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Sep 17, 2014
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March 2014 Archive for From the Editor

RSS By: Brian Grete, Pro Farmer

Pro Farmer Editor Brian Grete takes time to talk with Pro Farmer Members about some of the key issues in each week's Pro Farmer newsletter.

The Wait Is Almost Over

Mar 28, 2014

Hello Pro Farmer Members!

Every year, USDA's Prospective Plantings and Quarterly Grain Stocks Reports at the end of March are highly anticipated, and this year has been no exception. Monday, USDA will release what's very likely to be trend-setting data. Both of the reports have the ability to sharply move markets.

Prospective Plantings: While the acreage battle wasn't as great as in years past, there's still great anticipation toward planting intentions. Most of the pre-report estimates have corn plantings between 92 million and 93 million acres, with soybean plantings expected to be between 81 million to 82 million acres. That obviously would be a big decline in corn acres and a big increase in soybean plantings from last year. A figure outside of these ranges would be market-moving. But take the numbers Monday for what they are -- intentions as of March 1. Intentions can, and likely will, change based on spring weather and price movement. Keep in mind, there was less anhydrous applied last fall than normal so there should be more "swing" acres this spring. That means actual plantings could shift even more than normal from the March intentions USDA releases Monday. As a result, traders will use the March planting intentions as a baseline from which to add or subtract acres as we move through spring.

Another thing to keep in mind is that everyone remembers what happened last year -- including farmers. Because corn yields came in stronger-than-expected for most (much stronger for some) last year despite record-late plantings, producers may be more apt to stick with corn deeper into spring than they would have in the past.

Quarterly Grain Stocks: Corn has been the attention-grabber with this report. Traders have consistently missed USDA's number by hundreds of millions of bushels for several years -- both too high and too low. It's to the point where no one has much confidence in predicting what USDA's numbers will say. That hasn't stopped analysts from guessing, however. The average pre-report trade guess for March 1 corn stocks is around 7.1 billion bu., but the range of guesses in a Reuters survey is 6.861 billion bu. to 7.54 billion bushels. Someone is going to be really surprised on Monday. Throwing complexity into the quarterly grain stocks guessing game this year is uncertainty toward impacts on feed use from porcine epidemic diarrhea virus (PEDV). However, the real threat to domestic corn-for-feed use is in the future, meaning the fireworks may not come until the June or September quarterly corn stocks are released.

The average guess on March 1 soybean stocks is 989 million bushels. The average guess for March 1 wheat stocks is 1.042 billion bushels.

Keep in mind, USDA has a history of "evening out" use over the first two quarters of the marketing year for corn and beans. Coming off record first-quarter corn and soybean use, there is some risk analysts may be shooting too high on implied second-quarter use despite the evidence of strong export and domestic demand.

USDA's reports will undoubtedly move markets Monday. And it's likely they will set the price tone through spring. Be aware of this... and be prepared by making sure your risk levels are adequately covered ahead of the reports.

That's it for now...

... have a great weekend!

Follow me on Twitter at @BGrete

To join Pro Farmer, click here!

For Crimea's Sake!

Mar 14, 2014

Hello Pro Farmer Members!

Citizens of Crimea will vote Sunday whether to remain a Ukrainian territory or become an independent sovereign state. It’s widely expected Crimea will vote to break away from Ukraine, effectively joining Russia. If that’s the course Crimea chooses, the U.S. and European Union have said they will increase sanctions against Russia.

Wheat traders took note of the escalating tensions and building uncertainty in the Crimean region, pushing wheat futures to their highest level since last October this week. Ukraine's ag minister says military tensions and a lack of fuel mean much of Crimea's spring planted crops won't be seeded. While Crimea accounts for less than 5% of Ukraine’s annual grain output, traders' concerns are rising. This illustrates that psychological impacts from conflicts like this often outweigh fundamental factors.

But the concern goes beyond just the Crimean peninsula. There is concern geo-political tensions in the region could disrupt Ukraine's grain trade. USDA says Ukraine is the fifth largest global grain trader -- accounting for approximately 16% of global corn trade and around 5% of global wheat trade. That obviously signals the Ukraine unrest means more to the corn market than wheat, but it's the wheat market that has responded the most.

