February 07, 2019 | Grain Hedge Insights | Kevin McNew | Views: 1333

EIA Ethanol Data Shows Further Output Throttling

Sector logged its third consecutive week of production declines

EIA Ethanol Data Shows Further Output Throttling

EIA Ethanol Data Shows Further Output Throttling

This week’s EIA Ethanol data showed production has fallen below a million barrels a day for the first time since April 2018, taking corn consumption to 101 million bushels over the course of the week, as the sector logged its third consecutive week of production declines.

The bad news continues to be that ethanol inventories show no real sign of falling, suggesting that demand woes continue for the biofuel. Exports are uncompelling to cut into inventories. Indeed, this week U.S. trade negotiators are in Brazil lobbying for a removal of their 20% ethanol tariff. Brazil's new President Jair Bolsonaro is a purported admirer of U.S. President Donald Trump which could be a good sign. But, Bolsonaro also campaigned on Brazil retaking global leadership in ethanol production, which it lost to the United States some years ago. So it’s unclear how these negotiations will go.

Year-to-date ethanol production is off 1.2% from last year at this time. With USDA pegging corn used for ethanol virtually unchanged on the year (5,600 MB of corn forecasted for this year vs 5,605 MB last year), the continued erosion in ethanol production suggests those corn use numbers will likely need to be lowered by 50 MB.

What it means for the farmer? The demand side of the corn balance sheet continues to be lethargic. It’s hard to get a market excited this time of year without surprises that keep corn disappearing faster than expectations. So far, no such demand stimulus is visible.  

Export Sales Show Mixed Results

This morning’s weekly export sales report from USDA, lagged back to the holiday week of Dec 27, showed some strong business for soybeans and wheat, but corn and soymeal were well below trade estimates.

Swine Flu Continues to Spread

Japan found a new case of swine flu leading to the culling of 15,000 pigs. This is the first detection of the deadly virus since last September. Albeit a different strain from the deadly African swine fever China has been battling, it nonetheless tells of systemic issues in disease prevention.

In China, 1 million head have been slaughtered in the last 6 months due to the African Swine Fever. At the same time, internal soymeal prices have plummeted 22% while live hog prices have slumped 11%. That’s a clear sign that China’s appetite for soybeans is shrinking.

What it means for the farmer? China is of course the big player in hog production, but all of these disease issues are problematic for global feed and meal consumption. Chinese soy imports between August and December slumped by 12% vs the same time period in the previous year. This is not the same Chinese demand juggernaut that existed 6 months ago before the trade war salvo began.

EIA Ethanol Data Shows Further Output Throttling

This week’s EIA Ethanol data showed production has fallen below a million barrels a day for the first time since April 2018, taking corn consumption to 101 million bushels over the course of the week, as the sector logged its third consecutive week of production declines.

The bad news continues to be that ethanol inventories show no real sign of falling, suggesting that demand woes continue for the biofuel. Exports are uncompelling to cut into inventories. Indeed, this week U.S. trade negotiators are in Brazil lobbying for a removal of their 20% ethanol tariff. Brazil's new President Jair Bolsonaro is a purported admirer of U.S. President Donald Trump which could be a good sign. But, Bolsonaro also campaigned on Brazil retaking global leadership in ethanol production, which it lost to the United States some years ago. So it’s unclear how these negotiations will go.

Year-to-date ethanol production is off 1.2% from last year at this time. With USDA pegging corn used for ethanol virtually unchanged on the year (5,600 MB of corn forecasted for this year vs 5,605 MB last year), the continued erosion in ethanol production suggests those corn use numbers will likely need to be lowered by 50 MB.

What it means for the farmer? The demand side of the corn balance sheet continues to be lethargic. It’s hard to get a market excited this time of year without surprises that keep corn disappearing faster than expectations. So far, no such demand stimulus is visible.                                                                                                                                                                

Japan Buys 131,000 MT of Wheat in Regular Tender

Japan's Ministry of Agriculture bought a total of 131,165 MT of food-quality wheat from the United States, Canada and Australia in a regular tender that closed late on Thursday. Of the total purchase, 59,492 MT was sourced from the U.S. 

The previous tender by Japan had been for 102,057 MT of wheat back on Jan 24. That deal included 53,195 MT of U.S. wheat. 

What it means for the farmer? Japanese business is steady and consistent for the U.S. but even in this friendly tender, we lost ground to Canada and Australia. The Japanese bought 29K MT of more wheat between Jan 24 and Feb 7, but the U.S. garnered only 6 MT of those extra bushels.

 

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