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Brazil is a key trade partner for U.S. ethanol markets

Thursday, October 5, 2017

Brazil, the world’s second largest ethanol producer after the United States, plays a large role in U.S. ethanol markets. Not only is Brazil one of the nation’s customers, it is also a competitor and a supplier. Brazilian ethanol is derived from sugar, which is desirable because it is categorized as an advanced biofuel under the renewable fuel standard. Through July of this year, the United States exported 770 million gallons of ethanol, with 40 percent of it going to Brazil. Of the 24 million gallons of ethanol imported into the United States, nearly all originated in Brazil. During this period, the Brazilian government took measures to lower fuel prices, causing sugar mills to switch from producing ethanol to sugar, because of higher returns. The resulting ethanol shortage has been filled by expanding imports from the United States. In response, the Brazilian government announced the imposition of a 20-percent duty on U.S. ethanol imports above the tariff rate quota of 160 million gallons (less than 4 months of shipments at current export levels). This will sharply reduce the competitiveness of U.S. corn-starch ethanol in Brazil and significantly reduce U.S. exports. Brazil is also implementing a new energy policy, called RenovaBio, which will increase ethanol production and consumption as part of greenhouse gas reduction commitments made under the 2015 Paris Climate Conference. This chart is drawn from the ERS Feed Outlook newsletter, released in September 2017.

Corn area growth rates are high in the former Soviet Union region

Tuesday, June 6, 2017

Corn planted area changes are uneven among the regions in the world, and the fastest to expand its corn area is by far the Former Soviet Union (FSU) region. The majority of the growth comes from Ukraine and Russia, countries that produced little corn in the past. Importantly, these countries have also become significant, albeit smaller, corn exporters, with combined exports increasing twelvefold over the last decade. Policy changes in the early 90s required farms to be self-financing and gave farmers decision-making freedom that allowed them to switch to more profitable crops like corn, sunflower seed, and soybeans, at the expense of rye, barley, oats, and pastures. Ukraine and Russia became more integrated into the world agricultural economy, such that trade, foreign agricultural investment, and technology transfer all expanded. All these developments have helped to drive the expansion of corn area and yields. As corn area and yields have grown, the FSU region has increased its share of global corn production from 1 percent in 1997-01 up to 5 percent in the 2017 forecast. Though their corn output is still small compared to the largest world producers (North America is expected to produce 38 percent of global corn in 2017), Ukraine has become a major corn exporter, behind the United States, Brazil, and Argentina. This chart appears in the ERS Feed Outlook Newsletter, released in May 2017.

ACRE payments for corn are concentrated in the Midwest

Monday, October 10, 2016

USDA's Average Crop Revenue Election Program (ACRE) is an alternative to price-based commodity programs. Begun in 2009, the program uses a combination of State- and farm-level revenue guarantees that are determined from recent historic prices and yields. The ACRE program makes payments to producers when both State average revenue and farm revenue for a crop fall below recent historic levels. The map shows expected ACRE payments, based on simulated crop revenue variability, per acre for representative farms (one per crop per county) relative to national average ACRE payments. For corn, ACRE payments would be high in Midwest areas with high average yields, even though these areas have low yield and revenue variability and strong negative price-yield correlations. ACRE payments also tend to be high along the Southeast and Middle Atlantic coast where average yields are low and yield and revenue variability are high. This map originally appeared in the December 2010 issue of Amber Waves.

Corn exports by major U.S. competitors continue to surge

Thursday, September 1, 2016

Although the United States remains the world?s largest corn exporter, exports by major U.S. competitors have gained increasing shares of the world market since the mid-2000s. The decline in U.S. corn market share has corresponded with the increased use of corn to produce ethanol in the United States, while sustained, relatively strong corn prices have sparked more production in competitor countries.? In 2012/13, U.S. exports are forecast to slip to 26.0 million tons, the lowest since 1971/72, because of drought damage to the U.S. corn harvest. ?In 2012/13, production prospects have improved in Brazil and Argentina, the largest U.S. competitors.? Brazil has been exporting corn at a record pace because tight soybean supplies have allowed a shift of port capacity to corn. Argentina?s corn exports are expected to increase following the March 2013 corn harvest, and are now forecast at a record 19.5 million tons. Ukraine?s corn export prospects remain strong for 2012/13, following the sharp increase in exports in 2011/12. India?s exports, fueled largely by increased adoption of hybrid corn, are also forecast to remain strong in the current price environment.? This chart is adapted from the Feed Grain Chart Gallery published with Feed Outlook: January 2013, FDS-13a.

