April 17, 2006
Supply And Demand Update
USDA released its April update of world agricultural supply and demand for 2005-06 last week. Revisions to the U.S. outlook were based on the March Grain Stocks report and its implications for ongoing demand. Soybean stocks were placed at a huge 15.1 million tonnes. U.S. demand factors were not changed, and aggregate oil and meal balances were not altered. (Soybean meal exports were increased 150,000 tonnes and domestic usage was reduced a like amount.) Soyoil stocks were estimated to be 1.22 million tonnes.
Global oilseed production for 2005-06 is projected at 391 million tonnes, 10.4 million tonnes above 2004-05. Brazil soybean production is reduced 1.5 million tonnes to 57 million tonnes based in part on lower-than-expected yields reported by the Brazilian government, especially in southern growing areas. Despite the reduction, production is 4 million tonnes above last year's record.
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Dorgan Supports Extension of Current Farm Bill
Uncertainty about U.S. obligations that would result from a successful completion of the Doha Round is a key reason why Congress should consider extending the current farm bill, says Sen. Byron Dorgan (D-N.D.). In a published interview last week, Dorgan said he supports an extension of current farm bill for one or two years "until we know what the Doha Round will entail."
And, when it comes to actually writing new farm legislation, Dorgan said, "There will likely be the need for some changes, but we don't have to take everything apart." He said this process would entail "refinement in some areas," but that the new legislation "will include a lot of what farmers already like in the 2002 farm bill."
Among the refinements that Dorgan foresees in the upcoming legislation are a mandatory animal identification program and better risk management tools for farmers. He said he believes an animal ID program will be mandatory at some point because it is "a national security issue and an economic security issue for the industry." Dorgan added that he expects that for USDA to implement the program on a mandatory basis, the issue will be addressed during the farm bill debate "because it will be a cost that will be borne in part by ranchers and partially offset by government funding."
On the subject of risk management, Dorgan said he wants Congress to develop a crop insurance program featuring higher subsidies to farmers that will allow them to significantly increase their crop insurance coverage at much higher percentage levels. "That would help persuade farmers to buy up their coverage," he said. However, Dorgan also said that he believes Congress made a mistake when it dropped the disaster title from the 2002 farm bill. "[T]he fact is, we should not have removed the disaster title from the farm bill," he said. "We should have a disaster title in the next farm bill. That might be hard to do, but we still need it," Dorgan added.
Turning to the farm disaster assistance bill that he and a group of his colleagues last week successfully attached to a supplemental spending measure, Dorgan said he believes there is a "fair chance" the measure will become law. He said the continuing drought in some parts of the Midwest coupled with the fact that the entire House will be up for re-election this Novembers will provide additional pressure on members to approve disaster aid. "I think we have a better than even chance this year of persuading House members to accept some form of disaster aid, hopefully similar to what we passed in the Senate," he said.
The Senate agriculture disaster amendment would provide both crop and livestock producers with financial assistance for weather-related problems suffered in 2005. In addition, the bill would provide a 30-percent boost in the direct payments that some farmers receive under the 2002 farm bill. The increase in direct payments is intended to help offset higher energy prices.
Farmers who are eligible for direct payments are those who have established both payment yields and base acres for a program crop. Those crops (and their per-bushel direct payment rates) are: wheat ($0.52), corn ($0.28), grain sorghum ($0.35), barley ($0.24), oats ($0.024) and soybeans ($0.44). Other crops eligible for direct payments include upland cotton ($0.0667 per pound), rice, $2.35 per hundredweight) and "other" oilseeds ($0.0080 per pound). Producers of any crop other than these are not eligible for direct payments and, therefore, are ineligible for the 30-percent increase to offset their energy costs.
Census Biodiesel Figures Suspect
The Fats and Oils – Production, Consumption and Stocks report released in early April included estimates of refined soybean oil used in methyl esters (mainly biodiesel). The estimates for January and February, however, were far below the levels reflected in USDA’s Bioenergy Program for the October-November-December (OND) quarter. OND biodiesel production was thought to have been 36 million gallons, which consumed roughly 113,000 tonnes of soybean oil. The Census Bureau reported that methyl ester production consumed 24,900 tonnes of soybean oil in January and 20,900 tonnes in February. The Census Bureau did note that the consumption of crude soybean oil and other fats and oils was included in the “other inedible products” or “inedible product” categories.
The Census Bureau has not been able to provide a straightforward figure for soybean oil use in biodiesel production; however, consumption of all fats and oils in inedible products during
January was revised up by 34,000 tonnes from the previous month’s report upon the inclusion of methyl ester usage. This would imply 98,900 tonnes for the January-February-March quarter as a whole, which would be less than the 113,000 tonnes of soybean oil used in biodiesel production during the OND quarter. It could be that the Census Bureau has not captured all of the biodiesel production in the US.
Soy Complex Mostly Higher On Possible Increased Corn Plantings
The soy complex closed mostly higher on April 13 reflecting a good weather outlook that could lead to increased corn plantings (possibly less soybeans planted). Further unwinding of corn/soybean spreads helped trigger the early strength for soybeans with weather as the driver. May bean futures closed up $0.92 finishing at $206.86; July was $1.01 higher, closing at $212.19; and August gained $0.73 ending at $214.03. May meal was up $1.65, closing at $191.14; July was $1.65 higher, finishing at $193.01; and August increased $1.43 to finish at $194.34. May oil closed $1.76 lower to finish at $497.36; July was down $1.54, closing at $506.84; and August lost $1.32, ending at $511.25.
