Evening Report (VIP) -- April 15, 2014

03:35PM Apr 15, 2014
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NOPA crush greatly exceeds expectations... Soybean crush was record-large at 153.84 million bu. in March, according to the National Oilseed and Processors Association (NOPA). That topped trade expectations by roughly 7.7 million bushels. Crushers processed 8.6% more soybeans last month than in February and 12.2% more than year-ago.

In last week's April Supply & Demand Report, USDA lowered its 2013-14 crush forecast by 5 million bu. to 1.685 billion bushels. With NOPA crush easily exceeding the pace needed to hit USDA's revised forecast, it implies the adjustment was in the wrong direction, causing some to anticipate an increase in the crush forecast and a further tightening of old-crop soybean carryover. But the crush pace typically slows dramatically the final few months of a marketing year when supplies are tight. Therefore, an upward revision to USDA's crush forecast may not be seen in the coming months, even with stronger-than-anticipated March crush.


Consultant lowers Argentine soybean crop estimate... Pro Farmer Crop Consultant Dr. Michael Cordonnier trimmed his Argentine soybean crop estimate by 500,000 MT from last week to 53.5 MMT due to heavy rains that resulted in localized flooding and standing water in fields.

"In areas where the crop was flooded, the fields will probably be unharvestable due to sprouted seeds," says Dr. Cordonnier. "If the plant was partially submerged, it is still going to cause problems with sprouted and moldy seed."

Dr. Cordonnier left his Argentine corn estimate unchanged at 23.5 MMT, saying some of the losses from flooding will be offset by good yields in northern Argentina.

In Brazil, Dr. Cordonnier left his soybean and crop pegs unchanged at 86.5 MMT and 70.0 MMT, respectively. He has a neutral bias toward the soybean crop, but says his corn estimate could further increase as he has been conservative compared to other analysts and wants to wait and see how long the rainy season extends before making adjustments.


Signup for resurrected disaster assistance programs kicks off... Sign-up for USDA's restored disaster assistance programs begins today. Depending on the size and type of farm or ranch operation, eligible producers can enroll in one of four programs administered by the Farm Service Agency (FSA). The Livestock Forage Disaster Program (LFP), and the Livestock Indemnity Program (LIP) will provide payments to eligible producers for livestock deaths and grazing losses that have occurred since the expiration of the livestock disaster assistance programs in 2011, and including calendar years 2012, 2013, and 2014. The Emergency Assistance for Livestock, Honeybees, and Farm-Raised Fish Program (ELAP) provides emergency assistance to eligible producers of livestock, honeybees and farm-raised fish that have suffered losses because of disease, severe weather, blizzards and wildfires. Enrollment also begins today for the Tree Assistance Program (TAP). Get more details.


CBO's increased PLC spending projection may imply lower ARC participation... CBO yesterday projected payouts under the Price Loss Coverage (PLC) farm program option totaling $15.915 billion over Fiscal 2016 through 2024, while Ag Risk Coverage (ARC) county payments are to total $6.299 billion and individual ARC payments are forecast to total $4.365 billion. While CBO did not release its initial participation assumptions by safety net program, some of the increase in projected spending on PLC may be due to CBO projecting less participation in ARC. While some point to declining prices as the reason for the change in PLC and ARC spending estimates, changing participation assumptions (i.e., a move away from ARC) is an even bigger determinant. It seems that CBO may be anticipating that if prices start to soften, the shallow-loss protection that is capped at 10% of revenue will start to look less attractive.

Spending on ARC and PLC from 2014-2023 was projected to be $27.2 billion when the bill passed (relative to the May 2013 CBO baseline). That number has been revised to $24.3 billion. CBO says a significant part of that decrease is due to incorporating its estimates of future sequestration, but that only accounts for about two-thirds of the additional reductions that CBO projects. Participation assumptions and changes in market conditions would account for the remainder. CBO sources confirmed that at least some of the other reductions came from changes to the supply/demand and price situation plus other "technical" changes. CBO's cost estimates indicate it is projecting higher average prices than some others are for most crops in most years.


