Evening Report -- Advice (VIP) -- November 6, 2013

November 6, 2013 08:51 AM

COTTON HEDGERS: CLAIM PROFITS ON 2013-CROP HEDGES... Cotton futures are signaling a short-term low may be in the works after extended price pressure. While we expect USDA's reports Friday to be neutral to negative for cotton futures, we aren't willing to risk profits that have accumulated on the 2013-crop hedges. Hedgers are advised to claim profits on the 50% hedges in Dec. cotton futures. If Friday's reports are highly bearish, we'll look to reestablish the short hedge coverage.



UNCERTAINTY AHEAD OF COMING USDA REPORTS... There's a high level of anticipation ahead of USDA's Nov. 8 Supply & Demand and Crop Production Reports since the agency didn't release crop data in October due to the government shutdown. Traders expect USDA to raise its corn and soybean yield estimates from September, but for harvested acreage to be down. According to the average pre-report guesses, traders look for USDA to raise its corn production estimate from September to 14.022 billion bu., with soybean production also projected higher at 3.225 billion bushels.

Crop Production



USDA Sept.


in billion bushels












Due to the anticipated larger crop pegs, traders look for USDA to raise its 2013-14 corn and soybean carryover projections from September. However, improved usage is expected to tighten wheat carryover. According to the average pre-report guesses, traders look for USDA to peg corn carryover at 2.056 billion bu., soybean carryover at 183 million bu. and wheat carryover near 527 million bushels.

2013-14 carryover



USDA Sept.


in billion bushels
















* 2012-13 corn and soybean ending stocks are from the September Quarterly Grain Stocks Report.



CHINA APPROVES BRAZILIAN CORN IMPORTS... China has reportedly signed an agreement to import Brazilian corn, according to a Brazilian government official. Brazil has been working for some time to address China's phytosanitary concerns regarding corn imports. China is expected to import 7 MMT of corn for 2013-14, and the nation has traditionally sourced most of its corn needs from the United States. But the nation has been seeking alternatives to U.S. supplies and the first shipment of Argentine corn arrived this summer. Also, the first shipment of corn from Ukraine is expected to arrive in China sometime this month. Brazil's ag ministry says that China may eventually import up to 10 MMT of Brazilian corn each year, though any shipments are expected to be small over the near-term.



RUSSIA TO LIFT BANS ON U.S. BEEF & TURKEY... As reported in "First Thing Today," Russia announced it will lift import restrictions on U.S. turkey this month and on U.S. beef starting in 2014. Its ban on pork imports will remain in place. The country banned U.S. meat exports in February 2013 due to the U.S.'s use of the feed compound ractopamine.

Russia will now permit U.S. beef imports of up to 60,000 MT within its quota for 2014. But the country's veterinary watchdog Rosselkhoznadzor says the country will reintroduce the ban if ractopamine is discovered in U.S. beef. Russian officials signal the ban on pork is not likely to be lifted soon. While the country is dealing with a beef shortage, it is not in need of U.S. pork.



RAINS END DROUGHT IN ARGENTINA, PROPEL PLANTING IN BRAZIL... Meteorologist Gail Martell of MartellCropProjections.com says rains of 2 to 4 inches across the Argentine grain belt last week slowed planting, but ended the drought. Heavy rainfall was also seen across Mato Grosso, Brazil, last week.

Martell says satellite vegetation analysis reflects delayed planting and emergence in Argentina. "By contrast, Brazil vegetation was above average in the main soybean states of Mato Grosso, Parana, Rio Grande do Sul and Goias. Excellent vegetation reveals the generous spring rainfall promoting timely planting and strong plant growth," she says. Click here for more.



WASHINGTON VOTERS REJECT GMO LABELING PROPOSAL... Washington voters rejected an initiative that would have required food labels on products containing genetically modified ingredients. Initiative 522 was rejected by a 54.8% majority. If it had passed, Washington would have been the first state to require such labeling.



WEEKLY ETHANOL PRODUCTION DECLINES... After rising to a 17-month high the previous week, the Energy Information Administration reports ethanol production the week ended Nov. 1 declined by 9,000 barrels per day (bpd) to 902,000 bpd for an annualized rate of 13.72 billion gallons. Ethanol stocks climbed by 204,000 barrels to 15.17 million barrels.




CORN: Hedgers and cash-only marketers have 25% of 2013-crop production sold in the cash market. While corn futures continue to slide and attitudes are fully bearish, we don't see a lot of additional downside pressure. In fact, with corn futures heavily oversold and funds holding a record short position, we expect the market to soon put in a low. We are content to wait on an extended corrective price recovery to advance cash sales, though that may take time and could be relatively short-lived.

BEANS: Hedgers have 100% of 2013-crop production sold in the cash market, while cash-only marketers are 75% sold on 2013-crop. With hedgers sold out of 2013-crop production in the cash market, we are watching for an opportunity to reown a portion of sales, but the market is giving us no signals at the moment that the price slide is near an end. In fact, technical action argues that soybeans are ready to move the next leg lower.

WHEAT: Hedgers are 75% sold in the cash market on 2013-crop production, while cash-only marketers are 50% sold. Futures are pointed lower and appear headed back to the lows. Fresh bullish news is needed for the market to secure a short-term low.

COTTON: Hedgers and cash-only marketers have 50% of expected 2013-crop production sold via cash forward contract for harvest delivery. Hedgers claimed profits of 6.21 cents on the 50% 2013-crop hedges that were held in Dec. cotton futures. Be prepared to reestablish short hedge coverage if Friday's USDA reports are highly bearish.

CATTLE: Fed cattle producers should continue to carry risk in the cash market. But with nearby futures signaling a short-term top is in place and trading in line with the cash market, it's time to lock in basis on winter marketings. You should also be prepared to add light, short-term hedge coverage if packers slow slaughter runs, as that could put more near-term pressure on the market than we currently anticipate. We are hesitant to add long feeder cattle coverage with live cattle signaling a short-term top is in the works.

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. Hog futures are signaling a top is in place. Therefore, we're close to increasing 4th-qtr. hedge coverage, though we'll give the contract a chance to fill today's downside gap before doing so. Also, be prepared to extend hedge coverage into the first quarter of next year.

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. The technical trend suggests prices are headed lower, so we aren't interested in heavying up long coverage at this time. We'll wait for signs of a low to add long corn coverage.


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