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Concentration in ag input industry influences farm technology

Concentration in ag input industry influences farm technology

The increase in R&D performed by global agricultural input industries (see "Private Industry Investing Heavily, and Globally, in Research To Improve Agricultural Productivity" in the June 2012 issue of Amber Waves) has coincided with significant changes to the structure of these industries. The largest firms have increased their market shares and account for most of the investment in (and ownership of) new innovations in these industries. Implications of market concentration in the U.S. seed industry were addressed earlier in Amber Waves and in other ERS research (see suggested readings). New ERS data allow a closer look into global market concentration across a number of agricultural input industries.

Market concentration increasing

Since the 1990s, global market concentration (the share of global industry sales earned by the largest firms) has increased in the crop seed/biotechnology, agricultural chemical, animal health, animal breeding, and farm machinery industries - all of which invest heavily in agricultural research. By 2009, the largest four firms in each of these industries accounted for at least 50 percent of global market sales. Market concentration was particularly high in animal genetics and breeding, where the four-firm concentration ratio reached 56 percent in 2006/07 (the latest year for which data are available). Growth in global market concentration over 1994-2009 was most rapid in the crop seed industry, where the market share of the four largest firms more than doubled from 21 to 54 percent. The top eight firms in all five input sectors had between a 61- and 75-percent share of global market sales by 2009.

Market concentration factos vary

Firms increase their market share either by expanding their sales faster than the industry average or by acquiring or merging with other firms in the industry. Firms can expand their sales faster than others in the industry by offering better products or services (often an outgrowth of larger R&D investments), improving their marketing ability, or offering lower prices (often through economies of scale). The leading input firms in 2010 had faster sales growth than the industry average, but a significant amount of that growth came from acquisitions of other firms.

Drivers of change

Reasons for mergers and acquisitions vary by industry and firm circumstances but include market forces and the emergence of new technologies. Government policies can also affect the ability of firms to compete in markets and their incentives to merge with or acquire other firms.

• In the crop seed and animal breeding sectors, the emergence of biotechnology was a major driver of consolidation. Companies sought to acquire relevant technological capacities and serve larger markets to share the large fixed costs associated with meeting regulatory approval for new biotechnology innovations.

• In the animal breeding sector, vertical integration in the poultry and livestock industries enabled some large firms to acquire capacity in animal breeding as part of their integrated structure.

• In the farm machinery industry, many of the major mergers and acquisitions can be traced to large financial losses sustained by some leading firms during periods when the farm sector was in prolonged recession, which substantially reduced demand for farm machinery as farmers delayed major capital purchases. Firms experiencing large financial losses are often vulnerable to acquisition.

• The agricultural chemical sector has been heavily affected by changes in government regulations governing the health, safety, and environmental impacts of new and existing pesticide formulations: larger firms appear better able to address these stricter regulatory requirements.

• Consolidation in the animal health sector appears to be largely a byproduct of mergers and acquisitions in the pharmaceutical industry, as most of the leading animal health companies are subsidiaries of large pharmaceutical companies.

Crop seed-biotech industry transformation

In 2009, seven large seed companies each had annual seed sales of over $600 million. Five of these top seed companies--Syngenta, Bayer, Dow, Dupont, and Monsanto--are also market leaders in agricultural chemicals. A sixth firm, BASF, is making significant investments in crop biotechnology research but so far reports few crop seed or trait sales, although it is a market leader in agricultural chemicals. These companies currently constitute the "Big 6" involved in crop seed, biotechnology, and chemical research.

The seed-biotechnology industry has been reliant on small and medium-sized enterprises (SMEs) as sources of new innovation. New SME startups (often spinoffs from university research) tend to specialize in commercial development of a new research tool, genetic trait, or both. Significant entry by SMEs into the seed-biotechnology sector began in the late 1970s and early 1980s, with a second wave of new entrants in the late 1990s and early 2000s. In recent years, exits have outnumbered entrants, and by 2008 just over 30 SMEs specializing in crop biotechnology were still active. The majority of the exits from the industry were the result of acquisition by larger firms. Of 27 crop biotechnology SMEs that were acquired between 1985 and 2009, 20 were acquired either directly by one of the Big 6 or by a company that itself was eventually acquired by a Big 6 company.

