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Markets Stay Low; California Denies Oxygenate Waiver

posted on June 15, 2001

Hello, I'm Sid Sprecher. Mark Pearson is off this week.

In recent days Wall Street has again been confronted by the reality that five successive interest rate cuts may not be re-igniting the nation's economy. Retail sales continue to lag. And, Inflation at the producer and consumer levels was higher last month, due almost totally to sharply higher energy costs. In fact the higher energy costs contributed to a sharp fall-off in industrial output. Industrial capacity in May fell to 18 year lows. It is expected the Federal Reserve will cut rates again when it meets at the end of the month.

In Rural America the focus is on the capacity of its major industry. But agricultural output and the worth of that production shifts, quite literally with the weather.


Markets Stay Low; California Denies Oxygenate Waiver

The pace of the nation's winter wheat harvest wiped away momentary market gains provoked by USDA crop projections. Those forecasts call for this year's wheat harvest to be 2 percent below last year's. But fewer acres planted and lower yields are expected to produce harvest price pressure as harvest crews enter Kansas. USDA forecasts the nation's leading producer of winter wheat will yield 18 percent fewer bushels this year. And the consensus in the pits seems to be there is plenty of wheat in the world.

That's also the belief in the soy pits, despite worries over weather delays to planting. Wet weather is also viewed by the trade as more of an asset than a liability to this year's corn crop. Farmers, some of whom are still trying to plant or are anxious about corn rotting in soggy fields. may disagree. The outlook for corn producers improved somewhat this week, not so much by market demand but rather government fiat.

The Environmental Protection Agency denied California's request to discontinue using gasoline additives that reduce air pollution. The state, which was forced to phase out the use the oxygenate additive MTBE because it polluted groundwater -- said any alternative would be too expensive and could cost California motorists 50 cents more a gallon at the pump.

The main alternative oxygenate additive is corn-based ethanol ... mostly produced in Midwest ethanol plants. Ethanol advocates say the fuel additive contains twice the oxygen content of MTBE, so refiners would need to blend only half as much to meet the oxygen requirement.

While the White House was buttressing the balance sheets of corn and ethanol producers, it was also threatening to veto supplemental aid to farmers.

This Spring's congressional budget agreement set aside 5.5.Billion dollars for additional assistance to farmers in this fiscal year, which ends September 30th.

But some farm groups have been lobbying for as much as 7 billion dollars and the House Agriculture Committee has been working on a plan that would dip into next year's budget to finance the additional relief. The White House says it will veto the appropriation if it contains more than 5.5 billion dollars.

Tags: agriculture California markets news USDA wheat