Evening Report -- Advice (VIP) -- March 20, 2013

March 20, 2013 10:02 AM

COTTON PRODUCERS: ADVANCE 2012-CROP SALES, MAKE INITIAL 2013-CROP SALES... The technical picture remains bullish for cotton futures, but we are concerned the market could be putting in a top after more than a 20-cent rally from the November low in old-crop futures. Hedgers are advised to make a 50% old-crop cash sale to get to 100% sold in the cash market. Cash-only marketers should make a 35% sale to get to 85% sold.

Hedgers and cash-only marketers should also make an initial 25% 2013-crop cash forward contract sale for harvest delivery.


FED NOTES PICKUP IN ECONOMIC ACTIVITY... The Federal Open Market Committee says since its January meeting, it has seen a return to moderate economic growth following a pause late last year. But to support continued progress, it expects its monetary policy to remain "highly accommodative" for a "considerable time" after the asset purchase program ends and the economic recovery strengthens.

As expected, the Fed left its target for the federal funds rate at 0% to 0.25% and said it will continue to purchase additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term securities at a pace of $45 billion per month to support a stronger economic recovery.

The Fed revised its economic projections slightly from December. It now expects GDP in 2013 between 2.3% to 2.8% (previously 2.3% to 3%) and between 2.9% and 3.4% in 2014 (3% to 3.5% previously). Unemployment is projected at 7.3% to 7.5% in 2013 (7.4% to 7.7% previously) and 6.7% to 7% in 2014 (6.8% to 7.3% previously). Click here for more.



DIRECT PAYMENTS TO BE CUT 8.5% TO MEET USDA SEQUESTRATION TARGET... Washington consultant Jim Wiesemeyer reports USDA will cut direct payments coming in October by 8.5% to offset the required sequester savings, USDA's Farm Service Agency (FSA) informed Congress earlier this week.

"There is a 30-day Congressional notification period that must pass before we can move forward," wrote FSA Administrator Juan Garcia in an e-mail to staff. "Therefore, payments in the following programs will continue to be deferred for the next 30 days: 2011 Supplemental Revenue Assistance Payments Program (SURE), Noninsured Crop Disaster Assistance Program (NAP) for both 2012 and 2013 crop years, and the Milk Income Loss Contract Program (MILC). After 30 days, we intend to resume making these program payments in full."

The reduction to direct payments, according to Garcia, will "minimize disruption to farmers and ranchers who have already received and will soon be seeking disaster assistance through SURE or NAP. It will allow producers who suffered disasters to be fully paid, and it will avoid having to require about 350,000 producers to refund 5.1% of the payments they have already received. It will also prevent the Department from incurring a significant administrative burden that would be required to recoup these payments."



COLD AND WET MIDWEST PATTERN TO PERSIST... Meteorologist Gail Martell of MartellCropProjections.com says while the calendar proclaims it's spring, you can't tell it by the Midwest weather pattern. She says through March 26, temps are expected to be 10 to 15 degrees below normal for Canada and the northern U.S. due to the Arctic Oscillation being in a negative cold phase. Regarding the forecast, she says, "Polar air masses driving south in the U.S. would stall out in the mid-South. This sets up a horizontal frontal boundary separating warm air to the south from cold air in the north. Such a front is expected to develop Friday night creating instability where rain and snow showers would develop. Unstable wet weather with recurring showers would continue through Saturday. The cumulative precipitation may be very heavy -- over two inches in Arkansas, northern Mississippi and Georgia. Corn states of Nebraska, Illinois and Indiana would receive at least a half inch -- potentially .80 inch. Kansas is also in the wet zone -- expected to receive a half inch to 1 inch of moisture in wheat areas," she says. Click here for related maps.



The Senate today approved funding for meat inspectors rather than have them be furloughed as part of the budget sequestration. The amendment was agreed to by voice vote as part of Senate action on its version of the FY 2013 continuing resolution (CR). The CR is expected to receive quick approval from the House. The amendment, proposed by Agriculture Appropriations Chairman Mark Pryor (D-Ark.), and the panel's ranking member, Roy Blunt of Missiouri, shifts money from elsewhere in USDA's budget to the Food Safety and Inspection Service.



