Much of the volatility in the vegetable oils markets over the last several months has centered on the changing expected demand for feedstock for biodiesel production based on Environmental Protection Agency mandates. Prices have fluctuated a lot based on announcements and expectations for the government's requirement for production and blending of biofuels.
In the spring, support was found by an announcement of higher standards in 2018. Additionally, import restrictions on biodiesel from Argentina and Indonesia would force U.S. blenders to use more domestically sourced product and increase vegetable oil demand.
Then in the fall, the EPA began to take comments on potentially altering mandate levels by either reducing them outright or allowing different classes of alternative fuels to count against mandate levels for other biofuels.
But strength was returned to the fats markets this week, as the EPA announced that it will maintain renewable fuels mandate volumes equal to or greater than initially proposed. There will be no shift in the point of obligation of reporting to the EPA from blenders to producers. Also adding to support for corn, there will not be any program (or exploration into a program) to allow credits to remain in the U.S. for exported ethanol. Along with the ethanol announcement, the EPA is ready to work with Congress to analyze allowing E15 gasoline to be sold year-round.
This move by the EPA is clearly supportive to the fats markets for the long term. Without imports from Indonesia and Argentina under the ruling on anti-dumping and no reduction in mandates (with the door open for increases in the mandates), strong demand for biodiesel production in the U.S. will drive up prices. The move addresses some major concerns that Trump-voting states had, as many rural communities would have been negatively impacted by a reduction in biodiesel and ethanol demand. This announcement by the EPA has already bolstered the fats markets and should continue to do so into early 2018.
Wheat markets have been extremely quiet and are pressing down at previous lows. There has been little to drive the markets domestically, as stocks are quite large in the U.S. and Canada, even with the poor spring wheat weather and reduced planted area. Global stocks are huge and continue to limit any significant upside potential. In the U.S., the Department of Agriculture showed a slightly delayed winter wheat planting pace, at 60 percent completion compared to 71 percent for the five-year average. Emergence is also slightly behind normal. However, some rains that have delayed fieldwork will likely provide some good moisture for early crop development.
Durum prices were modestly lower this week. Like wheat, there has been a lack of domestic news to provide much direction. Modest pressure from the broader wheat market has pushed durum downward.
Canola prices are up from a couple of weeks ago, finding some support from the Chicago soybean oil market. Independently, harvest is in its final stages in Canada. There are some concerns that parts of Alberta will face adverse weather late in the season that would leave 5 to 10 percent of the crop unharvested (like last year). However, much of the crop is done, and depleted pipelines to processors have been replenished.
The next place of uncertainty will be centered on the North American Free Trade Agreement. With the U.S. looking to renegotiate terms, it is not clear if the agreement with Mexico and Canada will continue. While much of the discussion revolves around non-agriculture related items, if the U.S. leaves NAFTA and trade is disrupted, canola and other products would not flow freely across borders. With over 4 million metric tons of canola exported to the U.S. last year, this would seriously impact growers and the entire industry.
Peas and lentils
The pulse markets have stayed quiet. With harvest of this year's crop done, the big question is export business. India's moves to support domestic producers and demand Canadian exports of certain products be fumigated with ethyl bromide make for an uncertain future. However, their huge population needs to eat, and their domestic production is not even close to meeting that demand.
There is little new information to drive the mustard seed market this week. A smaller crop from a year ago is known, and this should lead to some price support in the months ahead.