- Chicago grain futures were down sharply in early trade, before the EPA announced its 2017 Biofuel mandates, something that has to occur in law prior to November 30th. It was expected that the EPA would announce 2017 biofuel mandates on November 30th (like last year), but they jumped the gun announcing it today. The new mandates caused a dramatic rally in soybean oil which has pulled soybeans higher, while soybean meal prices fell to sharp losses. Although the EPA mandates were long expected and did not come out much different from what has been advertised, they did cause a big flurry of fund buying in soybean oil. The EPA increased its conventional ethanol mandate from 14.5 billion gallons to 15.0 billion gallons, up 500 million gallons, the same increase as 2016. This would consume a potential extra 170 million bu of corn, which is not going to change the US corn balance sheet much for 2016/17 or 2017/18.
- Bear in mind that there is already talk from the Trump administration that they will move to end the blenders credit in their effort of tax reform. The point is that there are still a number of moving parts in the final determination of what the actual US biofuel use will be in 2017!
- Whilst today has seen a big push to the upside in soybean oil on the back of massive fund buying following the EPA announcement we would argue that we are in the process of forming a major “top” in vegoils, possibly by early December; we are not therefore about to turn bullish on either the grains os soybean complex just yet.