Retreating corn prices have declined to their lowest level since August 2010, according to a University of Illinois agricultural economist.
The most recent price weakness reflects both supply and demand considerations, says University of Illinois agricultural economist Darrel Good.
“On the supply side, ongoing reports of yields that exceed expectations in many areas suggest that the next USDA forecast of the U.S. average yield will be at least equal and perhaps exceed the September forecast of 155.3 bushels,” he says.
Good says that there is still some uncertainty about the magnitude of harvested acreage that will not be cleared up, at least partially, until the USDA releases the next Crop Production report. Even so, it appears that production will be large enough to result in a sizable buildup in stocks by the end of the current marketing year.
“On the demand side, the partial shutdown of federal government activities leaves a void in the usual flow of weekly data, including export sales, export inspections, livestock slaughter and broiler chick placements. The U.S. Energy Information Administration has also discontinued weekly estimates of ethanol production, imports, and stocks,” Good says.
The primary news on the demand side has been the leaked report of an apparent Environmental Protection Agency (EPA) proposal to reduce the magnitude of biofuels mandates, including renewable (ethanol) mandates, under the Renewable Fuels Standards (RFS) beginning in calendar year 2014, he says.
“The RFS currently calls for a total of 18.15 billion gallons of renewable fuels in 2014, including 3.75 billion gallons of advanced biofuels. The remaining 14.4 billion gallons can be satisfied with either advanced or renewable biofuels. The rumored proposal for 2014 is for a total of 15.21 billion gallons of biofuels, including only 2.21 billion gallons of advanced biofuels and a maximum of 13 billion gallons of renewable biofuels,” he says.
The possibility of dropping the overall mandate by almost three billion gallons was not widely anticipated. The reduction in the non-advanced component of the mandate from 14.4 to 13 billion gallons has been interpreted as a negative development for corn demand in 2014 and beyond, he says.
“The EPA has stated that proposed changes for the RFS in 2014 have not been finalized. In addition, the final proposal will be submitted for public comment so that changes in the proposal would be possible. It is therefore premature to assume that the rules in the leaked proposal will be the final rules for 2014. However, it is useful to analyze the potential impact on corn demand of a reduction in the implied mandate for renewable biofuels,” Good says.
Domestic ethanol production has been relatively constant for the past four years, totaling 13.3 billion gallons in 2010, 13.9 billion in 2011 and 13.3 billion gallons in 2012. Production in 2013 will be within the range of the past three years, he says.
“Ethanol production in 2014 will be influenced by a combination of the magnitude of the RFS mandate, the magnitude of the domestic blend wall for ethanol, the extent of the use of RINs credits to meet the RFS mandate, the net trade balance for ethanol, and the magnitude of discretionary blending of ethanol, if any,” he says.
View the entire article at the ACES News site.