<\/p>\n<\/a>Grains<\/u> –
\nI\u2019ve started\/stopped\/restarted writing these comments today several times.\u00a0 To be honest, I\u2019m at a loss for words following yesterday\u2019s session.\u00a0 From a risk management perspective, how are we supposed to account for an unelected \u201cregulation czar\u201d sending memos to the President on major policies?\u00a0 How do you risk manage for corn trading almost its entire monthly range in the final session of the month?<\/p>\n
Here is what I can say on the two key market-moving pieces of yesterday\u2019s alleged policy shift.\u00a0 On the potential move to E-15, this will take a long time to implement.\u00a0 There are just a handful of gas stations set up to handle E-15 at the moment not to mention all the debate over whether older cars can handle it (prompting increased signage, etc).\u00a0 In addition, the ethanol industry is already running at max capacity at the moment.\u00a0 Additional corn demand from E-15 blends will either eat into our exports or will simply have to take time for additional capacity to be built.<\/p>\n
On the biodiesel producer tax credit, this would have a very quick impact if realized, but keep in mind that this would require Congressional approval.\u00a0 There is a reason the tax credit didn\u2019t get reinstated late last year, so just assuming this will happen easily seems na\u00efve.\u00a0 Still, if we assume the tax credit is reinstated for the producer, then it instantly slows down the surge of biodiesel imports into the US.\u00a0 Biodiesel imports have surged this year to help meet the growing mandates and frankly, it will be impossible to meet these mandates without imports.\u00a0 It just doesn\u2019t work.\u00a0 Consider the math.\u00a0 Last year we imported roughly 700 mil gals of biodiesel.\u00a0 Conservatively this will require 7.35 x 700 = 5 billion lbs of some sort of domestic feedstock (presumably soyoil).\u00a0 Take soyoil exports and carryout to zero and you\u2019re still looking at a 1.3 bil lbs feedstock shortfall.\u00a0 You simply cannot meet the biodiesel and advanced mandates, as currently written, without significant imports.<\/p>\n
Admittedly, none of the above really has to matter to the market right now.\u00a0 \u201cInvestment\u201d interest remains very strong for commodities right now and this is just another storyline encouraging more to pile in, as evidenced by the surge in OI yesterday.\u00a0 Charts held key support levels and will likely continue to find solid support at these levels for the near future.\u00a0 With what appear to be huge South American crops in the pipeline, it makes me wonder what it will take to signal \u201clast call\u201d for this extended spec position.\u00a0 My guess is they\u2019ll stick around to see if the US runs into any crop difficulties this spring\/summer before hitting the exits.\u00a0 In the short term, that means choppy and at times nonsensical price action.<\/p>\n
Coincidentally, the EIA did report monthly biodiesel production for December yesterday.\u00a0 The figure was large, as expected, as many wanted to take advantage of the expiring blending tax credit.\u00a0 Still, overall production came in lighter than I expected based on the EPA\u2019s RIN figures.\u00a0 Soyoil use in biodiesel production totaled 610 mil lbs and as shown in the attached chart I\u2019m looking for soyoil use in the Jan figures to decline sharply based on the EPA RIN numbers.\u00a0 The WASDE soyoil use projection is clearly within reach, but we\u2019ll definitely want to see a pick up from the projected Jan levels soon.<\/p>\n
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