Evening Report (VIP) -- Advice -- October 11, 2013

October 16, 2013 09:53 AM

WHEAT PRODUCERS: INCREASE 2013-CROP CASH SALES... Wheat futures have rallied sharply since mid-September amid improving demand and global supply fundamentals. While the fundamental outlook remains supportive longer-term, the market has run out of fresh news needed to further extend the price correction and futures are rolling over. Therefore, wheat hedgers and cash-only marketers are advised to make a 25% cash sale on 2013-crop production. This pushes hedgers to 75% priced in the cash market and cash-only marketers to 50% sold for 2013 crop.


LAST-MINUTE SENATE DEAL TO PREVENT DEFAULT UNVEILED... Senate Majority Leader Harry Reid (Nev.) and Senate Republican Leader Mitch McConnell (Ky.) today announced leaders in the chamber had finalized a deal to reopen the government and raise the debt ceiling, setting the stage for Congress to vote on the measure. It is expected to pass the Senate without issue, but it will be a tougher sell in the House; the agreement does not include many concessions regarding the Affordable Care Act (ObamaCare) for which House GOP representatives and especially the Tea Party fraction had pushed. House Speaker John Boehner (R-Ohio) has said he will allow a vote on the deal. The Senate is expected to vote on the measure early this evening, with the House expected to follow later tonight.

The proposal would extend current funding levels $986 billion through Jan. 15 to reopen the government, lift the debt ceiling until Feb. 7 and start a budget conference with instructions that it report a broader budget deal by Dec. 13. The proposal would require stricter efforts to verify the income of those who apply for subsidies under ObamaCare. The measure would permit the Treasury Department to retain its power to use extraordinary measures when approaching a debt limit and would give agencies more flexibility to deal with automatic across-the-board spending cuts known as sequestration.

The Treasury Department says the U.S. will begin defaulting on its debt tomorrow if a deal is not passed, though private analysts say the actual date is likely closer to month's end.


USDA MULLING CANCELLATION OF DELAYED OCTOBER REPORTS... USDA will decide by the end of this week whether to cancel its monthly U.S. Crop Production Report and its Supply & Demand Report that were originally slated to be released Oct. 11, according to a Reuters story citing unnamed USDA sources. USDA is reportedly having discussions about the matter but thus far has not reached a decision. But a spokeswoman says more information on this may be available tomorrow. The Oct. 1 government shutdown occurred midway through USDA's two-week survey period and there are concerns that data gathered ahead of the shutdown could be outdated. Click here for more perspective on the October reports as well as any possible implications for next month's reports.


OAT MARKET WATCHING CANADIAN RAIL SITUATION... December oat futures have rallied sharply the past two sessions as traders are monitoring a dispute between Canada's railroad workers' union and the Canadian National (CN) Railway Co. that raises the possibility of a strike that could halt or limit rail traffic. Recent negotiations broke down but talks are expected to resume on Oct. 21 and government-appointed mediators will be present. The union says talks stalled over CN demands for concessions that would force workers to work longer hours with less rest time between trips.

The railway is crucial for moving commodities, including grains, and if traffic is reduced, it could shift some demand to the United States. Pro Farmer Canada editor Mike Jubinville says, "I haven't seen much change in cash oat prices at the elevator up here yet. But I'll be watching this situation as it develops... they are not in any strike position just yet.There's been no real price/basis change on the bigger crops...ie canola, wheat, barley, peas, etc."

Oat futures have long been considered a leading market for corn, but the Canadian railroad situation would likely have to turn into a drawn out ordeal for this to be supportive enough for corn to confirm a low in the face of harvest pressure.


CME ANNOUNCES SETTLEMENT... As previously announced by the CME Group, the final settlement for October lean hog futures and options would be calculated using the volume-weighted average price of the October 2013 futures contract for trades occurring during the two-day period of October 11 and 14, 2013. Today CME Group announced that settlement price was $90.62. The contract settled at $90.75 on its last trading day on Monday.


MEXICAN JUDGE SUSPENDS GMO CORN PLANTINGS... Mexican federal judge Jaime Eduardo Verdugo has issued an injunction ordering the Agriculture Secretariat and the Environmental Secretariat to "suspend all activities involving the planting of transgenic corn in the country and end the granting of permission for experimental and pilot commercial plantings."

Judge Verdugo cited "the risk of imminent harm to the environment" as the basis for the injunction, a temporary restraining order in response to a suit that scientists, farmers, activists and environmental groups filed on July 5 with the Twelfth Federal District Civil Court in Mexico City.



CORN: Hedgers and cash-only marketers have 25% of expected 2013-crop production sold via cash forward contracts for harvest delivery. There's risk of more near-term price pressure as harvest progresses, but we don't feel the market will face sharp pressure. We'll wait for a corrective rebound to increase cash sales, but the long-term fundamental outlook signals you must be willing to sell an extended price bounce.

BEANS: Hedgers have 100% of expected 2013-crop production sold for harvest delivery, while cash-only marketers are 75% sold on 2013-crop. With hedgers sold out, we're looking for an opportunity to reown a portion of cash sales in long futures/call options, though we'll wait for signs of a seasonal low before doing so. We fear the market may have another push to the downside as harvest builds.

WHEAT: Futures are rolling over after the extended corrective rebound, which was all the incentive we needed to increase 2013-crop sales. Get current with advice to be 75% sold in the cash market if you are a hedger and 50% sold if you are a cash-only marketer.

COTTON: Hedgers and cash-only marketers have 50% of expected 2013-crop production sold via cash forward contract for harvest delivery. Hedgers also have 50% of expected production hedged in December cotton at 83.87 cents. Hedgers should maintain this hedge coverage as technicals point to a test of key support at the bottom of the broad, sideways trading pattern.

CATTLE: Fed cattle producers should continue to carry risk in the cash market as there's more upside potential and downside risk is relatively limited amid tightening supplies. Feeder cattle buyers should be prepared to use a corrective pullback to add long coverage as calf supplies are tight and the outlook is price-negative for buyers.

HOGS: Hog producers have 50% of expected 4th-qtr. production hedged in Dec. lean hog futures at an average price of $82.12 1/2. We're hoping to heavy up 4th-qtr. coverage and to add 1st-qtr. 2014 hedges in Feb. lean hog futures, but we want some confirmation a top is in place before adding to our existing hedges as attitudes are bullish.

FEED: 25% of 4th-qtr. protein needs are covered in long Dec. soybean meal futures and 25% of 1st-qtr. needs are covered in long March meal futures. We feel prices are ultimately headed higher, but there may be more near-term price pressure through harvest. We're also looking to add long corn coverage after the market signals a low is in place.

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