Will Soybean Consumption Reach USDA Projection

Last year U.S. farmers harvested a record sized soybean crop. The price of soybeans plummeted, but not yet as far as the most negative nellies expected. There is a glimmer in some of the USDA numbers that might explain why.



This glimmer won’t raise the current cash price of soybeans. There are plenty of them around, and that’s not going to change writes University of Illinois Ag Economist Darrel Good in his April 20th Weekly Outlook. You can find it online at the Farm Doc Daily website.

It could lend a supportive hand, however, to the price of new crop soybeans. Frankly this isn’t very clear, but here is the short version. If USDA has consumption of soybeans for this year right, and the uncertainty in the March 1 stocks on hand for soybeans has correctly hinted at a smaller harvested crop last fall, then a correction would be due in the September 30th release of the Grain Stocks report. This happened last year says Darrel Good.

Quote Summary - September 1, 2014 stocks were 38 million bushels smaller than expected just three weeks before the release of the stocks report. The level of uncertainty this year is magnified by the March 1, 2015 stocks estimate that hinted that the 2014 crop may have been overestimated.

How much of an over estimate remains to be seen. It’s a glimmer of hope for the price of new crop soybeans. A glimmer that depends greatly on the pace of old crop soybean consumption. About 45 percent of the soybeans raised in the United States are exported. So we’ll focus only on that number. USDA in the April estimates said this marketing year 1.79 billion bushels of soybeans would be shipped out of the country. The total export commitments have already reached this number says Good.

Quote Summary - However, some current outstanding sales may be cancelled and it is typical for some sales to be carried into the next marketing year. Additional net sales of about 60 million bushels are probably needed if exports are to reach the USDA projection for the year.

So the export number looks safe as does the domestic crush figure. USDA could adjust either of these going forward in the monthly reports, but today this looks unlikely. It leaves the quarterly grain stocks number as the tipping point. There are two more of those reports remaining for the old crop - June and September. Even when those numbers come out, it isn’t clear how USDA will use them until the following WASDE or supply and demand table is released. So it will be October before any glimmer could be truly identified.

RFS Matters for Biodiesel

Soon the United States Environmental Protection Agency should release its annual update to the Renewable Fuel Standard mandates. This year’s RFS is really important to the biodiesel industry.

More often than not when the federal government’s Renewable Fuel Standard is discussed people are thinking about corn based ethanol or other feedstocks that can produce ethanol. However, when U.S. EPA finally releases the RFS mandates - supposedly sometime this month - it may be the biodiesel industry that pays the most attention.

Quote - The industry for which the RFS is really a life or death matter is biodiesel.

That’s University of Illinois Ag Economist Scott Irwin. Biodiesel, by-the-way, is mostly produced from soybean oil.

Quote Summary - Because if the EPA would choose to go back to the RFS statutory level mandates, at least for a few years in the short run, it would launch - likely - the biggest boom in biodiesel’s history. But, if they choose to stay on the path of the proposals from 2013 it would cut the knees out from under the industry. The biodiesel industry is waiting on the edge to find out what happens.

This edge made the industry unhappy with the federal government earlier this year when it opened the door for biodiesel imported from Argentina to qualify as an advanced biofuel under the U.S. RFS mandates. Scott Irwin sees this move far more favorably the industry.

Quote Summary - I favor the position that EPA is likely to move the mandate levels back up near or to the statutory levels this year, or at least by 2016. This would necessitate a tremendous boom in biodiesel production. It would be more than current U.S. production capacity. So, one view of the Argentine biodiesel announcement is that it is a precursor of the statutory requirements and related documentation of enough registered biodiesel both inside and outside the United States to fill the mandates.

It may be, then, that the January announcement allowing Argentine biodiesel to qualify as an advanced biofuel in the United States sets the stage for U.S. EPA to follow the letter of the law as written by congress. It is not possible to do so without additional gallons of advanced fuel from some source.

2014 Loss Experience for Revenue Protection Products

by Gary Schnitkey

Most of the 2014 insurance payments on COMBO products have been entered into Risk Management Agency’s Summary of Business, allowing us to calculate loss performance for individual products accurately. This article describes loss performance for Revenue Protection (RP), a revenue insurance plan used to insure most acres in the United States.



Corn, soybeans, and wheat had loss ratios of 1.04, .54, and 1.12, respectively. Loss ratios were above 1.0 in many counties of Iowa and Minnesota for corn and soybeans. Counties in the southern Great Plains had loss ratios above 1.0 for wheat. In Illinois, RP loss ratios were .40 for corn and .24 for soybeans.

Corn

In 2014, RP was used to insure 69.9 million acres of corn in the United States, representing 88% of total acres insured with crop insurance. Total premium on RP products was $3,350 million and total crop insurance payments were $3,484 million, giving a loss ratio of 1.04 ($3,484 in losses divided by $3,350 in total premium). A loss ratio above 1.0 means that insurance payments exceeded premiums. Over time, average loss ratios should equal near 1.0. On a per insured acre, insurance payments equaled $49.86 per acre (see Table 1).

