Markets quickly absorb USDA data... Corn and soybean futures initially had a bullish reaction to lower-than-expected old-crop carryover pegs, but the markets then moved off session highs. Soybean futures strengthened into the close, while corn futures settled lower. The split reaction in these markets from bullish data signals corn traders need fresh news to remain active buyers, while soybean traders remain focused on the tightening old-crop stocks situation. The major difference is that even though USDA trimmed old-crop corn stocks more than expected, carryover is still abundant. Click here for the Pro Farmer report reaction.
USDA raises 2014 cash hog and steer price projections... In this morning's Supply & Demand Report, USDA raised its cash price projections for hogs and steers from last month to reflect continued price strength for fed cattle and expected tight supplies of market hogs. USDA raised its 2014 average cash steer price by $5.50 from last month to $147.50, which compares to $125.89 in 2013. USDA raised its 2014 cash hog price projection $6.50 from last month to $73.50, which compares to $64.05 in 2013.
USDA raised its 2014 beef production forecast slightly due to expectations that marketings will be higher than previously forecast the last half of the year to reflect the strong placements pace. USDA expects beef production in 2014 to come in 4.5% below last year. But USDA raised its export forecast due to strong demand from Asia.
USDA trimmed its 2014 pork production forecast and expects it to come in 1.9% below 2013, reflecting losses from Porcine Epidemic Diarrhea Virus (PEDV). It also lowered its export forecast due to tight supplies and high prices that are expected to constrain demand.
According to USDA data, January and February combined beef exports are up 6% in terms of volume, with pork exports in the same period up 2% from year-ago levels. This signals USDA's higher beef export forecast was justified and explains why USDA is more cautious about pork exports.
Ethanol production slips... According to the Energy Information Administration (EIA), ethanol production for the week ended April 4 declined 26,000 barrels per day (bpd) to 896,000 bpd. The four-week average for ethanol production stands at 898,000 bpd for an annualized rate of 13.77 billion gallons. Ethanol stocks increased 532,000 barrels from the previous week to 16.41 million barrels, partly because imports more than tripled to 38,000 bpd.
EIA projects gasoline prices peaking at $3.66 this summer... The March Short-term Energy Outlook from EIA forecasts a U.S. summertime gasoline price (April-September) at a national average of $3.57 per gallon, with the annual high projected at $3.66 per gallon in May. The projected 2014 annual average gasoline price is $3.45 per gallon, 6 cents below the 2013 average of $3.51 per gallon.
Supporting WTI prices is new pipeline capacity that moves supplies from the storage hub at Cushing, Oklahoma, to export terminals at the Gulf. EIA expects the average WTI/Brent crude spread to widen to an average of $9.00 in 2014, and $11.00 in 2015, with Brent to stay at a premium.
Natural gas inventories ended March 52% below year-ago levels and 55% below the five-year average supply. EIA projects the 2014 Henry Hub average natural gas spot price at $4.44/MMBtu -- up from 2013's $3.73, and below 2015's forecast $4.11/MMBtu. Click here for more details from Inputs Monitor Editor Davis Michaelsen.
Jobs situation a major focus of FOMC minutes... The U.S. employment situation remains a major focus for the Federal Reserve as evidenced by an extensive discussion at the March 18-19 Federal Open Market Committee (FOMC) meeting and a video conference session held March 4 on the topic. The two meetings detailed via the FOMC minutes released today underscore several points: The Fed remains very concerned about the labor market situation and how that relates to its forward guidance on interest rates and when any increase in the Fed funds rate will unfold. The shifts in projections by the Fed members are likely overstating the potential for an interest rate increase. Inflation running below the Fed’s goal also remains a concern, with much exploration and discussion on what is causing this situation. And the minutes indicated that yes, the harsh winter weather did indeed affect the U.S. economy.
But in the end, few changes came out of the session except for the one that most expected – the dropping of the 6.5% unemployment rate as a threshold for the Fed to work with relative to when the Fed funds rate would increase. There was also no mention of the six month figure that Fed Chair Janet Yellen mentioned in her post-FOMC press conference. The minutes from the two sessions made clear that the Fed wants to emphasize that rates will remain low for an extended period and any increase in the Fed funds rate will be driven by multiple factors.
The minutes appeared to calm investor worries that arose on Yellen’s comment about potential timing of any interest rate increase; U.S. stocks rose following the minutes’ release. For more details, click here.
Industry associations express support for voluntary GMO labeling legislation... The National Corn Growers Association and the American Soybean Association today praised the introduction of legislation to establish federal voluntary labeling standards for foods and beverages made with genetically modified organisms (GMOs). The Safe and Accurate Food Labeling Act, co-sponsored by Reps. Mike Pompeo (R-Kan.) and G.K. Butterfield (D-N.C.), would direct the Food and Drug Administration (FDA) to: provide guidance to companies wishing to label their products as to whether GMOs are present or absent; mandate an FDA safety review of new GMO traits before they are brought to market; allow FDA to require labels on any product that has been shown to pose a risk to health, safety or nutrition; and direct FDA to define the term "natural" for use on food labels. The act would also establish FDA's labeling guidance as the national standard, preventing states from enacting their own, conflicting requirements. The groups also said this would eliminate high costs involved with implementing mandatory labels or labeling laws that differ from state to state.
USDA announces release date for final ag census results... USDA's National Ag Statistics Service (NASS) will publish the 2012 Census of Agriculture full report on May 2, at 11:00 a.m. CT. NASS released preliminary data on Feb. 20. The final results will provide information for the first time or expend upon data on biomass production, equine, Internet access, regional food marketing and distribution, land use practices and agroforestry. This data will be used to inform policymaking relative to agriculture.
Some logic exists in Washington... Witnesses during a Tuesday hearing over a House Republican bill (HR 4317) raised concerns that would require the use of state, local and tribal data in making scientific listing determinations under the Endangered Species Act (ESA). Natural Resources Chairman Doc Hastings (R-Wash.) said the bill was intended to allow local expertise to play a larger role in ESA decisions.
Steven Courtney, a scientist with the environmental consulting firm Western Ecosystems Technology, questioned language in the measure that would define "best available science." U.S. Fish and Wildlife attorney Michael Bean agreed. "Best available data should rest on the data itself -- not who provided it," he testified.
"I'm going to use that on every one of these regulations... The people who are elected need to be participating in the process [of regulating]," said Sen. James Inhofe (R-Okla.), pledging to use the Congressional Review Act on any major EPA regulation until the agency "gets honest about the cost accounting" it uses in its rules. Get more details along with a few jabs at Washington, here.
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 are a little concerned by the sell-the-fact reaction to bullish USDA data. That's the first clue the rally may be running out of steam.
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. While attitudes are bullish, it will take a corrective pullback before we are willing to reown a portion of 2013-crop sales for hedgers. On new-crop, be prepared to advance sales when there are signs the rally is running out of steam.
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. Last week's lows are key near-term support that needs to hold or there's risk of a sharper pullback. While HRW crop conditions are deteriorating, traders already have some crop losses built into prices.
Cotton: Hedgers and cash-only marketers have 75% of 2013-crop production sold in the cash market and 25% of expected 2014-crop production sold via forward contract for harvest delivery. Get current with those recommendations and be prepared to increase sales. The recent pickup in volatility is a sign the market may be topping, but futures have stayed resilient and no chart damage has yet been done.
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 three weeks away, we may lift the April hedges and roll into another contract as the market is toppy 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.