Evening Report -- July 18, 2012

July 18, 2012 10:24 AM
 

GREENNESS MAPS REFLECT MOSTLY 'POOR' VEGETATION... The Kansas Applied Remote Sensing (KARS) "GreenReport" reflects building stress across the Corn Belt. Its Vegetation Condition Map shows very little "green" that reflects "fair" to "good" vegetative growth. Those areas are mostly isolated to eastern Nebraska, northwest Iowa and southern Minnesota. Elsewhere, mostly "poor" vegetative health is noted. Click here to view the maps.

 

ETHANOL PRODUCTION DROPS TO LOWEST LEVEL IN TWO YEARS... The Energy Information Administration (EIA) reports weekly ethanol production fell for the fifth straight week to 802,000 barrels per day (bpd). That's down 19,000 bpd from the previous week and it's lowest level since the government began tracking the data in June 2010. Ethanol stocks rose by 24,000 barrels to 19.56 million barrels. This is more evidence that high prices are slowing use and rationing supplies.

 

VILSACK BRIEFS OBAMA ON DROUGHT... Agriculture Secretary Tom Vilsack briefed President Obama on the drought today and afterward called on Congress to act to aid livestock producers by passing a new farm bill or reviving expired disaster assistance programs.

Vilsack also suggested a third option -- providing aid through USDA's Commodity Credit Corp. "Our tools are somewhat limited, so we're going to need to work with Congress to provide opportunities either through the passage of the the food, farm and jobs bill or though additional disaster programs or through perhaps additional flexibility in the Commodity Credit Corp.," Vilsack said at the White House daily press briefing after the meeting with Obama.

Vilsack noted the gravity of the drought, but said it was not yet as severe as the drought of 1988. He also acknowledged deteriorating production prospects will result in sharply higher crop prices, which in turn hit livestock producers hard. But he said there is no need for the EPA to roll back the ethanol usage mandate this year. The corn crop could still be the third largest in history, according to Vilsack, in part because of seed technology that makes plants more resistant to drought.

 

USDA DESIGNATES MORE DISASTER AREAS... Just ahead of his drought briefing with the president today, USDA Secretary Tom Vilsack designated 39 additional counties in eight states as primary natural disaster areas due to damage and losses caused by drought and excessive heat. So far this crop year, USDA has designated 1,297 counties across 29 states as disaster areas, making all qualified farm operators in the areas eligible for low-interest emergency loans. The additional counties designated today are in the states of Arkansas, Georgia, Indiana, Mississippi, New Mexico, Tennessee, Utah and Wyoming. Earlier this week, USDA also designated the entire state of Missouri a disaster area due to drought in response to a request from the state's governor.

 

UNANIMOUS COMMITTEE APPROVAL OF RUSSIAN TRADE MEASURE... The Senate Finance Committee today unanimously approved a compromise measure that would grant permanent normal trade relations to Russia as the country officially joins the World Trade Organization near the end of this summer. The measure was combined with a human rights measure that would punish those accused of killing Russian whistleblower Sergei Magnitsky. Committee Chairman Max Baucus (D-Mont.) believes the unanimous, bipartisan support for the measure ups its odds of getting through Congress before the chamber's August recess. But its timeline is clouded by the fact that existing sanctions are considered revenue legislation, and all such measures must originate in the House.

 

PF MIDWEEK MARKETING GAME PLAN UPDATE...
CORN: Hedgers are 35% sold on expected 2012-crop production via cash forward contracts -- 25% for harvest delivery; 10% for March 2013 delivery -- with another 40% of expected production hedged with Dec. $6.50 put options purchased for 31 1/2 cents. There's more near-term upside price potential, but a top could come at any time and without notice. Cash-only marketers are also 35% priced on expected new-crop production via forward contract -- 10% for harvest delivery; 10% for March 2013 delivery; and 15% for May 2013 delivery. Hedgers and cash-only marketers should get current with advised sales and be prepared to increase marketings on signs of a top as supply-scare rallies are typically short-lived and can end even as crop/yield forecasts are declining. For old-crop, both hedgers and cash-only marketers are 90% sold. Be prepared to finish old-crop cash sales on signs of a top in futures or the cash market.

BEANS: Hedgers are 50% sold on expected 2012-crop production via cash forward contract for harvest delivery with another 25% of expected production hedged with Nov. $14.00 put options purchased for 42 3/8 cents. Get current with recommended sales and be prepared to increase marketings on signs of a top. Cash-only marketers have 50% of expected 2012-crop forward sold for harvest delivery. Be prepared to increase new-crop sales. Hedgers and cash-only marketers are down to gambling stocks on old-crop and should be prepared to finish old-crop sales if there are signs of a top in futures or in the cash market.

WHEAT: Hedgers and cash-only marketers have 75% of 2012-crop sold in the cash market. Be prepared to increase new-crop cash sales on signs of a top. Hedgers may also add hedge coverage to protect downside price risk once the rally runs out of steam as wheat will lose its support once the corn market tops.

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 an extended price bounce as long-term fundamentals are negative. Hedgers and cash-only marketers are 100% sold on 2011-crop in the cash market.

CATTLE: Fed cattle producers should carry all risk in the cash market for now. While there's near-term downside risk if demand concerns build, tight market-ready supplies limit the downside. Feeder cattle buyers and sellers should also carry risk in the cash market.

HOGS: The big discount summer-month futures hold to the cash market limits our desire to add hedge coverage, especially given tight market-ready supplies. But anticipation of a seasonal rise in kill numbers and pork production will keep traders comfortable with futures at a discount to the cash market.

FEED: There's more upside price risk as traders are still building weather premium into futures, but remain hand-to-mouth on corn-for-feed and meal needs for now as we don't want to lock in these prices for an extended period since supply-scare rallies are typically short-lived.
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