- HEADLINES: Biofuel mandate report from Reuters hits bio-crop values; Chicago recovers on enlarged 2022 mandate; Russian cash wheat market firm.
- Chicago futures are mixed at midday following a failed morning rally in soyoil/corn, the biofuel crops. Wheat values are holding steadier on rumours that Russia may limit wheat exports to 1.6 million mt per month starting in January on a quota. No confirmation is offered, but this would drop 2021/22 Russian wheat exports below 30 million mt by our calculation. Therefore, wheat is holding when compared to the remainder of Chicago trade. Russian legislation allows for the tax and quotas should Russian wheat stocks/supplies be deemed as too limited. Details are awaited but the quota is another restriction on Russian grain trade.
- Reuters reported that EPA was mulling cuts in biofuel blending in a win for the US oil industry. We would note that the win for big oil is primarily based on sharply reduced prices of RINs and that compliance bars will be set lower. Note that with the 2020 year completed, and just 1 quarter left in 2021, such that the lower blending requirement will not have a noticeable impact on US ethanol or biodiesel demand. Reuters indicates that the EPA 2020 blending mandate will be set at 17.1 billion gallons with 2021 at 18.6 billion gallons. Both are lowered to account for reduced fuel demand due to the pandemic.
- Importantly, the biofuel mandate for calendar year 2022 was raised to 20.8 billion gallons. It is the 2022 mandate which is most important to US vegoil/soyoil demand/prices amid the growing demand for renewable diesel. Renewable diesel is not part of the EPA mandate program and to keep it near 21 billion gallons is longer term bullish to soyoil. OMB are said to be reviewing the EPA proposals with a final mandate announcement due later this month or in October. Just getting the industry to better understand the 2022 mandate is important along with getting rid of the headline risk that has plagued the US biofuel industry since 2019, the last time it was finalised. Chicago soyoil and corn futures have been raked over by headlines of reduced biodiesel blending for months, getting the mandate behind the market is considered a relief to traders.
- Weekly US ethanol production was 272 million gallons, down 3 million from last week, but up 2% from last year. US ethanol stocks roses million gallons to 845 million gallons while Americans consumed 8.9 million barrels of gasoline per day. This gas consumption rate was up 4% from last year, but down 5% from 2019. US ethanol production is expected to eclipse 2020/21 by at least 4% which will produce a corn use estimate of 5,250 million bu or more. American gasoline consumption is expected to hold 2% below 2020 into early next year.
- The forecast is wetter across the Plains and N Minnesota, compared to the overnight run. The GFS weather forecast has added rain for late September and early October which would be ideal for germinating Kansas wheat. The EU model also hinted at increasing showers for the Plains. Otherwise, the Midwest/Delta forecast is little changed with showers continuing across the E Midwest heading into the weekend.
- It is difficult to find European wheat or Ukraine corn offer in each’s FOB/CIF markets. The tightening of non-US supplies is being felt. Yet, as the US Gulf slowly comes back to into operation, weekly export sales will be low Thursday morning. And US corn/soybean loadings will be dull for another few weeks. Thankfully, Chicago is looking beyond the macro financial conditions of China’s Evergrande today, but the company will report Thursday if they have paid/missed a US$ denominated bond debt payment. We maintain a bullish outlook on wheat, corn and soyoil with soymeal to struggle on rallies. The 50-day moving average crosses at $5.435 December corn and $7.045 in KC December wheat. Funds are vulnerably short of Chicago wheat.