WEEKLY ETHANOL PRODUCTION IMPROVES, STOCKS TIGHTEN... The Energy Information Administration (EIA) reports that ethanol production improved the week ended March 15 and stocks tightened. Ethanol production of 809,000 barrels per day (bpd) improved 12,000 bpd from the previous week. Ethanol stocks of 18.47 million barrels were down 223,000 barrels from the previous week.

Due to tightening ethanol supplies and mandates to blend renewable fuels, the blending credits known as RINs have been in high demand. While the price of RINs has stabilized this week, earlier this month the credits traded above $1 per gallon. Today, two Republican senators -- David Vitter of Louisiana and Lisa Murkowski of Alaska -- called on EPA to act "decisively" to protect consumers from the rising cost of RINs.

"We ask that you utilize any and all existing regulatory authority and flexibility to address the issue of rising RIN costs and alleviate the threat of increased consumer fuel costs," the two lawmakers said in a letter to EPA.



WATER RESOURCE BILL APPROVED BY SENATE PANEL... The Senate Environment and Public Works Committee this morning approved 18-0 an amended water infrastructure authorization bill (S 601). The measure includes an overhaul of the Harbor Maintenance Trust Fund that would ensure that all user fees collected annually -- about $1.8 billion annually -- will be spent solely on ports projects. The American Farm Bureau Federation, which supports the legislation, says addressing the needs of the inland waterways system is critical to fostering growth of U.S. exports.



CHINA, INDIA TO SELL COTTON STOCKS... India says it will follow China's lead in selling cotton from government stockpiles to protect domestic end-users from soaring prices. The selling of state-owned reserves by the two leading global producers eased traders' supply concerns and resulted in sharp price pressure on cotton futures today. Hefty purchases of U.S. cotton have helped lift the market recently, but this news could secure at least a near-term high as traders suspect the buying frenzy has run its course.




CORN: Hedgers are 100% sold in the cash market, with cash-only marketers 75% priced on 2012-crop. Use the recent price strength to get current with recommended 2012-crop cash sales. But given tight supplies, we're willing to hold onto remaining old-crop supplies for cash-only marketers for now. For 2013-crop, be prepared to make cash forward contract sales and/or add hedge coverage if December corn futures are unable to clear resistance at $5.70.

BEANS: Hedgers are 100% sold in the cash market, with cash-only marketers 75% priced on 2012-crop. Get current with advised old-crop sales as there is risk of near-term price pressure as the export season is winding down. But given tight supplies and the potential for further shipping delays in Brazil, cash-only marketers should hold some old-crop soybeans in the bin. November soybeans must hold support at the February low or we'll enter defensive hedges. Also be prepared to make initial cash sales on a rebound to $13.50 in November futures.

WHEAT: Hedgers and cash-only marketers have 75% of 2012-crop sold in the cash market. Use the recovery rally to get current with advised old-crop sales. We're hoping to get an extended bounce before starting 2013-crop marketings, but we'll make sales/hedges if July Chicago futures fail to clear downtrending resistance from the winter highs.

COTTON: Hedgers now have 100% of 2012-crop production sold in the cash market, with cash-only marketers 85% sold. Hedgers and cash-only marketers are now 25% forward priced on expected 2013-crop production. Be prepared to make additional new-crop sales if December cotton futures signal a major market top is in place.

CATTLE: Live cattle futures are struggling to put in a low amid ongoing demand concerns. But the downside is also limited by tightening supplies and our long-term outlook remains bullish. Fed cattle producers should continue to carry all risk in the cash market. The sharp price break will eventually present an opportunity for feeder cattle buyers to cover a portion of upcoming needs, but we'll wait on signs of a bottom before advising long coverage.

HOGS: Lean hog futures are struggling to put in a low as demand concerns continue to hang over the market. Once futures definitively put in a low, we expect the upside to be overdone on the ensuing price rally. Continue to carry all risk in the cash market.

FEED: 25% of 2nd-qtr. Corn needs are hedged in long July corn futures at $6.78 3/4 and 25% of 2nd-qtr. Protein needs are hedged in long July soybean meal futures at $388.00. Be prepared to take profits.


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