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Evening Report -- Advice (VIP) -- June 26, 2013

15:07PM Jun 26, 2013

CORN AND SOYBEAN CASH-ONLY MARKETERS: FINISH OLD-CROP SALES... With July corn and soybean futures trading at major premiums to the September corn and August soybean contracts, we want to capture that premium before the July contracts enter delivery on Friday. Cash-only corn and soybean marketers are advised to make the final 10% 2012-crop cash sales to get to 100% sold on old-crop. Additional basis strength will replace some of the premium July futures hold to September corn and August beans, but with basis already at historic levels, we don't feel the cash market will cover all of the difference.



HOG PRODUCERS: HEDGE ANOTHER 25% OF 2ND-HALF PRODUCTION... Hog futures remain strong, but we feel a seasonal top is coming soon and want to hedge more of second-half production ahead of Friday's Hogs & Pigs Report. Hog producers are advised to hedge 25% of expected 3rd-qtr. production in Aug. lean hog futures and 25% of expected 4th-qtr. production in Dec. lean hog futures. Our entries were $98.15 in Aug. hogs and $82.50 in Dec. hogs. This pushes second-half hedge coverage to 50%, with an average price of $97.67 1/2 in Aug. hogs and an average price of $82.12 1/2 in Dec. hogs.



TRADERS PREPARING FOR KEY JUNE ACREAGE & STOCKS DATA... USDA will release its key June Acreage and Grain Stocks Reports on Friday at 11:00 a.m., CT. A lot of attention is being placed on expected shifts in acreage from March intentions due to the prolonged planting season, but the stocks data is also key given the tight old-crop corn and soybean supply situation.






in million acres





Spring wheat




All wheat



Traders look for USDA to trim its planted corn and spring wheat acreage estimates from March intentions, while soybean acreage is expected to rise. According to pre-report expectations, traders expect USDA to trim around 1.9 million corn acres from its March intentions figure to 95.34 million acres, with guesses ranging 94.2 to 96.4 million acres. Spring wheat acreage is expected to come in around 584,000 acres less than March intentions at 12.117 million, with guesses ranging from 11.7 million to 12.7 million acres. Meanwhile, traders expect soybeans to have picked up some of those acres, with the average guess showing around a 900,000-acre increase compared to March intentions to 78.024 million, with guesses ranging from 77.1 million to 79.24 million acres.

Grain Stock Expectations



Mar. 1, 2013

June 1, 2012

in billion bushels

















While a lot of attention surrounds acreage expectations, recent stocks reports have been major market movers. Given the tight old-crop corn and soybean supply situation, the possibility of the stocks data moving the market is high. The report will set 2012-13 wheat carryover as the marketing year is now complete. Traders expect June 1 corn stocks of 2.856 billion bu., with guesses ranging 2.761 billion to 3.0 billion bushels. Soybean stocks of 441 million bu. are expected, with guesses ranging 413 million to 490 million bushels. Wheat stocks of 750 million bu. are expected, with guesses ranging 732 million to 781 million bushels.



ETHANOL PRODUCTION CLIMBS... For the week ended June 21, the Energy Information Administration reports weekly ethanol production improved by 12,000 barrels per day (bpd) to 882,000 bpd -- which tied the highest weekly average of the year. Ethanol stocks declined by 1% from the previous week to 16.3 million barrels.



HOUSE REPUBLICANS HAD 'THE REAL FARM BILL DATE TODAY'... The House GOP confab today brought out frustrations, but also some true debate on sensitive farm bill matters as well as signals of opportunity ahead to get the farm bill passed in the chamber and on its way to still higher hurdles via a conference with the Senate. The intra-party squabble did not yield answers as to why so many Republicans, including six chairmen, voted against final passage of the bill even after some of their amendments scored victories, such as on the removal of dairy supply management language and the likely bill-killing amendment of some food stamp provisions.

There was an answer to a proposal to split the bill: Do not. House Ag Committee Chairman Frank Lucas (R-Okla.), who after the GOP session said that neither farm programs nor the nutrition title can pass alone, said dividing the bill is a non-starter. He said there are discussions happening at the leadership level to figure out a path ahead.

But do not totally dismiss the idea of splitting out certain sections of the farm bill. Washington Consultant Jim Wiesemeyer says he has learned that House Speaker John Boehner (R-Ohio) personally supports this approach and earlier asked Lucas and apparently Bob Goodlatte (R-Va.) about this but when he got pushback, he backed off. However, Jim was told everything is now on the table.

Sources expect another House GOP leadership attempt to pass a revised farm bill after lawmakers come back from their July Fourth recess. Whether that will be early or late July is another question that went unanswered today. Read more.



USDA, EPA TESTIMONY TO CONGRESS ON BIOFUELS/ETHANOL... When examining recent testimony from USDA Chief Economist Joe Glauber and EPA Office of Transportation and Air Quality Office of Air and Radiation Director Christopher Grundler, Grundler's testimony is the more important on which to focus, as it addresses issues relative to the final 2013 and yet-to-be proposed 2014 renewable fuels standard (RFS) plans. (He indicated that USDA is currently in the process of reviewing public comments in preparation of developing the final rule.) However, Grundler's testimony largely reflects previous testimony to another government panel on this topic; neither testimony provided much fresh info on the topic.

