September 2024 USDA Supply & Demand

The changes this month from the USDA were mostly minor adjustments from their August estimates, particularly with soybeans and wheat, which both saw little to no changes from last month. In the end US carryout totals for corn and soybeans both declined this month, while US wheat carryout remained unchanged.

For corn, the direction of change was not in line with pre-report trade expectations. While traders forecast the USDA to make cuts to their US corn acreage and yield estimates, the agency left corn harvested acreage unchanged and increased their corn yield estimate half a bushel higher. The result was a US corn production of 15.186 billion bushels, 39 million larger than last month. However, incoming stocks were reduced by 55 million bushels, which canceled out the larger production total and left US 2024-25 new crop corn carryout at 4.586 billion bushels, 16 million smaller than August. Global corn carryout was down from last month but larger than trade expectations.

The USDA left US soybean harvested acreage and yield unchanged this month. Beginning stocks were down 5 million bushels and residual usage was up by 2 million, leaving 2024-25 US soybean ending stocks at 550 million bushels, 10 million fewer than last month. Global soybean carryout was slightly larger than last month when trade expected a small decrease.

The USDA made no changes to their US wheat supply demand table this month. It looked identical to August. Global wheat carryout increased by +600k tons, when trade expected them to decrease by -600k tons.

Source: USDA, Reuters, StoneX

Mississippi Barge Rates to Challenge 2022 - Hil Anderson, Roach Ag Daily Grain Plan

A dry fall will do wonders for the pace of the harvest in the Mississippi River watershed, but it could also lead to a repeat of last year when historically low water levels snarled barge traffic and caused freight rates to soar.

Water levels along the Mississippi are reportedly already low enough to force operators to carry lighter loads, which won’t make it any easier or less expensive to haul newly harvested corn and soybeans to their downriver destinations. Tuesday’s reading at St. Louis was a little over -3 feet.

USDA statistics showed downbound barge rates turning sharply higher in late August and were basically doubled by the middle of September. The latest sampling pegged the acreage rate at Memphis at 817, virtually equal to the price some 800 miles to the north at Twin Cities. St. Louis rates, which were seen around 354 on Aug. 1, catapulted to nearly 721 last week.

Barge rates at different locations are used to calculate the final dollar price per ton for the trip. Last fall saw rates that worked out to a record spot price for St. Louis of $106 per ton for the week of Oct. 11, according to an analysis by the University of Illinois.

Drought conditions late last summer cut water levels to a record low of nearly 11 feet below normal and contributed to slower transit times and a dizzying spike in spot rates in St. Louis. Analysts said grain barge tonnage figures historically tend to be volatile in the fall. For example, rates along the Illinois River currently are lower for October than September.

“Typically, barges are loaded to a 11–12-foot draft during the fall, but companies started imposing 9-foot barge draft restrictions in October (2022), which can lead to a reduction of 10,000-15,000 bushels per barge,” the Illinois report said.

Heavy snowfall last winter provided a significant shot of water to the river, but the higher water levels didn’t last long, and the swift currents also stirred up the river bottom to the point that extensive dredging has been required to remove the resulting sandbars.

Meanwhile, Tuesday’s weather forecast was encouraging with a “slow-moving storm system over the nation’s mid-section” late in the week that could drop up to three inches of rain in the northern Plains and upper Midwest and bring thunderstorms to the southern Plains and upper Great Lakes. The extent that the rainfall leads to higher water levels in the Mississippi remains to be seen, and there could be a lot riding on the outcome.

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Climate Center Extends El Niño’s Stay - Hil Anderson, Roach Ag Daily Grain Plan

It looks like El Niño may be sticking around a little longer than previously expected.

The monthly update from the U.S. Climate Prediction Center issued Thursday said El Niño was 95% likely to dominate winter weather from January through March 2024; the CPC last month projected the condition would run through February.

The odds that “strong” El Niño conditions would dominate the Northern Hemisphere this fall bumped up from around 66% in last month’s forecast to 71% on Thursday.

The CPC noted August water temperatures along the Equator increased during July both on the surface and below. “Tropical atmospheric anomalies were also consistent with El Niño,” Thursday’s report said. “Over the east-central Pacific, low-level winds were anomalously westerly, while upper-level winds were anomalously easterly.”

After an unprecedented three years of La Niña conditions brought nagging drought to the Plains and California, El Niño is expected to shift the warm, dry conditions north into the upper Plains and most of the Midwest during the winter months while allowing cooler temperatures and welcome precipitation to slide into the Southwest and Texas.

While no two El Niños are exactly alike, its arrival raises questions for U.S. farmers this winter about snowfall, the arrival of frosts and freezes as well as the number of suitable days for harvest and planting in the spring.

The shifting weather patterns also bring their own impacts to other key agriculture areas around the world.

“Not only has precipitation been above average across the equatorial Pacific Ocean, but it has also been below-average over northern South America, Central America, and parts of Indonesia and India,” the CPC said in a separate blog.

