Machinery cost estimates for various field operations and machines have been updated for 2017. The last time machinery costs were released on farmdoc was in 2015. Between 2015 and 2017, most per acre costs increased; however, some machinery costs decreased due to a lower diesel fuel price in 2017.
The USDA will release the quarterly Grain Stocks report, with estimates of crop inventories as of June 1, and the annual Acreage report on June 30. For soybeans, the stocks estimate is typically overshadowed by the estimate of planted acreage. The recent drop in soybean prices indicates the large South American crops may finally have impacted prices despite the difficult start to the planting season in the U.S. The June 1 soybean stocks estimate this year may not provide much new information but the implications for soybean prices contained in the Acreage report could make for a long summer of depressed prices.
As noted in several previous farmdoc daily articles, the U.S. biodiesel production industry has a distinct "feast or famine" pattern in terms of profitability. The industry made very large profits in 2011 and 2013 and moderate profits in 2016, but losses in most other years. The feast or famine pattern is closely tied to expiration of the $1 per gallon biodiesel tax credit in the face of binding RFS biodiesel mandates. Diesel blenders can effectively purchase biodiesel at a discount in the year when the credit is scheduled to expire in order to meet mandates in later years. Outside of these "spike" years, losses are the norm because the U.S. biodiesel production industry is over-built and there is ample slack capacity that can be drawn upon as needed. What is interesting about the current situation is that biodiesel production profits turned increasingly positive during 2017; just the opposite of the "famine" tendency for years after the tax credit expires. The purpose of this article is to review biodiesel production profitability so far in 2017 and examine the possible reasons why profits have been much better than expected.
In a recent article, Illinois Farm Business Farm Management (FBFM) staff evaluated the impacts of machinery costs on Illinois grain farms, noting two important items. First, there is a strong link between lower machinery costs and higher farm profitability. Second, capital purchases have been coming down since 2013. On many farms, the necessity of meeting lower cash flows likely will require further reductions in capital purchases. However, additional reductions in capital purchases requires changing machinery complements held relative to complements on farms ten to fifteen years ago.
USDA's release of the Quarterly Grain Stocks report on June 30 will provide an estimate of corn stocks in storage as of June 1, 2017. Since many of the consumption categories for corn can be derived from data provided during the marketing year, this estimate provides the ability to calculate the magnitude of feed and residual use of corn during the third quarter. The calculation offers the basis for evaluating the probable feed and residual use during the entire marketing year and imparts information on the potential size of ending stocks. While the information imparted by the June Acreage report released on the same day will likely eclipse the Quarterly Grain Stocks report, the estimated corn stocks have important implications for the current marketing year.