Grundler again noted the 2013 RFS requirements should be able to be met via a combination of corn-based ethanol output and the agency’s proposed level of 16.55 billion gallons for 2013 includes volumes for advanced biofuels, such as biomass-based diesel and cellulosic biofuel. Grundler detailed that the 2013 requirements should be met "through the use of RINs (Renewable Identification Numbers) generated in 2013 and those generated in 2012 that are available under the regulations for use (carryover RINs) in complying with 2013 standards."

Echoing his prior testimony, Grundler noted that for 2014, "the situation could be different." He outlined the following factors that will affect how compliance will be achieved: "First, the advanced biofuel and total renewable fuel requirements rise substantially to 3.75 billion gallons and 18.15 billion gallons, respectively," Grundler said. "While non-ethanol biofuels are anticipated to continue to grow to help supply the advanced biofuel standard, an estimated 16 billion gallons or more of conventional and advanced ethanol might still be needed to comply with the RFS program in 2014." He also said the number of carryover RINs from 2013 will be "a critical factor in determining how obligated parties show compliance with the 2014 RFS volume requirements."

Both officials' comments about new biofuels that could be used to meet RFS requirements were rather vague and didn't provide any targeted date when these new fuels will be commercially viable. The officials didn't provide any hard and fast answers to the blend wall issue, except to note that higher blends of ethanol such as E15 or E85 would be one key to overcoming it, though many hurdles remain on that front. Read the full story for more on biofuels' influence on food prices and chances for a long-term waiver.



CROP INSURANCE INDEMNITIES FOR 2012 REACH $17.37 BILLION... Crop insurance indemnities paid out for 2012 losses now stand at $17.37 billion, up slightly from the prior week and continuing to add to the record level of payouts under the crop insurance program, according to Risk Management Agency data. The slight uptick did not change the overall loss ratio for the program, which stands at 1.56, keeping 2012 as the first year since 2002 that the loss ratio has exceeded 1.0. The rate of increase in the indemnities also continues to dwindle, a situation typically seen under the program.

For 2013, the level of net acres insured has finally reached 100 million, standing at 103.575 million. That compares to 120.776 million net acres insured for 2012 crops at this point a year ago. Net insured acres in 2012 crops eventually reached 282.729 million.

Farmers also remain fully committed to policies that offer something beyond just catastrophic coverage, as 94.8% of all 2013 policies are above the basic coverage. That compares to 93.8% percent for 2011 crops and 92.7% for 2010 crops. Learn more.




CORN: Hedgers and cash-only marketers are 100% sold in the cash market for 2012-crop. For 2013-crop, hedgers and cash-only marketers have 25% of expected 2013-crop production sold via cash forward contract for harvest delivery. Be prepared to advance new-crop cash sales if Dec. corn futures challenge the $5.75 area again and can't push through it. If that resistance is cleared, that would then become a sales "trap" and our sales target area would push up to the $6.00 area. While our attitude toward new-crop corn is getting more bullish, we will offset risk on price rallies, especially for hedgers, and then look to reown a portion of sales if the market eventually wakes up to crop problems in Iowa and Minnesota.

BEANS: Hedgers and cash-only marketers are 100% sold in the cash market for 2012-crop. For 2013-crop, hedgers and cash-only marketers have 20% of expected 2013-crop production sold via cash forward contract for harvest delivery. Hedgers has exited the 50% hedge in Nov. soybean futures. Be prepared to advance new-crop cash sales if Nov. bean futures challenge the early June high and can't push through it. If that resistance is cleared, that would then become a sales "trap" and our sales target area would push up to the $13.50 area. While our attitude toward new-crop beans is getting more bullish, we still believe price rallies are a selling opportunity, especially for hedgers who can reown a portion of crop on the board.

WHEAT: You are 100% sold on 2012-crop. For 2013-crop, we are still hopeful of a price recovery once harvest is complete. But with that said, a drop below support at the April low would open sharp downside risk and would therefore, trigger cash sales. We'll be more aggressive with hedgers as you can reown the crop on the board if the market eventually rallies.

COTTON: Hedgers are 100% sold on 2012-crop in the cash market, with cash-only marketers 85% sold on old-crop. Cash-only marketers should be prepared to finish old-crop sales. For 2013-crop, hedgers and cash-only marketers have 50% of expected production sold via cash forward contract for harvest delivery. Hedgers also have 50% of expected production hedged in December cotton at 83.87 cents. We are willing to hold onto that coverage as the market looks toppy and the hedge price is attractive.

CATTLE: Live cattle futures are finally showing signs of bottoming. Fed cattle producers should continue to carry all risk in the cash market. Feeder cattle buyers should be prepared to add long hedge coverage on confirmation of a low.

HOGS: Hog producers have 50% of expected 3rd-qtr. production is hedged in Aug. lean hog futures at an average price of $97.67 1/2 and 25% of expected 4th-qtr. production is hedged in Dec. lean hog futures at an average price of $82.12 1/2.

FEED: Continue to carry all feed risk in the cash market for now.