The Australian Bureau of Meteorology this week said its El Niño Alert was continuing with water temperatures in the Indian Ocean creeping up and increasing the Indian Ocean Dipole (IOD) Index. “A positive IOD typically decreases spring rainfall for central and southeast Australia and can increase the drying influence of El Niño,” the bureau said. “The long-range forecast for Australia indicates warmer and drier than average conditions are likely across most of southern and eastern Australia from October to December.”

By coincidence, the question of managing shifting drought conditions throughout the world was the focus of the XVIII World Water Congress held this week in Beijing.

In her opening address to the conference, Maria Helena Semedo, the Deputy Director-General of the Food and Agriculture Organization of the United Nations (FAO), called on agriculture to play a more aggressive role in drastically improving water conservation on the world’s farms.

“By increasing efficiency, reducing negative impacts and reusing wastewater, agriculture holds the solutions to the global water crisis, as well as the key to achieving global water and food security,” said Semedo, who added that 70% of freshwater consumption worldwide was connected to agriculture.

Semedo said the FAO’s strategy calls for comprehensive planning for water resources around the world, including input from local communities, international organizations, and research institutions as well as the private sector.  “We need collaborative frameworks…to ensure inclusive and sustainable planning, financing, governance and implementation,” she told international delegates.

Source: Climate Prediction Center, FAO, Australian Bureau of Meteorology

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Report: Ethanol May Have to Wait Longer for Sustainable Aviation Fuel - Hil Anderson, Roach Ag Daily Grain Plan Ruling

The ethanol industry and the nation’s corn growers may have to wait until the end of the year, rather than later this month, to find out if the U.S. Department of Treasury will make it easier for them to qualify for tax credits and subsidies that will lead to the expanded use of ethanol to produce sustainable aviation fuel (SAF).

“At issue is a requirement in last year’s Inflation Reduction Act that SAF producers seeking tax credits must demonstrate with an approved scientific model that their fuel generates 50% less greenhouse gas emissions over its lifecycle than petroleum fuel,” Reuters said.

The ethanol industry has been lobbying for a scientific model that opens the door to a potentially significant role for ethanol as a feedstock for SAF in the air-transportation sector, but environmentalists argue the production of corn generates greenhouse gas emissions and that priority should be given to waste products such as used cooking oils and animal fat left over from food processing.

Differences of opinion also exist over the complex tracking of emissions generated in the production process, including changes to land use and carbon sequestered in the soil after a crop is harvested.

Agriculture has a lot riding on how the SAF debate plays out. Ethanol production in the Midwest could conceivably find a substantial new market before the gradual growth of electric vehicles cuts into their role as a gasoline additive. The soybean sector is already riding a wave of biofuel expansion; StoneX recently projected steady annul increases in crushing capacity to nearly 3 billion bushels per year by the end of the decade.

There are also new SAF production plants on the slate in the United States. Sen. Amy Klobuchar, D-Minn., announced a partnership late last month to launch an SAF production project to serve the Minneapolis-Saint Paul International Airport. “Homegrown sustainable aviation fuel is not only an economic generator for communities across the state,” Klobuchar said. “It is also an important tool to help us reduce our carbon footprint.

Earlier this year, United Airlines joined a partnership aimed at making ethanol SAF easier to produce. The airline said at the time that food waste likely will not be plentiful enough to ensure an adequate supply of SAF to meet increasing demand.

The crux of the matter is the methodology that will be used to determine the total carbon emissions from the production of ethanol aviation fuel. There are currently two of these complex modeling programs in use: the Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) model, which was developed by the U.S. Department of Energy, and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which was launched by the United Nations’ International Civil Aviation Organization (ICAO).

The ethanol industry prefers the GREET model since its land-use provisions are less stringent; however, environmental organizations prefer CORSIA, which favors the use of waste products over new crops. The ICAO announced this summer it had certified initial loads of CORSIA-compliant SAF produced in China, the Netherlands, and the United States.

As is often the case in the nation’s capital, agency deliberations over such high-stakes questions don’t always occur in a vacuum. Farm state lawmakers banded together this summer to introduce the Sustainable Aviation Fuels Accuracy Act of 2023, a bipartisan, industry-backed move to settle debate outright by allowing ethanol producers to use GREET in their emissions modeling to meet the technical definition of an SAF.

“Our measure ensures America’s domestic energy production is driven by the U.S. GREET model rather than relying on the current international model dictated by foreign countries like Russia and China,” said Sen. Joni Ernst, R-Iowa.

Iowa’s senior Senator, Republican Charles Grassley, dismissed the competing models as “outdated” and as “market barriers.”

“Our bill fixes the problem by requiring the FAA reference the most accurate GREET model for emissions, which is consistent with many other federal agencies,” said Grassley. “It would be a win for Iowa agriculture and the environment.”

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USDA’s Farm Income Report Adds Urgency to Farm Bill Talks - Hil Anderson, Roach Ag Daily Grain Plan

Members of Congress will soon be making their way back to the Beltway after the latest USDA outlook for farm revenues has added some fresh urgency to negotiations over the unfinished Farm Bill.