Concentration in a research-intensive industry can be measured not only in terms of share of product sales but in share of new innovations. Firms that are most successful in creating new innovations are often better positioned to dominate the market (although not all new product introductions will be commercially successful). In research for genetically engineered crop varieties, for example, companies typically obtain a patent first, then initiate field trials, and finally obtain regulatory approval to sell crop seeds. Although there is considerable overlap in terms of companies participating, the markets for crop seeds can be distinguished from markets for genetically modified traits. The shares of these research outputs held by the Big 6 companies in each case are between 55 and 95 percent.

Consequences of concentration

Consequences of concentration for ag innovation

The rising concentration in global agricultural input markets means fewer firms are supplying those inputs to farmers. It also means that fewer firms are responsible for many of the new innovations that drive growth in agricultural productivity. The share of private R&D performed by the largest firms is even larger than their share of sales. In crop seed and biotechnology, eight seed-biotechnology companies accounted for 76 percent of all R&D spending by this industry in 2010. In agricultural chemicals, five companies (each with over $2 billion sales in 2010) were responsible for over 74 percent of the R&D in this sector. In farm machinery, four companies (each with over $5 billion in farm machinery sales) accounted for over 57 percent of farm machinery R&D, and in animal health, just eight companies accounted for over 66 percent of R&D. Moreover, all of these leading firms are multinational companies with R&D facilities positioned around the world. These global research networks allow large firms to develop and adapt new technologies to local conditions, meet national regulatory requirements for new product introductions, and achieve cost economies in some of their R&D activities.

Greater market power resulting from the structural changes in agricultural input industries means that farmers may pay higher prices for purchased inputs. With stronger legal protection over their intellectual property and fewer firms offering competition, firms can charge higher prices for their new innovations. Such price premiums are necessary to provide firms the means (and incentive) to invest in R&D in the first place, and farmers are willing to pay higher prices so long as the gains from higher productivity outweigh their higher costs. In fact, for the past two decades, the prices of farm inputs have been rising faster than the prices U.S. farmers receive for their crops and livestock.

The largest increase over 1990-2010 was in crop seed prices, which more than doubled relative to the price received for agricultural commodities. This increase was due, at least in part, to the value of the new seed traits resulting from research investments made by seed/biotechnology companies. However, higher input prices may also stem from increases in the prices of labor, capital, energy, and other materials used in their manufacture. The sharp rise in the price of fertilizer in 2008-09 was driven by a significant increase in the cost of energy and materials used to make fertilizers, higher transportation costs, and the falling value of the U.S. dollar. Multiple factors contribute to changing prices for farm inputs, and it is difficult to isolate the effects of market power, product quality, and other factors affecting these prices.

Emerging issues

The growing concentration in agricultural input industries raises a number of issues. One is the inherent tension between public policies regulating intellectual property rights (IPR) and market competition. While antitrust laws restrict firms from exercising monopoly power, some exceptions are made for intellectual property rights over new innovations. However, antitrust rules may still apply to how firms license their intellectual property to other firms.

Another issue is whether under the current market and policy environment there are significant economies of scale in crop and animal biotechnology, implying that only very large firms can hope to compete effectively in these sectors. This might mean there is a significant barrier to entry for new firms and a potential loss of new innovations, particularly from SMEs. On the other hand, the global reach of the large, multinational agricultural input firms could speed up the rate of international technology transfer and help to close the productivity gaps between regions and countries. The rate of transfer will be influenced by international trade agreements and how countries regulate and protect IPR in new agricultural innovations, especially those involving genetically modified organisms.

Finally, public investments in research can be an important enabler of market competition. Examples include public provision of elite parent material for crop/livestock breeding companies and the basic scientific tools necessary for commercial development using genomics and molecular biology.

