AG NEWS 02/09/2017

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Converting Large-Scale Acres to Bioenergy Crops Studied

Dedicated energy crops, such as switchgrass in the United States, are viewed as potential renewable feedstocks for liquid fuels or bioelectricity. However, markets do not presently exist for large-scale use of this resource. Purdue University has examined three policy scenarios that could create a market for bioelectricity using dedicated energy crops: a subsidy for bioelectricity generation, a national Renewable Portfolio Standard (RPS), and a national cap-and-trade policy to limit carbon dioxide (CO2) emissions. Many States already have an RPS that requires a percentage of electricity production to be generated from renewable energy sources. A policy with a cap on CO2 emissions would have the potential to create demand for combustible biomass to generate electricity, including crops grown solely for their energy content.

The introduction of dedicated energy crops on a large scale could affect other agricultural land uses, prices of other crops, and trade in agricultural products. Each scenario provides 250 terawatt-hours (TWh) of electricity generation from switchgrass and approximately 50 TWh from forest residue.

• A policy that provides incentives for bioelectricity generation of 250 TWh per year from switchgrass would require 25 to 29 million acres (10.1 to 11.8 million hectares) of land in 2030, an area about one-half that used now for U.S. wheat production. However, this estimate depends directly on the average yield for energy crops and the rate of yield growth over time for both energy crops and other crops. For a sense of scale, the United States
produced 267 TWh of electricity from hydropower in 2013, providing 6.6 percent of total U.S. electricity generation of 4,070 TWh.

• Generation of 250 TWh of bioelectricity from switchgrass plus 50 TWh from forest residue would require 234 million short tons of dry biomass in 2030. A feasibility study of biomass supply by the U.S. Department of Energy provides a similar estimate.

• Energy crops would be grown in regions where they have a comparative yield advantage relative to other crops. Model results suggest that switchgrass as a share of total cropland in 2030 would be highest in Appalachia, the Southeast, and the Northern Plains. Regions with the greatest number of acres in switchgrass would be the Northern Plains (11.1 million acres), Appalachia (8.6 million acres), the Corn Belt (4.2 million acres), and the Southeast (3.0 million acres). Due to the large area of cropland in the Corn Belt, switchgrass would account for a small share of total cropland, less than 5 percent.

• Extensive planting of switchgrass coupled with reduction of acreage of nonenergy crops reduces soil erosion by 5 percent nationally, with greater reductions in regions with high energy crop plantings—17 percent in Appalachia, 12 percent in the Southeast, and 9 percent in the Northern Plains. The amount of nitrogen lost to water declines compared with the reference scenario by about 4 percent. Nitrogen fertilizer application intensity increases, but increased planting of switchgrass leads to more nutrient retention.

• By scenario design, the amount of land used for switchgrass is similar across policy scenarios. Production declines for major field crops as land shifts to switchgrass from cropland, pasture, and forest. Changes in harvested area, production, and price by 2030 are similar between the subsidy and RPS scenarios for wheat, coarse grains, and oilseeds. For these nonenergy crops, harvested area declines 3.6 to 7.2 percent, production declines 0.6 to 4.0 percent, and prices increase 1.9 to 3.5 percent. Crop exports decline to compensate for most of the decline in production, with small changes in consumption and imports. Percentage increases in crop prices are greater in the CO2 cap-and-trade scenario.

• Some impacts of energy crop production differ widely across policy scenarios. By 2030, the price of electricity increases 55 percent with cap-and-trade but declines 0.5 percent with a bioelectricity subsidy. In all scenarios, U.S. CO2 emissions decrease relative to the no-policy reference scenario. Emissions reductions are greatest in the cap-and-trade scenario (40 percent) but are also significant with an RPS (10 percent). The
emissions reduction in the bioelectricity subsidy scenario is small (1.2 percent).
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USDA Weekly Export Sales Report

Wheat: Net sales of 527,300 metric tons for delivery in marketing year 2016/2017 were up 17 percent from the previous week and 9 percent from the prior 4-week average. Exports of 606,100 MT were up 87 percent from the previous week and up noticeably from the prior 4-week average. The primary destinations were China (147,200 MT), the Philippines (114,600 MT), Peru ( 73,900 MT), Mexico (52,600 MT), and Indonesia (45,600 MT).

