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Market Matters Blog           10/19 09:03
Who's Your Data?
Matthew Ends 2016 Harvest for Many North Carolina Farmers
"A Day in the Life"
WRDA Bill Heads to Congress; Passage Essential to Inland Waterways
To Tweet, or Not to Tweet
FDA: Food Crops Exposed to Flood Waters Should Be Destroyed
"China Set to Export Corn...," Yeah, Right
What Happens When Grain Gets Sick?
Fed Wants Banks Out of Commodities
STB Makes Proposal on Rail Transportation of Grain, Rate Regulation 

Who's Your Data?

   Welcome to 2016. There seems to be no end to the amount of information 
technology being applied to farming these days, and given the perennial task of 
needing to squeeze more yield from minimal cost, the trend for more information 
is not likely to ease anytime soon. 

   More than ever before, today's farmers are able to access and monitor 
precise information about all sorts of things -- soil temperature and 
conditions, planting rates, fertilizer applications, and yes, even a field's 
crop yield as it is being harvested.

   It's that last one that has made many understandably nervous about just who 
gets to see those yield results. There is obvious benefit for the producer 
wanting to know which parts of his field performed better, but what about the 
maker of the combines getting real-time harvest data from thousands of 
producers? Is that a way for big ag to exploit markets with a new kind of 
inside information?

   I suspect the companies had that hope in mind when they rolled out these 
smart combines, but if they did, they have to be disappointed with how this 
year has gone. To explain, suppose we owned a big mega-corporation that had 
access to the data on every combine in the U.S. There's no way to go wrong with 
that arrangement, right?

   Well, there may be. The main flaw in this plan is that to get a good read on 
national corn yields, for example, we need samples from Illinois and Iowa and 
those don't start coming in sufficient numbers until about mid-September. 

   Mid-September? By the time we get to mid-September in most years, the U.S. 
already has a decent planting estimate and summer weather patterns have been 
analyzed and over-analyzed. By mid-September, the market has also heard from 
crop tours and seen two USDA crop estimates, based on objective field samples.  

   Worst of all, mid-September is just three weeks ahead of the time when corn 
prices typically make their seasonal low. So back at our hypothetical home 
office, we get "breaking news" in mid-September that this year's corn yields 
are coming in at record-high levels and we tell our trading desk to sell, sell, 

   Selling December corn on Sept. 15 this year put us short at $3.30 a bushel. 
Our harvest data was even confirmed by a 15.06-billion-bushel corn crop 
estimate in USDA's October WASDE report. 

   But as often happens in markets, December corn prices broke from script and 
closed at $3.54 1/4 on Friday, the highest in over two months. Let's just say 
the suits back in our hypothetical office are not pleased.

   As appealing as the idea of cornering real-time harvest data might be, the 
reality is that the data is too late in most years to be of much help. 
Personally, I would be more concerned to hear that big ag had the corner on 
planting data. Oh, wait...

   Todd Hultman can be reached at

Matthew Ends 2016 Harvest for Many North Carolina Farmers

   Hurricane Matthew hit North Carolina's farmers hard last week, disrupting 
transportation of grain and livestock and causing heavy damage to unharvested 
crops, according to the state's agriculture department.

   Throughout the state, farm fields were swallowed up by the heavy rains and 
overflowing rivers and streams. Crops that had been waiting to be harvested 
such as cotton, soybeans and peanuts, to name a few, were either destroyed or 
sustained heavy damage. On Oct. 11, USDA NASS reported that only 11% of North 
Carolina soybeans and 18% of peanuts had been harvested as of Oct. 9 and cotton 
was 90% opening bolls. According to reports from the North Carolina Department 
of Agriculture and Consumer Services (NCDA&CS), cotton, soybeans and peanuts 
are still under water in some counties.


   Todd Boyd, a farmer from Pinetown, North Carolina, told me, "We had 25 to 30 
inches of rain in the three weeks prior to Hurricane Matthew thanks to Tropical 
Storm Hermine. Matthew dumped another 12 to 20 inches on us, and between the 
two storms, nearly half of the cotton in our region was wiped out."

   I spoke to Boyd by phone as he was combining what was left of his soybean 
crop in Beaufort County. In some counties near the rivers where dikes 
overflowed or broke, soybeans were a total loss, he said. He told me that his 
soybeans were on higher ground and he expected about a 15% to 20% loss. 
However, his 2,000 acres of cotton will not fare as well.

   Boyd said he had defoliated his cotton and picked about 40 acres before the 
storm. He expects that three-fourths of his cotton crop was lost or damaged. He 
and other farmers are waiting for insurance agents to inspect the crop. He told 
me that cotton insurance was unlike other crop insurance, because only the 
yield loss is estimated and quality discounts are not taken into account. Boyd 
said that after Hurricane Joaquin wreaked havoc on North Carolina nearly one 
year ago, insurance agents told them to pick the cotton, which ended up 
actually costing the farmers money. "By the time we added up our cost to pick 
cotton and then were hit with severe quality discounts, we stopped picking in 
December 2015," said Boyd. 