Biggest CBO projection changes are for SNAP... The May 2013 CBO baseline (the baseline under which the 2014 Farm Bill was negotiated) showed an estimated $764 billion in spending on the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps) from 2014-2023. The farm bill claimed to reduce that amount by $8 billion over the same time period. Now, CBO has slashed its estimated spending for 2014-2023 by nearly $30 billion to $735 billion. Between changes brought on by the farm bill and changing market conditions, CBO has revised its estimates down by almost four times the amount of savings it granted during the farm bill conference!

On nutrition programs and SNAP, in particular, CBO said, "Technical revisions have decreased projected outlays for SNAP over the 2015–2024 period by about $24 billion (3%). The most significant of those revisions is a change in CBO’s estimate of the average monthly SNAP benefit per person; CBO lowered that estimate on the basis of updated data from the Department of Agriculture."


Recent economic and business activity data a mixed bag... Today's housing index report was unchanged from last month and this disappointed some followers as it showed no sign of recovery from February's huge drop of 57 to 47. February's drop in the index was attributed to winter weather. Running counter of winter weather concerns was this week's retail sales report that showed February sales up 0.7% and March up 1.1%. This is a hopeful sign consumers were digging out of winter doldrums.

In other news, today's CPI (Consumer Price Index) report showed consumer-based inflation during March was up 1.5% year-over-year and up 0.2% compared to February. The Federal Reserve uses an inflation target of 2%. By itself, these inflation numbers would not be considered a reason to raise Federal Reserve rate. And lastly, real hourly wages as reported by the Bureau of Labor Statistics were down 0.3% for March.


PF midweek marketing game plan update...

Corn: Hedgers have 70% of 2013-crop production sold in the cash market, while cash-only marketers are 60% priced on old-crop. Hedgers and cash-only marketers have 30% of expected 2014-crop production sold via cash forward contract for harvest delivery. Use recent price strength to get current with old- and new-crop cash sales advice and be prepared to advance sales. We continue to hold the attitude that price strength must be sold. But we are willing to give the market slack to uptrending support. If uptrending support from the January lows is violated, be prepared to advance old- and new-crop sales. Otherwise, give the market a chance to run further to the upside and adjust your line in the sand for sales accordingly.

Soybeans: Hedgers are 100% sold on 2013-crop production in the cash market, while cash-only marketers are 90% sold on old-crop. Hedgers and cash-only marketers have 25% of expected 2014-crop production sold via cash forward contract for harvest delivery. Given tight supplies, cash-only marketers must continue to hold some old-crop gambling stocks in the bin. Our urgency to reown a portion of 2013-crop sales for cash-only marketers is also building. Stay in touch to buy call options on a corrective pullback in old-crop futures. We'll continue to let old-crop futures pull new-crop beans higher. Be prepared to make new-crop cash sales and/or buy put options as downside price protection.

Wheat: Hedgers are 100% sold in the cash market on 2013-crop production, while cash-only marketers are 90% sold. Hedgers and cash-only marketers are 50% forward priced on expected 2014-crop production. Get current with those sales levels and be prepared to advance new-crop sales. While HRW crop conditions continue to deteriorate, we'll look to advance new-crop sales if futures are unable to push above the March highs.

Cotton: Hedgers have 100% of 2013-crop production sold in the cash market, while cash-only marketers are 90% sold on old-crop. Both have 25% of expected 2014-crop production sold via forward contract for harvest delivery. Get current with those recommendations. We'll wait for signs of a top before pulling the trigger on additional new-crop sales, but be prepared to act quickly if futures signal a top.

Cattle: Fed cattle producers are effectively hedged on 50% of 2nd-qtr. marketings at $144.20 in April live cattle futures. With contract expiration just two weeks away, we may lift the April hedges and roll into another contract. Our near-term bias for live cattle futures is choppy to lower despite tight supplies.

Hogs: Hog producers have 50% of 2nd-qtr. and 50% of 3rd-qtr. marketings hedged in $126 June lean hog put options that were purchased for $3.90. That puts a floor on these marketings at $122.10. Price action is likely to remain extremely volatile, but we anticipate at least one more push to the downside before the corrective phase is complete.

Feed: All corn-for-feed and meal risk is currently carried in the cash market. We aren't willing to lock in current prices, but we would use a corrective pullback to lock in some coverage.