Evening Report (VIP) -- August 1, 2012

August 1, 2012 10:11 AM
 


FED PROVIDES DOWNBEAT ASSESSMENT OF ECONOMY...
At the conclusion of the Federal Open Market Committee's two-day policy-setting meeting, it gave a gloomy assessment of the economy, saying economic activity "decelerated somewhat over the first half of the year." It also says inflation has declined since earlier in the year and it pledged to maintain a "highly accommodative stance for monetary policy."

Meanwhile, the Fed will also continue its "Operation Twist" program that swaps short-term bonds for ones with longer maturities in an effort to lower long-term interest rates. The Federal Reserve also said it would keep its target range for the federal funds rate at 0% to 0.25% as a way to free up credit following the financial crisis of 2008.

The U.S. dollar index strengthen following the announcement as traders seek "safe haven" investments due to disappointment the market will have to wait for the highly anticipated "QE3" announcement. Attention now turns to Europe, as the European Central Bank and Bank of England are holding policy meetings tomorrow. Then focus will return to the US on Friday as the Labor Department releases its Monthly Employment Report.

 

USDA ANNOUNCES ADDITIONAL DROUGHT RELIEF MEASURES... USDA Secretary Tom Vilsack today announced two new pieces of disaster assistance for farmers and ranchers impacted by the nation's worsening drought.

USDA is expanding emergency haying and grazing on approximately 3.8 million acres of conservation land to bring greater relief to livestock producers dealing with shortages of hay and pastureland.

Crop insurance companies have agreed to provide a short grace period for farmers on insurance premiums in 2012. As a result, producers now have an extra 30 days to make payments without incurring interest penalties on unpaid premiums.

During the 2012 crop year, USDA has designated 1,584 unduplicated counties across 32 states as disaster areas -- 1,452 due to drought -- making all qualified farm operators in the areas eligible for low-interest emergency loans.

 

NWS: HEAT TO STICK AROUND THROUGH MID-MONTH... The National Weather Service (NWS) forecast for August 7-11 calls for above-normal temps across nearly all of the contiguous US, with much of the Corn Belt expected to see normal precip during the period. The exceptions are southern Illinois, Missouri and eastern Kansas, which are expected to see below-normal precip and all but far southern Wisconsin and Michigan, which are expected to see above-normal precip. Without meaningful rain to start the month, soybean yield prospects would decline as the crop is trying to fill pods.

 

ETHANOL PRODUCTION IMPROVES (SLIGHTLY)... Ethanol production upticked for the first time in seven weeks during the week ended July 27. The Energy Information Administration reports ethanol output climbed by 13,000 barrels per day (bpd) to 809,000 bpd. Ethanol stocks increased by 396,000 barrels to 19.4 million barrels last week.

 

PF MIDWEEK MARKETING GAME PLAN UPDATE...

CORN: While crop estimates continue to decline, the corn market is a mature bull market, meaning a top in time and price could be close. Get current with advised marketings and be prepared to increase downside price protection when the market shows signs of a major top. Hedgers are 35% sold on expected 2012-crop production via cash forward contracts -- 25% for harvest delivery; 10% for March 2013 delivery -- with another 40% of expected production hedged with Dec. $6.50 put options purchased for 31 1/2 cents. Cash-only marketers are also 35% priced on expected new-crop production via forward contract -- 10% for harvest delivery; 10% for March 2013 delivery; and 15% for May 2013 delivery. Hedgers and cash-only marketers are 100% sold on 2011-crop in the cash market.

BEANS: Traders are factoring in crop losses, but they haven't fully equated what that will mean to carryover. With that said, a market top could come at any point and downside price protection must be in place. Hedgers and cash-only marketers should get current with advised marketings and be prepared to increase downside price protection when the market shows signs of a major top. Hedgers are 50% sold on expected 2012-crop production via cash forward contract for harvest delivery with another 25% of expected production hedged with Nov. $14.00 put options purchased for 42 3/8 cents. Cash-only marketers have 50% of expected 2012-crop forward sold for harvest delivery. Hedgers and cash-only marketers are 100% sold on 2011-crop in the cash market.

WHEAT: Hedgers and cash-only marketers have 75% of 2012-crop sold in the cash market. Be prepared to increase new-crop cash sales on signs of a top. Hedgers may also add hedge coverage to protect downside price risk when the rally runs out of steam as wheat will lose its support once the corn market tops.

COTTON: Hedgers and cash-only marketers have 50% of expected 2012-crop production sold for harvest delivery. Be prepared to advance new-crop sales on an extended price bounce as long-term fundamentals are negative. Hedgers and cash-only marketers are 100% sold on 2011-crop in the cash market.

CATTLE: Fed cattle producers should carry all risk in the cash market for now. While there's near-term downside risk if surging feed prices force more herd liquidation, much of the culling of herds has already occurred. Feeder cattle buyers and sellers should also carry risk in the cash market for now.

HOGS: Concerns high feed prices will force herd liquidation are weighing on futures as the increase in pork supplies would come at the same time market hog numbers start to build seasonally. We don't want to chase this market lower as a sharp price break is already built into futures, but be prepared to hedge a corrective rebound.

FEED: We are not interested in locking in current, historically high prices for an extended period. But be prepared to extend coverage on a sharp price pullback as supplies will be tight through the 2012-13 marketing year.

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