   "This year, of the 1,000 to 1,200 pounds per acre cotton crop expected 
before the storms, we may get a 300-pound-per-acre crop if we are lucky. This 
is the second year in a row we have faced a disastrous cotton crop thanks to 
excessive rains from hurricanes/tropical storms," added Boyd.

   "Peanuts are from 50% to 80% damaged from what I have heard so far," said 
Boyd. "My farm is about 100 miles from the coast and what is called the 
Blacklands of North Carolina where most of the peanuts and tobacco farms are. 
Fifty miles west of me in eastern North Carolina, over 2 million head of 
poultry, mostly chickens, were drowned and that's a light estimate. That area 
is also expected to see losses in the sweet potato and peanut crops; most of 
the tobacco had been harvested."

   On their website on Oct. 13, NCDA&CS said, "The flood water hasn't receded 
yet, but initial reports show that North Carolina's agricultural industries 
took a beating from Hurricane Matthew. State ag officials do not have damage 
estimates, but the 48 counties affected by the storm are some of North 
Carolina's largest Ag counties."

   "The eastern counties represent 71% of the state's total farm cash 
receipts," said Agriculture Commissioner Steve Troxler. "While lots of crops 
were harvested before the storm, many crops, such as soybeans, sweet potatoes, 
peanuts and cotton, were just in the early stages of harvest."

   The 48 counties accounted for more than $9.6 billion of the $13.5 billion in 
farm cash receipts in 2014, according to NCDA&CS. 


   As Hurricane Matthew headed back out to sea after leaving behind destruction 
along the East Coast, North Carolina was still feeling the aftermath days 
later. Over a foot of rain fell in North Carolina, which caused rivers to swell 
and dams to be threatened, with crests expected the weekend of Oct. 14. 

   Residents continued to be evacuated during the week after Matthew left. 
Interstate 95, a major East Coast highway, was still closed midweek from 
Lumberton to Fayetteville and other spots where the road washed away. Until 
that highway opens, truckers hauling grain, livestock or other products will 
likely be detoured or in some cases stalled. The state Department of 
Transportation says many of the damaged roads may be repaired in the next week 
or two, but parts of the highway that washed out may be closed until November.

   Mary Kennedy can be reached at

   Follow her on Twitter @MaryCKenn

"A Day in the Life"

   Imagine ... This past Sunday (October 9) would have been John Lennon's 76th 
birthday. I mentioned this on Twitter, and an initial response was, "Yoko would 
have nagged him to death long before this." Well, I just had to laugh. 

   It's actually another of Lennon's songs, "A Day in the Life," I thought of 
over the weekend. Yes, I know it's a Beatles' song credited to 
Lennon-McCartney, but Sir Paul's contribution could be edited out and the song 
made better. Anyway, The Guardian (a British daily newspaper) had a Friday 
story on the flash-crash seen in the British pound earlier in the day 

   The piece discussed a number of theories that had initially been thought to 
have caused the meltdown, a loss of 8% in eight minutes. First the chaos was 
pinned on someone entering wrong trade numbers in electronically. This would 
have triggered additional selling as stops were hit, and low volume (it was 
just after midnight in London as Asian market just opened), meaning few buy 
orders in the market to slow the fall. 

   Next, the fall was blamed on the expiration of foreign exchange options, 
again with additional stop-orders in place to sell if the market fell too far. 
As above, low volume would certainly have played a role in this scenario. 

   Late that Friday, though, attention seemed to center on an all-too-familiar 
idea: Computer-driven algorithmic systems based on headlines reacted to bearish 
Brexit news. This triggered massive computer selling, again with low volume 
trade creating what I call a vacuum in the market where few to no buy orders 
existed. So the pound falls, triggering more computer selling, and a 
flash-crash happens. The end result, as one Twitter friend pointed out to me 
Friday morning, is those in the market wake up broke with no idea what just 

   I'd like to say this is an anomaly, but we've seen it play out time and time 
again in a number of market sectors. Do you want to make crude oil rally? Have 
a major media source release a headline to the effect of "OPEC Agrees 
Production Cuts Would Improve Price". Note that there is nothing about an 
actual agreement occurring, just the idea that such an agreement would be price 
friendly. That's common sense to us humans, but computers read the headline 

   That's why DTN, as a major media source in agriculture, takes its headlines 
seriously. There is a great deal of responsibility these days in wording 
headlines so readers are interested in reading more, but also that the headline 
accurately describes the story in general. 

   Keep this in mind Wednesday following the release of USDA's monthly Crop 
Production and Supply and Demand stories. USDA reports are a feast of headlines 
for Watson (my name for computerized algorithm trade), leading to mini 
flash-crashes (or the occasional flash-spike). You'll quickly be able to 
differentiate the headlines aimed at providing information versus those 
targeted toward Watson. 

   As for the song, given the news in The Guardian, I couldn't help but think 
of this scenario with Lennon's opening line:

   Watson: I read the news today.

   The rest of us: Oh boy ...

