Evening Report (VIP) -- April 10, 2013

April 10, 2013 09:41 AM

PRO FARMER REPORT REACTION... USDA's April Supply & Demand Report held no major surprises for the grain or soy markets, with USDA's corn and soybean carryover estimates for the 2012-13 crops coming in on the friendly side of pre-report expectations and wheat carryover lining up with the average pre-report trade guess. Click here for a breakdown of the report date from your Pro Farmer editors.



LIVESTOCK S&D REPORT HIGHLIGHTS... USDA lowered its 2013 total red meat production forecast for 2013 from March, largely due to a 230 million-lb. cut to its beef production forecast from last month to 24.976 million pounds. This was only somewhat offset by a 15-million-lb. cut to its export forecast from last month. But USDA also cut its total use projection by 205 million pounds. Therefore, it left its 2013 average price projection for steers at $125 to $132.

In contrast, USDA raised its 2013 pork production forecast by 130 million lbs. from last month to 23.522 million lbs., due to the "slightly higher-than-expected first-quarter pig crop and a smaller decline in the number of sows which farrowed or are expected to farrow in the first half of the year," that was indicated in the March 28 Quarterly Hogs & Pigs Report. USDA also raised its average hog carcass weight estimate due to lower feed prices and it lowered its pork export forecast by 160 million pounds. Thus, USDA lowered its on-farm cash hog price projection for 2013 to $58 to $60, compared to $61 to $65 last month.



HRW WHEAT DEVELOPMENT SLOWED BY FREEZE... Meteorologist Gail Martell of MartellCropProjections.com says last night's hard freeze across western Kansas, Oklahoma and western Texas at the very minimum set back the development of the HRW wheat crop.

"Temperatures bottomed out in the upper teens to low 20s F. When wheat is beginning to flower a hard freeze causes severe and irreversible damage. Due to cold spring temps, HRW wheat has not yet reached that sensitive stage and is still jointing. The exception may be the Texas Rolling Plains where wheat development is closer to fertilization," says Martell. "This area reported minimum temperatures in the upper 20°s F overnight. At the very least, wheat development would be set back by a hard freeze."

Martell says another round of sub-freezing temps is in the forecast for the area tonight. Warmer air is expected to return to the area by the weekend.



WEEKLY ETHANOL PRODUCTION LARGEST SINCE JUNE 2012... The Energy Information Administration reports ethanol production the week ended April 5 surged 47,000 barrels per day (bpd) to 854,000 bpd, which is the largest output since the last week of June 2012. The 5.8% rise is the largest weekly gain since December 2012. Ethanol stocks rose by 307,000 barrels to 17.79 million barrels. The strong weekly boost in production signals the recent, sharp price drop encouraged more demand from ethanol plants.



PRESIDENT PROPOSES CUTS TO CROP INSURANCE FUNDING... For agriculture, President Barack Obama's Fiscal Year (FY) 2014 budget proposes to make another cut in crop insurance funding and recommends eliminating the catfish inspection program that USDA has not yet implemented. The budget includes several legislative proposals to reduce the premium subsidies farmers receive on their crop insurance policies:

  • Reduce the subsidy for producer premiums by 3 percentage points for policies where the government subsidizes more than 50% of the premium (previous proposals reduced these by only 2 percentage points). This is expected to save $4.2 billion over 10 years.
  • Reduce premium subsidy by 2 percentage points for revenue coverage that provides protection for upward price movements at harvest time. This is expected to save $3.2 billion over 10 years.

As widely expected, the Obama administration also proposed a major overhaul for the food aid program, under which USDA now buys supplies from American farmers and ships them abroad in U.S.-flagged ships. The proposal would reduce USDA's portion to just 55% of the $1.4 billion in annual aid, while handing the rest to the State Department so it can buy food even from local sources in recipient countries. Farmers, U.S. merchant marines and an increasing number of lawmakers from both sides oppose this.



