February 23, 2018
How Much Will the Cost of a RINs Bundle Decline if the Conventional Ethanol Gap Disappears?
In a farmdoc daily article last week, we showed how high D6 RINs prices can be directly traced to conventional ethanol mandates that exceed the E10 blend wall, creating a gap that has to be filled by biodiesel. When biodiesel takes on the role of the "marginal gallon" for filling the conventional ethanol mandate, this forces the price of a D6 ethanol RINs to equal the much higher price of a D4 biodiesel RINs. It was also demonstrated that a combination of the crash in crude oil prices and an improving economy increased the E10 blend wall and thereby reduced the conventional ethanol gap, to perhaps just a few hundred million gallons. This means it is possible that D6 RINs prices could fall back their pre-2013 level of just a few cents without making any changes to the RFS. The purpose of this article is estimate how much the total cost of a RINs bundle would drop if the conventional ethanol gap disappeared and the price of D6 RINs declined to just a few cents. The RINs bundle reflects the true weighted-average cost of the RINs that obligated parties under the RFS must turn in to the EPA to demonstrate compliance.
February 22, 2018
Farm Bill Review: Origins of Fixed Price Policy
The changes to farm programs included in the Bipartisan Budget Act of 2018 discussed recently were an unusual revision of farm policy both in timing and method. Congress agreed to add seed cotton as a covered commodity for ARC and PLC, as well as to make changes to the dairy Margin Protection Program. Congress usually does not open a farm bill prior to its expiration date, nor address only two commodities using an appropriations vehicle. It was the decision to reinstate cotton-based farm payments that is most notable given the history surrounding cotton assistance. Because the clear goal was to provide a price-based payment for cotton farmers, the revisions highlight one of the most persistent policy disputes in farm bill history. In light of that and with an eye towards farm bill reauthorization, this article begins a series reviewing and analyzing the policy concept whereby Congress writes crop prices into the statute for the purpose of determining farm commodity assistance.
February 21, 2018
Will Farm Income Really Drop to a 12-Year Low in 2018?
On February 7, USDA's Economic Research Service (ERS) released their initial 2018 farm income forecasts. ERS forecasts a number of farm financial measures. The two most commonly reported measures are net farm income and net cash income, and both are predicted to decline in 2018. The recent forecast history, however, suggests that the forecasts are likely to improve.
February 20, 2018
Implied Probabilities for Corn and Soybeans Prices in 2018
As crop insurance and crop planting decisions are being made for the 2018 crop year, it is useful to assess possible springtime and harvest pricing information, and understand the impact of market information on crop insurance positions. Average futures settlement prices during the month of February for December 2018 corn and November 2018 soybeans are used to establish Projected Prices used in setting insurance coverage. The volatility factors used in crop insurance pricing are taken from options prices during the final week of the month, and to this point are running at relatively low historical levels which would reduce premiums compared to previous years, all else equal. The combination of futures and options prices allow an assessment to be made about the implied probabilities of possible future prices that can in turn be useful when making insurance decisions, crop planting decisions, and marketing decisions for the upcoming crop year.
February 19, 2018
Weekly Outlook: Can Soybean Prices Maintain Recent Strength through 2018?
Due to dry weather in Argentina, soybean prices showed recent strength despite rising ending stocks projections for the current marketing year. At 530 million bushels, the current forecast for soybean ending stocks represents a 228 million bushels increase over last marketing year's ending stocks. The development of soybean prices over the next year depends on the size of the 2018 U.S. crop and a more robust pace of consumption than produced thus far this marketing year.