What is rising faster than corn prices? RIN prices

RIN prices, the tool to show compliance with US mandates are still cheap but have risen by over 60% in the last two weeks, far more than maize prices themselves. It looks like the biofuel sector is taking notice and starting to ration itself. RIN carry was very high into the year and so with this short crop we have that quantity to play with in reducing maize consumption this year. With the way the mandates work and some approximation of carry in, there is about 25 million metric tons that could be cut from biofuel maize use. Now it won’t be that large, folks won’t want to expose themselves to the risk of carrying out NO RINs into 2013, but we could see a reduction in RIN stocks and thus less maize demanded than would be determined strictly by equating the mandate gap with the maize needed to fill it and a decline in use of maize for ethanol is certainly a strong possibility. Add to that the little understood fact that the carry in limit applies to totals and not the gap created for maize and that is another (admittedly small) 3.5 million metric tons of play in maize demand.


RIN prices in the 2012 vintage have moved up from a recent low (not giving exact prices) of just over 1 cent a gallon go just under 2 cents a gallon in the last couple of weeks. Seems to me there is some upside potential in this market, of course there is always the risk the EPA could wade in with a waiver cutting RIN holders off at the knees if things get bad enough.......

Some Math at the extreme (and in bushels!)

My math was off in the metric tons calculation so I’ve fixed it.

I’m going to talk in calendar year because that is the mandate timing, you have to convert back to guess at the effect in crop years, so I’ll use a standard conversion and the calendar numbers.

If your corn grind is 4.82 million bushels (2.74 gallons per bushel) to make the conventional mandate gap (this gap in the mandates that maize starch ethanol can access) of 13.2 billion gallons, then this represents a use with no flexibility or RIN carry. However there is 20% RIN carry in allowed and we most certainly over produced for the 2011 mandate. BUT it isn’t 20% of the 13.6 mandate because that isn’t really a mandate, it is a GAP in the mandate system. It is really 20% of the individual mandates and you can’t exceed 20% carry in on any of them individually or in the total. So let’s see what we have with respect to the other mandates, probably zero carry in for cellulosics, we probably didn’t import much more than we needed for the 2011 obligation (tariff effect?)  and with all the fraudulent biodiesel RINs and the weird inversion of 2011 to 2012 vintage biodiesel RINs prices I doubt we had much of any carryover of biodiesel RINs into 2012. So if we ignore those (say the advanced and sub-categories RIN carry are zero), the amount that you could use of maize based ethanol RINs carried in from 2011 isn’t   ( 0.2*13.2billion gallons) = 2.64 billion gallons of RIN carry but the whole total of (0.2*15.2billion gallons) = 3.04 billion gallons of RIN carry potentially. So at the extreme, if you have zero carry in of non-maize biofuels and you carry out zero RINS into 2013, there is 3.04/2.74*1000 =  1.1 billion bushels  (28  million metric tons) of play in the demand for maize to produce biofuels.  This is of course at the extreme because it probably wasn’t zero carry of non-maize RINs into 2012 (but I bet it isn’t large) and at the same time, I don’t know for certain how many conventional (maize based in this case) RINs were carried into 2012 but you could approximate this. Also folks won’t want to carry in zero RINs into 2012 so they won’t run RIN stocks down to zero, but at any rate, there is room for some rationing on the ethanol side!

So 4.82 billion bushels needed? What fraction of the 1.1 billion bushes it could potentially be reduced exists and is reasonable? (again, I think this is a very large fraction) and how much are folks willing to draw down RIN stocks (the bigger question and why RIN prices will be interesting this year)?

I’m not going to yet guess what grind will actually be.

Seth

Declines accelerating and spreading with drought impacts for corn

Corn Yield:  150.6 bu/ac
Corn Production:  13,255 million bushels

Soybean Yield:  40.2 bu/ac
Soybean Production: 3,010 million bushels

Greetings from Rome everyone:

It has apparently been more mild and cool here in Rome than has been experienced across the Mid-west this past week. I’ll set aside that apparently there was more snow accumulation in Rome than in Columbia MO this winter too!

The acreage report had little impact on corn production despite the increase in acres as the geographic shuffling of acres out of Iowa and into Illinois and Indiana where the drought was having the largest effect resulted in little production change. This week we see declines across the board, including Iowa, as the decline in yields and production gain speed. These are of course subjective measures and they tend to be influenced by short run events on occasion (cotton conditions and hurricanes is a good example*) so we will see how these numbers hold into next week. I will say that the effects appear to be spreading with a large decline in Iowa this week although still smaller than the declines in Illinois and Indiana again.

*I keep trying to find time to do additional commentary but as this is for my own entertainment, I’m limited in the amount of time I have. Remember, these are subjective data. A few years ago, when a hurricane came ashore, cotton conditions fell for two weeks then quickly rebounded. The short run extreme weather event colored folks perceptions of the crop. Now the drought is pretty severe so I’m not suggesting a jump back up next week, but it will be interesting to see if the declines continue so strongly in the next two reports.

