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3 Big Things Today, May 4, 2022

Wheat Futures Surge Overnight; Ethanol Growth Faces Headwinds.

1. Wheat Futures Jump in Overnight Trading

Wheat futures were higher in overnight trading as investors focus on dry weather in the U.S. southern Plains.

Little or no rain has fallen in a large chunk of land including parts of western Kansas and the Oklahoma and Texas panhandles in the past 30 days, according to the National Weather Service’s precipitation page.

About 68% of Kansas, the biggest U.S. producer of winter wheat, was suffering from drought conditions as of last week, according to the U.S. Drought Monitor. That’s up from 67% a week earlier and 50% at the start of the year.

In Oklahoma, the second-biggest grower of the grain, 65% is seeing drought conditions. That’s actually improved from the 73% that saw drought a week earlier, the monitor said.

Winter wheat was rated 27% good or excellent as of Sunday, the U.S. Department of Agriculture said in a report on Monday. About 23% of the crop was headed as of Sunday, up from 11% seven days earlier but behind the normal 29% for this time of year.

Corn and soybean futures also were higher in overnight trading as planting is well behind the normal pace for this time of year.

Only 14% of the U.S. corn crop was planted at the start of the week, well behind the prior five-year average of 33%, the USDA said, and 8% of soybeans were in the ground as of Sunday, behind the normal 13%.

Spring-wheat planting also was behind with 19% in the ground, down from the normal 28% at this point in the season, the USDA said.

Wheat for May delivery jumped 18½¢ to $10.64 a bushel overnight on the Chicago Board of Trade while Kansas City futures rose 18¼¢ to $11.11 a bushel.

Corn futures were up 6¢ to $7.99 a bushel.

Soybean futures for July delivery added 6½¢ to $16.37 a bushel. Soymeal gained $1.80 to $425.70 a short ton, while soybean oil futures rose 0.58¢ to 80.86¢ a pound. 

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2. Ethanol Sales Growth Facing Uncertainty, USDA Says

Ethanol sales growth faces headwinds as overall gasoline consumption is expected to wane in the coming decade, though mid-level blends likely will boost use of the corn-based biofuel, the USDA said in a report.

The report, titled “Assessing Future Market Opportunities and Challenges for E15 and Higher Ethanol Blends,” said ethanol’s heyday was from 2000 to 2010 when use surged almost 700%.

Growth slowed to only 8% from 2010 to 2015 and fell to 3% from 2015 to 2019, the agency said.

Capacity also plateaued in that time frame, partly because of the so-called blend wall, which is defined as the maximum amount of ethanol blended into fuel that won’t damage engines and fuel systems in cars and trucks.

“This definition of the blend wall, however, is dated and does not account for the fact that modern vehicles (model-year 2001 and newer) can safely use ethanol blends up to E15,” the USDA said.

Demand concerns will continue as the number of fossil-fuel vehicles on the roads decline and growth of E85 plateaus.

It’s not all bad news, though, as mid-level blends such as E15 may expand future ethanol markets, the government said.

“Transitioning to ethanol blends between E11 and E25 will be easier and less costly than blends above E25,” said the report.

Questions surrounding growth and how certain laws will affect expansion of ethanol use also persist.

The current structure of the Renewable Fuels Standard and growth of cellulosic fuels doesn’t encourage growth of blends higher than 10% ethanol.

Expansion of laws allowing E15 to be sold year-round also will determine adoption of E15 pumps at gas stations.

“Gas stations are less likely to invest in infrastructure for a fuel that can only be sold for a portion of the year,” the USDA said.

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3. Flood Warnings Issued Along North Dakota-Minnesota Border

Flood warnings have been issued for several counties on both sides of the North Dakota and Minnesota border, according to the National Weather Service.

The Red River, which separates the states, was at 37.5 feet near Oslo, Minnesota, well above flood state of 26 feet, the NWS said in a report early this morning.

The river will stay close to that level through Friday before waters will slowly come down, the agency said. Still, the river will remain well above flood stage in the area for some time.

Farther south, flood watches and a few warnings have been issued for the eastern half of Oklahoma and parts of Kansas, Missouri, and Arkansas.

In eastern Oklahoma, recent rainfall may result in flooding in some areas.

More showers are on the way this morning and another round of thunderstorms is expected later this afternoon through tonight with up to 5 inches of rain possible, the NWS said.

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