Evening Report (VIP) -- Advice -- May 29, 2013

03:02PM May 29, 2013
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WHEAT PRODUCERS: FINISH OLD-CROP SALES... We waited as long as we could for the wheat market to respond to HRW crop concerns. With the 2012-13 marketing year ending Friday, it's time to finish old-crop sales. Hedgers and cash-only marketers are advised to make a 25% 2012-crop sale to get to 100% sold in the cash market on old-crop.

While areas of the Plains are getting some late-season rains, we still feel the market will eventually respond to reduced HRW production. As a result, we are willing to wait before making new-crop sales.


SHUANGHUI GROUP PURCHASES SMITHFIELD... Smithfield Foods, Inc. announced this morning it has entered into a definitive merger agreement with Shuanghui International Holdings Limited that values Smithfield at approximately $7.1 billion, including the assumption of its net debt. Shuanghui International Holdings Limited is China's largest meat processing enterprise and China's largest publicly traded meat products company as measured by market capitalization.

Under the terms of the agreement, Shuanghui will acquire all of the outstanding shares of Smithfield for $34.00 per share in cash. The purchase price represents a premium of approximately 31% over Smithfield's closing stock price on May 28, 2013, the last trading day prior to today's announcement. Shuanghui said it is committed to continuing the long-term growth of Smithfield and said the deal contributes to a more secure future for the Chinese and U.S. pork industries.

If the acquisition passes U.S. regulatory scrutiny, it would become the largest Chinese takeover of a U.S. firm to date in history. China's appetite for pork is well documented, as the country's pork imports have risen quickly over the last decade to become the third-largest destination for U.S. pork products in terms of volume since 2007. This deal also reflects China's admiration of the U.S. meat industry, which is known for its safety track record and the high quality products it produces. Click here for more.


OIE UPGRADES U.S. BSE RISK TO NEGLIGIBLE... The Scientific Commission for the World Organization for Animal Health (OIE) has voted to upgrade the risk status for bovine spongiform encephalopathy (BSE) in the U.S. to negligible, the best possible rating. OIE also recognized Israel, Italy, Japan, The Netherlands and Slovenia as having "negligible BSE risk." President-elect of the National Cattleman's Beef Association (NCBA) Bob McCan issued the following statement regarding the decision:

"This announcement by OIE’s Scientific Commission is very positive news for U.S. cattle producers. The U.S. being classified as negligible risk for BSE by the OIE further solidifies the fact that the safety and health of our cattle and our beef is a top priority for American cattlemen and women. With the implementation of multiple interlocking safeguards by the U.S. beef industry and our partners, we have successfully been able to prevent BSE from becoming a threat to the U.S. beef supply, which remains the safest in the world. The vote by the OIE, an internationally recognized, standard-setting body, is proof that the science-based mitigation measures in place in the United States effectively protect our public and animal health.

"This announcement is an important step forward in increasing export opportunities for U.S. cattle producers. This is a significant achievement for the United States, our beef producers and federal and state partners who have successfully collaborated on this issue."


USDA DETECTS GMO WHEAT IN OREGON... USDA's Animal and Plant Health Inspection Service (APHIS) announced today that test results of plant samples from an Oregon farm indicate the presence of genetically modified (GMO) glyphosate-resistant wheat plants. Further testing by USDA laboratories indicates the presence of the same GMO glyphosate-resistant wheat variety that Monsanto was authorized to field test in 16 states from 1998 to 2005. APHIS launched a formal investigation after being notified by an Oregon State University scientist that initial tests of wheat samples from an Oregon farm indicated the possible presence of GMO glyphosate-resistant wheat plants. There are no GMO wheat varieties approved for sale or commercial production in the U.S. or elsewhere at this time.

No comments by U.S. wheat trading partners have yet been made on the matter at press time, but USDA says it does not anticipate any trade issues. "As both a leading producer and consumer of wheat, the United States is directly aware of the concerns that an event like this could raise in the food/feed supply chain, from seed producers and farmers to retailers and consumers. We are working hard to reassure domestic and global wheat consumers that this development, although unwelcome, does not pose a risk to food safety," it states. Click here for more, including a fact sheet on USDA's investigation.




CORN: Hedgers are 100% sold in the cash market, with cash-only marketers 75% priced on 2012-crop. Given tight old-crop supplies, we can't rule out a strong surge in July corn futures, especially if there are serious new-crop concerns. As a result, cash-only marketers should hold remaining old-crop inventory as gambling stocks. But be prepared to trim those stocks on a move to the $7.20 area or on a violation of support at the April low. For 2013-crop, hedgers and cash-only marketers have 10% of expected 2013-crop production sold via cash forward contract for harvest delivery. Be prepared to advance new-crop sales if December corn futures rebound to the $5.75 area.

BEANS: Hedgers are 100% sold in the cash market, with cash-only marketers now 90% priced on 2012-crop. Cash-only marketers should hold the remaining 10% as gambling stocks for now. For 2013-crop, hedgers and cash-only marketers have 10% of expected 2013-crop production sold via cash forward contract for harvest delivery. Hedgers also have 50% of expected production hedged in November soybean futures at $12.19. We are willing to stick with the hedge for now as the next wave of big rains should spark talk of intended corn acres switching to beans. If you aren't hedged, now is a good catch-up opportunity.

WHEAT: Hedgers and cash-only marketers have finished old-crop sales. For 2013-crop, we're willing to wait out an overdue corrective rebound before making sales.

COTTON: Hedgers are 100% sold on 2012-crop in the cash market, with cash-only marketers 85% sold on old-crop. For 2013-crop, hedgers and cash-only marketers have 50% of expected production sold via cash forward contract for harvest delivery. Hedgers also have 50% of expected production hedged in December cotton at 83.87 cents. Stick with the hedge for now as new-crop futures continue to bleed and feel heavy.

CATTLE: With futures well below the cash market, we aren't willing to hedge in a hole. But with that said, traders will need to have demand concerns eased before they are willing to flow money into the long side of the market. Feeder cattle buyers should also continue to carry risk in the cash market until there are clear indications of a low.

HOGS: Futures continue to strengthen technically, while supplies are tightening seasonally and there are improved demand prospects. Continue to carry all risk in the cash market.

FEED: Continue to carry all corn-for-feed and soybean meal risk in the cash market. Corn futures are giving no indication of sustained price strength and soybean meal futures are at levels that have slowed buying interest in the past.