Corn: Net sales of 971,700 MT for 2016/2017 were down 15 percent from the previous week and 13 percent from the prior 4-week average. Exports of 1,124,700 MT were up 47 percent from the previous week and 34 percent from the prior 4-week average. The primary destinations were Mexico (208,100 MT), Japan (194,500 MT), Colombia (188,300 MT), Taiwan (76,800 MT), and Saudi Arabia (73,700 MT).

Sorghum: Net sales of 8,300 MT for 2016/2017 were down 86 percent from the previous week and 84 percent from the prior 4-week average. Exports of 60,700 MT were down 70 percent from the previous week and 56 percent from the prior 4-week average. The destinations were China (49,100 MT), Mexico (11,000 MT), and Indonesia (600 MT).

Rice: Net sales of 86,100 MT for 2016/2017 were up 82 percent from the previous week and 39 percent from the prior 4-week average. Exports of 113,400 MT–a marketing-year high–were up noticeably from the previous week and from the prior 4-week average. The primary destinations were Venezuela (30,000 MT), South Korea (24,700 MT), Japan (15,800 MT), Guatemala (11,600 MT), and Saudi Arabia (8,300 MT).

Soybeans: Net sales of 536,300 MT for 2016/2017 were down 14 percent from the previous week and from the prior 4-week average. Exports of 1,641,800 MT were up 8 percent from the previous week and 13 percent from the prior 4-week average. The primary destinations were China (1,009,600 MT), France (132,600 MT), Taiwan (87,200 MT), the Netherlands (75,700 MT), and Pakistan (67,200 MT).

Cotton: Net upland sales of 208,100 RB for 2016/2017 were down 36 percent from the previous week and 39 percent from the prior 4-week average. Exports of 11,900 RB were up 96 percent from the previous week, but unchanged from the prior 4-week average. The primary destinations were India (4,600 RB), China (3,400 RB), Japan (1,200 RB), Egypt (1,000 RB), and Thailand (900 RB).

Beef: Net sales of 15,900 MT reported for 2017 were down 17 percent from the previous week. Exports of 13,700 MT reported for 2017 were down 11 percent from the previous week. The primary destinations were Japan (5,200 MT), South Korea (2,800 MT), Hong Kong (1,300 MT), Mexico (1,300 MT), and Canada (1,200 MT).

Pork: Net sales of 13,600 MT reported for 2017 were down 45 percent from the previous week. Exports of 22,100 MT reported for 2017 were up 2 percent from the previous week. The primary destinations were Mexico (7,700 MT), Japan (3,700 MT), South Korea (2,900 MT), China (2,000 MT), and Canada (1,500 MT).
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Cotton: World Markets and Trade (USDA-FAS Report)

The last 12 months have seen a substantial change in expectations about global cotton supply and demand. The chart above shows how USDA forecasts for 2016/17 ending stocks have developed since the first forecasts made during USDA’s February 2016 Outlook Forum. Forecasts for global cotton use have risen from 110.5 million bales to 112.5 million bales, with most months seeing increases. Production forecasts, however, while varying throughout the year with a trough in August of about 102 million bales, are presently roughly equal to where they were in February 2016, at 105.4 million bales.

For China and the rest of the world, production forecasts have followed a similar, U-shaped forecast pattern: high initial forecasts, lower during the middle of the season, and higher forecasts made in recent months. However, for cotton use, China and the rest of the world have had markedly different trends. Forecasts for China’s use have been raised five times out of the ten WASDE reports from May 2016 through February 2017 and have never been lowered. On the other hand, cotton use outside of China has been cut eight times out of ten (although this month’s forecast is raised, led by India, Vietnam, and Bangladesh). While forecast use within China has ultimately been raised versus USDA’s 2016 Outlook forecast of about 33 million bales to over 36 million bales in this February’s WASDE, forecast use for the rest of the world has been reduced from 77.5 million bales to 76.3 million. As a result of these changes, as well as some back-year revisions, forecasts for China’s ending stocks fell sharply during the first part of the marketing year but have since stabilized. Meanwhile, even as forecast ending stocks in the rest of the world were roughly stable for the first part of the year, recent WASDE reports have generally been above the February 2016 forecast level of ending stocks outside of China, a factor that will impact supply and demand going into 2017/18. USDA’s first 2017/18 forecasts will be released at the Agricultural Outlook Forum on February 24.