New Gene Offers Hope for Higher Yields

New Gene Offers Hope for Higher Yields

Cornell University researchers have taken a leap toward meeting food production needs by discovering a gene that could lead to new varieties of staple crops with 50% higher yields.

The gene, called Scarecrow, is the first discovered to control a special leaf structure, known as Kranz anatomy, which leads to more efficient photosynthesis. Plants photosynthesize using one of two methods: C3, a less efficient, ancient method found in most plants, including wheat and rice; and C4, a more efficient adaptation employed by grasses, maize, sorghum and sugarcane that is better suited to drought, intense sunlight, heat and low nitrogen.

Researchers at Cornell work on 'Scarecrow' gene that could lead to new, higher-yielding staple crop varieties.

"Researchers have been trying to find the underlying genetics of Kranz anatomy so we can engineer it into C3 crops," said Thomas Slewinski, lead author of a paper that appeared online in the journal Plant and Cell Physiology. Slewinski is a postdoctoral researcher in the lab of senior author Robert Turgeon, professor of plant biology.

The finding "provides a clue as to how this whole anatomical key is regulated," said Turgeon. "There's still a lot to be learned, but now the barn door is open and you are going to see people working on this Scarecrow pathway."

The promise of transferring C4 mechanisms into C3 plants has been fervently pursued and funded on a global scale for decades, he added.

If C4 photosynthesis is successfully transferred to C3 plants through genetic engineering, farmers could grow wheat and rice in hotter, dryer environments with less fertilizer, while possibly increasing yields by half, the researchers said.

C3 photosynthesis originated at a time in Earth's history when the atmosphere had a high proportion of carbon dioxide. C4 plants have independently evolved from C3 plants some 60 times at different times and places. The C4 adaptation involves Kranz anatomy in the leaves, which includes a layer of special bundle sheath cells surrounding the veins and an outer layer of cells called mesophyll. Bundle sheath cells and mesophyll cells cooperate in a two-step version of photosynthesis, using different kinds of chloroplasts.

By looking closely at plant evolution and anatomy, Slewinski recognized that the bundle sheath cells in leaves of C4 plants were similar to endodermal cells that surrounded vascular tissue in roots and stems.

Slewinski suspected that if C4 leaves shared endodermal genes with roots and stems, the genetics that controlled those cell types may also be shared. Slewinski looked for experimental maize lines with mutant Scarecrow genes, which he knew governed endodermal cells in roots. When the researchers grew those plants, they first identified problems in the roots, then checked for abnormalities in the bundle sheath. They found that the leaves of Scarecrow mutants had abnormal and proliferated bundle sheath cells and irregular veins.

In all plants, an enzyme called RuBisCo facilitates a reaction that captures carbon dioxide from the air, the first step in producing sucrose, the energy-rich product of photosynthesis that powers the plant. But in C3 plants RuBisCo also facilitates a competing reaction with oxygen, creating a byproduct that has to be degraded, at a cost of about 30-40% overall efficiency. In C4 plants, carbon dioxide fixation takes place in two stages. The first step occurs in the mesophyll, and the product of this reaction is shuttled to the bundle sheath for the RuBisCo step. The RuBisCo step is very efficient because in the bundle sheath cells, the oxygen concentration is low and the carbon dioxide concentration is high. This eliminates the problem of the competing oxygen reaction, making the plant far more efficient.

The study was funded by the National Science Foundation and the U.S. Department of Agriculture

RFA fears increased Brazilian ethanol imports

RFA fears increased Brazilian ethanol imports

The EPA released its long-awaited proposed rule for 2013 Renewable Fuel Standard (RFS) volumetric requirements. The proposal waives the cellulosic biofuel requirement from one billion gallons to 14 million gallons, but retains overall advanced biofuel and renewable fuel requirements. In response, Renewable Fuels Association (RFA) President and CEO Bob Dinneen offered the following comments: 

“The 2013 RFS requirements will be the catalyst that finally compels oil companies to get serious about breaching the so-called blend wall. This year’s RFS requirements will necessitate the use of more E15, E85 and other higher-level blends. Injecting larger volumes of biofuels into the U.S. fuel supply and spurring a more rapid transition to domestically produced renewables is exactly what the RFS was intended to do. The program is working as envisioned by Congress.