The USDA’s 2023 Farm Sector Income Forecast was released just as the nation adjourned for the Labor Day weekend. It had projected a 23% drop in net farm income this year, a dizzying decline that should increase the focus on crop insurance and other basic financial support for farmers once the House and Senate agriculture committees get back to business later this month.

“Combined with weather uncertainty and a high cost of capital to operate their businesses, farmers and ranchers will be forced to adapt as they always have,” said Danny Munch, an economist with the American Farm Bureau Federation. “Part of being able to adapt means having clarity on rules that impact their businesses’ ability to operate, having access to comprehensive risk management options and being given a resounding voice during formulation of vital legislation such as the Farm Bill.”

Lawmakers were on the trail in late summer to shake hands and hear from their rural constituents about the stresses and strains of agriculture policy, although serious discussions of the Farm Bill will likely have to wait behind legislation to continue funding the government before taking center stage. The current Farm Bill’s appropriations expire on Sept. 30 with FY 2024 beginning Oct. 1.

Political observers in Washington are confident that an extension of the Farm Bill will be granted this fall, although many farm organizations urge Congress to press forward so that growers will have a greater level of certainty as they make plans for the 2024 growing season.

The USDA report was densely packed with the usual volume of comprehensive statistics; however, the bottom line shows the nation’s net farm income totaling $141 billion this year compared to $183 billion in 2022. Munch noted the August report finalized the 2022 income total and increased it around $20 billion from estimates made eight months ago.

The declines in 2023 were tied to lower cash receipts for crops and livestock, higher production costs and a 19% decline in government support outlays from 2022. “Direct government payments are forecast to fall by $2.9 billion from 2022 to $12.6 billion in 2023,” the report said. “This decrease is expected largely because of lower supplemental and ad hoc disaster assistance in 2023 relative to 2022.”

Analysts agreed that 2022 was an unusual year in which commodity prices were pushed higher by inflation and significant drought in the United States and by Russia’s disruption of Ukraine’s grain trade. The weather has improved in many areas this year while wheat prices no longer carry much of a war premium and the world seems in general to be adequately supplied.

The declines come mainly from lower prices for the major commodity crops while cattle and vegetables should fare better, the USDA said. The impact on individual farming households will be varied since, the report said, most farm families hold outside jobs. The USDA projected a 3.8% increase in median household income to $98,148 this year, although much of the increase will be canceled out by inflation.

Further downstream, the USDA projected working capital for farmers to fall 5.5% from last year to just under $122 billion, the first decline since 2016 and the lowest level since 2014. Munch said, “Lower levels of working capital often suggest that many U.S. farmers have just enough capital to service their short-term expenses and debt, which becomes more difficult as interest rates rise.”

A likely point of friction for farmers is the increasing rental price for farmland, a rising cost that University of Illinois economists warned last week could make it even tougher for aspiring young farmers to establish their own operations. An August 31 report urged Farm Bill negotiators to be well aware of the impact that increased reference prices could have on the rents farmers pay to landowners.

“For this reason, increasing government payments may benefit farmers in the short-term but hurt them over the long term,” the paper said, adding: “This is a problem that no amount of reference price increase in 2023 will help. These are matters that should weigh heavily on the congressional mind as reauthorization of these policies is undertaken.”

Further reading:

The USDA’s Farm Sector Income & Finances report is at: https://www.ers.usda.gov/topics/farmeconomy/farm-sector-income-finances/ 

The Farm Bureau analysis by economist Danny Munch can be found at: https://www.fb.org/market-intel/usda-forecasts-23-drop-from-2022-farm-income-levels 

The University of Illinois analysis is available at: https://farmdocdaily.illinois.edu/2023/08/farm-bill-2023-is-there-bad-medicine-in-base-acresand-reference-prices.html.

March USDA Supply & Demand

U.S. Corn Carryout Grows while Argentine Crops Shrink

Today’s USDA Supply & Demand report was a mixed bag of information.

U.S. Corn exports were reduced 75 million bushels from the February estimate, leading to a larger than expected jump in domestic ending stocks. On the other hand, Argentina’s corn production estimate was reduced 3 million tons more than expected.

The bean numbers were bullish, causing an initial jump in futures prices that has since cooled off (as of this writing). A 10 million bushel cut to U.S. crush was more than offset by a 25 million bushel increase in exports, leading to a net reduction in ending stocks of 15 million bushels. Pre-report trade was expecting just a slight 5 million bushel decrease in carryout.

Argentina bean production was reduced from 41 million tons to 33 million, smaller than the average trade guess of 36.55.

The U.S. wheat balance sheet was left unchanged. World wheat supplies shrank slightly, though that cut was largely attributed to an adjustment to China’s 20/21 feed and residual use carried through to world new crop beginning inventory. 

Without any major surprises in today’s report, traders will shift their interest to the closely followed Grain Stocks & Prospective Plantings reports due out at 11:00am on March 31st.

Source: USDA, Bloomberg