More corn acres but not much additional production

Some noteworthy changes from the USDA Acreage report, particularly from some geographical switching.
1) Corn acres were adjusted up by 500,000 acres but I'm showing a more modest bump in production. Why? Acres increased in Illinois and Indiana where the drought seems to be hitting the hardest and shifted out of Iowa where things have thus far remained okay
2) Soybean acres jumped a bunchy and add to that the trade of  from 1) where bean acres in Iowa jumped while they fell in Illinois and Indiana and you get a nice production increase for soybeans from this acreage change.
3) the change in cotton acres (a drop of 600,000 acres) trimmed 1 million bales off of my estimate I'm down at 19.6 million bales which is still a large production number given  my US harvesting rate (read Texas) is much higher than that proposed by USDA.

13.8 Billion Bushels of Maize.....

I will add commentary as time allows, I was away from Rome on duty travel and have just returned today. I'm showing continued and large declines in both corn and soybeans with BIG declines in Illinois and India as this seems to be the focal point of the drought thus far. Iowa seems to be staying in reasonable shape thus far. The table below (not these are the corrected data) is available for all crops in a spreadsheet by request.

Week 3, more declines

Greetings from Rome. It is getting pretty warm here, but still cooler than it is in Champaign IL. More declines this week as the corrected maize yields fall below 160bu/ac pulling production down to 14 billion bushels. The corrected estimates for both maize and soybeans are now down at the bottom end of the trade range I have, but I'm guessing the next round of trade data will move further south as well. For next week, I'll try to do some state by state analysis on where the greatest yield impacts are occurring. A look at the spreadsheet (corrected numbers) shows an Iowa yield at 179.9bu/ac (from  184.6  bu/ac) but Illinois is at 172.2 (from    bu/ac 181.1)  so a bigger decline in that state at 8.9bu/ac in just the last couple of weeks. A similar pattern is holding in Soybeans where Iowa yields have declined by 0.8bu/ac while Illinois have fallen 1.7bu/ac over the same period. Indiana shows a similar (more extreme) decline as Illinois, all roughly consistent with the drought indices I saw last week.  

I will also try to work through the cotton model for next week. and identify the states where I've got the most issues (Texas) and come up with some alternatives as I don't believe what I have even though I expect a bigger cotton crop (at this point) than what he USDA has at 17 million bales. As always, the state by state yield and production estimates are available by emailing me. 

Greetings from Rome. 

I've got the webpage up and running but I'm working on a solution to put up the state by state spreadsheets. When I was on the faculty of the University of Missouri I would put it up on my webspace there, but as of this moment, I'm without a similar solution. The state by state breakouts are of course always available in a spreadsheet if you email me. 

A quick note on corrected vs uncorrected. The uncorrected model estimates the final yield based on the crop as it stands in the field today. If the reported condition of the crop never changed this would also be the final estimate, but we know conditions are likely to decline (perhaps through the accumulation of biotic and abiotic stressors). Therefore, the corrected model takes the average change from the current week to a week in mid September to adjust current conditions by the average decline. The adjustment is quite simple, but that is the whole point of this exercise. The corrected model is the best guess estimate.

So if conditions don't change the uncorrected model would be flat and the corrected model would rise to meet it. The two lines will converge in Mid-December. 

Below you will find the estimates for this week. Lets set aside cotton (for obvious reasons!) and we will come back to it in a moment. 

(Week 2 Estimates)

You can see from last week that my estimates went from the top of the trade (with one flier at 169) down to the center of the pack, and the best guess for production is now 14.2 billion bushels with an average yield of 161.3 bushels/acre. Both the corrected and uncorrected models are noticeably lower than the USDA estimate. 

Click on the graphs to zoom in

Soybeans tell a similar story of decline, but in this case the two estimates bracketed the trade estimates but the corrected model has now moved to the lower end of the trade range

          

Now for cotton, do I believe these results? No, not really, the calculated error for the first few weeks of reporting cotton yields are a regularly 150 lbs!  I've got several states where conditions are quite good plus I'm showing a low abandonment rate for Texas at the moment. This is in stark contrast to what WASDE is showing with what appears to be an assumption of around 40% abandonment rate in Texas. This, however, only accounts for part of the difference. The rest is state yields which are noticeably above
the previous 6 year average. This model has had some problems in the past, if you look at last year I was way off in the drought. The model didn't handle the 60% abandonment rate in Texas very well. However, the previous year I was (similar to this year) well above USDA numbers and did okay early in the season. In addition, I could simply have some unknown error. But in truth I wouldn't take much away from this for a few more weeks other than there is some upside potential in the crop.  I think the current WASDE estimate has cooked in a continued drought. I will say Carl Anderson was talking a 6 million bale Texas crop a few weeks ago, but that is a long time ago for this crop I suspect. There should be lots of movement in these numbers and I'll be looking more into the estimates as time allows (this isn't my day job).

             

Postings to begin again for 2012 on June 12th

Crop estimates will begin again next week, here is a preview