“EPA again considered the best available information — including projections from the Energy Information Administration — to set the 2013 cellulosic biofuel requirement. The proposed standard in no way exaggerates the volumes that will be available in 2013 based on current information, and may ultimately prove to be conservative. Cellulosic ethanol is being produced today at commercial scale in Florida, and with construction nearing completion at several other commercial sites, we fully expect 2013 to be the breakthrough year for cellulosic ethanol. At the same time, the fact that EPA waived 98.6 percent of the statutory cellulosic biofuel standard demonstrates the extraordinary flexibility and adaptability of the RFS program.



“We are concerned, however, that the proposed 2013 advanced biofuel standard will open the door even wider to imports of more expensive Brazilian sugarcane ethanol. We hope the requirement can be met with domestic advanced biofuels, like waste-derived ethanol and biodiesel. However, we must be mindful that imports accounted for 92 percent of the 2012 advanced biofuel standard. In an unconstrained fuel market where E15 and other mid-level blends were broadly available, imports would not be a major concern. However, in today’s constrained market, where oil companies continue to throw up roadblocks to E15 and other mid-level blends, every gallon of imported ethanol is one less gallon of domestically-produced ethanol that will be used. This occurs only because EPA allows more expensive imported Brazilian ethanol to claim the advanced biofuel RIN that is currently trading at $0.48. High-priced sugar ethanol imports began to cannibalize the U.S. market in 2012, and today’s decision potentially adds fuel to the fire.



“RFA will continue to encourage EPA to revisit its lifecycle analysis, which graciously assigns advanced biofuel status to sugarcane ethanol. EPA’s outdated analysis suggests sugarcane ethanol reduces greenhouse gas emissions by 52 to 71 percent relative to gasoline. However, the most recent peer-reviewed, published estimate found the range of sugarcane GHG reductions to be 40 to 62 percent, meaning nearly half of current sugarcane imports likely do not meet the 50 percent GHG reduction requirement.”



RFA will be filing comments in response to the proposal from EPA.

With regard to EPA's proposal to address biodiesel RIN fraud, Dinneen added, “We're encouraged that EPA has proposed a voluntary mechanism for obligated parties to assure the RINs they are using for compliance actually reflect a gallon produced. It addresses a major concern oil companies have raised regarding biodiesel RINs and assures the overall integrity of the RFS program. It is important to note that there have been no incidents of RIN fraud with ethanol gallons produced for the RFS in large part because ethanol producers generally do not separate the RINs from the gallons they produced, as is the case with other biofuels.”

RFA on 2013 RFS Proposal: Program Working, But Imports a Concern

RFA on 2013 RFS Proposal: Program Working, But Imports a Concern

The Environmental Protection Agency (EPA) has released its long-awaited proposed rule for 2013 Renewable Fuel Standard (RFS) volumetric requirements. The proposal waives the cellulosic biofuel requirement from 1 billion gallons to 14 million gallons, but retains overall advanced biofuel and renewable fuel requirements. In response, Renewable Fuels Association (RFA) President and CEO Bob Dinneen offered the following comments.

“The 2013 RFS requirements will be the catalyst that finally compels oil companies to get serious about breaching the so-called blend wall. This year’s RFS requirements will necessitate the use of more E15, E85 and other higher-level blends. Injecting larger volumes of biofuels into the U.S. fuel supply and spurring a more rapid transition to domestically produced renewables is exactly what the RFS was intended to do. The program is working as envisioned by Congress.

“EPA again considered the best available information – including projections from the Energy Information Administration – to set the 2013 cellulosic biofuel requirement. The proposed standard in no way exaggerates the volumes that will be available in 2013 based on current information, and may ultimately prove to be conservative. Cellulosic ethanol is being produced today at commercial scale in Florida, and with construction nearing completion at several other commercial sites, we fully expect 2013 to be the breakthrough year for cellulosic ethanol. At the same time, the fact that EPA waived 98.6% of the statutory cellulosic biofuel standard demonstrates the extraordinary flexibility and adaptability of the RFS program.