Loss experience varied tremendously across states. For the eleven states with the most insured acres, RP’s loss rate was the highest for Minnesota at 3.01 and the lowest for Missouri at .11 (see Table 1). Iowa had a loss ratio of 2.21 while Illinois had a .40 loss ratio.

For Midwest states, the 2014 projected price was $4.62 per bushel while the harvest price was $3.49 per bushel. The harvest price was 75% of the projected price, meaning that coverage levels of 80% and 85% would have crop insurance prices if the actual yield did not exceed the guarantee yield. While much of the country had above average corn yields, there were areas of the country where yields were at or below guarantee yields. These areas included northern and central Iowa, Minnesota, and Wisconsin. As a result, RP products had high loss ratios in these areas, as illustrated in Figure 1 which shows RP loss ratio by county (see Figure 1). In most other areas of the country, loss ratios were well below 1.0. As one would expect, loss ratios were higher in areas with lower relative yields.

Soybeans

In 2014, RP was used to insure 65.2 million acres of soybeans in the United States, representing 88% of total acres insured with crop insurance. Total premiums were $2,092 million and total payments were $1,126 million (see Table 2). Total payments were far less than total premiums resulting in a loss ratio of .54. Since 2008, loss ratios for soybeans across all policies have not exceeded 1.00. On a per insured acre basis, insurance payments equaled $17.27 per acre.

Loss experience for soybeans had less range than those for corn. For the eleven states with the most insured acres, RP’s loss ratio was the highest for Minnesota at 1.25 and the lowest for South Dakota at .18. Iowa had a loss ratio of 1.07 while Illinois has a .24 loss ratio.

For Midwest states, the 2014 projected price was $11.36 per bushel while the harvest price was $9.65 per bushel. The harvest price was 85% of the projected price. Even at an 85% coverage level, farmers had to have actual yields below guarantee yields before insurance payments were made.
Most counties across the United States had loss ratios well below 1 (see Figure 2). Areas with loss ratios above 1.00 included counties in northern and central Iowa, Minnesota, northern Wisconsin, and some counties in Michigan, and New York.

Wheat

In 2014, RP was used to insured 40.8 million acres of wheat, representing 85% of total acres insured with crop insurance. Total premiums were $1,330 million and total payments were $1,490. The loss ratio was 1.12 and payments averaged $36.60 per insured acre.

Figure 3 shows a map of county loss ratios for wheat RP polices. As can be seen, many counties in Texas, Oklahoma, and Kansas had loss ratios above 1.00. Many farms in this area had low yields. Other areas of payments occurred in Washington, Wisconsin, Illinois, and along the Mississippi Delta. Large areas with low loss ratios include Montana, North Dakota, South Dakota, Virginia, North Carolina, and South Carolina.

Summary

Lower prices for corn and soybeans resulted in RP payments for corn and soybeans. These payments were made in northern and central Iowa and Minnesota. Because of above average yields, loss ratios were low in most of Illinois, Indiana, and Ohio.

LINK to FarmDocDaily Article: 2014 Loss Experience for Revenue Protection on Corn, Soybeans, and Wheat

More Hogs than Expected

The USDA March Hogs and Pigs report did little to help explain why numbers were high, other than to simply admit that hog inventory counts from previous surveys were too low.



Pork supplies in the first quarter of 2015 were expected to rise one percent. In reality, first quarter pork production was up five percent. This is because they were 4.5 percent more hogs that weighed about a half percent more than their year earlier counterparts. More hogs at heavier weights has pushed prices down says Chris Hurt, and that’s not the end of it.

Quote Summary - There is an even more price depressing force coming to the market as the number of hogs coming to market in the most recent four weeks has remarkably been ten percent higher than year-ago levels. Higher than expected current numbers may mean that the breeding herd expansion is larger than USDA surveys have indicated and/or that PED death losses were smaller than producers reported to USDA.

If there has been an undercount of animals, the possibility remains says Chris Hurt for higher market numbers than anticipated for the rest of the year.

As a result of the higher actual marketings in the first quarter, USDA revised last summer’s pig crop upward by nearly three percent. As always, “the proof is in the pudding” meaning that if actual winter slaughter is higher than accounted for by last summer’s pig crop, last summer’s pig crop has to be revised upward. USDA did this by increasing the estimated number of farrowings. Hurt has been wondering, based on USDA’s numbers, if the breeding herd has been expanded.

While USDA raised the size of last summer’s farrowings, the size of the breeding herd was not increased. This still leaves unanswered the question of whether the breeding herd is actually higher, which would indicate that the breeding herd has expanded more rapidly than indicated by USDA survey numbers. If the breeding herd has expanded more rapidly than future animal numbers may also be higher than indicated by the USDA counts.

More pigs coming to market in the first quarter than expected must have come from a larger breeding herd thinks Hurt. He says current marketing numbers have been averaging ten percent higher. If the marketing herd is larger, then marketing numbers could continue to surprise the market on the high side and hog prices will stay depressed.