Evening Report -- Advice (VIP) -- April 23, 2014

April 23, 2014 10:04 AM

Cotton producers: Increase new-crop sales… December cotton futures extended their rally from the winter lows, but we are concerned the contract may be running out of steam on this leg up. As a result, hedgers and cash-only marketers are advised to sell 25% of expected 2014-crop production via forward contract for harvest delivery to get to 50% forward priced on new-crop.

Fed cattle producers: Exit 2nd-qtr. hedges… Expiration of April live cattle futures is just a week away. As a result, it's time for fed cattle producers to exit the 50% 2nd-qtr. coverage in this contract. Our exit was $143.42 1/2 for a 77 1/2 cent profit.

We are willing to carry all risk in the cash market for now, but be prepared to add hedge coverage if futures challenge the winter highs.


Chilly temps expected to persist over 6- to 10-day period... The National Weather Service 6- to 10-day outlook calls for more cold temps April 29 through May 3, which could keep corn planting progress behind the average pace. The eastern two-thirds of the U.S. have increased odds of below-normal temps during this timeframe.

The precip outloook calls for below-normal rainfall across the Northern, Central and Southern Plains, while eastern North Dakota, Minnesota, Iowa, Michigan and most of Illinois are expected to see normal precip. Above-normal precip is forecast for areas of the far eastern Corn Belt, however. Click here to view the maps.


Weekly ethanol production declines from previous week's year-to-date high... According to the Energy Information Administration (EIA), ethanol production for the week ended April 18 averaged 910,000 barrels per day (bpd), down 29,000 bpd from the previous week's year-to-date high. The four-week average for ethanol production of 917,000 bpd calculates to an annualized rate of 14.06 billion gallons. Ethanol stocks of 16.52 million barrels is up 566,000 barrels from the previous week and a seven-week high.


Consultant: Wheat production in South America could rebound in 2014... Pro Farmer Crop Consultant Dr. Michael Cordonnier says after disappointing wheat crops in Brazil and Argentina in 2013, acreage in both countries is expected to rebound in 2014 due to stronger wheat prices and improved weather conditions.

"The expected increase in the 2014 wheat acreage in Argentina ranges from 5% to 17%. In 2013 there were 3.6 million hectares of wheat in Argentina and most analysts estimate that approximately 4 million hectares will be planted in 2014," says Dr. Cordonnier.

Dr. Cordonnier says in Brazil, wheat acreage in Rio Grande do Sul is seen up 10% to 1.1 million hectares while acreage in Parana is expected to rise by 23% to 1.2 million hectares. "If the weather cooperates, the total Brazilian wheat crop in 2014 may reach 7 MMT," he says, noting planting should begin in May. "Brazil's largest wheat crop was recorded in 1987-88 when 6.1 MMT were harvested."


Attache sees increase in Argentine soybean plantings in 2014-15... The U.S. ag attache in Argentina expects planted soybean acreage in 2014-15 to increase by 1.5% to 20.6 million hectares, which would translate to a crop of around 57.5 MMT under normal weather conditions.

"Soybeans continue to be the 'safe' and 'easy' crop. Input costs for soybeans are lower than for other commodities, for example, it cost more than twice as much to produce corn that it does to produce soybeans," says the attache. "Furthermore, the margins for first-crop soybeans are higher than any other crop grown in Argentina."

The attache says while export taxes are high, there are no export restrictions or quotas for soybeans. "The increase in area can also be attributed an increase in second-crop soy planted after wheat, which is also forecast to increase, and soybeans replacing a small amount of area that was previously dedicated to corn," says the attache.


PF midweek marketing game plan update...

Corn: Hedgers have 70% of 2013-crop production sold in the cash market, while cash-only marketers are 60% priced on old-crop. Hedgers and cash-only marketers have 30% of expected 2014-crop production sold via cash forward contract for harvest delivery. Get current with those sale levels. We are looking to advance sales on a challenge of the March highs, as we continue to believe price strength should be sold. But we also don't want to let futures slip back below $5.00 without making sales. Be prepared to advance old- and new-crop sales soon.

Soybeans: Hedgers are 100% sold on 2013-crop production in the cash market, while cash-only marketers are 90% sold on old-crop. Hedgers and cash-only marketers have 25% of expected 2014-crop production sold via cash forward contract for harvest delivery. We'd prefer to advance new-crop sales on price strength, but a close below Monday's low would be enough to trigger additional sales. For old-crop, we're looking to buy calls to reopen upside potential on a portion of 2013-crop sales if the pullback proves to be nothing more than a correction to the bull market.

Wheat: Hedgers are 100% sold in the cash market on 2013-crop production, while cash-only marketers are 90% sold. Hedgers and cash-only marketers are 50% forward priced on expected 2014-crop production. We want to increase new-crop sales on price strength. While the HRW crop is struggling, we are concerned the market is topping.

Cotton: Hedgers have 100% of 2013-crop production sold in the cash market, while cash-only marketers are 90% sold on old-crop. Both have 50% of expected 2014-crop production sold via forward contract for harvest delivery. Get current with those recommendations.

Cattle: Fed cattle producers should carry risk in the cash market for now. We'll look to add new hedge coverage on a test of the March highs. A breakdown of support at the early April lows would also warrant at least short-term protective hedges.

Hogs: Hog producers have 50% of 2nd-qtr. and 50% of 3rd-qtr. marketings hedged in $126 June lean hog put options that were purchased for $3.90. That puts a floor on these marketings at $122.10. Stick with that hedge coverage as downside price insurance.

Feed: All corn-for-feed and meal risk is currently carried in the cash market. We aren't willing to lock in current prices, but we would use a corrective pullback to lock in some coverage, especially for soybean meal.


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