“We are concerned, however, that the proposed 2013 advanced biofuel standard will open the door even wider to imports of more expensive Brazilian sugarcane ethanol. We hope the requirement can be met with domestic advanced biofuels, like waste-derived ethanol and biodiesel. However, we must be mindful that imports accounted for 92% of the 2012 advanced biofuel standard. In an unconstrained fuel market where E15 and other mid-level blends were broadly available, imports would not be a major concern. However, in today’s constrained market, where oil companies continue to throw up roadblocks to E15 and other mid-level blends, every gallon of imported ethanol is one less gallon of domestically produced ethanol that will be used. This occurs only because EPA allows more expensive imported Brazilian ethanol to claim the advanced biofuel RIN that is currently trading at 48¢. High-priced sugar ethanol imports began to cannibalize the U.S. market in 2012, and today’s decision potentially adds fuel to the fire.

“RFA will continue to encourage EPA to revisit its lifecycle analysis, which graciously assigns advanced biofuel status to sugarcane ethanol. EPA’s outdated analysis suggests sugarcane ethanol reduces greenhouse gas emissions by 52-71% relative to gasoline. However, the most recent peer-reviewed, published estimate found the range of sugarcane GHG reductions to be 40-62%, meaning nearly half of current sugarcane imports likely do not meet the 50% GHG reduction requirement.”

RFA will be filing comments in response to today’s proposal from EPA.

With regard to EPA's proposal to address biodiesel RIN fraud, Dinneen adds, “We're encouraged that EPA has proposed a voluntary mechanism for obligated parties to assure the RINs they are using for compliance actually reflect a gallon produced. It addresses a major concern oil companies have raised regarding biodiesel RINs and assures the overall integrity of the RFS program. It is important to note that there have been no incidents of RIN fraud with ethanol gallons produced for the RFS in large part because ethanol producers generally do not separate the RINs from the gallons they produced, as is the case with other biofuels.”

Poultry Trade Organizations Sign Collaboration Agreement

Poultry Trade Organizations Sign Collaboration Agreement

The National Chicken Council, National Turkey Federation, USA Poultry & Egg Export Council, and U.S. Poultry & Egg Association signed a collaboration agreement while at the 2013 International Production & Processing Expo.

The agreement defines each organizations mission areas and membership, outlines the existing collaborative efforts they all share, and describes future collaborative efforts. While each of these organizations have their own strengths and focus points, the agreement elaborates on how these strengths are shared among the organizations to effectively and efficiently serve and represent the poultry industry.

(L-R) Paul Hill, past chairman, National Turkey Federation; Mike Brown, president, National Chicken Council; James Sumner, president, USA Poultry & Egg Export Council; and John Starkey, president, U.S. Poultry

"Our four trade associations have a long history of collaborating and supporting each other. In recent years, the scope and breadth of that collaboration has accelerated rapidly. While we each have our own respective mission areas, we recognize and have acted upon multiple opportunities to more efficiently and effectively represent our industry. We pledge to seek out additional opportunities in the future under the guidance and direction of our respective boards," said the group.

The agreement was signed by Paul Hill, past chairman, National Turkey Federation; Mike Brown, president, National Chicken Council; James Sumner, president, USA Poultry & Egg Export Council; and John Starkey, president, U.S. Poultry & Egg Association.

Farm Lending Accelerates at Commercial Banks

Farm Lending Accelerates at Commercial Banks

Farm lending at commercial banks and lending for livestock and current operating expenses soared in the fourth quarter, according to the latest Ag Finance Datebook publication authored by Jason Henderson and Maria Akers of the Federal Reserve Bank of Kansas City.

Henderson and Akers attribute the spike to escalating feed and livestock costs, high fuel costs during harvest, and rising fertilizer and seed costs. They say these rising costs are pushing producers to pre-pay for 2013 inputs, and obtain a non-real estate farm loan to do so.