Even large commodity price increases result in modest food price inflation

Thursday, September 1, 2016

Farm-level commodity prices are far more volatile than food prices, as costs for marketing inputs such as packaging, processing, and transportation mitigate commodity price volatility on supermarket shelves and restaurant menus. Corn, wheat, and soybeans are the three most important field crops to the U.S. food supply. The average farm price of these crops, weighted by total production, regularly rises or falls by over 10 percent from year to year. On average, food prices have become less volatile in recent decades, as food price inflation averaged 8 percent per year in the 1970s, but only 2.8 percent per year since 1990. Commodity prices, alternatively, have grown somewhat more volatile over time. However, large changes in major commodity prices have relatively small impacts on food prices. In 2007-08, the average production-weighted price of these crops increased by 50 percent, while food prices rose 5.5 percent. Similarly, in 2010-11, the crop prices rose 31 percent and food prices increased 3.7 percent. This chart appears in the Food Price Outlook topic page on the ERS website, updated April 17, 2013.

Drought and heat in 2012 lowered U.S. corn yields by more than 40 bushels per acre

Thursday, September 1, 2016

The most severe and extensive drought in at least 25 years combined with high temperatures to seriously affect U.S. agriculture in 2012. Corn yields were the lowest since 1995, and the chart illustrates the impacts of drought and hot weather on 2012 corn yields. The 2012 season actually got off to a good start, with good weather initially permitting early planting of the corn crop, a typically beneficial factor that increased initial yield expectations for the crop. But then poor weather during the growing season hindered yields. An extremely dry June is estimated to have lowered 2012 corn yields by close to 19 bushels per acre. Hot and dry July weather further reduced yields an estimated 22-23 bushels per acre. This yield reduction breaks into two parts. First, the reduction due to high temperatures shifts the yield curve down 13 bushels per acre.?Dry weather in July 2012 was the primary cause of the rest of the reduction in corn yields (to 123.4 bushels per acre), represented by the indicated movement downward along the lowered yield curve. This chart appears in Weather Effects on Expected Corn and Soybean Yields, FDS 13g 01, July 2013.

Contract changes improve convergence of futures and cash prices for soft red winter wheat

Thursday, September 1, 2016

Futures markets play an important role in price discovery (determination of prices through the interaction of market supply and demand) for major agricultural commodities, and provide a tool for growers, traders, and processors to mitigate risk. For futures markets to perform these functions effectively, the price of a commodity held in a futures contract must match (or ?converge?) with its price in the cash?or spot?market when the futures contract expires.? During 2005-2011, cash and futures prices for soft red winter (SRW) wheat failed to converge to the generally acceptable ?basis??or difference between the cash price and futures price?of plus or minus $0.10/bushel. At times the basis exceeded $1.00/bushel.? In response, the futures exchanges modified their SRW contracts to better align contract terms with changes occurring in cash markets for factors including storage rates, major delivery locations for SRW, and quality specifications. Following these changes, cash and futures market prices for SRW have moved closer together, improving the effectiveness of futures contracts in determining prices and as a tool to manage risk. This chart is based on Recent Convergence Performance of Futures and Cash Prices for Corn, Soybeans, and Wheat, FDS-13L-01, released December 30, 2013.

Mixed picture for recent returns to production of U.S. field crops

Thursday, September 1, 2016

Estimates of U.S. crop returns per acre reveal large differences in crop profitability across commodities and over time during 2010-13. Returns to crop production are defined as the gross value of production less total economic costs. Total economic costs include operating costs such as seeds, fertilizer, and pesticides; the capital recovery cost for machinery and equipment; and the costs?known as opportunity costs?of employing land, labor, capital and other owned resources that have alternative uses. While returns to total economic costs for corn, soybeans, rice, and peanuts were positive, on average, for the 2010-13 period, average returns for other major crops were negative.? For most crops, changes in farm prices and the gross value of production per acre, rather than changes in production costs, have driven returns to total economic costs. Lower prices contributed to reduced returns for corn, soybeans, wheat, sorghum, and peanuts in 2013, while price and yield increases improved returns for oats and rice.? The negative returns over total economic costs for some crops indicate that that those producers realized a lower rate of return to their land, labor, and capital than the benchmark rates of return used in ERS commodity cost and returns accounts; returns over operating costs alone were positive for all crops throughout the period.? This chart is based on data found in Commodity Costs and Returns.