   Darin Newsom can be reached at

   To track hisy thoughts on the markets throughout the day, follow him on 
Twitter @DarinNewsom.



WRDA Bill Heads to Congress; Passage Essential to Inland Waterways

   The two houses of Congress passed two versions of a bill aimed at 
refurbishing the nation's aging water transportation infrastructure before 
adjourning for pre-election campaigning. An industry expert told DTN chances 
are good the bills will be reconciled and passed as one in the lame duck 
session following the election, but that doesn't guarantee adequate funding for 
the projects.

   The Water Resources Development Act (WRDA) of 2016 authorizes the U.S. Army 
Corps of Engineers to address the needs of America's harbors, locks, dams, 
flood protection and other water resources infrastructure critical to the 
nation's economic competiveness.

   On September 28, the House of Representatives passed the Water Resources 
Development Act (WRDA) of 2016 by a vote of 399 to 25. The Senate passed its 
version of WRDA on Sept. 15 by a vote of 95 to 3. The bill authorizes $9 
billion dollars for inland navigation and water projects administered by the 
Army Corps of Engineers.

   "By the end of that week, Congress adjourned to enable members to return to 
their districts and states to campaign prior to the November 8 election," said 
Mike Steenhoek, executive director  of the Soy Transportation Coalition (STC), 
in an email to DTN. "The House and the Senate now need to meet via conference 
committee to reconcile the differences between the two versions. It is expected 
that Congress will entertain and pass the conference report during a lame duck 
session following the November election."

   Steenhoek added, "We are appreciative that Congress provided such a strong 
expression of support for helping to address the profound needs of our nation's 
inland waterway system. Given the increased acrimony in Washington, D.C., 
exacerbated by the impending election, there has been widespread pessimism that 
Congress this year would achieve a robust portfolio of work important to the 
American people. However, it has been hopeful that the passage of a WRDA bill 
would be one area that could achieve bipartisan support.  

   "There are two legislative steps for Congress to address inland waterway 
issues: 1) The authorization step, which a WRDA bill is, and 2) The 
appropriations step, which is under the jurisdiction of the respective 
appropriations committees in the House and Senate," said Steenhoek. 

   "The authorization step essentially provides the strategy or road map for 
action. A list of prioritized projects and initiatives will commonly be 
included in a WRDA bill," he explained. "The appropriations step provides the 
funding to implement the strategy or road map. Both steps are essential. The 
tradition breakdown in Congress has been the appropriations process not 
providing sufficient funding to fulfill that objectives prescribed in the WRDA 
bill. As a result, the passage of a WRDA bill is appreciated, but it is not the 
finish line. We need to continue to advocate for this issue throughout the 
appropriations process." 


   The Mississippi River watershed is the fourth largest in the world, 
extending from the Allegheny Mountains in the east to the Rocky Mountains in 
the west. The watershed includes all or parts of 31 states and two Canadian 
Provinces. The watershed measures approximately 1.2 million square miles, 
covering about 40% of the lower 48 states, according to the U.S. National Park 
Service. As the river makes its 2,350-mile journey south to the Gulf of Mexico, 
it is joined by hundreds of tributaries, including the Ohio and Missouri Rivers.

   Agriculture has been the dominant land use for nearly 200 years in the 
Mississippi basin, and has altered the hydrologic cycle and energy budget of 
the region, states the NPS on their website. The agricultural products and the 
huge agribusiness industry that has developed in the basin produce 92% of the 
nation's agricultural exports, 78% of the world's exports in feed grains and 
soybeans, and most of the livestock and hogs produced nationally. Sixty percent 
of all grain exported from the U.S. is shipped on the Mississippi River through 
the Port of New Orleans and the Port of South Louisiana.

   In measure of tonnage, the largest port district in the world is located 
along the Mississippi River delta in Louisiana. The Port of South Louisiana is 
one of the largest volume ports in the United States. Representing 500 million 
tons of shipped goods per year (according to the Port of New Orleans), the 
Mississippi River barge port system is significant to national trade.

   Since most of the corn and soybean crops in the U.S. are grown close to the 
Mississippi River system, shipping by barge is the most economical method. One 
barge can carry the same quantity as 15 jumbo hopper cars or 58 large 
semi-trucks. A typical tow in perfect conditions on the river is 15 barges, 
which carries the same quantity as 2.25, 100-car trains and 870 large 
semi-trucks. Since freight costs are the main component in figuring cash basis, 
cheaper freight can in turn create stronger cash basis. The USDA October 6 
Grain Transportation Report showed the cost of shipping a unit train (25/26 
cars) of soybeans from Minneapolis, Minneapolis, to the Gulf was $1.07 per 
bushel. The cost of shipping a barge of soybeans from Twin Cities District to 
the Gulf was 88 cents per bushel. A 26-car train can hold approximately 88,000 
bushels of soybeans while one barge can hold approximately 55,000 bushels. 
Remember that one tow normally moves 15 barges at one time in peak season. 

