The soybean, the bushel and the ethanol mandate | FT Alphaville

The soybean, the bushel and the ethanol mandate

The performance of the Soybean future since the 1990s:

And on a shorter-term basis:

It’s not quite clear on that chart, but according to Reuters the price of soybeans in Chicago is now at a fresh record high due to falling exports from Brazil and the historic drought in the United States:

Chicago soybeans climbed to a record high on Tuesday as falling exports from Brazil highlighted the decline in global supplies after poor production in South America and a historic drought in the United States.

Corn and wheat jumped around 1 percent with rising expectations of global economic stimulus measures underpinning the commodity markets, including oil and metals. Brazil exported 1.96 million tonnes of soybeans in the first four weeks of August, down from 4.13 million tonnes shipped in all of July, according to trade ministry data. Brazil is the world’s second-largest exporter and the decline in its sales means demand will intensify for oilseeds from the United States and other origins.

Dennis Gartman writing in his daily note, however, observes, that the record has been achieved despite what have been rather substantive rains across a good portion of the Midwest.

As he noted on Tuesday:

Some areas in Illinois (the nation’s most important soybean producing state) and into Indiana and Ohio the rains were several inches and over the course of many hours. Good, soaking and in some instances drought-busting rains. This should be manifestly bearish.

FT Alphaville isn’t that clued up on farming, so we couldn’t possibly comment on the usefulness of all that rain coming so late in the season.

But we will note that from a food price inflation point of view, this could put further pressure on the US government to cut its ethanol fuel mandate policy.

This is especially since global food agencies put out the following statement on biofuels on Tuesday:

Lastly, we also need to review and adjust where applicable policies currently in place that encourage alternative uses of grains. For example, adjusting biofuel mandates when global markets come under pressure and food supplies are endangered has been recommended by a group of international organizations including FAO, IFAD, the International Monetary Fund, the Organisation for Economic Co-operation and Development, the UN Conference on Trade and Development, WFP, the World Bank and the World Trade Organization. That recommendation, made to the 2011 G20 summit in Paris, still stands today.

Related links:
A palm oil storm in the making – FT Alphaville
Food prices and crop yields
– FT Alphaville
Ethanol Would Suffer Under Waived U.S. Mandate, Vilsack Says – Bloomberg