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Market Matters Blog           07/27 14:41
Shipper Groups, Railroads at Odds Over Rules Regarding Railroads' 
Revenue-Adequate Status
Sorghum's GMO Question
More Heavy Rains Cause Major Headaches, Weak Basis
DDG, Ethanol Exports Climb
Record Trading Volumes in Ag
Additional Rains Add Insult to Injury Caused by Tropical Storm Bill 
Tropical Storm Bill Adds to Already High Water Conditions
Cotton's Acreage Conundrum 
STB Reviews Rail Transportation of Grain, Rate Regulations
TAS Orders Available Starting Monday

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Shipper Groups, Railroads at Odds Over Rules Regarding Railroads' 
Revenue-Adequate Status

   MINNEAPOLIS, Minn. (DTN) -- Testimony presented during a hearing last week 
on whether railroads should be able to continue to differentially price rail 
service to captive shippers once they reach revenue-adequate status showed a 
wide divide between railroads and shipper groups on the issue. 

   The hearing was conducted July 22-23 by the federal Surface Transportation 
Board. DTN listened to the hearing online. 

   Newly reinstated Surface Transportation Board Chairman, Dan Elliot, opened 
the two-day public hearing by stating, "We are in the midst of a rail 
renaissance." In his opening remarks, Elliot said that the railroad industry 
carries a "vast range of commodities, with traffic accounting for 1.7 billion 
tons of freight each year."

   "Now that the industry is both financially healthier and restructured with 
fewer large railroads, the STB needs to examine core practices to meet the 
goals Congress has laid out for the agency," Elliot said. "The board's 
reexamination of its economic regulatory policies does not mean that 
significant changes to these policies are in order."

   "Assessing the effects of any proposed regulatory actions in these 
proceedings is a consideration of the utmost importance. The goal is that the 
board policies reflect thoughtful, balanced decision-making that takes into 
account a modernized railroad industry and sound economic principles," said 
Elliot.

   Vice Chairman Ann Begeman said that while she had definite views on the 
subject, she would remain "open minded" and stated she was not looking "to turn 
the clock back on the rail industry." 

   Progressive Railroad reported that, "The STB annually determines whether 
Class I railroads are revenue adequate, a concept that describes whether a 
railroad is earning sufficient revenue to cover its costs and earn a reasonable 
return sufficient to attract capital. The hearing explored how the board should 
regulate railroads that are revenue adequate, and how such an adequacy finding 
should impact the regulation of rail rates, among other issues."

   A group representing concerned shippers presented their arguments for 
change, stating, "The four major railroads consistently carried fewer carloads 
between 2005 and 2014, and during that time, operations have not improved." 
They also presented graphs showing that rail industry earnings were above 
revenue adequate level between 2011 through 2014. (For the full testimony of 
the shipper associations, visit: http://goo.gl/voHvzZ)

   Consumers United for Rail Equity (CURE) President David Sauer, in his 
written comments to the STB said, "CURE has long been concerned that the STB's 
annual determinations of the 'revenue adequacy' for Class I carriers does not 
reflect the true health of the industry and its members. Further, CURE believes 
that the carriers' falsely perceived lack of adequate revenues has served to 
shield the railroads' exercise of their monopoly pricing power from STB 
scrutiny and prevented shippers from obtaining appropriate relief. This should 
change, especially as the carriers have achieved revenue adequacy." 
http://goo.gl/5kZsft

   During their presentation to the STB, the BNSF stated that, "BNSF's 
investment is unprecedented; investment is driving improved service and 
efficiency for customers and customers are responding with investment and 
volumes on our railroad. Regulatory changes that disrupt the current balance 
will have unintended consequences and lower capital investment. Any board 
consideration of long-term revenue adequacy should only occur within 
individualized rate review process." http://goo.gl/z8Y4p7

   The Association of American Railroads (AAR) leaders from its member 
railroads and economic experts urged the STB during the hearing to "beware of 
upending numerous national economic goals if they choose to pursue 
re-instituting revenue caps on freight rail companies." 

   AAR President and CEO Edward R. Hamberger told the board that "misapplying 
regulations would have far-reaching impacts on the freight rail industry's 
ability to sustain the billions of private funds spent by railroads each year 
to build, maintain and upgrade the nation's 140,000-mile rail network," 
according to the AAR press release of their testimony on July 22. 

   "Now comes a handful of interest groups that want you to cut their 
transportation costs by direct government intervention at the expense of the 
greater good. Let's call it what it is: They want you to institute a regime of 
wide-ranging price controls on freight railroads," Hamberger testified.

   "Regulation of railroads' overall revenue levels would run counter to 
Congress' goals in the Staggers Act of 1980 that partially deregulated the 
freight rail industry to allow railroads to earn sufficient revenue to meet 
their long-term needs without having to rely on the federal government. As Dr. 
Roger Brinner, chief economist with SandPointe LLC testified, the concept of 
revenue adequacy should be a goal, and not a directive to constrain revenues; 
railroads should not be penalized for improved financial performance."

   NGFA Chief Operating Officer Randy Gordy said in a press release on July 24 
that, "Under the Staggers Rail Act, rail users are authorized to challenge 
rates for revenue-adequate railroads that have market dominance and whose rates 
exceed 180% of the variable cost of providing the service."

   Gordon wrote that STB member Debra Miller stated that it was "time to give 
meaning to the concept of revenue adequacy" and reiterated her earlier 
statements made at the June 10 STB hearing, at which the NGFA testified on the 
agency's grain rail rate proceeding. At that meeting, the NGFA said that it was 
time to review revenue adequacy and rail rate policy in the context of other 
ongoing STB proceedings, including one on competitive switching. 
http://goo.gl/xvnReu

   Gordon said that the STB commissioners, while reserving judgment, did appear 
to indicate that a review was necessary.