   As the aging lock and dams continue to deteriorate, especially when damaged 
by floods, the U.S. Army Corps of Engineers has to make costly repairs and some 
cases, put a Band-Aid on the damaged locks. The USACE has said that it is 
"unable to adequately fund maintenance activities to ensure the navigation 
system operates at an acceptable level of performance." There are 28 locks and 
dams on the Mississippi River; there were 29. but the Upper St. Anthony Falls 
Lock and Dam in Minneapolis, Minnesota, was closed in 2014. The Water Resources 
Reform and Development Act of 2014 forced it to close because of the invasive 
carp using the lock and dam to get further upriver and into northern lakes, 
according to the reason stated in the bill.

   "The future of the U.S. Waterways depends on better funding from the 
government before it's too late to repair the aging locks and dams," said 
Steenhoek. The STC is pleased that Congress appears to be getting back to 
passing a WRDA bill every two years. "One of the challenges confronting the 
inland waterway system and barge transportation is that it is largely out of 
sight and therefore out of mind for many policymakers. A high percentage of 
lawmakers do not represent districts that witness barge transportation. As a 
result, the more time that elapses between one WRDA bill and the next, the more 
Herculean it becomes to educate and persuade lawmakers to devote attention to 
the needs of the inland waterway system."   

   Mary Kennedy can be reached at

   Follow her on Twitter @MaryCKenn


To Tweet, or Not to Tweet

   A long time ago in a galaxy far, far away...

   Actually, it was only decades ago in my little home town of Lewis, Kansas. 
Farmers would meet early each morning at the caf on Main Street, one of the 
few paved streets in town, waiting for the sun to burn off what little dew 
there might be so another day of wheat harvest could begin.

   In the center of that little caf was a round table where a group of these 
farmers would congregate, boasting about yields from the day before. When the 
caf finally closed down, as so many businesses in small towns do, these 
Farmers of the Round Table moved their coffee talk to the co-op, just outside 
the little nook I used as an office as the company commodity broker. 

   But time and technology have largely done away with roundtable chatter, 
replacing it with global social media sites like Twitter where information can 
be instantaneously shared with the world. Rather than bragging of one's 60 bpa 
soybean crop to your neighbor Carl over a cup of black, no sugar you now share 
that incredible information with Bob from Brazil and Richard from Russia. And 
anyone in between who happens to be following you or monitoring discussions of 
yield with a simple hashtag search. 

   Speaking of hashtags, #noyieldtweets is a growing debate on Twitter and the 
basis of this blog. Let me be absolutely clear: You have every right to boast 
about yields in any format you like. Heck, just as in the days of old, your 
tales don't even have to be completely true. But you also need to know that 
Watson (my name for large, global, algorithm-driven computer investment trade) 
is watching. 

   Twitter, and other social media sites, are something relatively new to 
agriculture, but global ag has embraced it as the way of sharing and obtaining 
crop information from around the world. The interesting thing about the site is 
it came along during the evolution of Watson that began its accelerated stage 
back in 2006. Watson is now a goliath with some of its trades established in 
the nanoseconds it takes to digest the wording of news headlines or bits of big 
data it is constantly being fed. 

   And that's where yield tweets come in. I've seen the argument that an 
individual tweet telling everyone how great yield is shouldn't, won't, 
influence trade. That's true in the same sense that one vote usually doesn't 
swing a presidential election one way or the other, unless it's Florida circa 

   But what about the conglomeration of thousands, if not hundreds of 
thousands, of these individual bits of information that Watson can monitor and 
trade off of? 

   Farmers are in the business of disseminating big data concerning yield and 
production information, whether they willingly share on social media or not. 
Most combines are equipped with yield monitors that record data, and those that 
are connected to the cloud in some way can be transferring yield data to 
storage there. If these numbers are known electronically, they are available to 
others. It's the way the game is played these days. 

   We just have to decide how much additional information, info that can be 
used to move markets, we feel like giving away for free. 

   To track my thoughts on the markets throughout the day, follow me on\Darin Newsom

FDA: Food Crops Exposed to Flood Waters Should Be Destroyed

   Heavy rains that fell in southern Minnesota, southern Wisconsin and northern 
Iowa the third week of September flooded fields and roads and delayed harvest 
progress for many farmers. While the weather has turned drier in those areas 
since then, some farmers face a difficult decision following the flooding: What 
to do with grain that was exposed to flood waters. 

   The Food and Drug Administration has set guidelines for the safety of food 
crops when flood waters contacted the edible portions of the crops. FDA states: 
"Assuring the safety of flood-affected food crops for human consumption is the 
responsibility of the growers that produce and market these crops." FDA policy 
does not change the applicability of other federal or state regulations or the 
grower's responsibility to comply with those regulations.

