for biodiesel production would raise soybean meal production as well.

House Ag Committee Chairman Collin Peterson (D-Minn.) on February 14 made it clear that the House farm bill proposal which has been set forth so far is not the final bill but rather an effort to show one can write a farm bill coming in $6 billion over the baseline. Specifically, Peterson called for the House, Senate and White House to "agree on a number" relative to the level of spending in the farm bill.

"This is not any kind of deal with anybody," Peterson stressed. "This is a way to show how to write a bill $6 billion over the baseline." The $6 billion figure came as a request by the White House, he noted. "If we are not able to accomplish by March 15, law will expire and USDA will have to implement permanent law," Peterson said. "We need to get a number by Friday on how much to spend over baseline. There is nothing else to talk about."

Peterson’s staff also revealed the Chairman met on February 14 with Senate Ag Committee Chairman Tom Harkin (D-Iowa), Agriculture Secretary Ed Schafer and Deputy Secretary Chuck Conner for what was termed a farm bill focused meeting.

Meanwhile, Schafer and Conner released a statement which reads, in part:

"The administration appreciates the great work of Chairman Peterson and Ranking Member [Bob] Goodlatte (R-Va.) in bringing us this far. The funding limits outlined by the House represent the real reform sought by the administration. Mr. Peterson and Goodlatte rightfully took the president’s concern seriously and the outline was developed in an effort to reach fiscal responsibility. While there is still hard negotiating ahead on a number of items, we are pleased with our progress on budget issues.

The administration is working hard to identify roughly $6 billion over baseline to be used to fund this package in such a way as to meet Congress’ pay-go rules. We will continue to work closely with the conference committee in order to identify such offsets. We are confident this can be done and we can move forward with a good farm bill."

China’s National Grains and Oils Information Centre said last week that almost half of the autumn/winter rapeseed crop has been affected by damage caused by rain and snow. Preliminary forecasts suggest domestic consumption of vegetable oils in China, the world’s biggest importer of edible oils, is set to hit 22.4 million tonnes in 2008 and imports usually make up around a third of total consumption.

The soy complex closed higher on February 14 despite disappointing export sales and NOPA crush reports as heavy speculative buying propelled the market higher. While soybean futures did not trade at new contract highs, they did post new record high closes. Soybean oil continued to be the leader on the product side after an official of China’s Ministry of Agriculture said that 40 percent of China’s rapeseed crop had been damaged by adverse winter weather. This sent both Malaysian palm oil futures and U.S. soybean oil futures to record levels as soybean oil prices further disconnect themselves from petroleum prices. Although U.S. soybean oil stocks are rising, there is the threat that export demand could draw those stocks down despite dwindling biodiesel production. March bean futures closed up $14.51, finishing at $502.65; May gained $14.15, closing at $509.08; and July was up $14.15, ending at $512.48. March meal increased $8.38 closing at $396.17; May was $8.49 higher, finishing at $402.34; and July meal closed up $8.38 ending at $404.76. March oil increased $41.89 to finish at $1282.20; May was up $41.23, closing at $1297.63; and July was $41.23 higher, closing at $1309.31.

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