   Mary Kennedy can be reached at mary.kennedy@dtn.com

   Follow Mary Kennedy on Twitter @MaryCKenn

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Sorghum's GMO Question

   This week, reporter Emily Unglesbee and I take broader look at what it will 
take for grain sorghum to increase its share of farmers' crop mixes and become 
a 1 billion bushel crop. There are some important hurdles sorghum will have to 
face if it's going to get there, with maintaining profitability and strong 
markets at the top of that list, followed by better weed and insect management. 
Its drought tolerance and ability to perform on marginal land helps it out, 
too.  

   One thing we don't dive into in detail in this week's series is that sorghum 
is a non-genetically engineered crop. Why? Sorghum's reaping market advantages 
right now due to its non-GE status, and until annual production achieves a 
critical mass, it's not likely to be a profitable endeavor for technology 
companies or a contentious issue. Few farmers are pushing for change now, but 
they are keenly aware of the advantages GE sorghum could bring to sorghum 
production.  

   Emily took a deeper look at the questions around GE sorghum while attending 
the Export Sorghum meeting in Houston last month. We feel the story she wrote 
then adds important context to our series, so we're including it here for 
reference. 

   ***

   Sorghum's GMO Question

   Industry Reaps Advantages of Non-GMO Markets ... For Now

   Between domestic and international markets, sorghum's status as an ancient 
grain with no genetic engineering is paying off, but how long will that last?

   By Emily Unglesbee

   DTN Staff Reporter

   HOUSTON (DTN) -- Doug Bice chooses his words carefully when he talks about 
sorghum's status as a non-genetically engineered (GE) crop.  

   As director of high-value markets for the Sorghum Checkoff, Bice is well 
aware that the grain's history of traditional breeding has worked wonders for 
the industry recently. After continued rejections of GE corn shipments, China 
started a major switch in 2013 to U.S. grain sorghum to feed its poultry, 
cattle and hogs. This unprecedented demand has sent sorghum prices soaring 
above King Corn in some parts of the country. 

   Stateside, sorghum's status as an ancient grain, untouched by genetic 
engineering, has made it increasingly attractive to the growing number of 
consumers who don't want to eat food with GE ingredients. As a result, the 
Sorghum Checkoff's marketing efforts for food-grade sorghum have included this 
aspect of the grain, alongside other attributes, such as being gluten-free and 
being packed with antioxidants. 

   Yet the sorghum industry is leery of taking too strong a stance against GE 
sorghum, which could speed up important crop traits such as pest and weed 
resistance in the future, farmers and industry experts told DTN. 

   "The industry will have to make a judgment call on this in the next few 
years," Bice admitted. "But at this point, we don't have a strong commercial 
reason to become GMO." 

   "I wouldn't want to close the door on it," agreed Spence Pennington, a 
sorghum producer from Raymondville, Texas. "We might need it down the line." 

   But for now, Pennington likes growing a crop without any GE history. "It 
gives us diversity in our technology and markets," he explained. 

   Both Pennington and Bice were in Houston this week for the second-annual 
Export Sorghum conference, hosted by the Sorghum Checkoff and the Texas Grain 
Sorghum Producers. The event brought domestic and international grain buyers 
together with sorghum producers and experts for three days, in the hopes of 
generating new sorghum markets and improving existing ones. 

   This year, the event's 74 attendees included a dozen grain buyers from 
China, eager to learn about sorghum's feed qualities and availability in light 
of the country's robust new appetite for the non-GE grain. China's sorghum 
imports have skyrocketed from a mere 100,000 bushels in the 2012-13 marketing 
year to 313.7 million bushels for 2014-15, according to the Sorghum Checkoff. 

   Farmers have little desire to disrupt that trend, Pennington noted. 

   "In the U.S., we could probably feed GMO sorghum to livestock without a 
problem," he said. "But in Europe and China, that's not the case. So we can 
either try to overcome that with education, or we can just let the customer 
dictate the market." 

   On the human side of the equation, Bice believes sorghum holds serious 
potential. The grain's gluten-free, non-GE nature could make it a serious 
competitor to newly popular grains such as quinoa, as well as an ingredient in 
organic and gluten-free breads or beers. Pet food is another prospective 
market, as well as restaurants and food-service companies, he said.  

   Staking out even a small percentage of these markets could be a boon to the 
small but growing sorghum industry, he pointed out. "In a 500-million-bushel 
industry, to increase demand by 10, 20, or 30 million bushels per year would be 
very significant," he said. "And that's clearly in our sights between human 
consumption and pet food." 

   Theoretically, non-GE food-grade sorghum could co-exist with GE sorghum 
grown for livestock and fuel, but it would be risky, Bice noted. "We would need 
a lot of education to make that work," he said. 

   As far as crop breeding and advancements go, there are practical benefits to 
sticking with traditional breeding in sorghum, USDA Agricultural Research 
Service plant physiologist John Burke told Export Sorghum attendees. 

   "There's a huge amount of genetic diversity and natural variation within the 
sorghum germplasm collection," he said. As a result, breeders can almost always 
use traditional breeding to incorporate the traits they want into sorghum 
varieties without resorting to genetic engineering techniques that pull genes 
from other species, he explained. 