   According to FDA: "If the edible portion of a crop is exposed to flood 
waters, it is considered adulterated under section 402(a) (4) (21 U.S.C. 342(a) 
(4) of the Federal Food, Drug, and Cosmetic Act and should not enter human food 
channels. There is no practical method of reconditioning the edible portion of 
a crop that will provide a reasonable assurance of human food safety. 
Therefore, the FDA recommends that these crops be disposed of in a manner that 
ensures they are kept separate from crops that have not been flood damaged to 
avoid adulterating 'clean' crops." Here is a link to the guidelines:

   The Minnesota Grain and Feed Association said in a recent newsletter, "Given 
recent heavy rains and flooding in southern Minnesota, grain buyers need to be 
reminded that the FDA has policies related to flood-damaged grain. The FDA 
considers flood water to be inherently unsanitary and deems grains, oilseeds, 
feed and feed ingredients (including distillers grain) and food that has been 
in contact with flood water, to be unfit for human consumption or animal feed 
unless reconditioned (in the case of animal feed). This includes grain and 
oilseeds that might be destined for an ethanol plant or soybean processor 
because of the resultant use of the co-products (DDGs and soybean meal) in 
animal feed."

   The FDA is concerned because flooding events can present a potentially 
hazardous public health risk. In some areas, crops may be submerged in flood 
water that may have been exposed to sewage, chemicals, heavy metals, pathogenic 
microorganisms or other contaminants. Even if the crop is not completely 
submerged, there may still be microbial contamination of the edible portion of 
the crop. There is also the potential for plants to take up chemical 
contaminants. In addition to the direct presence of contaminants noted above, 
mold and toxins may develop in the crops as a result of exposure to the water.

   The FDA also notes that for crops that were in or near flooded areas but 
where flood waters did NOT contact the edible portions of the crops, the 
growers should evaluate the safety of the crops for human consumption on a 
case-by-case basis for possible adulteration. "We encourage growers to work 
with state regulators and local FDA offices to assess their unique situations 
and to take into consideration all possible types and routes of contamination 
from flood waters in determining whether a particular crop is adulterated," 
said the FDA.


   Bob Zelenka, executive director of the Minnesota Grain and Feed Association, 
told me: "In the immediate area impacted by the flooding, grain buyers are 
nervous. It would appear that more soybeans than corn will be affected by the 
flooding in southern Minnesota and impacted by the FDA policy concerning 
flood-damaged grain. Grain elevators are certainly expected to handle a high 
volume of grain that is marketable. However, mold issues are quite variable by 
corn variety, so buyers are still trying to ascertain how extensive the problem 
is in corn. Several have indicated that that they will be using a black light 
on any suspicious-looking or smelling corn. The same smell test will determine 
if they handle impacted soybeans. Some terminal markets have already indicated 
that they will not accept flooded soybeans as a result of the FDA directive, 
which means that local elevators will likely implement a similar policy."

   When I was a corn buyer in Wisconsin, we had a similar situation in the same 
areas as those currently affected, where corn sat in water close to harvest 
time. There was corn that had not been flooded, but sustained mold damage. It 
was nearly impossible to probe a truckload of corn and then pick through the 
pan sample and decide what corn sat in flooded waters and what corn did not. My 
first line of defense was to reject the heavily mold-damaged corn. As for the 
rest, for both of the plants I bought corn for, I made sure to scrutinize more 
than usual the loads from the areas that had been flooded. 

   The most important test we did on any of the corn samples containing mold 
was a black light test, which uses ultraviolet light to illuminate a bright 
yellow-green fluorescence of a fungal product associated with aflatoxin. It was 
used only as a preliminary test, but if the grain sample "glowed," a chemical 
analysis was necessary to determine the actual concentration of a toxin. There 
are do-it-yourself tests that can be purchased, but I sent the suspect corn 
samples to the Wisconsin Department of Agriculture, Trade and Consumer 
Protection grain inspection unit for more thorough testing. It may have been 
more expensive to test each sample that way, but it was worth it in the end to 
make sure that our bins were not contaminated by dumping toxic corn in with the 
good corn. 

   I spoke to a farmer in southeastern Minnesota who has been farming for more 
than 35 years, and he told me he has seen his corn flooded more times than he 
cares to remember. He said in all of those times, he followed the guidelines 
set by the FDA and destroyed the affected corn after his insurance deemed it a 
loss due to flood damage. He told me there are other farmers who may choose to 
harvest that corn, especially if they are unsure if it "fits" into the 
guidelines set by the FDA. He said as painful as it was to destroy a crop he 
had looked forward to harvesting, he believes that the FDA guidelines were 
published to make sure that U.S. crops remain safe for domestic and export 

   Mary Kennedy can be reached at 

   Follow her on Twitter @MaryCKenn

"China Set to Export Corn...," Yeah, Right

   You never know what you're going to see as far as headlines on any given 
day. But make that day a tinderbox of trader nerves, waiting for a quarterly 
USDA report, and volatility in grain markets could quickly spike. Such was the 
case Friday when a news story was released with the explosive headline, 
"Exclusive: China Set to Export Corn, Posing New Threat to Battered Global 
Market -- Sources." 

   In today's algorithmic trading, headlines, especially bearish ones like 
this, matter. Watson (my name for high-frequency computerized trade as an 
entity), doesn't have the nanoseconds to read the entire story, which makes 
long headlines full of charged words, even more of a concern.

