The EPA sent a torpedo into one of the mightiest ag lobbies of the row crops (the cotton lobby is by far and away the strongest of all time). Yesterday the EPA said there really was a “blend wall” for ethanol, and is proposing to move the 2014 target down to a flat 13.0 B gal. This is down from current target of 13.8 B gal, which was adjusted from 14.4 B gal. What this means to corn usage is around 200 Mbu, if ethanol for new crop is cut from 4.9 Mbu to 4.7 Mbu. This is really not that big of a deal at present for corn, but it becomes a huge issue down the road. The track of gasoline usage in the US is on steady downward trajectory, meaning the blend wall will cap corn ethanol use at about what it is now, at best. Corn consumption has hit the blend wall, and ever-increasing corn usage is now a thing of the past. And consider this for us cotton traders. 200 Mbu of corn at a yield of 160 bu/acre is 1.25 M acres. That’s nothing for corn, but massive for cotton.
The ICAC jumped into the data void left by the USDA, and released its monthly supply/demand report so us traders would not be so completely in the dark. And in one gigantic jump, the ICAC closed the massive gap it had with the USDA on world end stocks. They got there by kicking up last year’s production by 1.84 Mb, and decreasing usage by 1.4 Mb. There were a few other small adjustments, but now we are all safe from worry that one or the other of these two research outfits is out on that statistical limb. So now that we got everyone in agreement with a 93 Mb world carryout, whats next?
That corn brouhaha the EPA has started will likely see a huge battle that will leave bodies in the streets. The corn lobby is so big, rich and powerful that it finds itself in the unusual predicament of defense. The entire ethanol mandate came about due to a marriage of thought between corn farmers and environmentalists, but the lefty enviros bailed out long ago when they saw all of the unintended consequences, one being a huge increase in farm acres that were once wildlife habitat. This may not mean anything right now for corn and row crops, but it will down the road. All the more reason to lean into farmer hedges for new crops, across the board. Red Dec has been trading from 7650 to 8150 since June, an average of 7900. We’ll take the under for a bet, and time if for the Aug 14 crop report. Any takers?