The uncertainty with Ukraine/Russia has already proven supportive for the wheat and corn markets, but it could become a bigger deal next week. Experts see geo-political tensions settling down in around 30 days, though there could be lingering impacts for grain markets if Black Sea grain trade slows. While grain trade is so far unscathed, exporters have reportedly stopped writing new contracts, meaning there will eventually be a slowdown in exports from Ukraine -- and possibly from the broader Black Sea region.

Also of note on the trade front... Chinese importers canceled 10 cargoes (around 600,000 MT) of South American soybean purchases this week and are reportedly looking to cancel or delay shipment on up to 30 more cargoes -- another 1.8 MMT. Slowed demand for meal due to bird flu and poor crush margins have backed up supplies at ports, giving Chinese importers plenty of reason to cancel soybean purchases. But, why is China cancelling cheaper South American soybean purchases and still taking delivery of U.S. soybeans?

Industry sources say it may be tied to China’s rejection of U.S. corn shipments due to the presence of MIR 162 (Syngenta’s Viptera corn). Exporters who incurred losses because of China’s corn rejections aren’t willing to let Chinese buyers (even though they may be different than the ones who were involved in the corn trade) out of soybean contracts. We’re also hearing China isn’t being allowed to bust freight contracts that were already booked. What's the old saying?... what goes around, comes around. If there is a tie to the MIR 162 situation, it's an ironic twist of fate.

That's it for now...

... have a great weekend!

Follow me on Twitter at @BGrete

To join Pro Farmer, click here!

PEDV goes viral

Mar 07, 2014

Hello Pro Farmer Members!

Porcine epidemic diarrhea virus (PEDV), the coronavirus that can be deadly for piglets but poses no food safety threat, is sending shock waves through the hog industry -- and the hog market. As the number of confirmed cases increases, death loss totals are on the rise. But no one in the industry seemingly has a good handle on how many pigs are being lost to PEDV aside from knowing it’s a quickly upward moving target.

To date, the top 10 U.S. pork production states account for 3,536 (86%) of the confirmed U.S. cases. These are reported cases. There are undoubtedly others that have gone unreported or have not had samples tested. But concern with the disease is possibly rising even faster than reported cases or death loss totals.

As the number of confirmed PEDV cases has risen, fear in the marketplace of declining hog production has escalated, causing hog futures to surge to an all-time high. Concern is greatest in spring- and summer-month contracts as hog production seasonally declines through the second quarter of the year and typically bottoms between mid-June and August. Currently, the April through August futures contracts are trading well above the $100.00 level -- an area that has been hard to pierce in the past and even harder to maintain trade above. As the week concluded, June hogs were above $120.00, an unthinkable level for many in the hog industry. And the market is showing no signs of topping.

With reports that two East Coast (presumably North Carolina) pork plants will reduce kill schedules by one day to four due to a lack of hogs, impacts from PEDV are also having a greater impact on the cash market. If this spreads into the Midwest, it would become much more attention-grabbing. My biggest concern on the rally has been that the cash market hasn't been keeping pace with the surge in futures. Because lean hog futures are settled against the cash market, a wide premium is a concern -- not now, but it is when futures are nearing expiration. A slowdown in hog slaughter may be a sign packers are done chasing cash hogs. And that's not bullish.

With hog futures surging, the easy thing to do is sit back and let the market go. After all, it’s usually not wise to step in front of a runaway bull market. But it’s also not advisable to get more bullish as prices rise. It’s important to keep risk management in mind.

The question is, how do you lock in or protect record prices? A hedge can be established with a short futures position, though that leaves you vulnerable to margin calls. A safer way may be to buy put options, which limits your risk to the premium you pay for the puts, while locking in a profitable price. But rising prices bring increased volatility, which drives up premiums. Or you could sell call options above the market, which could mean eventually being exercised into a short position at a predetermined price that’s attractive to you, but this doesn't lock in a price. All of these strategies have their risks and rewards. Picking the one that best fits your hog operation is the key.

Remember, what goes up, always comes down... sometimes at an even faster clip. Don't forget about risk management.

That's it for now...

... have a great weekend!

Follow me on Twitter at @BGrete

To join Pro Farmer, click here!

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