Adoption of insect-resistant GE corn varies by region

Thursday, September 1, 2016

Genetically engineered (GE) crops are being developed with various traits; the most widely-adopted GE crops to date are designed to help farmers control insect and weed pests. To control insect damage, Bt corn is genetically engineered to carry the gene from the soil bacterium Bacillus thuringiensis, which produces a protein that is toxic when ingested by certain insects. Bt corn with traits to control the European corn borer was introduced commercially in 1996, with additional traits to control other types of insects introduced beginning in 2003. Farmers planting Bt crops benefit from decreased dependence on weather conditions affecting the timing and effectiveness of traditional insecticide applications because the Bt toxin remains active in the plant throughout the crop year. By improving pest control, Bt corn produces higher yields when pest infestation is a problem. More than 60 percent of U.S. corn farmers planted Bt corn in 2010 in response to the threat of highly localized insect infestations. This chart is found in the ERS report, Genetically Engineered Crops in the United States, ERR-162, February 2014.

U.S. corn use in ethanol now tracks gasoline consumption

Thursday, September 1, 2016

The rapid growth in use of U.S. corn to produce ethanol that occurred during the 2000s has slowed sharply since 2010, and now tracks with U.S. gasoline consumption.? Lower U.S. gasoline use since 2007, combined with market constraints to increased blending of biofuel, now limits the demand for corn-based ethanol.? Nearly all retail gasoline sold in the United States is a 10-percent ethanol blend (E10). Although ethanol demand now plays a more limited role in driving growth in U.S. corn demand, it continues to account for a large share of total U.S. corn use, averaging 39 percent since 2010.? This chart is based on data found in ERS's Feed Grains Database and U.S. Bioenergy Statistics. For more analysis, see Feed Outlook: October 2014.

August to January is becoming the most active period for Brazil's corn exports

Thursday, September 1, 2016

Corn is Brazil's second largest crop (after soybeans), accounting for 20 percent of planted area, and Brazil is the world's second largest corn exporter, behind the United States. Due to a favorable climate and long growing season, double-cropping is possible in much of the country, and the majority of corn in Brazil is harvested as a second crop planted after soybeans. Brazil tends to use most of its first-crop corn (harvested primarily during February-April) domestically because it is grown near the poultry and pork enterprises in the South, and the transportation system is focused on moving soybeans into global markets. But second-crop corn is harvested during June-August just as Brazil's peak soybean export period ends, freeing up port capacity and transportation resources to move corn into export markets. Second-crop corn production in Brazil has expanded rapidly over the past 5 years, and over the same period the seasonal pattern of Brazil's corn exports has shifted such that a much larger portion now enters export markets from August to January, months when harvesting begins and supplies peak in the United States. This chart is from the ERS report, Brazil's Corn Industry and the Effect on the Seasonal Pattern of U.S. Corn Exports, released June 15, 2016.

Recent evidence suggests that farmers continue to adopt no-till on more cropland

Thursday, September 1, 2016

Farmers have choices for how they prepare the soil; reduce weed growth; incorporate fertilizer, manure and organic matter into the soil; and seed their crops, including the number of tillage operations and tillage depth. Tillage practices affect soil carbon, water pollution, and farmers? energy and pesticide use. No-till is generally the least intensive form of tillage. Approximately 35 percent of U.S. cropland (88 million acres) planted to eight major crops had no-till operations in 2009, according to ERS researchers who estimated tillage trends based on 2000-07 data from USDA?s Agricultural Resource Management Survey (ARMS). Furthermore, the use of no-till increased over time for corn, cotton, soybeans, rice and wheat, the crops for which the ARMS data were sufficient to calculate a trend. While a more recent estimate of nationwide use of no-till by all major crop producers is not available, based on the results of recent surveys of wheat producers in 2009 and corn producers in 2010, it seems likely that no-till?s use continues to spread, albeit at a much reduced pace among corn producers. This chart is found on the ERS topic page, Soil Tillage and Crop Rotation, and in the ERS report, Agriculture?s Supply and Demand for Energy and Energy Products, EIB-112, May 2013.

