Feed Grain Market Outlook
Feed Grain Market Outlook December 23, 2010 Volume 19, Number 77
Market Situation President Obama has signed tax compromise legislation that includes an extension for one year of the 45 cent tax credit and 54 cent import tariff on ethanol. According to a statement from the president and CEO of the Renewable Fuels Association, Bob Dinneen, this extension of important tax policies will “…allow America’s ethanol industry to grow and evolve” (http://www.ethanolrfa.org/). Many analysts feel USDA underestimated corn for ethanol use in the December 10 Supply and Demand Estimates. They expected ethanol use to account for over 5 billion bushels of corn rather than the unchanged estimate of 4.8 billion bushels. This adjustment is now expected in the January supply and demand numbers.
U.S. Corn Use Million bushels
7,000 6,000 5,000 4,000 3,000 2,000 1,000 0
Feed and Residual Ethanol Exports
96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11
Food Seed and Other Industrial
Source: USDA, 12/10/2010
Supporting that outlook is the most recent estimate of ethanol profitability from Iowa State University. The Agricultural Marketing Center offers monthly estimates of ethanol manufacturing profitability that on a per gallon basis (which includes revenue from distillers’ grains) shows the highest profits of the year have come this fall. In June, when corn was around $3.50 per bushel, ethanol plants were just breaking even. In November with corn over $5.00, operating margins are $0.33 per gallon.
1
Feed Grain Market Outlook December 23, 2010 Volume 19, Number 77
Ethanol Profitability per gallon Agricultural Marketing Research Center, Iowa State University $3.00
$3.00
$2.50
$2.50
$2.00
$2.00
$1.50
$1.50
$1.00
$1.00
$0.50
$0.50
$0.00
$0.00
Fixed
Corn
Natural Gas
Other VC
Revenue (Ethanol + DDGs)
November prices: corn $5.24/bu, natural gas $5.54/1000 ft3, DDGs $152/ton, ethanol $2.33/gallon
In addition to strong demand, corn prices are supported by supply concerns going into 2011. Drought conditions in South America have improved this fall (their spring and early summer), more so in Brazil than Argentina. Much of Argentina’s main corn growing area is still in the 75 percent or less of seasonal normal precipitation. The soybean to corn price ratio continues to be about 2.3. A soybean to corn price ratio of 2.5 is needed to equate returns from soybeans with corn in many areas of the Corn Belt. In 2007 when corn area jumped to 93 million acres and soybeans fell to 64 million, the soybean to corn price ratio was about 1.88. Growing conditions in Brazil and Argentina over the next few months are key factors in this ratio. Outside markets are supportive of higher grain prices with strength in the Dow, crude oil, and copper all pointing to improving economic conditions and improved commodity demand. The dollar is off recent lows but overall not much changed.
2
Feed Grain Market Outlook December 23, 2010 Volume 19, Number 77
Brazil
Argentina
3
Feed Grain Market Outlook December 23, 2010 Volume 19, Number 77
Friday December 17 11,491.91
Thursday December 23 11,557.11
Net Change 65.20
Percentage Change 0.57%
Mar ‘10 Crude Oil
89.37
92.14
2.77
3.10%
Mar ‘10 Copper
4.1590
4.2625
0.1035
2.49%
Mar ‘10 Dollar Index
80.752
80.810
0.058
0.07%
Mar ’11 Corn
5.9650
6.1400
0.1750
2.93%
Dec ‘11 Corn
5.4150
5.5125
0.0975
1.80%
Dec ‘12 Corn
5.0850
5.1425
0.0575
1.13%
Dow Jones Ind. Avg.
Dollar
Crude Oil
Copper
Ethanol
4
Feed Grain Market Outlook December 23, 2010 Volume 19, Number 77
Market Strategies Strong demand, tight stocks, and the need for increased acres in 2011 continue to push corn prices. While I expect the battle for acres to be the primary driver of prices next spring, the January Supply and Demand numbers will be important. Right now, it looks like this report will show a further tightening of the supply situation.
December 2011 Marketing Plan 700
20%
20%
20%
20%
20%
650
600
550
500
450
10/18/2010 10/28/2010 11/9/2010 11/19/2010 12/2/2010 12/14/2010 12/27/2010 1/4/2011 1/12/2011 1/20/2011 1/28/2011 2/5/2011 2/13/2011 2/21/2011 3/1/2011 3/9/2011 3/17/2011 3/25/2011 4/2/2011 4/10/2011 4/18/2011 4/26/2011 5/4/2011 5/12/2011 5/20/2011 5/28/2011 6/5/2011 6/13/2011 6/21/2011 6/29/2011 7/7/2011 7/15/2011 7/23/2011 7/31/2011 8/8/2011 8/16/2011 8/24/2011 9/1/2011 9/9/2011 9/17/2011 9/25/2011 10/3/2011 10/11/2011 10/19/2011 10/27/2011 11/4/2011 11/12/2011 11/20/2011 11/28/2011 12/6/2011 12/14/2011
400
Mark Welch Texas AgriLife Extension Economist 401 C Blocker Building TAMU 2124 College Station, Texas 77843 Tel. (979)845‐8011 Fax. (979)845‐4906
[email protected] The opinions and recommendations expressed are solely those of the author and are intended for educational purposes only as part of the Texas AgriLife Extension Service. Texas AgriLife Extension Service assumes no liability for the use of this newsletter. Educational programs of the Texas AgriLife Extension Service are open to all people without regard to race, color, sex, disability, religion, age, or national origin. The Texas A&M University System, U.S. Department of Agriculture, and the County Commissioners Courts of Texas Cooperating
5
Market Situation President Obama has signed tax compromise legislation that includes an extension for one year of the 45 cent tax credit and 54 cent import tariff on ethanol. According to a statement from the president and CEO of the Renewable Fuels Association, Bob Dinneen, this extension of important tax policies will “…allow America’s ethanol industry to grow and evolve” (http://www.ethanolrfa.org/). Many analysts feel USDA underestimated corn for ethanol use in the December 10 Supply and Demand Estimates. They expected ethanol use to account for over 5 billion bushels of corn rather than the unchanged estimate of 4.8 billion bushels. This adjustment is now expected in the January supply and demand numbers.