Non-RE loans doubled year ago volumes, they say, and livestock loans for feeder animals is ahead of last year's totals as well.

KC Fed's ag finance outlook finds commercial banks have been busy in Q4; Farmland values stay strong

Tax law uncertainty changes farm lending

Tax provisions allowing accelerated depreciation on qualifying farm asset purchases such as machinery, equipment, and special–use or single– purpose agribusiness buildings, including grain bins, drying systems, and livestock barns, were set to expire at the close of 2012, Henderson and Akers note.

Producers who took advantage of the incentives doubled the volume of farm machinery and equipment loans compared with last year. Intermediate-term loan volumes also increased.

Farmland still surging

High crop prices and insurance payments kept farm incomes steady and land prices high. Wind leases and irrigation systems added value to many tracts of land, Henderson and Akers note, pushing land values in the Dakotas, for example, to more than 30% above year ago levels.

Even with low soil moisture levels heading into 2013, very few bankers expected farmland values would retreat from their current highs, and most expected them to remain elevated in 2013, report authors say. With such a busy farmland market, commercial banks reported a surge in farm real estate loans.

Availability of funds for farm loans still high

Despite reports of record high farmland values, bankers still say overall farm lending varied with the severity of the drought – livestock-heavy states saw increased lending to cover high feed costs, while rising incomes in Minnesota and the West Coast boosted farm capital spending but decreased operating loan demand.

Dairy loans remained stable, while feeder cattle loan demand is expected to weaken, authors note.

Overall, loan renewals and extensions were low in most districts, and fewer bankers reported higher loan repayment rates in the quarter.

Click here to read the entire Ag Finance Databook entry.

Bill would eliminate duplicative pesticide permit requirements

The American Soybean Association (ASA) welcomes legislation introduced yesterday from Senate Agriculture Committee members Pat Roberts (R-Kan.), and Mike Johanns (R-Neb.) that amends the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) to eliminate the duplicative pesticide permitting requirements under the Clean Water Act.

The bill, S. 175, will ensure that Clean Water Act permits are not needed for the applications of pesticides currently registered under FIFRA.

ASA President Danny Murphy, a soybean farmer from Canton, Miss., issues the following statement on the legislation: 

“The elimination of these redundant pesticide permitting requirements has been a priority for ASA since 2010, and we are very supportive of Senator Roberts and Senator Johanns in their efforts to reduce the red tape for our farmers.

“Farmers are always willing to cooperate with regulations based on sound science and grounded in practical, real-world farming practices.

“This legislation will remove the uncertainty that the current system creates, while leaving well-established rules in place to effectively protect the environment. We commend Senators Roberts and Johanns on their work, and call on the Senate to pass this bill quickly.” 

ASA represents all U.S. soybean farmers on domestic and international issues of importance to the soybean industry.

ASA’s advocacy efforts are made possible through voluntary farmer membership by farmers in 30 states where soybeans are grown.

 

Will There be Enough Corn to Last Until the Next Harvest?

Will There be Enough Corn to Last Until the Next Harvest?

 

Last week a Missouri ethanol refinery, operated by POET, announced it was suspending production because of the inability to find enough corn. Others may have taken the same action, but the reason may not have been as pronounced. There is no surprise about spot shortages of corn following the drought of 2012, and more will be identified as the marketing year progresses. In fact, the low yields of central Illinois prevented sufficient supplies to larger ethanol plants, which have purchased trainloads of corn from higher-yield areas in Minnesota and the Dakotas. In the southeastern U.S., livestock producers have found their shortage is better supplied by offshore sources, such as Brazil, than try to obtain odd lots where possible in the U.S. As a result of the trend, questions are raised about the stress on the corn user as a result of the tightening availability of corn.

USDA’s Jan. 11 report on the final production estimates for 2012, along with the Dec. 1 quarterly grain stocks, give an indication of the significance of the shortage. Ending stocks are at record lows, corn imports are projected and typical users are either going elsewhere for corn or seeking alternatives. That is the assessment of Bob Wisner, Iowa State University ag economist, who says despite the expectation for short supplies, prices have not begun to ration those short supplies yet. And he says that will have to happen between now and the end of August.