   Moreover, Burke and his team of sorghum breeders can turn over their 
discoveries -- sorghum lines with improved cold tolerance, for example -- to 
private companies that can quickly incorporate them and sell them to farmers 
without the slow and expensive regulatory process facing GE crops. 

   Nonetheless, sorghum is facing rising pest problems that could benefit from 
GE traits such as herbicide-tolerance and insect-resistance in the future, 
Pennington conceded. 

   Herbicide-tolerant weeds are beginning to surface in his region, and 
controlling grasses has always been historically difficult for sorghum growers, 
since the grain is itself a grass species. 

   The sugarcane aphid arrived in the southern U.S. abruptly two years ago and 
required multiple insecticide applications last year. Josh Birdwell, a sorghum 
farmer from Malone, Texas, told DTN that controlling the aphid last year added 
$60 to $70 per acre to his operation's expenses. 

   Other sorghum pests, such as the stink bug, midge and headworm have become 
significantly more problematic in recent years, adding to his workload and 
expenses, Pennington said. 

   In contrast, the availability of Bt cotton has simplified pest control in 
that crop dramatically on his farm, Pennington noted.  

   Pennington believes that future water scarcity could eventually make sorghum 
a sizeable enough crop to draw serious biotechnology investments from 
agricultural companies. By then, pest issues and global attitudes may have 
shifted enough to make GE sorghum worthwhile, but until then, he's content 
without it, he said. 

   Bice agreed. "If sorghum becomes a billion-bushel crop, then GMO sorghum 
might become a real possibility," he said. "But as long as production is where 
it is, I see no need to insert sorghum into that conflict."

   Emily Unglesbee can be reached at emily.unglesbee@dtn.com

   Follow Emily Unglesbee on Twitter @Emily_Unglesbee

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More Heavy Rains Cause Major Headaches, Weak Basis

   MINNEAPOLIS, Minn. (DTN) -- Illinois River levels rose again after the area 
was hit by more heavy rains recently, said Tom Russell, co-owner of the Russell 
Marine Group.

   "That rain runoff was sufficient enough to cause the Illinois River to close 
again at mile 30 to 89," Russell told DTN by email July 7. "Navigation on the 
Illinois River will be touch-and-go until weather has an extended dry period. 
The situation will have to be monitored on a daily basis." (For current 
Illinois River level forecasts, see http://goo.gl/LClvaA)

   On July 15, the CME announced in a special executive report that, effective 
immediately and until further notice, CBOT is reinstating a condition of force 
majeure "due to load-out impossibility at a majority of corn and soybean 
regular shipping stations on the Illinois River. Such shipping stations are 
unable to load due to high water levels and/or flooding." This came five days 
after the CME had lifted a June 17 force majeure on the same river. (To read 
the full report, see http://goo.gl/euvsiL)

   On July 16, the U.S. Coast guard reopened the 50-mile stretch of the 
Illinois River that had been closed, but high-water restrictions remained in 
place, slowing barges that had been stalled trying to make their way to the 
Gulf of Mexico. As of that date, the force majeure remained in place.

   "High water in the other main problem area from St. Louis to Cairo on the 
Upper Mississippi is still showing improvement," Russell told DTN. "The water 
off the Illinois River accounts for only about 10% of flows through the St. 
Louis Harbor. This stretch of river is open and traffic is moving with safety 
restrictions in place. The St. Louis Harbor is still extremely congested and 
will take some time for tows to get in front of the backlog of barges waiting 
to be picked up and towed south." (To view the current Upper Mississippi River 
level forecast, see http://goo.gl/T4A7xx)

   LOWER MISSISSIPPI RIVER RISING

   The Lower Mississippi from Cairo to New Orleans is rising and some areas 
will now reach flood stage. Barge traffic is moving, but some barge terminals 
have been forced to shut down due to high water. On July 17, the U.S. Army 
Corps of Engineers reported on its website that the Mississippi River at the 
Carrollton gage has risen to 15.0 feet, prompting the Corps to "activate the 
second phase of flood fight procedures to monitor levees along the Mississippi 
River. Closely coordinating efforts with the local levee authorities, the New 
Orleans District will begin daily patrolling of levees along the Mississippi 
River from Baton Rouge to Venice." (The current Lower Mississippi River level 
forecast can be seen at http://goo.gl/4HhGck)

   "Increased patrols help ensure our ability to respond quickly to any problem 
areas that may develop along the levee system because of the elevated water 
levels," the Corps added. "Also, construction projects within 1,500 feet of the 
levee system that were previously permitted must be shut down." 

   HIGH WATER, LOW BASIS

   River flooding caused corn basis bids to drop for barge movement. On July 1, 
Gulf barge basis bids were at plus 60. As of July 17, Gulf corn basis barge 
bids were at plus 44. Barge freight was not quoted on the Illinois River most 
of the month because the flooding hampered movement up and down the river. 

   River terminal basis has been weak to no quotes as terminals were unable to 
receive barges at their facilities or were unable to load barges already there. 
Barge freight in St. Louis to Cairo is down 15% since July 1, down 30% in the 
Cairo-to-Memphis corridor and down 25% in the lower Ohio corridor. 

   Rail basis was also affected, as bids to St. Louis ended the week lower 
because congestion in the St. Louis harbor slowed down barge traffic due to 
high water. Freight that would have been unloaded from rail in St. Louis to 
move south on barges would have ended up sitting on the tracks, costing the end 
user demurrage.

   "River levels in the New Orleans and Baton Rouge Harbors are still high with 
safety protocols in place," Russell said. "Baton Rouge will now reach flood 
stage, but New Orleans is expected to stay just under flood stage for now. 
Barge and ocean vessel traffic is moving, but a little slower than usual."