OBAMA'S BUDGET PROPOSAL RAISES TAXES AND FAILS TO BALANCE... President Obama's $3.77 trillion FY 2014 budget that was released today (more than two months after its legal deadline) proposes to raise $580 billion in new revenues, partially by limiting tax deductions to 28% for top earners and by codifying the Buffett rule to ensure millionaires pay at least a 30% tax rate. The budget has savings from mandatory programs, such as reductions to farm subsidies and reforms to federal retirement benefits. Get more details.

Obama’s budget would not balance, though it would reduce the deficit as a percentage of gross domestic product to 1.7% by 2023. The deficit was 7% of GDP in 2012 and is projected to be 5.3% at the end of 2013 by the Congressional Budget Office (CBO). However, the baseline the administration uses to calculate that figure assumes the sequester was never started. If the sequester is included in the baseline, the Obama budget would only reduce the deficit by about $600 billion.

In contrast, the House Republican budget would balance in eight years by cutting spending much more aggressively than Obama or Senate Democrats. The House GOP budget also proposes lowers tax rates.



PRESIDENT'S PROPOSAL TO HAVE LIMITED IMPACT ON SPENDING PRIORITIES... Because the Senate and House have already adopted Fiscal 2014 budget resolutions, today’s release of Obama’s budget proposal won’t have much effect on work already under way to set spending priorities for the fiscal year starting Oct. 1, according to Washington consultant Jim Wiesemeyer. But the proposals could have an impact on negotiations ahead on again increasing the debt limit, he says, noting that the debt limit showdown two summers ago produced the Budget Control Act, spending caps, the Super Committee and the very controversial sequester.




CORN: Hedgers are 100% sold in the cash market, with cash-only marketers 75% priced on 2012-crop. If you are not current with advised old-crop sales, wait to catch up. Cash-only marketers must hold some old-crop in the bin until we know more about this year's production, plus the cash market is very strong. For 2013-crop, hedgers and cash-only marketers have 10% of expected 2013-crop production sold via cash forward contract for harvest delivery. Hedgers should be prepared to add hedge coverage if December futures drop through the April 1 low as that would open risk to at least the $5.11 area -- and possibly to under $5.00.

BEANS: Hedgers are 100% sold in the cash market, with cash-only marketers 75% priced on 2012-crop. If you are not current with this advice, wait to get caught up. Cash-only marketers must hold some old-crop in the bin until we know more about this year's production. For 2013-crop, hedgers and cash-only marketers have 10% of expected 2013-crop production sold via cash forward contract for harvest delivery. Hedgers should be prepared to hedge a portion of production if November soybean futures close below support at $12.25 1/4, as that would open sharp downside price risk.

WHEAT: Hedgers and cash-only marketers have 75% of 2012-crop sold in the cash market. Wait to get current. For 2013-crop, a solid corrective rebound will be used to make initial sales. We still have hopes of a spring rally given HRW crop struggles.

COTTON: Hedgers are 100% sold on 2012-crop in the cash market, with cash-only marketers 85% sold on old-crop. Get current with recommended old-crop sales as futures are signaling a top is in place. Hedgers and cash-only marketers have 25% of expected 2013-crop production sold via cash forward contract for harvest delivery. Be prepared to make additional new-crop sales if December cotton futures signal a major market top is in place.

CATTLE: Demand concerns continue to hang over the market like a wet blanket. But the downside is limited by tightening market-ready supplies. Fed cattle producers should continue to carry all risk in the cash market. Recent price action signals a low is in place for feeder cattle futures, but the upside remains limited until the live cattle market puts in a low. Feeder cattle buyers should continue to carry risk in the cash market for now.

HOGS: Hog producers should carry all risk in the cash market for now as supplies are tightening seasonally. If demand concerns ease, we expect an eventual corrective rally to be overdone to the upside.

FEED: All feed coverage has been lifted. The sharp price break will eventually give us an opportunity to extend feed coverage, but carry all risk in the cash market until there are solid signs the downside has been exhausted.


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