   So what about the story. Those familiar with China, and the grain and 
oilseed markets, know it's nothing more than a game. Will China really export 
corn? Possibly. Will it "pose a new threat to battered global market?" No. As 
DTN Analyst Todd Hultman was quick to point out "the article talks about 2 
million metric tons of corn, which if true, is nothing. China is expected to 
import 3 mmt during the current 2016-17 marketing year." He went on to say, "I 
continue to have big doubts that China's supply problems are a threat to world 
supplies. This is a domestic issue from a big consumer that is struggling to 
stay self-sufficient in corn and wheat."

   The reaction from social media, Twitter in particular, was along the same 
line. Most got a good laugh out of the headline, some questioned the quality of 
these old stocks China is looking to sell. Others pointed out China can't get 
rid of its out of condition old corn at auction, so why would the world market 
believe it is going to be able to move it in the export market. 

   Then there's the matter of China's imposing anti-subsidy duties on U.S. 
distiller's grain exported to China (for a thorough discussion, see DTN 
Reporter Todd Neeley's article on the subject on DTN sites). How many believe 
that China's corn situation is so abundant that it doesn't need DDGs (a corn 
ethanol byproduct) and can export its own leftovers. If you do, I've got a 
Great Wall in Asia to sell you.

   As for the market, corn was down three cents early Friday. Was it due to the 
headline? Possibly, given contracts slipped to new daily lows despite a lack of 
other news. The real question is whether it will hold. I have my doubts, but if 
corn does stay under pressure, it will likely be due to USDA, weather, or U.S. 

   Sensationalized headlines, which score high in both trading algorithms and 
in online search engines, don't help. Not with market dynamics what they are 
these days. 

   To track my thoughts on the markets throughout the day, follow me on 
Twitter:\Darin Newsom

What Happens When Grain Gets Sick?

   Vomitoxin can be the kiss of death for wheat and barley growers. The 
infection that causes it is fusarium head blight, and the U.S. and Canada are 
reporting more instances of the infection in the 2016 durum wheat crop than in 
the prior year's harvest. Wheat with vomitoxin will suffer severe quality 
discounts or even rejection by end users, causing farmers to lose money.  

   While oats, rye, corn and other grains can carry vomitoxin, you mostly hear 
about it occurring in wheat and barley. Wheat with vomitoxin levels above 2 
parts per million (ppm) will either be discounted or rejected at grain 
elevators. The guideline for flour or other finished wheat products is 1 ppm. 
As for malt barley, the barley that makes beer, there is a 0.5 ppm tolerance 
for vomitoxin. It is also unacceptable in feed for hogs because it causes poor 
weight gain. In some cases, severely infected grain is deemed worthless.

   North Dakota State University has explained what causes vomitoxin 
"Deoxynivalenol (DON), commonly referred to as vomitoxin, is a mycotoxin that 
may be produced in wheat and barley grain infected by Fusarium head blight 
(FHB) or scab. FHB may infect grain heads when wet weather occurs during the 
flowering and grain filling stages of plant development. The occurrence of FHB 
does not automatically mean that DON is present, but a high level of scabby 
kernels in the harvested grain means DON will likely be present. The 
concentrations of DON in grain are expressed as parts per million (ppm)." 

   One thing to remember is that levels of DON do not necessarily correlate 
with levels of physical damage in grain. Also, the mycotoxin can continue to 
accumulate until grain moisture levels fall below 13%, so DON levels can be 
very high when wheat is harvested late in the season, as we are witnessing in 
parts of the Northern Plains and Canada this year.

   Vomitoxin in large doses can make humans and animals very sick, hence the 
nickname. Also, workers inhaling contaminated grain, chaff or dust can be 
susceptible to allergic or respiratory reactions. The typical standard used by 
the majority of world buyers is 2 ppm maximum. In Europe, some countries have 
lower limits, such as 1 ppm in the United Kingdom and 0.5 ppm in Norway, due to 
their own advisory levels. Japan has set a maximum DON level on imported wheat 
of 1.1 ppm. Here is the FDA regulatory guidance for three mycotoxins in the 
U.S. published by the NGFA:


   There really isn't one. A producer can try to clean the infected grain. 
Cleaning will not eliminate DON, but it may reduce levels of it by removing 
lighter, more heavily infected kernels. However, NDSU says that "the process of 
milling wheat into white flour or durum semolina typically results in the 
reduction of DON by approximately 50%. Therefore, many grain handlers or 
processors purchase grain with DON levels up to 2 ppm without discounts. 
Manufacturers of whole-grain foods will have specifications that are more 

   While it's true the allowable level for wheat and durum is 2 ppm, mills and 
exporters are still skeptical of grain from areas where DON is present in high 
levels. It is extremely important to keep healthy wheat separate from high DON 
wheat. A miller told me that while blending high-vomitoxin-infected wheat with 
healthy wheat is done by elevators, not mills, the blending formula is not 
"linear," as say blending 13% protein wheat with 15% protein wheat in equal 
amounts to make 14% protein. 