   Mary Kennedy can be reached at mary.kennedy@dtn.com 

   Follow Mary Kennedy on Twitter @MaryCKenn

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DDG, Ethanol Exports Climb

   U.S. ethanol exports totaled 64.6 million gallons in May, up 22% from a year 
ago, according to U.S. Census Bureau trade data. Year-to-date ethanol exports 
are 6% higher than last year.  

   "Ethanol exports account for a small portion of corn demand (roughly 300 
million bushels in 2014), but the higher pace so far in 2015 is slightly 
bullish for corn," DTN analyst Todd Hultman said. 

   Distillers grain exports totaled 1.171 mmt in May, up 9% from a year ago, 
and the second highest monthly total on record. In July 2014, the U.S. exported 
1.173 mmt. Year-to-date exports are down 9% from 2014. 

   "864,777 metric tons went to China in May, up 48% from a year ago and a new 
record high," Hultman said. "That is a bullish factor for U.S. corn demand. 

   Biodiesel exports totaled 35,915 mt in May, up 23% from a year ago. Hultman 
said it's "a slight bullish factor for soybean oil." Year-to-date exports are 
down 13% from 2014. 

******************************************************************************
Record Trading Volumes in Ag

   Tuesday, June 30, 2015 set records.

   CME Group's agricultural futures and option products did record volume: 2.87 
million trades. It was the largest volume day since... last Friday (June 26).  

   Combined corn futures and options volume: 1.12 million

   Corn futures only: 845,700 

   Combined soybean futures and options: 722,777

   Soybean futures only: 503,063

   Cash bushels traded electronically on DTN Portal: 16.7 million bushels, 
which was more than double the previous record set Thursday, June 25. Overall, 
54.8 million bushels traded during June.* 

   DTN analyst Todd Hultman said excessive rainfall cast doubt on yield 
potential, and then USDA's Grain Stocks showed smaller supplies of both corn 
and beans than the market expected.   

   "Anytime you get a surprise that alters the prevailing view of the markets, 
there is a lot of running for the doors," DTN analyst Todd Hultman said. "The 
June 30 reports are notorious for such surprises and Tuesday's numbers refuted 
a lot of early fundamental biases about this year's balance sheets for corn and 
beans."

   DTN Senior Analyst Darin Newsom agrees, and adds that noncommercial traders 
held a large net short position going into Tuesday's reports. "Buy orders were 
running amok, particularly in the last half hour of trade when even wheat was 
goosed to a higher than expected close." 

   Commercial traders may have been involved in the action for part of the day, 
"but as overnight basis and today's action showed, they may have moved to the 
sidelines. 

   "It doesn't change this group's long-term outlook though: Still bullish 
soybeans, neutral corn, and increasingly bullish (but easily changed) toward 
wheat."  

   *More than 45,000 farmers have made offers to sell grain to their local 
elevators through DTN Portal or Farms Technology DPP Grain Desk. The two 
programs teamed up in 2014 to maximize their strengths, and the popularity is 
growing.

   In the first five months of 2015, more than 150 million bushels had been 
offered through Portal, up 40 million bushels during the same time frame the 
previous year, according to DTN agribusiness product manager Don Konz. More 
than 1.3 billion bushels have been offered for sale on Portal since it went 
live in 2007.  

   In early June, DTN Portal launched branded apps for CHS, Valero Renewables 
and Green Plains Grain that allow farmers to make offers to any of those 
companies' locations.

   For farmers, DTN Portal is way to make, manage and monitor their offers to 
their preferred locations. For the elevators, Portal offers a comprehensive 
grain management platform that lets merchandisers accept offers, automatically 
hedge their purchases and view their entire position in real time, all while 
integrating with most accounting systems.  

   Konz argues that offers are the best way to judge how widely electronic cash 
markets are being adopted. How many bushels that actually trade through the 
platform, like Tuesday's 16.7 million bushel record, largely depends on market 
conditions -- like this 60-cent corn market rally. 

******************************************************************************
Additional Rains Add Insult to Injury Caused by Tropical Storm Bill 

   When Tropical Storm Bill exited the U.S. on June 21, it left behind rainfall 
totals of 4 or more inches in eight states: Arkansas, Illinois, Indiana, 
Louisiana, Missouri, Ohio, Oklahoma and Texas, according to the Weather Channel.

   The arrival of Bill caused rivers in Texas and Oklahoma, which were already 
swollen due to heavy rains that fell over the Memorial Day weekend, to spill 
over again. Rivers in Missouri and Louisiana also suffered from Bill as 
flooding covered not only city streets, but farm fields that had just been 
planted with spring crops or were not yet planted. According to USDA, as of 
June 21, farmers in Missouri had only planted 51% of their soybeans versus the 
five-year average of 88% and that only 34% of the soybean crop was rated in 
good-to-excellent condition. 

   The National Weather Service issued a flood warning on Saturday, June 27, 
for the Missouri River at St. Charles. The river there was at 29 feet on 
Sunday, June 28, and is expected to crest at 30.3 feet Monday afternoon. That 
would be just over 5 feet above flood stage. (http://goo.gl/ZHcfuo) On June 28, 
the NWS also issued flood warnings for the Wabash River, which was 22.8 feet at 
Lafayette, Indiana; moderate flood stage is 20 feet. The NWS said, "At 22.0 
feet, extensive flooding is in progress. During agricultural season, extensive 
crop damage occurs. Flooding will last from two days in central Indiana to the 
middle of July in southwest Indiana." (http://goo.gl/SdLJQQ) 

   Besides the stress on soybean crops, the soft red winter crop has suffered 
as well with diseases caused by too much rain. The CBOT price for soft red 
winter rose as Missouri, Indiana and Illinois were reported by USDA June 22 to 
have significant condition declines from the previous week. The front-month 
nearby Chicago wheat contracts traded to the highest levels seen since early 
January. For the week ending July 26, the July futures contract gained 73 3/4 
cents per bushel in Chicago. Cash basis, on the other hand, was weaker at river 
facilities affected by the high water with basis 7-10 cents weaker on average.