For 2016/17, global use is raised, while production and trade are raised only marginally, resulting in lower global ending stocks. U.S. exports are raised, reducing U.S. ending stocks. The U.S. season-average farm price forecast is raised 2 cents to 69 cents/pound.
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Oilseeds: World Markets and Trade (USDA-FAS Report)

This month, based on official export statistics published by the Government of India (GOI), USDA has made historical revisions of Indian meal and oil trade estimates beginning in MY1999/2000. These revisions stem from the improvement in quality and timeliness of GOI data, verified by other data sources that are used for estimation. Accompanying revisions for meal and oil production, consumption, and stock numbers have been made as well.
The newly adopted data series from GOI sheds more light on the potential of India soybean meal exports in MY2016/17, as it looks to recapture market share lost from the lean years of MY2014/15 and MY2015/16. India has lost more than 90 percent of its global soybean meal exports compared to 3 years ago, especially in adjacent markets (Bangladesh, and Pakistan), and regional markets in South East (Myanmar, Indonesia, and Thailand) and East Asia (South Korea and Japan). India will also be looking to rekindle sales to former top destinations such as the European Union and Iran, which have imported only a fraction of what they used to several years ago. Globally, the market share that was lost by India has been mostly filled by exports from the Brazil and Argentina. With a larger harvest and growing crush leading to greater exportable supplies, India soybean meal
exports are forecast to rise to 1.8 MMT in MY2016/17, mainly with smaller loads to nearby markets where its competitive advantage lies. While Indian meal exporters have newfound opportunities in niche markets with non-biotech demand, they face considerable competition in more traditional markets such as the European Union and East Asia.

Global oilseed production is forecast higher this month, primarily on larger cottonseed and rapeseed crops. Global soybean production is lowered on reduced harvests in Bolivia, Uruguay, and the United States more than offsetting gains in Brazil, China, and Russia. Soybean imports are projected higher this month on stronger demand from Argentina. Exports are up on higher shipments from Brazil exceeding lower trade from Bolivia and Uruguay. Global soybean stocks are lowered this month, led by the United States and Argentina. The U.S. season-average farm price is raised 5 cents to $9.50 per bushel.
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Wheat: World Markets and Trade (USDA-FAS Report)

Global wheat production remains at a record, but is reduced this month mainly on lower crops for India and Kazakhstan. Global trade is boosted to a new record with higher imports for China, Morocco, and Vietnam more than offsetting cuts for Ethiopia, EU, and South Korea. Larger exports for Argentina, Ukraine, and the United States are partially offset by reductions in Kazakhstan and Russia. The U.S. season-average farm price is raised $0.05 to $3.85 per bushel.
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Coarse Grains: World Markets and Trade (USDA-FAS Report)

Record corn production for 2016/17 is raised from last month with larger crops in both Ukraine and Mexico more than offsetting lower production in the EU. Robust demand in both Iran and Vietnam support a higher volume of global exports. Moreover, a smaller barley crop in Iran boosts the demand for imported feedstuffs. The U.S. season-average farm price for corn is unchanged at $3.40 per bushel.

Corn prices in major exporting countries are minimally changed from last month. Argentine quotes are around $182 per ton, mostly unchanged from last month, while Brazilian FOB quotes have been seasonally unavailable. Black Sea quotes are nearly the same at $170. U.S. prices displayed the strongest growth, briefly surpassing $170 but nevertheless retreating to $168 per ton. Reflecting abundant new-crop supplies, both U.S. and Black Sea quotes show significant divergence from South American bids in advance of upcoming harvests. However, Argentine forward prices, March onward, are competitive relative to the United States.
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NCC Annual Meeting This Weekend

The 2017 National Cotton Council’s Annual Meeting will be held at the Fairmont Hotel in Dallas, TX. The Economic Outlook on Saturday morning will feature the Council’s planting intentions survey.

Policy development at the 2017 Annual Meeting will begin with the meetings of the six program committees on Saturday morning, followed by Board review of the program committee recommendations that afternoon and consideration of those recommendations by all delegates as the first business item during the General Session on Sunday morning.

Policy recommendations are distributed to Council delegates prior to the Annual Meeting. All changes made in Dallas by the program committees and Board will be distributed for review during the interest caucus meetings on Saturday afternoon. This opportunity to review the program committee recommendations in depth will enable the delegate body to consider the resolutions during Sunday’s General Session without a lengthy review process.
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