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Commodities Report: Trump Administration Makes Waves



The Trump Administration made some waves in the commodity markets last month as news broke that they were visiting changes to the Renewable Fuels Standard. Readers will remember that the standard was initiated under President Bush in 2005 as a way to lessen the United States’ reliance on foreign energy. It caused ethanol production to soar and with it brought a boost to corn demand and prices. For the last couple of years, ethanol growth has stalled. But the Trump administration may attempt to change some regulations around, moves that could bring a modest boost to ethanol production in the coming years. This, we do not believe, will be a game-changer for the markets. However, it does make the margin of error with the pending crops mildly smaller. Corn prices have generally reacted higher to the news but rare not in breakout territory. The Trump administration is also looking to reinstate the biodiesel blenders tax credit, but this time making it exclusive for domestically produced biodiesel. The U.S. has become a sizeable importer of biodiesel from Argentina in recent years. If this tax credit is reinstated with the domestically produced stipulation, it could cause soybean oil use for biodiesel to rise near 20 percent. Thus, the recent strength in soybean oil futures. All of this being said, the trade is gearing up for the domestic 2017-18 major crop season. Wheat plantings are estimated by the USDA to be the smallest in decades, but ample carry-in supplies from the prior crop both here and abroad should cause wheat stocks to remain more than sufficient. U.S. corn acreage is expected to decline as well but, like wheat, supplies should be fine. Soybean plantings are expected to be a record high. All in all, feed prices could remain fairly engaging for the next several months, which should continue to fuel solid year-over-year gains in protein and dairy production. As a matter of fact, the USDA is projecting Q2 pork and beef production to both be up near 7 percent from 2016. 

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