University of Illinois: Department of Agricultural and Consumer Economics, University of Illinois Urbana-Champaign
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October 23, 2014

Ethanol Production Profits Hit the Wall

The ethanol production industry in the U.S. has been on an unusually long "winning streak" in recent years. A run of historically high profits began in March 2013, punctuated by a spectacular spike during February-April 2014. The high profits were largely the result of steady or rising ethanol prices and falling corn prices. At several points during the run we argued the equilibrium long-run level of ethanol production profitability was much lower and either ethanol prices had to fall or corn prices had to rise in order to restore equilibrium. It was further argued that ethanol prices would likely bear the brunt of the adjustment. To the dismay of ethanol producers, the predicted adjustment process was painfully accurate. The purpose of today's farmdoc daily article is to examine the decline in ethanol production profits and the price adjustments that have driven the decline.

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Posted by Scott Irwin   Permalink  

October 22, 2014

Pricing Issues in Agricultural Markets

A previous farmdoc daily article discussed the difference between price discovery and price determination, and the trend toward price determination in many agricultural markets. In short, price discovery is the process of finding the price through the interaction of buyers and sellers. It allows the forces of supply and demand to arrive at a transaction price, and typically involves some type of negotiation process between buyers and sellers, such as a central market, an auction, or a commodity exchange where multiple buyers and multiple sellers compete for each transaction.

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Posted by Paul Peterson   Permalink  

October 21, 2014

Projected Corn Gross Revenues Down in 2014 and 2015

Per acre gross revenue for corn in 2014 is projected to be $808 per acre in northern Illinois, $292 lower than the 2011 through 2013 average of $1,100 per acre. Given the current price outlook, average gross revenue in 2015 is projected lower than 2014 revenue. These lower revenues will require cash flow adjustments on farms. Government payments will result in 2014 and 2015. These 2014 and 2015 payments will be higher than from 2006 to 2013, but lower than the average for the 2000 through 2005 period. Government payments will not make totally offset crop revenue decreases.

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Posted by Gary Schnitkey   Permalink  

October 20, 2014

Crop Storage Issues May Be Less Severe Than Anticipated

The large size of fall harvested crops in the U.S. have raised very real concerns about the ability to readily store the record supply of crops available this year. Supplies that exceed permanent storage capacity require the use of temporary storage facilities or may require delayed harvest in some circumstances. However, weather related harvest delays to date and a rapid rate of consumption mean that overall storage issues may be less severe than feared this year.

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Posted by Darrel Good   Permalink  

October 17, 2014

With Tightening Margins, Keep in Mind Family Living

In 2013, the total noncapital living expenses of 1,307 farm families enrolled in the Illinois Farm Business Farm Management Association (FBFM) averaged $80,716--or $6,726 a month for each family. This average was 5.3 percent higher than in 2012. Another $8,414 was used to buy capital items such as the personal share of the family automobile, furniture, and household equipment. Thus, the grand total for living expenses averaged $89,130 for 2013 compared with $85,012 for 2012, or a $4,118 increase per family.

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Posted by Bradley L. Zwilling, Brandy Krapf and Dwight Raab   Permalink  

October 16, 2014

Comparing ARC-CO to PLC: APAS Sample Farms and the ARC-CO - PLC Comparison Tool

Farmers and share-rent landowners will choose between three options for receiving commodity program payments: 1) Agricultural Risk Coverage - County Coverage (ARC-CO), 2) Price Loss Coverage (PLC), and 3) Agricultural Risk Coverage - Individual Coverage (ARC-IC). Here we focus on tools for making comparisons between the first two options: ARC-CO and PLC. The ARC-CO - PLC Comparison Tool will provide payments given user-entered input. APAS Sample farms will provide expected values of payments for different sets of prices and yields. The choice between ARC-CO and PLC likely will come down to three considerations: 1) payment expectations between ARC-CO and PLC, 2) type of risk the farmer wishes to avoid, and 3) availability of Supplemental Coverage Option (SCO).

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Posted by Gary Schnitkey, Nick Paulson, Jonathan Coppess, and Carl Zulauf   Permalink  

October 15, 2014

Pricing of 2014 Biodiesel RINs under Alternative Policy Scenarios

A farmdoc daily article last week examined the drivers of D4 biodiesel RINs prices. It is important to understand these drivers since the level of D4 prices drives the level of D6 ethanol RINs prices when the renewable (ethanol) mandate exceeds the E10 blend wall. The analysis highlighted the key role of three factors in driving D4 prices: i) soybean oil prices; ii) diesel prices; and ii) the $1 per gallon blenders tax credit. The purpose of today's article is to project the price for 2014 D4 biodiesel RINs under various policy alternatives assuming specific values for these key drivers. These projections provide some perspective on the marginal cost of complying with the RFS depending on policy outcomes.

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Posted by Scott Irwin   Permalink  

October 14, 2014

ARC-CO and PLC Payment Indicator for 2014 Crop Year: October 2014 WASDE U.S. Yield and Price

This article provides payment level indicators for ARC-CO and PLC payments based on the October 10, 2014 WASDE U.S. yield and U.S. price projections for barley, corn, oats, long grain rice, medium (and short) grain rice, sorghum, soybeans, and wheat. This article updates previous indicators given on August 12, 2014 and September 18, 2014 based on the August and September WASDE (World Agricultural Supply and Demand Estimates). Estimated payments are referred to as indicator estimates because they use U.S. yield not the county yield used by ARC-CO or farm payment yield used by PLC. The estimates are not payments an individual FSA farm will receive. Nevertheless, the indicator estimates using U.S. yields should help frame perspectives and questions for FSA farm owners and operators regarding program choices.

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Posted by Carl Zulauf and Gary Schnitkey   Permalink  

October 13, 2014

How Many Acres of Corn Are Needed in 2015?

One of the functions of crop markets is to direct planting decisions of U.S. producers. That process begins with fall seeded crops, primarily winter wheat, and continues through the following spring. The market's assessment of the amount of acreage needed of various crops in any production cycle is complicated and continually changes.

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Posted by Darrel Good   Permalink  

October 10, 2014

Understanding the Behavior of Biodiesel RINs Prices

Press reports indicate that EPA deliberations about the final 2014 rulemaking for the RFS are nearing an end. There is some uncertainty whether the final rules will be announced before or after the upcoming November election date, but it certainly appears that the release of the highly contentious 2014 rules is imminent. A farmdoc daily article last summer used RINs prices to project market expectations about the size of the renewable (ethanol) mandate in the final rulemaking. The analysis was based on a conceptual model of the ethanol market where the renewable mandate in excess of the E10 blend wall (the "renewable gap") effectively becomes additional biodiesel mandate. When this happens, D6 ethanol RINs are priced as D4 biodiesel RINs. This is the motivation for focusing on the relationship between D6 and D4 RINs prices to infer market expectations about the size of the renewable gap in the final 2014 rulemaking. While certainly interesting, the analysis leaves open the question of what drives the level of D4 biodiesel RINs prices, which in turn drives the level of D6 ethanol RINs prices when the renewable mandate exceeds the blend wall. The purpose of today's article is to investigate the drivers of the level of D4 biodiesel prices. A particular focus is the behavior of D4 prices in 2014.

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Posted by Scott Irwin   Permalink