   One ppm vomitoxin is equivalent to 1 wheat kernel in 80 pounds of wheat, and 
60 pounds of wheat equals 1 bushel. The miller gave me an example that if you 
blend 0.5 ppm vomitoxin with 3 ppm vomitoxin, you should end up with an average 
of 1.6 ppm. When I was trading durum, a plant pathologist spoke at a meeting I 
attended, and he said that in his opinion, you would need to blend 100 kernels 
of heathy wheat with 1 kernel of toxic wheat to maybe have a successful blend. 
One of the problems with blended vomitoxin-infected wheat is that there is a 
risk of getting different levels when tested in a car load or bin when it is 
probed, as there could be pockets of various levels formed. If the grain tested 
at destination is above acceptable levels, the load will be rejected. 


   U.S. Wheat Associates reported that "fusarium has been reported across the 
northern North Dakota and in northeast Montana durum area, and the final 
average DON value for durum is expected to be higher than normal in 2016." 
Producers who seeded late in May or early June have said their wheat is not 
showing signs of vomitoxin and also that the durum seems to be more affected 
than spring wheat. It all depends on what varieties were seeded and the timing 
of the planting this year.

   However, Canada, who exports durum to the U.S., Morocco, Italy and Algeria, 
is reporting more incidents of vomitoxin in the 2016 durum crop in Saskatchewan 
where 80% to 85% of the country's durum is grown. In the weekly Crop Progress 
report from Saskatchewan on Sept. 20, all of the crop districts were reporting 
"downgrades in durum mostly due to fusarium." With only 57% of the durum wheat 
and 56% of the spring wheat harvested as of Sept. 19, it is still too early to 
tell exactly how much of the crop is infected. 

   Besides the vomitoxin, Canada's durum quality has been downgraded due to too 
much rain. In their Sept. 13 crop report, Saskatchewan said that, at that time, 
durum grades were being reported as 2% No. 1 CWAD (Canada Western Amber Durum), 
17% No. 2 CWAD, 30% No. 3 CWAD and 51% No. 4 and No. 5 CWAD. While Stats Can 
has predicted Canada's durum crop production to be a record 6.8 million metric 
tons this year, others in the durum trade expect it to be closer to 8 million 
metric tons. 

   A U.S. miller told me that world durum production this year will outpace 
demand. But there will definitely be some challenges with the quality problems 
in Canada and even France who has suffered from too much rain as well. Grade 
discounts will be heavy and milling durum prices will likely remain firm. 

   Infected grain is on the radar of end users in the U.S. this year, maybe 
more than normal. A facility unable to blend the tainted grain cannot risk 
holding it on site and with new feed safety rules by the Food and Drug 
Administration implementing the Food Safety Modernization Act (FSMA), end users 
are more watchful of toxic grains coming in to their facilities. For more 
information about the implications of the FSMA, here is link to my April 4, 
2016, blog on new feed safety rules for the handling, transportation and 
storage of food and animal feed:

   Mary Kennedy can be reached at  

   Follow her on Twitter @MaryCKenn

Fed Wants Banks Out of Commodities

   The Federal Reserve stepped back into the spotlight Friday, two days after 
announcing it was leaving interest rates unchanged in September. However, its 
latest move could possibly be read as an attempt to limit banks' exposure to 
increasingly volatile commodity markets if a December rate increase -- 
particularly if it is larger than the expected 1/4% -- is seen.

   According to a Wall Street Journal article, the proposals are to "minimize 
risks an environmental catastrophe could pose on the financial institution." 
The article goes on to point out such risks include "an oil spill, mine 
explosion, or power-plant meltdown at a bank-owned facility."

   But the timing and reaction of markets following the release of the news 
would suggest there may be more to it than that. Commodities from all major 
sectors, particularly those showing investment traders holding large net-long 
futures position, came under heavy pressure from what looked to be investor 
long-liquidation selling.

   Why? While many of the investors may not be in the banking industry in 
question, the idea of forced selling of physical commodity ownership would be 
enough to skew the perceived supply-and-demand situation. Therefore, investors 
from other areas would look at reducing their exposure to out-of-balance, 
fundamentally, markets. Crude oil's Friday move certainly looks to be the 
poster-child of such a situation, falling to a loss of almost $2.00 after 
trading higher earlier in the day. Ag commodities aren't immune to the ripples 
either, with investment traders holding a large net-long position as of the 
most recent CFTC Commitments of Traders report. On the other hand, corn and 
wheat saw light support as investment traders covered a portion of their 
net-short futures position.

   As with threats of a rate hike, tighter restrictions are nothing new to the 
banking community. For years, banks have been slowly winding their way out of 
the physical commodity sector, expecting tighter trade restrictions. The 
article states the Fed would impose an "unusually steep" 1,250% capital charge 
on banks to push them out of remaining physical commodity businesses. Wall 
Street Journal's article also points out that public will be given a 90-day 
comment period, with the deadline Dec. 22, and the rule taking effect after 
that. Interestingly enough, that is one week after the FOMC (Federal Open 
Market Committee) December meeting where an interest rate increase is expected. 