Global corn ending stocks forecast to be the highest in 15 years

Thursday, September 1, 2016

Global corn stocks are forecast to rise to the highest level in 15 years by the end of 2014/15 (September/August), leading to downward pressure on U.S. and global corn prices. Stocks fell to relatively low levels during 2003/04-2006/07, prior to the 2008 spike in world commodity prices, but are now forecast to reach 188.1 million tons in 2014/15, just 3 percent below the recent high of 194.4 million tons in 1999/2000. Since 2008/09, world corn production has exceeded total consumption in 5 out of 7 years.? In addition to the United States and China?the two largest global producers and consumers of corn?production and stocks have been generally rising in Brazil, Russia, and Ukraine?countries that are also playing an expanding role as corn exporters.? With a second consecutive above trend U.S. corn harvest forecast for 2014/15, the United States is expected to account for most of the 8-percent increase in global corn stocks forecast in 2014/15. With growing inventories, the U.S. season average farm price of corn is expected to decline to $4.00 per bushel, down 10 percent from $4.45 per bushel in 2013/14, and 42 percent from $6.89 per bushel in the U.S. drought year of 2012/13. Find this chart in the Feed Grain Chart Gallery and additional analysis in Feed Outlook: July 2014.

Editor's Pick 2014, #1:<br>China's net grain imports surge in 2012 and 2013

Thursday, September 1, 2016

China?s demand for imported grains, much of it from the United States, has surged recently, with imports of cereal grains rising to 16 million tons in 2012 and 18 million in 2013. Imports in 2013 included 3 million tons of corn and 4 million tons of DDGS (distillers dried grains with solubles; a co-product of U.S. corn ethanol production used for feed) from the United States.? In 2013, the United States supplied 70 percent of China?s wheat imports and, for the first time, China became a major market for U.S. sorghum. China?s demand for feed grains appears to have reached a turning point, as a tightening labor supply and rising feed costs force structural change in China?s livestock sector. Labor scarcity, animal disease pressures, and rising living standards are prompting rural households to abandon ?backyard? livestock production and shift more production to specialized farm enterprises that rely more heavily on commercial feed. Because of this, China has switched from being a corn exporter to importing 3-5 million tons annually since 2009. Rising feed demand has also pushed up costs and motivated feed mills and livestock producers to explore new feed ingredients like DDGS and sorghum. Find this chart and additional analysis in "China in the Next Decade: Rising Meat Demand and Growing Imports of Feed" in the April Amber Waves. Originally published Thursday May 22, 2014.

Brazil is now both an exporter and importer of ethanol

Thursday, September 1, 2016

Brazil had historically been the world?s largest net exporter of ethanol, but rising sugar prices (sugar is Brazil?s primary ethanol feedstock) and growing demand for domestic ethanol consumption led to lower ethanol exports, particularly in 2009 and 2010. In 2010 the Brazilian Government lifted a tariff on ethanol imports through the end of 2015, leading to the country?s first imports of ethanol. Imports grew rapidly in 2011 and resulted in Brazil being a net ethanol importer?by a small margin?for the only time in its history. Ethanol exports recovered in 2012 but have declined each year since, while imports remain an important source of supply. Since 2010, the United States?now the world?s largest ethanol exporter?has been the largest supplier of ethanol to Brazil, followed distantly by the EU. This chart is based on the ERS report, Biofuel Use in International Markets: the Importance of Trade.

A growing share of U.S. corn is exported as ethanol byproducts

Thursday, September 1, 2016

U.S. exports of distillers dried grains with solubles (DDGS)?a common byproduct of corn ethanol production?have grown from nearly zero in 2005 to as high as 12 million metric tons in the 2013/14 marketing year (September/August), with 10 million metric tons forecast for export in the 2015 marketing year. This increase in exports reflects the expansion in ethanol production that occurred over this same period, rising from just under 4 billion gallons in 2005 to more than 14 billion gallons in 2014. While U.S. corn exports still exceed the volume of DDGS exported, these markets are linked because each ton of corn processed into ethanol produces just under a third of a ton of DDGS. Ethanol production accounted for 38 percent of U.S. corn use in 2014/15, while exports were less than 14 percent, but DDGS exports represent another way that U.S. corn production enters global markets. This chart is from the ERS data products, U.S. Bioenergy Statistics and the Feed Grains Database.

