June 5, 2006
U.S. Farm Groups Urge Administration To Hold Line On Subsidy Cuts
U.S. farm groups, including the American Soybean Association, last week urged President Bush not to give in to demands in world trade talks for further cuts in U.S. farm subsidies. ASA and ten other farm organizations said in a letter to Bush that the United States made “a very generous offer” in October to cut its current cap on trade-distorting farm subsidies by 60 percent.
“America’s farmers and ranchers are extremely concerned about the present situation in the Doha round WTO agricultural negotiations,” the letter read, in part. “Reductions in, and limitations on, domestic support for U.S. agriculture are only acceptable if the negotiations yield an important net gain for American farmers and ranchers through commitments on market access and other trade-distorting policies by our trading partners.”
The letter continued: “Under these circumstances, Mr. President, we believe that it is important to make clear that American agriculture will not support any deeper cuts in domestic support than those already proposed by the administration. If negotiators are forced to scale back the level of ambition from the U.S. proposal on agricultural market access in order to reach an agreement, the level of ambition in cutting trade-distorting domestic support must be commensurately reduced from the U.S. proposal.”
The letter also emphasized the need for “sensitive” and “special” product declarations to be limited in order to preserve the market access gains achieved through overall tariff reductions.
In related news, WTO Director-General Pascal Lamy last week told WTO members he is planning to organize a ministerial gathering in Geneva the week of June 26 in order to give a final political push for a deal on modalities in the Doha Round negotiations on agriculture and non-agricultural market access. Lamy warned delegations that the WTO’s timetable for securing a deal was now “a matter of days,” but said he still believes the membership could reach a deal on modalities –– which are to include the critical numbers and formulas for determining cuts on agricultural and industrial goods and reducing farm subsidies –– provided that negotiators “work with a sense of urgency.”
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Transportation Update
With nearly three-quarters of the 2005-06 grain and soybean export program complete, exports are on pace to finish the year at 111 million tonnes, 2.7% greater than the previous year. However, the volume of exports by port varies depending on the export mix, destination market and freight dynamics – both within the United States and on the ocean. For example, the TexasGulf is largely dependent on wheat exports that represent about 72% of total exports each year while wheat exports through the Pacific Northwest (PNW) represent about 43% of grain and soybean exports. Through the CenterGulf,about 58% of annual exports is corn. The shares of grain and soybean export by crop vary from year to year through elevators on the Atlantic coast or on the Lakes.
The PNW gains export volumes of corn and soybeans as the ocean freight spread widens between the Gulf and PNW. The higher the freight spread the more expensive it is to land corn or soybeans into Asia. Transportation analysts expect the spread to maintain a level below $10 per tonne for the foreseeable future. The spread averaged nearly $22 per tonne during 2004-05, declining to a current average of about $14 for 2005-06 with daily spread levels below $10.
The main driver of interior flows of oilseeds and grains is the supply available for export. Production issues and local demand impact available supplies. Current production prospects point to a smaller corn crop and a record soybean harvest for 2006-07. And, with the rapid expansion in biodiesel and ethanol across the Corn Belt, some traditional surplus areas may be close to net deficit positions, meaning they may have to import grain from other areas instead of shipping it out.
April Soy Crush Smaller than Expected, Meal and Oil Stocks Larger
The Census Bureau’s April crush of 3.68 million tonnes was 544,000 tonnes smaller than the industry expected and the March crush also was revised lower. This considerably reduces the odds of the 2005-06 crush will reach USDA’s forecast of 46.8 million tonnes.
The Census Bureau also provided a surprise on soybean oil stocks, pegging end-of-April stocks at a surprisingly large 1.25 million tonnes, more than 45,400 tonnes more than the market was expecting and the largest stocks so far this marketing year. March oil stocks also were revised higher by 12,200 tonnes to 1.22 million tonnes. As a result of the Census crush report, implied domestic disappearance of soybean oil during March and April is 55,300 tonnes. Soybean oil domestic disappearance during the first 7 months of 2005-06 was 2% above the previous year, according to the Census Bureau.
Soybean oil stocks are forecast at 1.21 million tonnes at the end of the 2005-06 marketing year. Soybean meal stocks also were surprisingly large at 380,000 tonnes, the second largest since December 2000.
Ethanol Use Could Affect Soy Crush
The declining rate of U.S. soymeal consumption in the face of increasing livestock production is a concern, University of Illinois extension marketing specialist Darrel Good told The Public Ledger/FO Licht in a recent report. He said that: “The apparent decline in soybean meal consumption per animal is likely associated with increased feeding of distillers dried grain. This pattern of substitution will likely continue into the near future as ethanol production expands. That substitution could be large next year if corn used for ethanol production expands by 550 million bushels [15 million tonnes], as projected by the USDA. Declining domestic meal demand and increasing soybean oil demand for biodiesel may eventually result in the soybean crush being driven by oil demand rather than meal demand.”
Soy Complex Mostly Higher On Support From Wheat Prices
The soy complex closed mostly up on June 1 reflecting higher prices for wheat and short-covering in meal. July bean futures closed up $2.66 finishing at $215.59; August was $2.48 higher, closing at $218.16; and September gained $2.66 ending at $220.55. July meal was up $3.09, closing at $193.12; August was $2.87 higher, finishing at $194.12; and September increased $3.09 to finish at $195.00. July oil closed $0.22 lower to finish at $554.56; August was down $1.54, closing at $559.09; and September lost $2.20, ending at $563.28.
