June 19, 2006
Soybean Crop Off To A Good Start
The U.S. soybean crop is off to a good start. The crop was planted in an expeditious fashion and the crop’s initial condition ratings are among the best on record. As of June 4, USDA reported that 89% of the crop was planted and 70% of the crop had emerged. Planting was 8% ahead of the 5-year average and emergence was 12% ahead of the 5-year average. USDA also reported that 70% of the crop was rated either good or excellent, matching the best early June ratings of 1998 and 1999. This year’s crop conditions well exceed those of the past 6 years and are just shy of those in 1998 and 1999.
Intuitively, one would be more optimistic about production prospects when the condition of the crop starts at a high level. However, a high initial crop condition rating does not guarantee a good yield nor does a low crop condition rating doom a crop to poor yield. The high condition ratings of 1998 and 1999 resulted in yields almost 2 bushels per acre above trend in 1998 and yields nearly 1 bushel below trend in 1999. The lowest early June condition rating (since 1998) in 2001 had a final yield that exceeded trend by 1 bushel per acre.
While the planting and emergence hurdles have been largely surmounted, there are additional important factors for the crop, the most critical being August weather. If the crop is not in terrible shape going into August, extremely good yields can be achieved on favorable weather.
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WTO Chief Meets U.S. Farm Groups, Bush Wants Movement On Doha Round
WTO chief Pascal Lamy last week met U.S. commodity groups to hear their concerns about global trade talks where the United States faces pressure to make deeper cuts to its farm subsidies. Earlier in June U.S. farm groups, including the American Soybean Association, wrote a letter to President Bush urging him not to give in to demands in world trade talks for further cuts in U.S. farm subsidies.
“Director General Lamy is here to assess the (U.S.) agriculture industry’s concerns about where the negotiations are and our desires for what constitutes a successful outcome,” said Bob Stallman, president of the American Farm Bureau Federation. Asked whether American agriculture would accept deeper cuts to its subsidies if it meant U.S. negotiators were able to deliver the market access it needs, Stallman replied: “We will have to have an economically positive benefit for U.S. agriculture (in the trade talks)…That means the additional market access we get for our products has to offset, or more than offset, the cuts that we take in our domestic supports.”
In related news, President George Bush on June 15 said that there are some tough decisions that lie ahead for the Doha Round of WTO talks and he was planning on using sessions with European leaders next week to push forward the trade round’s agenda. “Countries in Europe have to make a tough decision on farming, and the G20 countries have to make a tough decision on manufacturing. And the U.S. is prepared to make a tough decision along with them,” Bush told the summit of the Initiative for Global Development in Washington. But he acknowledged that the talks faced “tough sledding right now.”
Bush called for completion of the Doha Round of world trade negotiations: “We’re ready to eliminate all tariffs and subsidies and other barriers to free flow of goods and services, and we expect other nations to do the same. That’s what I said to get the Doha round moving. See, we’re ready to make the move – on agriculture and services and manufacturing, but we expect other nations to do the same thing. We expect other nations to give us market access. I want to be able to go to people here in the United States, producers, and say, ‘we got you market access so you can compete fairly.’ And that’s why we’re going to get rid of the subsidies that now exist on the books.” Bush said the Doha negotiations “are at a critical moment,” adding, “It is, in my view – countries in Europe have to make a tough decision on farming. And the G20 countries have to make a tough decision on manufacturing. And the U.S. is prepared to make a tough decision along with them. That’s my message to the world.”
EU Trade Commissioner Peter Mandelson last week warned WTO members they would be playing with fire if they missed an end-of-June goal for a free trade deal in farm and industrial goods. Reuters reports that Mandelson told an Italian newspaper that leaving everything until the end of the year (widely seen as the final deadline for a full free trade treaty), including services and other trade issues, would be “very dangerous.”
Biodiesel Rail Tariff Increases On Union Pacific Railroad
Last week, the Union Pacific Railroad (UP) announced it would increase its biodiesel rates. The average per car increase for biodiesel will be greater than 11% with some rates exceeding 20%. However, UP changed the car size groupings for biodiesel. The UP currently prices biodiesel cars as 24,000 gallons and less or greater than 24,000 gallons. Starting October 1, the UP will price cars in three categories: 24,500 and less, 24,501 to 27,500, and 27,501 to 31,500.
To move biodiesel, the most efficient car size is perhaps a 25,500-gallon intercoil, insulated car. A larger car would max out before cubing out leaving too much sloshing. The 25,500 meets the 286,000 pound maximum track limit. A smaller tank car also used is the 23,500 but is limited to 236,000 pounds. So, if the 25,500-gallon tank car were used for biodiesel, it would be priced into the UP 24,501 to 27,500 pricing group. On a per gallon basis, rates would increase an average of one-tenth of one percent, ranging from about a 9% drop to an increase of more than 25% depending on the origin group and destination. UP will also increase its mileage scale for biodiesel $250 per car effective July 1.
BP To Invest $500 On Biofuels Research
In one of the largest research grants by an oil company, BP is planning to spend $500million over the next 10 years to finance major work on biofuels to find “longer-term commercial alternatives to oil and gas.” The energy giant is in talks with several universities in the United States or Britain as possible sites for the research center, but says it has not yet picked a partner. BP aims to begin research at the center, called the BP Energy Biosciences Institute, by the end of 2007.
Soy Complex Mostly Higher; Demand Stronger Than Expected
The soy complex closed mostly higher on June 15. Soybean demand during the last half of 2005-06 has been stronger than expected, but the U.S. carryout is forecast to be record large. With the government not holding any stocks, the market will have the task of storing and financing an unprecedented carryover that threatens to pressure futures prices, spreads and basis levels. July bean futures closed up $1.10 finishing at $217.70; August was $1.10 higher, closing at $220.28; and September gained $1.19 ending at $222.76. July meal was down $0.11, closing at $197.42; August was $0.11 higher, finishing at $198.63; and September was unchanged to finish at $199.30. July oil closed $1.10 higher to finish at $547.48; August was up $0.66, closing at $550.93; and September was unchanged, ending at $555.12.