The price of sorghum has returned to below the price of corn

Thursday, September 1, 2016

Sorghum is a common feed grain that can substitute for corn in livestock feed rations and in the production of ethanol. Corn tends to be preferred over sorghum as a feed ingredient, so sorghum typically sells at a discount compared to corn in global markets.? Throughout much of the 2014 marketing year (September-August) this situation reversed, and due in large part to strong demand from China, sorghum began selling at a premium over corn, at times exceeding 20 percent. As a result, sorghum use for ethanol production declined while acreage for the 2015 harvest increased to result in a record-large U.S. crop. This, combined with recent changes in China?s import policy that could reduce U.S. sorghum?s export prospects for the 2015 crop, has greatly increased the availability of sorghum in domestic markets for feeding and ethanol production. Because of the greater availability of sorghum, the price fell back below the price of corn and is now more in line with historic relationships. Given these lower prices, sorghum use for ethanol production is expected to expand more than fivefold this year, and U.S. shipments to Mexico, which were hampered by the high prices for the 2014 crop, are expected to at least partially resume during the current marketing year, which began in September 2015. This chart is based on the October 2015?Feed Outlook?and the ERS?Feed Grains?database. ?

U.S. corn production and use expected to reach a new record in 2016

Thursday, September 1, 2016

U.S. corn area in 2016/17 is estimated at 94.1 million acres, of which 86.6 million is expected to be harvested for grain, up 5.9 million from last year. With a national average yield forecast of 168 bushels, corn production this year would reach 14.5 billion bushels, 939 million bushels above last year?s harvest and 324 million more than was harvested from the record-large 2014/15 crop. The larger supply is expected to have a dampening effect on prices, making U.S. corn more competitive in the global market and boosting exports to 2.1 billion bushels in 2016/17, up from 1.9 million from the 2015/16 crop and the highest since 2007/08 when they reached 2.4 billion. Use for ethanol as well as other food, seed and industrial uses is expected to increase only modestly (less than 1 percent) to 6.7 million bushels, reflecting the maturity of those markets. Feed and residual use (a category that mainly includes livestock feed as well as other uses unaccounted for) is expected to consume 5.5 billion bushels, up 300 million from the 2015/16 crop. With projected supply expected to exceed total use of the 2016/17 crop, ending stocks are forecast to grow to 2.1 billion bushels, up from the 1.7 billion bushels expected to be on hand at the end of the 2015/16 crop year. This chart is from the ERS report Feed Outlook, July 2016.

Sugarcane production in Brazil has expanded, and about half is used for ethanol

Thursday, September 1, 2016

The Government of Brazil has supported the production of ethanol as an automotive fuel for many years, beginning in 1975 with the Pro?lcool program, to encourage production of ethanol from sugarcane and including many programs that remain in effect today?including mandatory ethanol-blending requirements in gasoline and tax exemptions for ethanol-powered cars. Sugarcane is nearly the exclusive ethanol feedstock in Brazil, and Brazil is the world?s largest sugarcane producer, accounting for 39 percent of world production. Until the mid-1990s, the share of sugar production turned into ethanol was set by government policy, but since then market forces have determined the share that is converted to ethanol. In particular, the relationship among the prices of sugar, gasoline, and ethanol, as well as storage capacity at sugar mills, all play a role. Production of both sugar and ethanol in Brazil has expanded rapidly since the mid-1990s. Sugarcane production reached 640 million tons in 2014, up 188 percent since 1991, while over the same time, the share used for ethanol production declined from 72 percent in 1991 to a low of just over 49 percent in 2003 and a 2014 level of 55 percent. This chart is from the ERS report, Brazil?s Agricultural Land Use and Trade: Effects of Changes in Oil Prices and Ethanol Demand, released June 29, 2016.

Dry weather reduces corn yields more than wet weather increases them

Thursday, September 1, 2016

Weather during the growing season is critical for the development of the U.S. corn crop. In particular, weather in July tends to be the most important factor in the determination of corn yields. A corn yield model based on historical data covering the past 25 years provides estimates of the effects of weather and other factors.? When other explanatory variables in the model are held constant, the model illustrates that the response of corn yields to variations in July precipitation is asymmetric?reductions in July precipitation below its average result in larger declines in corn yields than the gains in yields resulting from equal increases in July precipitation above its average. This chart is from Weather Effects on Expected Corn and Soybean Yields, FDS-13g-01.

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