June 26, 2006
***Publication Notice: The ASA-IM Weekly Update Will Not Be Published Next Week In Observance Of The July 4thHoliday. Publication Will Resume On July 7***
USDA: EU Biodiesel Demand Influencing Oilseed Market
The European Union oilseed situation is heavily influenced by the demand for biodiesel, according to a USDA report. However, there is a difference between Northern and Southern Europe. In Northern Europe where rapeseed is grown, there is an increased focus on rapeseed crush and consumption. In Southern Europe, mainly Italy, Spain and Portugal, an increase in soybean use is expected, USDA says. This increase reflects a growing interest in soy-based biodiesel in this region and plans for expanding crushing and processing facilities.
USDA says it is not possible to use pure soybean oil to produce biodiesel in the EU. The CEN 14214 standard for biofuels in the EU limits the use of soyoil to a 20-25% blend as measured by the Iodine value. However, Spain has adopted a higher Iodine value that allows for the use of pure soyoil as fuel. The CEN standards will be reviewed during 2006, according to USDA.
During 2006-2007, EU soybean imports are expected by USDA to recover from 2005-06 levels. In Italy, Spain and Portugal, imports are expected to increase, primarily as a result of investments in biodiesel plants, which are planned to include crushing facilities. In 2006-07, EU crushers believe that imports of U.S. soybeans will only decline marginally as high stocks of soybeans have remained in the U.S. and a good U.S. crop is expected in 2006. In addition, supply from South America could stagnate as farmers face financial difficulties that could impact plantings in 2006, USDA says.
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Crop Flow Update
The expected larger crop harvest in the Upper Midwest will certainly boost supplies of grains and soybeans available for shipment to other regions to a record 63.2 million tonnes, according to transportation analysts. While this region (Illinois and Iowa) is expected to use nearly half of its corn for ethanol production within the region, it will be an important origin for the Center Gulf export program, feeding in the eastern U.S. and valuable to ethanol production requirements in nearby transport regions.
Southeast regional estimated production was lowered slightly reflecting reduced plantings. Grain and soybean processing in the region is expected to be higher for corn and soybeans and slightly lower for wheat. Grain feeding in the Southeast is expected to total 26.8 million tonnes for 2006-07, slightly less than 2005-06 and down from a recent high of 28.1 million in 2004-05. With lower production prospects and higher processing and mostly unchanged feeding requirements, this region is expected to be deficit 33.9 million tonnes of grain and soybeans.
The Lower Mississippi deficit could increase to a 5-year high of 64.2 million tonnes on prospects of stronger exports through the CenterGulf. The deficit position in the Pacific Northwest (PNW) is expected to increase once again to 27.3 million tonnes while in the Southwest it would increase to 17.8 million tonnes. The Southeast, Southwest, and PNW are high volume long haul train markets while the Lower Mississippi is a high volume barge move for export shipments.
WTO Trade Ministers Prepare for Next Major Farm Trade Meeting
WTO trade ministers are preparing for yet another set of major meetings in Geneva next week as the clock continues to run out for the Doha Round. The main gathering will take place during a formal meeting of the WTO’s Trade Negotiations Committee, but much of the heavy lifting will take place out of the public eye during so-called “green room” meetings that include representatives of major trading nations.
The United States earlier proposed cuts of 60% for the most trade-distorting domestic amber box supports for agriculture, but also part of its spending – about $5 billion – into a new blue box. That proposal has been assailed both as too little by some WTO members (such as the G20 group of developing nations led by Brazil, and the EU) and as too much by some U.S. farm and commodity groups and farm-state members of Congress.
It is important to note that the 60% reduction proposed by the United States would apply to the cap – the amount of support that a country could provide to its farmers and ranchers. When applied to the EU, Japan and the United States, the 60% cut would be as draconian as it would first appear. It is for this reason that the G20 has issued a counter-proposal under which WTO members whose currently permitted amber box support exceeds $25 billion a year would agree to reduce their support by 80% and those with permitted amber box support in the $15 billion-to-$25 billion range would agree to cut their subsidies by 70%. Under this proposal, the 80% cuts would affect the EU and Japan, while the 70% cut would hit the United States.
House Agriculture Committee Chairman Bob Goodlatte (R-Va.) has said that Congress will not support cuts beyond the 60% level previously proposed. That point was emphasized recently by a group of major U.S. farm and commodity groups who wrote to President Bush saying, “American agriculture will not support any deeper cuts in domestic support than those already proposed by the administration.” In fact, the groups imply that even the 60% reduction is conditioned on solid commitments to increased market access and reductions in other trade-distorting policies by U.S. trading partners.
USTR Susan Schwab has pointed out that the U.S. offer is conditional, “so you don’t rule out improving it [and] you don’t rule out pulling it back.” Whether the U.S. proposal is improved or scaled back depends largely upon the offers of increased market access made by U.S. trading partners, she indicated.
Soy Complex Mostly Lower Despite Strong May Crush
The soy complex closed mostly lower on June 22 despite a stronger-than-expected May crush. The Census Bureau said the May crush was 3.93 million tonnes – above industry expectations. Meanwhile, soyoil stocks were 1.29 million tonnes, according to the Census. Soymeal stocks were 239,000 tonnes, significantly lower than the trade estimates. Eventually farmer selling will pick up regardless of price levels when farmers move grain onto the market when loans mature and on-farm storage needs to be cleared out before the next harvest. July bean futures closed down $1.19 finishing at $214.21; August was $1.38 lower, closing at $216.60; and September lost $1.32 ending at $218.62. July meal was down $1.76, closing at $194.56; August was $1.32 lower, finishing at $195.88; and September was down $1.32 to finish at $196.43. July oil closed $1.10 higher to finish at $539.91; August was up $0.44, closing at $544.32; and September increased $0.88, ending at $549.17.