   HIGH WATER LEVELS AFFECTING BARGE MOVEMENT

   Just as many rivers had crested, more rain fell during the week of June 22, 
causing some of the rivers to climb back toward major flood stage. Tom Russell, 
Russell Marine Group, updated DTN in an email on June 29 on the most current 
river conditions. "High water on the Illinois River, Upper Mississippi middle 
area mile 300, and Upper Mississippi from St Louis to Cairo remain 
problematic," said Russell. "The rain pattern that has dropped concentrated 
amounts of rain in center areas of Midwest and Illinois River dropped more rain 
last weekend. The rain pattern in this area is forecast to drop slight to 
moderate amounts of rain in the area this week. Drying not expected to occur 
until July 9. Navigation in these three areas is difficult and very slow at 
best with some areas entirely closed. The situation is 'touch and go' and will 
require ongoing daily monitoring until general drop in water levels start to 
occur."

   Russell said "Illinois River will see a rise due to weekend rain and some 
parts of the river are near record high levels set in 2013. Areas near the 
mouth of the river mile 30 to 89 will close due to high water and fear that 
levees may be compromised. The river in area of closure will not crest until 
July 4 -- 5 without additional rain. However, some rain is forecast throughout 
this week."

   "On middle part of Upper Mississippi locks 25 (mile 241), 24 (mile 273), 22 
(mile 301) were closed due high water last few days. However, weekend rain has 
not impacted this area and these locks are opening again to navigation by June 
30," added Russell. "In the Upper Mississippi River at St Louis to Cairo, the 
St Louis Harbor did not close this past weekend as expected. The river level 
stopped rising just below closure levels. Some tows are moving out of the 
Harbor but it is extremely slow going and the Harbor remains heavily congested 
with back log of barges waiting to move."

   All of the above areas are at critical mass and minor changes in rainfall or 
adjustments in water levels can mean the difference between rivers remaining 
open or closed, according to Russell. "Changes are occurring daily and will 
require close monitoring until there is a general improvement in conditions."

   On June 25, USDA reported barge operators are not quoting rates for Illinois 
River barge services until most loading facilities are operational, which will 
occur sometime after the crest. "Barge operators have limited operations in the 
St. Louis area partly due to accumulations of flood-caused debris that can 
damage towboats and barges. In addition, tows of barges greater than 600 feet 
are restricted to daylight-only passage while the St. Louis gauge is greater 
than 25 feet," USDA reported. (http://goo.gl/T4A7xx)  

   Russell said, "Elsewhere, The northern parts of Upper Mississippi River, 
Ohio River, and Lower Mississippi are OK at this point. The Arkansas River that 
had been closed due to high water is now entirely open. Some areas are daylight 
transit only."

   Mary Kennedy can be reached at mary.kennedy@dtn.com 

   Follow Mary Kennedy on Twitter @MaryCKenn

******************************************************************************
Tropical Storm Bill Adds to Already High Water Conditions

   OMAHA (DTN) -- Last month, heavy rains moved across Texas and Oklahoma then 
through the center of the Midwestern states. The result was flooding and high 
water on the Missouri, Arkansas, Illinois and Upper Mississippi rivers between 
St. Louis and Cairo, Illinois. As Tropical Storm Bill came up from the Texas 
coast last weekend and became a tropical depression, it moved through most of 
the same waterlogged states, adding more water to the already high rivers. 

   Tom Russell of Russell Marine Group told DTN via email that, "Waters were in 
the process of flushing through the system when heavy weather concentrated 
rains in those central areas again, giving rise to the same rivers." 

   Russell said that the Illinois River and Upper Mississippi between St. Louis 
and Cairo are now at flood stage. "Two locks on the Illinois River have been 
closed to all navigation due to high water, resulting in the CME declaring 
force majeure at loading locations on the Illinois River." http://goo.gl/LClvaA 

   On June 17, the CME released this statement: "Effective immediately and 
until further notice, pursuant to CBOT Rule 701 ("Declaration of Force 
Majeure"), The Board of Trade of the City of Chicago, Inc. ("CBOT" or 
"Exchange") is hereby declaring a condition of force majeure for corn and 
soybean shipping stations as a majority of the facilities on the Illinois River 
are unable to load due to high water levels and/or flooding. As a result, CBOT 
Rule 703.C.G(8) is in effect for ALL corn and soybean shipping stations." 
http://goo.gl/3sFYRz

   "St. Louis Harbor has become extremely congested as a result of high water 
over the past weeks," Russell said. "Heavy drift debris is reported throughout 
the harbor. Barge traffic is moving, but slowly, and in a bit of gridlock. 
High-water safety protocols have been put in place."

   On June 21, the U.S. Army Corps of Engineers said on their website that, 
"Flood fight teams have been deployed across the area and are providing 
technical assistance to levee districts. The Jerry Costello Lock and Dam and 
the Lock 27 Auxiliary Lock remains closed."

