Evening Report -- Advice -- (VIP) -- September 4, 2013

September 4, 2013 09:51 AM

LIVESTOCK PRODUCERS: COVER 25% OF 4TH- AND 1ST-QTR. MEAL NEEDS... After failing to take out the contract high yesterday, meal futures pulled back sharply. With the soybean crop facing late-season weather stress, we view the modest price break as an opportunity to extend meal coverage. Livestock producers are advised to cover 25% of 4th-qtr. protein needs in long Dec. soybean meal futures and 25% of 1st-qtr. needs in long March meal futures. Our fills were at $422.20 in Dec. meal futures and $410.80 in March meal futures. We'll look to add more long meal coverage on a deeper pullback as we feel prices are ultimately headed higher.

Livestock producers should also be prepared to add long corn coverage, although there isn't as much urgency in that market.



HOT AND DRY IN CENTRAL BRAZIL, TOO... The U.S. Corn Belt isn't the only area that's been experiencing hot and dry conditions. While southern Brazil has gotten ample rainfall and has experienced cooler temps, the states of Mato Grosso, Bahia, Goias and Tocantins in central Brazil have gone at least 100 days without rainfall -- more than 150 days in western Bahia. And forecasts call for hotter- and drier-than-normal conditions through these states this month. As a result, most farmers will wait on the rainy season to start before they begin planting their 2013-14 soybean crop (Sept. 15 is the end of the soybean-free period in central Brazil), according to South American Consultant Dr. Michael Cordonnier.

While planting date isn't critically important to soybean yields in Brazil due to the long growing season, Dr. Cordonnier says farmers want to get their soybeans planted as soon as possible so they will be able to plant their safrinha (second-season) corn crop in a timely manner. A delay in soybean plantings would also push back to the start of the export season in Brazil.



CROP INSURANCE INDEMNITIES RISE NEAR $3 BILLION FOR 2013 CROPS... Indemnities for 2013 crops have reached $2.927 billion as of Sept. 2, keeping that as the only area where the program is not yet beating the record year of 2012, according to Risk Management Agency (RMA) data. While indemnities of nearly $3 billion are still dwarfed by the record level of $17.406 billion paid out for 2012 crops, other categories -- net acres insured, premiums paid and premium subsidies -- for 2013 have all topped marks set for 2012.

Wheat remains the largest payout in dollar terms so far at $1.440 billion, nearly double the level paid out for the crop in 2012. Cotton indemnities are nearly half as large for 2013 as they were in 2012, standing at $513 million. Corn indemnities, which hit $11.825 billion for 2012, stand only at $434 million for 2013. The loss ratio for the program stands at just 0.25 so far, after hitting 1.57 in 2012. Get more details.



SENATORS REQUEST CLARIFICATION ON EPA'S AUTHORITY ON SPCC RULE... Sens. James Inhofe (R-Okla.) and Mark Pryor (D-Ark.) in an August letter to Environmental Protection Agency (EPA) Administrator Gina McCarthy requested clarification as to the agency's interpretation of its authority regarding the enforcement of the Spill, Prevention, Containment and Countermeasure (SPCC) rule on farms. The senators say they have been alerted that EPA is "informing agriculture producers that it does have the authority to begin enforcing the SPCC rule retroactively beginning Sept. 23."

EPA extended the original compliance deadline to May 10, 2013, to allow time for the agency to reach out to the ag community regarding the rule. As it became apparent EPA would fail to "adequately educate farmers about the rule" ahead of this deadline, the Senate adopted and ultimately passed an amendment to the Continuing Resolution appropriations bill that prohibits EPA from enforcing the rule against farmers until Sept. 23, 2013. Further, the Senate adopted an amendment to the Water Resources Development Act that would permanently exempt most farmers from the SPCC rule, and while the House has not yet taken up this bill, it does include a similar provision as part of its farm-only farm bill that passed the chamber in July.

Therefore, Inhofe and Pryor say Congress "has clearly established its intent to limit the impact of the SPCC rule on the agriculture sector, and to ultimately exempt the majority of it from having to comply... If the the agency does plan to retroactively enforce the rule, will you please explain why you are doing this despite the clear, bipartisan steps Congress has taken over the past few months to limit this rule's impact on the agriculture community." Learn more.




CORN: You should be 100% sold on 2012-crop. For 2013-crop, hedgers and cash-only marketers have 25% of expected new-crop production sold via cash forward contracts for harvest delivery. While we believe the crop is going backward amid the hot temps and dryness, traders are convinced production will still be record-large. As a result, choppy to lower price action is possible, if not probable, short-term. At this point, we are willing to dig in our heels and wait for what we feel is an overdue price recovery.

BEANS: You should be 100% sold for 2012-crop. For 2013-crop, hedgers and cash-only marketers have 50% of expected new-crop production sold via cash forward contract for harvest delivery. Be prepared to increase cash sales and/or add hedge coverage if Nov. soybean futures fill the Aug. 26 gap, as that would signal at least a short-term top is in place.

WHEAT: The wheat market is a follower and will take its price cues from corn. Much like the corn market, we are willing to wait on an extended correction before increasing 2013-crop cash sales.

COTTON: Hedgers and cash-only marketers have 50% of expected 2013-crop production sold via cash forward contract for harvest delivery. Hedgers also have 50% of expected production hedged in December cotton at 83.87 cents. Maintain that hedge coverage as futures are back in the bottom of the broad, sideways range. In fact, we wouldn't be surprised to see futures attempt a downside breakout after the failed upside move.

CATTLE: The cattle market continues to grind higher. While supplies signal prices should rally, traders still have demand concerns. Fed cattle producers should continue to carry all risk in the cash market. Feeder cattle buyers should be prepared to add long hedge coverage as the corn market is giving no signs of sustained price strength.

HOGS: Hog producers have 50% of expected 4th-qtr. production hedged in Dec. lean hog futures at an average price of $82.12 1/2. We'll use the price rally to heavy up 4th-qtr. coverage and to add 1st-qtr. 2014 coverage in Feb. lean hog futures, but we want to let the rally run out of steam first.

FEED: 25% of 4th-qtr. protein needs are covered in long Dec. soybean meal futures and 25% of 1st-qtr. needs are covered in long March meal futures. Be prepared to extend coverage on a deeper price pullback as we feel prices are ultimately headed higher. We're also looking to add long corn coverage, although the urgency to do so isn't as great in that market.


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