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MARCH 9, 2017 | WWW.PRODUCER.COM | THE WESTERN PRODUCER
MARKETS
OILSEEDS UP
Current rally more than biofuel based MARKET WATCH
D’ARCE McMILLAN
T
he triggers for grain price movements are often clear, but not always, as was the case last week when crop prices, including canola, rose. The controversy over potential American biofuel policy changes was certainly one factor that pushed crop futures prices higher, but other factors were also at work. The biofuel hubbub was typical of the political climate in Washington, D.C., these days with leaks of potential big changes to policy, denials and allegations of conflicts of interest and crony capitalism. The tale is laid out in a separate story on this page. The media reports and rumours floating in the biofuel industry were enough to lead the market to believe that the result would be increased demand for corn and soybeans to make into biofuel. Soy oil led the market higher. DTN reported that part of supposed biofuel incentive talk was that the biodiesel tax credit would be brought back but paid only to American producers rather than blenders. The previous version of the credit went to blenders, which could
apply it to imported biodiesel. Limiting it to U.S. producers would be a big boost to local soybean demand, and that was behind the initial 6.7 percent spike in soybean oil futures. When the White House denied that changes were in the offing, the crop market backed down, but not all the rally was lost. May soybeans rose 1.3 percent over the week, soy oil climbed 5.2 percent and canola rose $15.90 a tonne, or 3.1 percent. Some might believe that changes to biofuel laws will eventually come. However, there are also other issues supporting crop prices. Weather, supply One was that rain in north-central areas of Brazil was flooding an unpaved section of BR-163, known as the soybean highway. The road, which links key soy producing regions of Mato Grosso state to ports on the Amazon River, has been undergoing a billion dollar upgrade and paving, but a small amount remains a dirt road. The flooding and mud slowed deliveries of the record large soybean crop. Private analytics firm Informa Economics raised its forecast of Brazil’s crop last week to a record 108 million tonnes, trade sources told Reuters, up nearly two million tonnes from its previous estimate. However, another reason for slower than expected exports from Brazil is that farmers are reluctant sellers. Brazil’s currency has risen against the American dollar, and
that means the amount farmers receive for their crop, in the local currency, has fallen. Soybean producers in Brazil have sold 45 percent of the crop, compared with 54 percent a year ago and a 50 percent multiyear average, Reuters reported. Another factor that could be supporting crop prices is a small, but growing worry about American weather. A large part of the country is experiencing spring-like weather much earlier than normal. Dodge City, in western Kansas, was particularly warm March 6 with a high of 26 C with strong, drying winds. The winter wheat crop is coming out of winter dormancy early and will need moisture to grow. But Kansas, the largest hard red winter wheat producer, is dry, and a large part of the southern Midwest and southeastern United States also have had well below normal precipitation in the past 60 days. Also, an actively growing wheat crop is at risk of damage if the weather turns frosty again. It is too early for U.S. weather to be a significant concern, but the unusual spring is likely something in the back of traders’ minds. With Pacific Ocean temperatures warming and the potential for an El Nino to develop, there is a greater possibility for the warm weather in the southeastern U.S. and southern U.S. Plains to continue through spring, but that does not rule out cold snaps. Follow D’Arce McMillan on Twitter @darcemcmillan or email darce.mcmillan@ producer.com.
Consultation on Canadian Grain Commission user fees We are proposing changes to our user fees. The new fees would begin when our next 5-year fee cycle starts on April 1, 2018.
Tell us what you think We invite Canadian grain producers, farm groups, licensed grain companies, and industry associations to give input on • the proposed fees • our services and service standards • how these changes may affect their business • the approach to changing our fees
Give us your input by May 1, 2017 Visit the Canadian Grain Commission website for the User Fees Consultation and Pre-Proposal and for details about how to give input. 1-800-853-6705 or 204-984-0506 TTY: 1-866-317-4289
www.grainscanada.gc.ca
Hints of a change in the biofuel program that would move biofuel blending away from refiners to gasoline marketers and add new incentives for biofuel production lifted crop futures. | USDA PHOTO WHO SAID WHAT?
U.S. biofuel sector up in arms over policy confusion Rumours fly over ‘executive order’ regarding changes to biofuel blending responsibilities NEW YORK, N.Y. (Reuters) — Crop futures rose recently as the United States biofuel industry was shaken over confusion about White House plans for overhauling the U.S. biofuel program. Although administration spokespeople denied talk that changes were coming that could include methods to increase the amount of ethanol and biodiesel in the fuel supply, the market held on to much of the crop price rally. Comments from the head of the Renewable Fuels Association sparked the turmoil. Bob Dineen initially said only that a Trump administration adviser provided the information about the administration’s plans, but later said it came from billionaire investor Carl Icahn. U.S. President Donald Trump in December named Icahn a special adviser to help in deregulating industry. Dinneen said March 2 that Icahn had been the source. According to Dinneen, Icahn said “the plan was to issue an executive order” that would shift the onus of blending biofuels into gasoline away from refiners and further down the supply chain to gasoline marketers. The RFA issued a statement Feb. 28 saying it had been informed by “an official with the Trump administration” that an executive order was coming to alter the biofuels program in a way that eased the burden on refiners, and that the move was “not negotiable.” The statement did not identify the official. The White House responded saying an executive order was not in the works, and claimed no knowledge of a Trump official negotiating with the RFA. Icahn, who owns a controlling stake in refiner CVR Energy Inc.,
said March 2 that he had indeed been negotiating for RFA’s support of a change to the biofuels program, but denied saying an executive order was pending. “I told Mr. Dinneen that I didn’t know what the president would do, but believed he would be supportive and it would be ideal if we could get this fixed with an executive order,” Icahn said. He said the negotiation between Dinneen and Icahn resulted in a joint memorandum from them imploring the White House to alter the biofuels program by removing the blending requirement from refiners, and by providing incentives for more ethanol production. Icahn said refining company Valero was part of the negotiations. A Valero spokesperson confirmed in an emailed statement that company representatives had met with Dinneen and Icahn. The White House did not comment on those negotiations, but said Icahn “does not have a position with the administration nor a policymaking role.” “He is simply a private citizen whose opinion the president respects and whom the president speaks with from time to time,” White House spokesperson Kelly Love said. Seven Democratic senators, including Elizabeth Warren of Massachusetts, sent a letter to the White House last month, saying Icahn’s role as an adviser to Trump created potential financial conflicts of interest and called for a review. Refiners, including CVR, have long been seeking a way out of being responsible for blending biofuels into gasoline saying the requirement costs them millions of dollars. Shares of CVR have soared 80 percent since Trump was elected.