   The USDA Grain Transportation Report noted on Thursday that since early 
June, the St. Louis gauge has been above 25 feet, "a threshold where the Coast 
Guard restricts tows of barges greater than 600 feet to daylight-only transit 
in the St. Louis Harbor." With the additional rains from Tropical Depression 
Bill, the river level is not expected to drop to 25 feet until possibly June 
27, when the daylight-only restrictions could be lifted, according to USDA. 
http://goo.gl/T4A7xx

   Oklahoma news sources reported that The Port of Catoosa was experiencing 
high water along the port's entire waterway system, which shut down barge 
traffic late in the week. Russell noted that while navigation just resumed on 
the Arkansas River, the remnants of Bill may stop traffic again as waters are 
expected to approach flood stage again.

   "The Lower Mississippi is high and will remain high at least for another 
three to four weeks as the upper rivers run off," said Russell. "The northern 
part of Upper Mississippi and Ohio Rivers are at normal levels and traffic is 
moving. The Baton Rouge and New Orleans Harbor are in high-water protocols with 
safety advisory for barge tows passing through Baton Rouge. Barge and ocean 
vessel traffic are moving, but count on delays over the next three to four 
weeks."  

   SOYBEAN BASIS RISES WITH THE RIVERS

   High water can not only stall empty barges from arriving at river terminals, 
but it can also cause the inability of a barge to "fit" under the loading 
spout. The spot CIF barge basis was reported to have traded 10 cents higher on 
Wednesday, June 17, from Tuesday's spot price. By the end of the week, CIF 
basis was 5 cents weaker, but the bid/ask spread at +80 versus +97 over the 
Chicago July futures. CIF basis offers were 16 cents higher on Friday June 19 
than from the prior week. Farmers have been selling soybeans on the futures 
rallies, but the logistics of getting them to the Gulf have been tedious and 
will likely be that way for the next week.

   Mary Kennedy can be reached at mary.kennedy@dtn.com

   Follow Mary Kennedy on Twitter @MaryCKenn

******************************************************************************
Cotton's Acreage Conundrum 

   DTN China Correspondent Lin Tan sent us an article about China's declining 
cotton acreage earlier this week. Farmers there have planted 20% fewer acres to 
cotton than they did the year previous, marking two years of decline. 

   Cotton acreage in the U.S. is also taking a hit this year. According to 
USDA's Prospective Planting survey, farmers were only likely to plant 9.55 
million acres, down 13% year over year. With the heavy rains in Texas this 
spring and early summer, there have been plenty of reports about cotton acreage 
declining even more. 

   It's just one of the many things to watch for in USDA's June 30 Acreage 
report. But the real question is: when will the world work through its glut of 
cotton stocks? With global stocks-to-use around 92%, it seems there's a lot of 
work that needs to be done to turn the cotton prices around. 

   In the meantime, here's Lin Tan's story for a better perspective on why 
cotton is falling out of favor with Chinese farmers. 

   ***

   China Cotton Acres Seen Down 20%

   By Lin Tan

   DTN China Correspondent

   BEIJING (DTN) -- Cotton acreage is expected to decline 20% in China this 
year, down to 8.4 million acres from last year's 10.4 ma, according to a recent 
field survey by the China National Cotton Market Observing System. 

   "This is the second year of sharp decrease in cotton acreage," said Zhonghua 
Wang, an analyst in Beijing. "Last year's acreage was 12.5% lower than 
2013/2014."

   DTN Analyst Todd Hultman said a 20% decline in acreage is steeper than the 
10% USDA's currently predicting. "I would say there are slow bullish changes 
emerging in cotton, but it is difficult to tell how long it might be before 
prices actually climb higher.

   "It also helps that USDA is estimating a 16% drop in U.S. planted acres this 
year, and that may even turn out to be less with this year's excess rain in the 
Southern Plains. The difficulty for cotton is that it will take time to work 
off the heavy burden of world ending stocks that USDA estimates at 106 million 
(480-lb.) bales or 92% of annual use." 

   China's acreage is due in large part to a change in China's support policy 
to a target price program. Lower prices didn't help either, Wang said. 

   "The Chinese government terminated the floor price purchase program on 
cotton last year," he said. "The program had supported cotton prices for 
several years, but the uncertainty of the market after the policy change put 
pressure on farmers to produce more cotton" before the program changed. 

   The floor price in 2013, the last year of the program, was $1.49 per pound. 
The new target price program for cotton attempts to subsidize farmers based on 
their output and comes in the form of a direct payment, which doesn't affect 
the market price. The government sets the target price and then calculates an 
average market price for each province. Farmers are paid the difference between 
the average in their province and the target price. 

   "Upon June 10, national cotton price index is 13,329 renminbi per ton (98 
U.S. cents per pound), down 23.3% compared to the price of last year," said 
Fang Gao, Deputy Chairwoman of China Cotton Association.

   The government lowered the target price for this year's crop, Gao said. Last 
year, the price was $1.45 per pound. It is 5 cents lower this year at $1.40. 

   The current estimate of cotton production is 5.86 million metric tons, less 
than last year's 6.39 mmt.

   "This acreage change is good for China's cotton market and also good for the 
state reserve," Wang said. "We are expecting the carryout in 2015/2016 will be 
12.66 mmt, 0.31 mmt less than the carryout of 2014/2015." 

   While stocks are expected to decline, Gao said the carryout will still be 
too high. Overall consumption in expected to be 7.35 mmt. 

   Imports have fallen off sharply as China's textile industry tries to work 
through the stockpile. So far in the 2014/15 marketing year, China's only 
imported 1.17 mmt of cotton, down 44.5% from the same time period last year. 