   To track my thoughts on the markets throughout the day, follow me on\Darin Newsom 

   -- DTN Senior Analyst Darin Newsom

STB Makes Proposal on Rail Transportation of Grain, Rate Regulation 

   Shippers have until Nov. 14 to comment on a U.S. Surface Transportation 
Board (STB) proposal to establish a new railroad rate review process that would 
be more affordable and accessible to shippers of all commodities -- including 
agricultural commodities -- with small disputes.

   The push for changes to the railroad rate review process began last year 
when the STB held a hearing in Washington, D.C., on June 10, 2015, to give rail 
shippers, ag organizations and railroad companies the opportunity to express 
their opinions about improving procedures to set fair shipping rates.

   Through those meetings, the STB explored the issue of "making the rate-case 
process more accessible" to all 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," 
the STB said at the 2015 hearing. Shippers cited some of the reasons were that 
the current formula was arbitrary, too costly and onerous, which discouraged 
them from taking part in the current process. 

   If you are a rail shipper, it's no secret that rail rates continue to creep 
higher. If a shipper feels rates are unreasonable compared to others, it has 
not been cost-effective or easy to dispute rates. A wheat trader told me a few 
months ago that freight rates have doubled over the last five years and freight 
is one-third the value of grain wheat today. 

   With grain prices being so low currently, an increase in freight costs cuts 
into shippers' margins and affects the cost of the grain paid to the farmer. 
Looking at the current DTN cash index for corn on Friday, Sept. 19, versus the 
same time last year, the price is 46 cents lower. For winter wheat, the DTN 
cash index is $1.20 lower. Heading into the fall, harvest prices are expected 
to weaken even more. On top of that, it is not uncommon for railroads to raise 
tariff rates in October. 

   Tim Luken, manager of Oahe Grain, an elevator located on a short-line 
railroad in Onida, South Dakota, which is serviced by the Canadian Pacific, 
told me one year ago, "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."

   Since then, Luken told me recently, "Union Pacific did lower their rates not 
only to Chicago but other destinations later last summer. The CP did lower 
their rates also due to the fact the UP did. We use to have a 25-car rate and a 
single-car rate. Now it's all a single-car rate no matter how many cars we 
ship. From one to 74 lo-cap (low capacity) cars are $3,735, and if we ship 
75-plus cars, the cost is $3,350 per car." 

   The National Grain and Feed Association (NGFA) said in a news release that 
it will "carefully examine" the STB advance notice of proposed rulemaking 
decision. Here is a link to STB Docket No. EP 665 (Sub-No. 2):

   The NGFA in 2015 developed and proposed to the STB a totally new rate 
methodology, called the "agricultural commodity maximum rate methodology," that 
would create a more accessible, streamlined, cost-effective and workable 
process for grain shippers to challenge unreasonable rates, according to the 
news release. The NGFA had been an active participant in a previous STB 
proceeding that laid the groundwork for the agency's new rulemaking. 

   In the news release, the NGFA also said the "STB's current 
rate-reasonableness standards are inappropriate for grain given the nature and 
characteristics of rail movements of agricultural commodities, the multiple and 
varying origin-and-destination pairs for agricultural shipments and volumes, 
and the nature of railroads' pricing practices, under which uniform rates are 
imposed across-the-board for certain commodities or types of traffic." These 
points were also acknowledged in the STB's advance rulemaking notice issued 
Aug. 30.

   Bob Zelenka, executive director of Minnesota Grain and Feed Association, 
told me, "We too are in the process of reviewing the proposal and will be 
offering some comments. Generally speaking, we like the move to a more 
user-friendly process. The previous process was extremely time-consuming and 
very expensive to pursue. This new proposal would streamline the rate challenge 
process and certainly make it more accessible to the smaller captive shipper, 
which are the ones most likely to be facing what could be deemed as an unfair 
or excessive rate." 

   "The fear of retribution by the railroad serving this customer is still in 
the back of each rail customers mind. This fear may lead to a reluctance to 
utilize the process but we believe it is still very important for rail users to 
have access to some reasonable recourse, to challenge a rate (and service 
level) that is deemed as unfair, unacceptable or excessive. It is good to 
finally see the STB become more of an advocate for the rail user, which hasn't 
been the case up until now, since the advent of the STB in 1996," added Zelenka

   The STB said in their proposal that based on the comments and testimony 
received, they believe the existing rate review processes present accessibility 
challenges for not only grain shippers, but also small shippers of any 
commodity. "The board also recognizes that for small rate disputes, regardless 
of commodity, the litigation costs required to bring a case under the board's 
existing rate reasonableness methodologies can quickly exceed the value of the 
case. Therefore, the board is opening a proceeding in Docket No. EP 665 
(Sub-No. 2) to develop a new rate review process that would be more affordable 
and accessible to shippers of all commodities with small disputes." Comments 
are due by Nov. 14, 2016. Reply comments are due by Dec. 19, 2016.

   Mary Kennedy can be reached at   

   Follow her on Twitter @MaryCKenn


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