Livestock use

One of the largest users, the livestock industry, created some market confusion at the outset of the 2012 harvest when early-harvested corn was fed prior to the end of the 2011 marketing year. That caused estimates to be revised and questioned for the 2011 and 2012 crops. Some of that was offset by reductions in projected estimates of exports, says Wisner. USDA has projected a higher-than-average volume of corn being fed during the first quarter of the year due to increased livestock numbers, heavier market weights and substantial marketings.

But at the same time, feed alternatives are also in short supply, including corn from the 2012 second crop in Brazil and feed quality wheat from a variety of sources. Those may extend the ability of U.S. corn to meet export demand. But Wisner is not convinced of that. He says the main alternative to the short U.S. 2012 corn crop will be the 2013 second crop corn soon to be planted in Brazil. There is always the logistical challenge of getting it here, or anywhere for that matter.

With high use of domestic stocks in the first quarter of the year, there must be reduced feeding of stocks in subsequent quarters, but how much? Wisner says the 12% increase identified in the first quarter will have to be correlated with a feed reduction in the balance of the year. But he says that means there will have to be a larger reduction in livestock numbers than is now indicated. The only choice would be a reduction in cattle on feed (and USDA just indicated January cattle on feed was only 96% of that from 2012). 

Rationing for the rest of the year

Wisner expresses concern about the need for rationing corn for feed throughout the balance of the marketing year.

  1. If feed use is up for the second quarter, then use will have to be down 49% for the last two quarters compared to year earlier numbers, which he says has crisis implications for livestock producers and will create stress on the ethanol industry.
  2. If feed use is up for the second quarter by only 2%, then the feed use of corn for the balance of the marketing year will have to be down only 28% than year-earlier numbers, which would still bring stress on all corn users.
  3. If feed use for the second quarter is down by 9% from year earlier numbers, then there would only need to be a 15% reduction for the balance of the year, which will still mean a major challenge for all users of corn.

 

Corn exports

Wisner notes that USDA statisticians reduced their estimate of corn exports to only 950 million bushels for the current marketing year in the Jan. 11 supply-demand report, which would be the least in 40 years, and would mean a 36% cut from 2011. And he says if the estimate falls short of the 950 million, more corn would be available for domestic use. 

To date, exports are about 50% below prior year levels, and the 539 million bushels exported by early January would put the year total at 749 million bushels if the pace was retained. With lower exports and more available for feed, Wisner’s feed use scenarios would not be as stressful. He says the need for rationing would not be negated, but the feed reductions would be more modest.

 But will exports continue to languish? Wisner says reaching the USDA projection would only require 411 million more bushels to be exported between now and the end of August. Based on the past year’s export pace for the balance of the marketing year, the export pace would need to slow by nearly 16%.

U.S. corn exporters have been facing stiff competition from feed wheat in several countries along with corn from the Ukraine and second-crop corn in Brazil that has been priced under the U.S. corn market. Those supplies will not last, and many have already diminished to the point that foreign exporters have closed down. Southern Hemisphere feed wheat, just now being harvested, is down about 25% in yield in production, and the European Union is expected to be in the market buying substantially more feed grains than usual. However, the EU will not buy U.S. corn to avoid biotech issues.

 

Wisner’s conclusions

Wisner concludes by saying the short corn crop has already reduced ethanol and export use of U.S. corn, but not feed use, despite higher prices. And he says without that, corn supplies could be tighter than already indicated. He will be watching for the next quarterly grain stocks report at the end of March, along with livestock inventory, and marketing weights to determine if the second quarter corn disappearance confirms any change in the trend from the first quarter.