   "China is expected to import only 1.58 mmt of cotton in the crop year of 
2014/15," Wang said.  

   The U.S. is still the largest exporter to China, with a 30% market share. 
It's followed by India with 21%, Brazil with 15%, Australia and Uzbekistan with 
12% each, and a handful of other countries sharing the remaining 10%. 

******************************************************************************
STB Reviews Rail Transportation of Grain, Rate Regulations

   OMAHA (DTN) -- Grain shippers, ag organizations and railroad companies all 
had the opportunity to express their opinions about improving procedures to set 
fair shipping rates during a hearing held by the Surface Transportation Board 
June 10 in Washington, D.C.   

   Through these meetings the STB intends to explore the issue of "making the 
rate-case process more accessible" to all grain shippers who use rail as their 
mode of transportation. The Staggers Rail Act of 1980 provides rail shippers 
the ability to challenge unreasonable rates. 

   "Yet, despite concerns about high rates from shippers of grain over the 
years, no such shipper has filed a rate complaint with the agency since 1981," 
said the STB. Shippers say some of the reasons could be the current formula is 
arbitrary, too costly and onerous, which discourages them from taking part in 
the current process.

   In her opening remarks at the hearing, acting STB Chairman Deb Miller said 
that she has heard from grain shippers who "don't feel they have received all 
benefits of Staggers Act." 

   Vice Chairman Ann D. Begeman added, "We are not here to debate rates, but 
rather to fulfill the statutory mandate to ensure a process for every shipper 
to have access to that rate judged fairly and timely."

   The National Grain and Feed Association (NGFA) urged the STB to "issue a 
proposed rulemaking to establish a new process that agricultural commodity 
shippers could use to challenge freight rates they believe are unreasonable or 
unlawful under the Staggers Rail Act of 1980." (See the proposal at 
http://goo.gl/gD2N8g)

   In a June 11 press release, the day after the hearing, the NGFA said that, 
"As part of the STB's proceeding (Ex Parte 665, Sub-No. 1), NGFA in 2014 
developed and proposed a new rate-reasonableness methodology -- dubbed the 
"agricultural commodity maximum rate methodology" -- as one approach that the 
STB could use to change its existing procedures to resolve rail rate challenges 
involving agricultural products." 

   The NGFA noted that its proposed new approach would "meet the tests of being 
more accessible and inexpensive to administer, including for shippers with 
smaller claims; provide a meaningful constraint on the ability of carriers 
through their rate-pricing practices to make certain facilities uncompetitive 
in shipping by rail, and provide for more expedited and timely decisions."

   According to the NGFA press release, NGFA Board member Bruce Sutherland, 
vice president of Michigan Agricultural Commodities (MAC), presented 
"real-world" examples to the STB of current rate-pricing practices by a major 
Class I rail carrier that will significantly alter geographical rate spreads in 
the Eastern Corn Belt. Sutherland explained to the STB at the hearing that this 
could lead to "dramatically increased freight rates and reducing the prices 
elevators are able to pay to producer-customers in some parts of the region, 
while reducing traffic on regional short lines and making some facilities 
uncompetitive to serve customers by rail."  

   Tim Luken, manager of Oahe Grain, an elevator located on a short line 
railroad in Onida, South Dakota that is serviced by the Canadian Pacific, told 
DTN via email, "Back in 2007, it cost $2,644 per car on the short line for the 
25-car rate to Chicago and beyond. Today it costs $3,881 per car to Chicago and 
beyond; a 46.8% increase in eight years."

   Representatives from the Class 1 railroads were also present at the hearing 
to testify on the current rules in place. BNSF stated in its presentation that, 
"Formulaic, outcome-oriented regulations are not productive and would have 
unintended consequences." (http://goo.gl/7NbUBl)

   Union Pacific pointed out that, "Previous studies have concluded that many 
agricultural shippers have a range of transportation alternatives, that grain 
transportation markets are largely competitive, and that different modes of 
transportation often compete head-to-head to move grain." (http://goo.gl/3iYHhL)

   CSX Transportation told the STB that, "Agriculture is an important business 
to CSX; competition on origin and destination grain sourcing is vibrant. CSX is 
working to improve efficiencies for both CSX and our customers through mutually 
beneficial programs." (http://goo.gl/Klyktw)

   Stu Letcher, executive vice president of the North Dakota Grain Dealers 
Association, told DTN in an email, "The current system for challenging rates is 
overly burdensome according to testimony from participants on both sides of the 
issue. We understand the need for and support a financially stable rail 
industry, but we feel a more transparent and efficient process for grain rate 
reviews would not put that stability in jeopardy."

   The STB will conduct a separate, but related, public hearing on July 22-23, 
which will examine what it means for a railroad to be revenue adequate and how 
that should affect regulation of the railroads' rates and other related issues. 
The STB said that once a railroad becomes revenue adequate over a period of 
time, "shippers should be able to challenge such railroad's rates on grounds 
that the carrier is financially healthy and thus does not need to charge such 
high rates."  

   UPDATING CURRENT METHODS

   The Transportation Research Board (TRB) recently conducted a study examining 
the future role of the STB in overseeing and regulating the service levels and 
rate offerings of railroads, particularly as they become revenue adequate. The 
TRB said, "The study committee finds that while the U.S. freight railroad 
industry has become modernized and financially stable since the Staggers Rail 
Act of 1980, some of the industry's remaining economic regulations have not 
kept pace and should be replaced with practices better-suited for today's 
modern freight rail system." The report was released to the public June 10. (It 
can be found, in its entirety, on the Web site of the National Academies Press 
http://goo.gl/GOhExX)

   In a press release on their website, Association of American Railroads (AAR) 
President and CEO Edward R. Hamberger provided the following response to the 
report released by the TRB: "The TRB report is a solution in search of a 
problem," said Hamberger. "The United States already enjoys the most efficient, 
safest freight rail network in the world. In fact, freight rail customers today 
pay rates that are on average 43% less than they paid in 1980. The report is a 
theoretical exercise that would upend the real-world concrete successes 
achieved since the Staggers Act passed in 1980."

