Evening Report (Hog Advice) -- November 14, 2013

November 14, 2013 09:22 AM


HOG HEDGERS: INCREASE 4TH AND 1ST-QTR. HEDGES... Hog slaughter is building into the end of the year and average hog weights are on the rise, driving pork production above market expectations. There is still concern in the industry that the porcine epidemic diarrhea virus (PEDV) may slow hog slaughter, but that has so far been slow to develop. As a result, the technical chart pattern in hog futures has turned decidedly bearish.

Hog hedgers are advised to hedge 50% of expected fourth-quarter marketings in December lean hog futures to push coverage to 100% of fourth-quarter marketings. You are also advised to hedge 50% of expected first-quarter 2014 hog marketings in February lean hog futures to get to 50% covered on first-quarter marketings.


ETHANOL PRODUCTION CLIMBS... According to data released by the Energy Information Administration (EIA), ethanol production the week ended Nov. 8 of 927,000 barrels per day (bpd) was up 25,000 bpd from the previous week. Ethanol stocks declined marginally to 15.15 million barrels.

Archer Daniels Midland Company's CEO Patricia Woertz told Reuters today ethanol production could be in the "14-billion-gallon range" in 2014, even if EPA lowers its target for use of renewable fuels, because of positive margins and demand from buyers.


USDA ANNOUNCES ANOTHER ROUND OF SUGAR-FOR-ETHANOL PROGRAM... USDA today announced it is launching its third round of the Sugar-for-Ethanol Program. USDA's Commodity Credit Corporation (CCC) is offering to sell the 296,500 short tons of sugar it received in lieu of cash repayments on its 2012-crop-year sugar loans. The department is now seeking bids from U.S. ethanol producers for this sugar. This time around, USDA increased the minimum bid size to 50,000 MT to allow for "commercial-scale sugar use in bio-energy production."


WILL HOUSE FARM BILL NEGOTIATIONS GIVE TOO MUCH TO SENATE?... As farm bill conference negotiations continue, there is increasing concern conferees have focused too much on compromise and not enough on what should be the main objective relative to safety net provisions: Providing growers of different commodities and regions of the country the best safety net from a risk-management perspective.

Notably, sources indicate that some House Conferees may be contemplating giving too much relative to the Senate's big push for am all-in farmer safety net program approach. Senate conferees don't want farmers to choose between a revenue-loss (Ag Risk Coverage/shallow loss) and price-loss (target) approach because they fear farmers would opt for the price loss program, as some outside analysis suggests. The key is how much existing proposals relative to revenue and price loss programs would have to be watered down to accommodate the all-in push.

Some sources also indicate that if an all-in approach to Title I (safety net) policy were taken, a key change could be in store for Supplemental Coverage Option (SCO) eligibility. If so, sources again think that would be an inadequate compromise.

Meanwhile, Senate Ag Committee Chair Debbie Stabenow (D-Mich.) is reportedly digging in on several contentious items, including "actively engaged" Title I language. Meanwhile, reactions to scoring by the Congressional Budget Office (CBO) signals program costs are likely much higher than anticipated, so adjustment will be needed. Get more details.


CHICAGO FED REPORTS STRONG GAINS IN FARMLAND VALUES... The Federal Reserve Bank of Chicago reports in the third quarter of 2013, farmland values posted a year-over-year increase of 14%. However, it notes gains were tempered in Iowa, with farmland values rising "just" 9% from the previous year but declining 1% from the second quarter.

The report notes, "Better-than-expected crop yields for the district may have contributed to the momentum of its rising farmland values; however, in areas affected by back-to-back droughts, the loss of revenue from declines in crop prices and yields may have constrained farmland value gains."

According to the report, the district's ag credit conditions further improved compared to year-ago, although it was generally narrower than in previous quarters of the year and the past few years. Looking ahead, bankers were less optimistic the strong pace of gains for farmland values would continue. Only 4% anticipated higher farmland values in the fourth quarter, while 21% expected farmland values to soften. But the vast majority -- 75% -- expected no change in farmland values in the final quarter of 2013.

"Moreover, survey respondents predicted farmers’ demand to acquire farmland this fall and winter to be stronger than a year ago, whereas they expected the opposite for nonfarm investors’ demand," states the report. "Thirty-six percent of the responding bankers predicted a decrease in the volume of farmland transfers relative to the fall and winter of a year ago, while 18% expected an increase."

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