Evening Report -- Advice (VIP) -- September 19, 2012

September 19, 2012 09:57 AM

CORN AND SOYBEAN PRODUCERS: INCREASE 2012-CROP CASH SALES... We realize market fundamentals are bullish, but with corn and soybean futures showing technical damage and the price structure arguing against storing any of this year's crop on-farm, it's time for corn and soybean producers to advance 2012-crop cash sales.

Corn hedgers and cash-only marketers are advised to make a 25% cash sale to get to 60% sold in the cash market on 2012-crop. Hedgers also have 40% downside price protection with Dec. $6.50 put options in case of additional, sharp price pressure.

Soybean hedgers are advised to make a 50% cash sale to get to 100% sold in the cash market on 2012-crop production. Hedgers still hold Nov. $14.50 put options on 40% of 2012-crop production that are currently virtually worthless. With virtually no risk in continuing to hold these puts, we will maintain them as a crop insurance hedge. Cash-only marketers should make a 25% sale to get to 75% sold on 2012-crop production.



USDA CHANGES RELEASE TIME OF KEY GRAIN REPORTS... USDA today announced the National Agricultural Statistics Service (NASS) and World Agricultural Outlook Board (WAOB) will begin issuing its major USDA statistical reports at 11:00 a.m. CT beginning in January 2013. The current USDA release time of 7:30 a.m. CT will remain in effect until January 1, 2013. USDA statistical reports affected are: World Agricultural Supply and Demand Estimates, Acreage, Crop Production, Grain Stocks, Prospective Plantings, and Small Grains Summary. Livestock reports, which are currently released at 2:00 p.m. CT, will not change. Click here for more.



ETHANOL PRODUCTION CLIMBS WITH AVAILABILITY OF NEW-CROP SUPPLIES... The U.S. Energy Information Administration (EIA) says ethanol production rose to 834,000 barrels per day for the week ended Sept. 14, a 2.2% increase from the previous week. For the same period, ethanol stocks climbed to 19.33 million barrels, up 2% from the previous week.

The increase in ethanol production coincides with the start of harvest and the availability of new-crop supplies, which in many instances are being delivered via forward contract obligations. Bloomberg News reports that Valero Energy Corp. -- the third largest ethanol producer -- has restarted previously shuttered facilities in Nebraska and Indiana due to improved margins and now has all ten of its plants in operation.



2013 FARM BILL DEADLINE BASED ON CBO UPDATES... Due to the potential (likely) for larger budget costs for a new farm bill, farm group lobbyists and farm-state lawmakers are now pushing for it to be completed during the lame-duck session of Congress or at latest by March 1, 2013. Around this time the Congressional Budget Office (CBO) will issue a new budget baseline. If a farm bill isn't completed by then, some fear the updated baseline will be used to score the final farm bill.

CBO analysts have likely already underestimated participation in what could be a very attractive (especially to large producers) and expensive Supplemental Coverage Option program, which has no payment limitations.

Plus, higher commodity prices and corn and soybean planted acres than what is projected for this year and beyond would also up the cost. Consider how if the 98 million acres planted to corn ever get a national average corn yield around 160 bu. per acre, carryover for the 2013-14 marketing year could zoom past 2 billion bushels. The resulting corn price plunge could make revenue programs very attractive and more expensive than currently anticipated, because updated CBO calculations will take into account the drought-driven price run-up. The payment triggers for the programs would be based on a five-year moving average of commodity prices; thus there would be higher benchmark revenue levels -- especially in the first years of revenue programs. Read more.




CORN: Given the technical damage in corn and the risk of additional price pressure, it's recommended you get current with advised sales. Hedgers are 60% sold on expected 2012-crop production via cash forward contracts -- 50% for harvest delivery; 10% for March 2013 delivery -- with another 40% of production hedged with Dec. $6.50 put options purchased for 31 1/2 cents. Cash-only marketers are also 60% priced on expected new-crop production via forward contract -- 35% for harvest delivery; 10% for March 2013 delivery; and 15% for May 2013 delivery.

BEANS: The price outlook remains very bullish, but the technical picture has weakened and there's risk of more near-term price pressure. As a result, get current with advised sales. Hedgers are 100% sold on expected 2012-crop production via cash forward contract for harvest delivery. Hedgers also hold Nov. $14.00 put options which were purchased for 42 3/8 cents on 25% of 2012-crop. Maintain those puts as a crop insurance hedge. Cash-only marketers have 75% of expected 2012-crop forward sold for harvest delivery.

WHEAT: The wheat market is holding up relatively well in the face of pressure on corn and soybeans. Hedgers and cash-only marketers have 75% of 2012-crop sold in the cash market. Be prepared to increase cash sales if futures signal a technical top is in place. Hedgers may also add hedge coverage to protect downside price risk if there are signs of a top.

COTTON: Hedgers and cash-only marketers have 50% of expected 2012-crop production sold for harvest delivery. Be prepared to advance new-crop sales on a sharp price spike as there are demand concerns with China's economy continuing to slow.

CATTLE: Fed cattle producers should carry all risk in the cash market for now. But be prepared to add hedge coverage if futures fail to post a sustained upside breakout. Feeder cattle buyers and sellers carry all risk in the cash market for now.

HOGS: Futures are signaling a short-term low is in place. But the upside remains limited to corrective buying given hefty supplies. Be prepared to add hedge coverage on an extended price bounce as supplies will remain heavy through winter and futures are now trading at a premium to the cash market.

FEED: The price break in corn and meal futures will eventually be an opportunity to extend feed coverage. But remain hand-to-mouth until futures signal short-term lows are in place.

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