   The STB will begin reviewing all comments and presentations before making 
any decisions and stated, "Following the hearing, the record will remain open 
until June 24, 2015, during which time parties may submit written rebuttal 
testimony."

   Mary Kennedy can be reached at mary.kennedy@dtn.com 

   Follow Mary on Twitter @MaryCKenn

******************************************************************************
TAS Orders Available Starting Monday

   CME Group is rolling out a new futures order type for agriculture products 
next Monday to help smooth the transition to electronic-only trade, and experts 
believe the new trade at settlement (TAS) order type has beneficial aspects for 
the grain industry. 

   TAS, as it's commonly referred to, allows market participants to buy or sell 
futures contracts during the day equal to the yet-to-be-determined market 
settlement price plus or minus 4 ticks, said CME Director of Commodity Products 
Tim Andriesen. One tick is one-quarter of a cent. 

   During harvest, this could give grain elevators the ability to pre-hedge the 
bushels they plan to buy after the market closes at the settlement price. It 
could also give the market a little more flexibility when it's locked in 
limit-up or limit-down trade. 

   "So any time during the day, I could say I want to buy 10,000 bushels of 
corn at the settlement price, and I'm willing to pay 1 tick more than the 
settlement price to get that done," Andriesen said. "It is a market, so you 
have to have somebody who is willing to sell it to you at 1 tick more."

   The order will execute, but the absolute value of it won't be known until 
after the market settles at 1:15 p.m. CT. 

   TAS orders will replace market-on-close (MOC) orders, a type of order that 
can be executed in open-outcry pit trade but not on CME's Globex platform. CME 
will be closing its futures pits after the July 2 trading day. Options pits 
will remain open for grains, oilseeds and livestock markets. 

   Settlement in the grains will remain at 1:15, but the electronic futures 
market will continue to trade until 1:20 p.m. effective Sunday, July 5 for the 
July 6 trading day.

   Diana Klemme, vice president of Grain Service Corporation, said the people 
who are most likely to use TAS orders already used MOC orders to buy or sell 
before weekends or overnight.

   "Frankly, I think they will find it more useful and like it better than the 
old system," she said. 

   On a recent conference call with grain elevators, no one said they thought 
the idea was horrible. They had very few questions and found it reassuring that 
TAS has been in use in other markets for quite some time. 

   In the energy markets, 97% of the TAS business is done at flat, which means 
at the settlement price or plus 1 tick, Andriesen said. "Some of the time 
trying to do MOC orders, you would get a fairly good-sized range on the 
settlement and it might be more than 1 tick off the settlement price where you 
got your pre-hedge executed."

   Klemme said the switch to TAS will help avoid other issues that can arise 
with MOC orders, like calling your broker only to find that everyone's trying 
to do last-minute business and you can't get the order through. 

   For grains, TAS orders will be available on the first three listed 
contracts, plus the first new-crop month, if it's not already represented in 
the first three months. So on June 15, TAS will be available on the July, 
September and December corn contracts. In February, TAS will be available on 
the March, May, July and new-crop December contact. TAS will be available for 
corn, soybean (including meal and oil) and wheat, but not for rice and oats. 

   In the livestock markets, TAS will only be available of the first two listed 
contracts. 

   TAS will also be available on spreads. For grains, it'll be available on the 
old-crop, new-crop spread and the first two listed calendar spreads. For 
livestock, it'll only available for the first listed spread. 

   Andriesen and Klemme said it'll take time for the industry to learn about 
TAS and start using it. They think TAS will likely be a popular tool to help 
grain elevators hedge at times of year when they expect to buy a lot of grain 
during non-market hours, like harvest. It could also be an option on days when 
the market locks limit up or limit down. 

   TAS lets you trade the settlement price +/- 4 ticks, Andriesen said. In 
theory, that adds about a penny to the limit. He anticipates that on 
locked-limit days TAS orders are more likely to be filled if they're the 
settlement price +/- 4 ticks because they allow a little more room for a trade 
to take place. It'd be less likely that a settlement +/- 1 tick would be 
filled. 

   "It does allow a little bit more space on limit days," he said. "Keep in 
mind that this is a market, so to trade TAS, a TAS buyer and a TAS seller have 
to match on price and on quantity. Putting in a TAS order doesn't necessarily 
mean you will get it done."

   On locked-limit days, Klemme said, "we'll find out how it works. It doesn't 
take anything away, and it just might let us get things done that we might not 
have been able to do before."

   Klemme said TAS reminds her of the 1980s when options were first introduced 
in ag products. 

   "No one knew what a put or a call was. But what we learned over time was 
that marketing with just futures was like using a sledgehammer, and marketing 
with options was much more like using a scalpel. There are some things TAS will 
let us do on the close to limit risk that we couldn't do with MOC orders. It'll 
take a while to learn what you can do with it, but we'll adapt."

   If you'd like more information on TAS, please visit 
http://www.cmegroup.com/agtas 

   Katie Micik can be reached at katie.micik@dtn.com

   Follow Katie Micik on Twitter @KatieMDTN

******************************************************************************


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