Ethanol (AC, CBOT)

It got a bit of a bump from the news of low corn stocks, but prices have come right back down, very much in line with corn's prices.

Simple Soy

On the other side of the corn seesaw are soybeans. More soybeans are going in the grown, and that's translated into a small, 3% rise in the supply of soybeans. The problem? Soybean supply was very tight when the season started. Remember the call of beans in the teens? The USDA puts projections below that - only $10.50 to $12 per bushel. Of course, the current price is sitting above $13 right now, but there is still a lot of time left in the crop year for that to go down.

Soybean (S, CBOT)

While we're excited about the increased prominence of biodiesel in recent media coverage on biofuels, the use of soybean oil here at home is projected to rise only a little because the increased use of soybean oil in biodiesel is nowhere near enough to offset projected decreases in soybean oil for food use. As far as biodiesel is concerned, 15% of soybean oil production is projected to end up as biodiesel in 2008-2009 - that's compared with 14% for 2007-2008.

Rice Crisis

While some of the mainstream press has made some spurious ethanol/food shortage connections, those following the actual news coming from the Third World know that rice has been at the root of any real food shortages, so let's see what the USDA is projecting.

Domestically, we're planting only 9,000 more acres than were planted in 2007-2008. You'd think that with all of the media attention, more acres would come on line. According to the May 12 Commodity News for Tomorrow from CBOT, the problem is that rice is expensive to grow, and since rice prices had been low since 2000, many farmers had switched to planting corn or soybeans - crops far more interchangeable. Those that were able to hang on are benefiting from the higher prices, but the prices aren't high enough to bring massive acreage back into rice production.

Those 2.77 million acres that are in rice production are projected to have a yield that is lower than 2007-2008, but still the second-highest on record. Even so, the U.S. is looking at beginning stocks in 2008-2009 that are going to be 45% lower than in 2007-2008.

Globally, rice production is projected to reach a new record - 432 million tons, according to the USDA and 441 million tons, according to an FAO report. Either way, this is higher than last year and that's good news for people who, you know, eat. The bad news for those in need is that demand growth and export constraints are going to continue to keep prices high. Consumption is projected to be 428 to 437 million tons (an increase of about 2%, depending on which numbers you use). Countries are expected to continue limiting exports in order to increase stocks available for their own domestic use. Obviously there's an issue in these numbers. If the supply numbers are on the low side and demand is on the high side, there are 5 million tons missing from the math, which means drawing down stocks.

A comparison of the two reports on that front gets even more confusing. The USDA's report states that global ending stocks are actually expected to rise 5% to the highest point since 2002-2003. The FAO's report states that global ending stocks will be slightly below last year at 105.2 million tonnes. High? Low? Either way, both reports are looking for high rice prices to continue at least through most of 2008-2009.

And besides, some of the numbers may be in question because of the recent cyclone that went through Myanmar. Myanmar is not an exporter of rice, but it was fairly self-sufficient. Cyclone Nargis hit during the harvesting of the dry rice crop which accounts for 20% of Myanmar's total rice crop. Most of the crop was probably harvested, but the state of the infrastructure to store it and transport it is very much in question. The main rice crop is supposed to be going in the ground now, and farmers may not have sufficient access to seed, or rice paddies may be inundated with salt water which can make planting impossible or lower yield significantly. Myanmar may need to import what it needs to feed its nearly 50 million people from nearby countries, further straining global supplies.

Rough Rice (RR, CBOT)

Moving On

There's your update. Aside from soybeans, the ags market is facing some pretty significant uncertainty. This is going to be anything but a straightforward year, and while nobody seems to be panicking about the low corn stocks, they're not ebullient about rice production either. In both cases, any surprises in the next few months should have a substantial effect on the futures.

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