U.S. Corn Use Million bushels
7,000 6,000 5,000 4,000 3,000 2,000 1,000 0
Feed and Residual Ethanol Exports
96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11
Food Seed and Other Industrial
Source: USDA, 12/10/2010
Supporting that outlook is the most recent estimate of ethanol profitability from Iowa State University. The Agricultural Marketing Center offers monthly estimates of ethanol manufacturing profitability that on a per gallon basis (which includes revenue from distillers’ grains) shows the highest profits of the year have come this fall. In June, when corn was around $3.50 per bushel, ethanol plants were just breaking even. In November with corn over $5.00, operating margins are $0.33 per gallon.
1
Feed Grain Market Outlook December 23, 2010 Volume 19, Number 77
Ethanol Profitability per gallon Agricultural Marketing Research Center, Iowa State University $3.00
$3.00
$2.50
$2.50
$2.00
$2.00
$1.50
$1.50
$1.00
$1.00
$0.50
$0.50
$0.00
$0.00
Fixed
Corn
Natural Gas
Other VC
Revenue (Ethanol + DDGs)
November prices: corn $5.24/bu, natural gas $5.54/1000 ft3, DDGs $152/ton, ethanol $2.33/gallon
In addition to strong demand, corn prices are supported by supply concerns going into 2011. Drought conditions in South America have improved this fall (their spring and early summer), more so in Brazil than Argentina. Much of Argentina’s main corn growing area is still in the 75 percent or less of seasonal normal precipitation. The soybean to corn price ratio continues to be about 2.3. A soybean to corn price ratio of 2.5 is needed to equate returns from soybeans with corn in many areas of the Corn Belt. In 2007 when corn area jumped to 93 million acres and soybeans fell to 64 million, the soybean to corn price ratio was about 1.88. Growing conditions in Brazil and Argentina over the next few months are key factors in this ratio. Outside markets are supportive of higher grain prices with strength in the Dow, crude oil, and copper all pointing to improving economic conditions and improved commodity demand. The dollar is off recent lows but overall not much changed.
2
Feed Grain Market Outlook December 23, 2010 Volume 19, Number 77
Brazil
Argentina
3
Feed Grain Market Outlook December 23, 2010 Volume 19, Number 77
Friday December 17 11,491.91
Thursday December 23 11,557.11
Net Change 65.20
Percentage Change 0.57%
Mar ‘10 Crude Oil
89.37
92.14
2.77
3.10%
Mar ‘10 Copper
4.1590
4.2625
0.1035
2.49%
Mar ‘10 Dollar Index
80.752
80.810
0.058
0.07%
Mar ’11 Corn
5.9650
6.1400
0.1750
2.93%
Dec ‘11 Corn
5.4150
5.5125
0.0975
1.80%
Dec ‘12 Corn
5.0850
5.1425
0.0575
1.13%
Dow Jones Ind. Avg.
Dollar
Crude Oil
Copper
Ethanol
4
Feed Grain Market Outlook December 23, 2010 Volume 19, Number 77
Market Strategies Strong demand, tight stocks, and the need for increased acres in 2011 continue to push corn prices. While I expect the battle for acres to be the primary driver of prices next spring, the January Supply and Demand numbers will be important. Right now, it looks like this report will show a further tightening of the supply situation.
December 2011 Marketing Plan 700
20%
20%
20%
20%
20%
650
600
550
500
450
10/18/2010 10/28/2010 11/9/2010 11/19/2010 12/2/2010 12/14/2010 12/27/2010 1/4/2011 1/12/2011 1/20/2011 1/28/2011 2/5/2011 2/13/2011 2/21/2011 3/1/2011 3/9/2011 3/17/2011 3/25/2011 4/2/2011 4/10/2011 4/18/2011 4/26/2011 5/4/2011 5/12/2011 5/20/2011 5/28/2011 6/5/2011 6/13/2011 6/21/2011 6/29/2011 7/7/2011 7/15/2011 7/23/2011 7/31/2011 8/8/2011 8/16/2011 8/24/2011 9/1/2011 9/9/2011 9/17/2011 9/25/2011 10/3/2011 10/11/2011 10/19/2011 10/27/2011 11/4/2011 11/12/2011 11/20/2011 11/28/2011 12/6/2011 12/14/2011
400
Mark Welch Texas AgriLife Extension Economist 401 C Blocker Building TAMU 2124 College Station, Texas 77843 Tel. (979)845‐8011 Fax. (979)845‐4906
[email protected] The opinions and recommendations expressed are solely those of the author and are intended for educational purposes only as part of the Texas AgriLife Extension Service. Texas AgriLife Extension Service assumes no liability for the use of this newsletter. Educational programs of the Texas AgriLife Extension Service are open to all people without regard to race, color, sex, disability, religion, age, or national origin. The Texas A&M University System, U.S. Department of Agriculture, and the County Commissioners Courts of Texas Cooperating
5