He says export demand has been weak and if the global market wants Brazilian corn it will have to sort it out from all of the Brazilian soybeans headed to export terminals, which he perceives as an increased demand for U.S. corn to be exported. The two issues that will have a bearing on demand, says Wisner, are the export price of alternative feeds and the potential for any shipping delays. While the latter is unknown, the former points to corn as a bargain:

  • $340 for Australian wheat
  • $340 for French wheat
  • $310 for U.S. soft wheat
  • $305 for U.S. corn

 

Summary

Corn stocks will be tight before the end of the current marketing year, causing spot shortages. U.S. livestock feeding has been aggressive in light of short feed supplies, and unless there are cuts in the rate of feeding, livestock feeders will face critical decisions. Exports have been cut back due to high prices, but with the disappearance of alternative feed grains, U.S. corn exports could resume by the end of the marketing year, putting more pressure on the supply.

 

Read the article at farmgateblog.com.

EPA releases proposal for 2013 RFS volume requirements

The Environmental Protection Agency (EPA) has released its long-awaited proposed rule for 2013 Renewable Fuel Standard (RFS) volumetric requirements.

The proposal waives the cellulosic biofuel requirement from one billion gallons to 14 million gallons, but retains overall advanced biofuel and renewable fuel requirements.

In response, Renewable Fuels Association (RFA) President and CEO Bob Dinneen offered the following comments:



“The 2013 RFS requirements will be the catalyst that finally compels oil companies to get serious about breaching the so-called blend wall. This year’s RFS requirements will necessitate the use of more E15, E85 and other higher-level blends. Injecting larger volumes of biofuels into the U.S. fuel supply and spurring a more rapid transition to domestically produced renewables is exactly what the RFS was intended to do.

“The program is working as envisioned by Congress.



“EPA again considered the best available information — including projections from the Energy Information Administration — to set the 2013 cellulosic biofuel requirement. The proposed standard in no way exaggerates the volumes that will be available in 2013 based on current information, and may ultimately prove to be conservative.

“Cellulosic ethanol is being produced today at commercial scale in Florida, and with construction nearing completion at several other commercial sites, we fully expect 2013 to be the breakthrough year for cellulosic ethanol.

“At the same time, the fact that EPA waived 98.6 percent of the statutory cellulosic biofuel standard demonstrates the extraordinary flexibility and adaptability of the RFS program.



Concern over imports

“We are concerned, however, that the proposed 2013 advanced biofuel standard will open the door even wider to imports of more expensive Brazilian sugarcane ethanol. We hope the requirement can be met with domestic advanced biofuels, like waste-derived ethanol and biodiesel.

“However, we must be mindful that imports accounted for 92 percent of the 2012 advanced biofuel standard. In an unconstrained fuel market where E15 and other mid-level blends were broadly available, imports would not be a major concern.

“However, in today’s constrained market, where oil companies continue to throw up roadblocks to E15 and other mid-level blends, every gallon of imported ethanol is one less gallon of domestically-produced ethanol that will be used.

“This occurs only because EPA allows more expensive imported Brazilian ethanol to claim the advanced biofuel RIN that is currently trading at $0.48.

“High-priced sugar ethanol imports began to cannibalize the U.S. market in 2012, and today’s decision potentially adds fuel to the fire.

“RFA will continue to encourage EPA to revisit its lifecycle analysis, which graciously assigns advanced biofuel status to sugarcane ethanol.

“EPA’s outdated analysis suggests sugarcane ethanol reduces greenhouse gas emissions by 52 to 71 percent relative to gasoline. However, the most recent peer-reviewed, published estimate found the range of sugarcane GHG reductions to be 40 to 62 percent, meaning nearly half of current sugarcane imports likely do not meet the 50 percent GHG reduction requirement.”



RFA will be filing comments in response to the proposal from EPA.

With regard to EPA's proposal to address biodiesel RIN fraud, Dinneen added, “We're encouraged that EPA has proposed a voluntary mechanism for obligated parties to assure the RINs they are using for compliance actually reflect a gallon produced. It addresses a major concern oil companies have raised regarding biodiesel RINs and assures the overall integrity of the RFS program.

“It is important to note that there have been no incidents of RIN fraud with ethanol gallons produced for the RFS in large part because ethanol producers generally do not separate the RINs from the gallons they produced, as is the case with other biofuels.”