Evening Report (VIP) -- Advice -- February 13, 2014

February 13, 2014 09:11 AM

Soybean cash-only marketers: Trim old-crop stocks... March soybean futures have rallied to price levels that have stalled multiple rally attempts since fall. With the Brazilian export season underway and China starting to cancel some U.S. soybean purchases, cash-only marketers are advised to take advantage of the price strength by making a 15% 2013-crop sale to get to 90% sold on old-crop. The remaining 10% of unpriced old-crop supplies will be held as gambling stocks as soybean supplies will be tight through the 2013-14 marketing year.


Livestock producers: Claim profits on 1st-qtr. meal coverage... March soybean meal futures continue to post new contract highs on a near-daily basis. But with just two weeks until the contract enters delivery, we aren't willing to gamble on a continued rally. Livestock producers are advised to claim profits on the 25% 1st-qtr. protein coverage in long March soybean meal futures. Our exit was $451.40 for a profit of $40.60.


Long-term projections from USDA point to strong crop demand... The long-term ag baseline projections through 2023 released by USDA today included the following synopsis: "Over the longer run, steady global economic growth provides a foundation for continuing strong crop demand. Although corn-based ethanol production in the United States has rebounded from 2012's decline, the pace of further expansion slows. Nonetheless, the combination of world economic growth, a continued low-valued dollar, and some further expansion of global biofuels production supports longer run gains in world consumption and trade of crops. Prices are projected to fall from recent record highs but remain above pre-2007 levels for many crops."

These projections are not an official forecast, but rather, a budgetary reference. Plus, the outlook assumes a continuation of 2008 Farm Bill programs rather than the new farm bill. USDA will further update these figures in the months ahead. With that said, the following are USDA's baseline crop projections for 2014-15:

  • Corn: 93.5 mil. planted acres with 165.6 bu. per acre (bpa) yield for a 14.26-bil.-bu. crop & ending stocks of 2.607 bil. bu.; average price: $3.65.
  • Soybeans: 78 mil. planted acres with 45.2 bpa yield for a 3.48 bil. bu. crop & ending stocks of 203 bil. bu.; avg price: $9.75.
  • Wheat: 57 mil. planted acres with a 45.8 bpa yield for a 2.22-bil.- bu. crop & ending stocks of 642 mil. bu.; average price: $4.90.
  • Cotton: 11 mil. planted acres with a yield of 795 lbs. per acre for a 15.6-mil.-bale crop & ending stocks of 4.409 mil. bales; average price: 64 cents per lb.


More important than these unofficial projections are the general trends regarding prices:

  • Corn: USDA projects the average price of a bushel of corn will decline through 2015-16. Thereafter, corn prices are expected to begin rising as ending stocks tighten due to increases in feed use, exports and ethanol demand.
  • Soybean prices initially fall from recent highs but then rise moderately after 2015-16, reflecting strengthening demand for soybeans and soybean products. Of note, soybean exports to China are expected to grow every year over the next decade, reaching 112.3 MMT by 2023-14, versus 69 MMT in 2013-14.
  • Wheat prices decline through 2016-17, reflecting rising wheat stocks and falling corn prices. Wheat prices increase through the remainder of the projection period with export growth, moderate gains in food use, and declining stocks. Rising imports and increasing global competition limit price increases for wheat.
  • Cotton prices are expected to hold around 62 cents to 64 cents per lb. through 2017-18 and then gradually rise. U.S. mill use of upland cotton is projected to rise moderately while cotton exports increase in the second half of the projections.


For more details and a link to the extensive report, click here.


Red meat production and per capita consumption expected to rise over next decade... USDA, in its Agriculture Projections to 2023, noted the livestock sector continues its slow recovery from high feed costs and drought in the Southern Plains. But USDA also notes, "Improving returns have provided incentives for increased production in the livestock sector. As a result, total U.S. red meat and poultry production is projected to rise over the projection period, as is per capita consumption of red meat and poultry." USDA highlights the following regarding per capita meat consumption:

  • Per capita beef consumption declines through 2016, before rising moderately over the remainder of the projection period. The near-term decline reflects reductions in beef production over the next several years. As beef production increases in subsequent years, per capita consumption grows.
  • Per capita pork consumption is projected to rise through 2017 as gains in production are large enough to accommodate both increased domestic use as well as rising U.S. pork exports. Per capita consumption tapers off slightly from 2018 onward as pork production gains slow.
  • Poultry production increases throughout the projection period. Per capita consumption rises over the next 10 years and, in contrast to red meats, surpasses levels of the past decade.


In terms of nominal U.S. livestock prices, USDA projects beef cattle prices will fall in 2017 and then rise more moderately than in the early years of the projection as beef production rises. Hog and broiler prices are expected to increase slightly over the last half of the projection period as production gains for each of these slows.


Drought monitor reflects minor improvement... Last week's more active weather pattern provided some short-term drought relief for portions of the country, but longer-term deficits remain. The Drought Monitor shows 55.46% of the contiguous U.S. is still covered by some form of drought, which compares to 56.55% the previous week.

Across the High Plains, the monitor says 54.60% is covered by drought, down from 56.85% last week. Meanwhile across the South, 61.52% is still covered by drought, down from 62.74% last week, although the heart of winter wheat country is still covered by drought.

In its outlook, the monitor says the odds favor above-normal precip through Feb. 22 for the northern half of the country, with below-normal precip expected across the southern third. Click here for related maps.


Chicago Fed: Farmland values rise 5%... The value of central Corn Belt farmland rose 5% in 2013, according to a survey of ag bankers conducted by the Federal Reserve Bank of Chicago. While an increase, the "growth in farmland values appeared to be slowing," states David Oppedahl, senior business economist with the bank who conducted the survey. The increase is the smallest annual gain since 2009 and the second-lowest gain of the past decade. Strong increases were reported in Illinois and Indiana, which show gains of 10% and 14%, respectively. Michigan reports a 6% increase and Wisconsin marks a 2% rise. Iowa, however, reports a decline of 2% in the value of farmland. Click here for more.

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