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

December 6, 2013 08:50 AM

HOG PRODUCERS: CLAIM PROFITS ON 4th-QTR. HOG HEDGES… Hog producers were advised this morning to claim profits on the hedges covering 100% of 4th-qtr. production in December lean hog futures. After a week of very heavy price pressure, December futures are now at a discount to the cash index, which is starting to firm. With just one week until the contract expires, it was time to exit the 4th-qtr. hedge coverage. While we may end up leaving some money on the table, we weren't willing to risk the accumulated profits. Our exit was $81.90 for a profit of $1.84 on the entire position.

We're willing to maintain the hedges covering 50% of expected 1st-qtr. production in February lean hog futures for now. But be prepared to exit this coverage when the market signals a seasonal low is in place.


SMALLER CARRYOVERS EXPECTED IN DECEMBER S&D REPORT... Traders are expecting smaller 2013-14 carryover projections for corn, soybeans and wheat, while the cotton ending stocks forecast is likely to be unchanged from November in USDA's December Supply & Demand Report next Tuesday. On average, the pre-report guesses show a 26-million-bu. reduction in corn ending stocks to 1.861 billion bu., a 16-million-bu. drop in soybean carryover to 154 million bu. and a 12-million-bu. lowering in wheat carryover to 553 million bushels. All of the adjustments are expected on the usage side of the balance sheets as USDA will not issue production updates for corn or soybeans this month.

2013-14 carryover



USDA November


in billion bushels
















Cotton (mil. bales)

USDA's only production update this month is for cotton. Traders are anticipating a 100,000-bale increase in the cotton crop from November to 13.2 million bales despite some late-season harvest struggles due to unfavorable weather across the South. Last month, USDA increased its production estimate by 210,000 bales.

Crop production



USDA November

USDA 2012

in million bales







RFS COMMENTARY IMPORTANT TO EPA'S FINAL RULEMAKING... Mike Adams, host of AgriTalk, hosted a live radio broadcast at the 2013 Farm Journal Forum that included an interview with Sarah Bittleman, agriculture counselor at the U.S. Environmental Protection Agency (EPA). Bittleman said that "constant, consistent communication" is key to moving past a confrontational relationship between agriculture and the EPA. She says common goals between these entities share common goals, including "cleaner water, cleaner air and cleaner land and leaving a better environment for our children and our children's children," they have incentive to work on these goals together.

Asked about how much of an impact feedback during the open comment period for the Renewable Fuel Standard (RFS) has on EPA's final rule, Bittleman responded, "It is an honest to goodness proposed rule," and when EPA has a public comment period, "it is an honest to goodness solicitation of public comment on what that proposed rule says." Therefore, Bittleman says the hearings that took place yesterday are a "very important process" for gathering "real-time information... to enter into the discussion." It is not just a numbers game, Bittleman explains. It is about taking all of the data and making it into a final rule.


OVERWHELMING SHOW OF SUPPORT FOR RFS AT EPA HEARING... It's impossible to predict what EPA will ultimately decide on the final 2014 RFS volumes based on yesterday's hearing, according to Grant Menke, policy director with the Iowa Renewable Fuels Association, who testified at the hearing. But he says the most important outcome of the hearing was the "overwhelming show of support for the RFS."

Menke elaborates, "For over 12 hours, EPA heard testimony from the vast majority of speakers emphasizing how the RFS is working: how it benefits their business or farm; how it benefits their job, their family and their community; how it benefits our nation's economy, environment and energy security; and how EPA's misguided proposal to slash the RFS would slash these benefits as well." Menke says the 60-day public comment period, which is now open, will be the "ultimate opportunity for RFS supporters to make their case as to why this proposal needs to be rejected."


JOBS GROWTH AGAIN EXPANDS MORE THAN EXPECTED... The Labor Department reported this morning the U.S. economy added 203,000 non-farm payrolls last month, which topped the average pre-report guess of 180,000 jobs added. In addition, the Labor Department revised its September and October non-farm payrolls a combined 8,000 jobs higher. The unemployment rate dropped from 7.3% to 7.0% in November.

Fed Chairman Ben Bernanke has repeatedly stated the jobs market (and inflation) is a key factor the central bank will use in regards to when the tapering of its $85 billion per month in asset purchases will begin. While the labor market is improving, the unemployment rate is still above the level Bernanke has outlined (6.5%) as to when the Fed will consider tapering.

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