Evening Report (VIP) -- August 3, 2012

August 3, 2012 10:04 AM
 

NWS 6-10 DAY: RAINS FAVOR UPPER MIDWEST... The National Weather Service forecast for August 9-13 calls for above-normal temps across the bulk of the country, with above-normal precip expected in Minnesota and Wisconsin. Below-normal precip is expected in Nebraska, the western half of Iowa, Missouri, Kansas, southern Illinois and southern Indiana. Elsewhere, normal precip is expected. This certainly isn't a favorable forecast for filling Midwest crops. Click here for related maps.

 

INFORMA SLASHES CORN YIELD PEG... Sources familiar with Informa Economics say the firm has slashed its corn yield projection to 120.7 bu. per acre for a crop of 10.338 billion bushels. However, the firm's "most likely final" corn production forecast is 11.224 billion bu. and a national average yield of 131 bu. per acre.

Informa reportedly lowered its soybean yield projection to 37.2 bu. per acre for a crop of 2.791 billion bushels. Informa reportedly pegs the cotton yield at 811 lbs. per acre for a crop of 18.261 million pounds.

USDA will release its first survey-based estimates for these crops on Aug. 10.
 

JOBS REPORT SPURS 'RISK-ON' ATTITUDE... The U.S. dollar index dropped sharply in reaction to a better-than-expected monthly employment report from the U.S. Labor Department, which spurred fresh buying in the commodity world.

According to the report, 163,000 non-farm payrolls were added in July -- above the expected gain of around 100,000 jobs. However, the unemployment rate upticked from 8.2% last month to 8.3%, but has shown little movement so far in 2012. May and June payrolls were revised down a combine 6,000 from previous figures (-16,000 for June; +10,000 for May).

PF Perspective: Investors still feel additional quantitative easing is coming as the Fed is concerned with the labor market. To stay up-to-date on outside markets, make sure you read Pro Farmer Tech Talk each morning.

 

VALUE OF U.S. FARM REAL ESTATE POSTS 11% ANNUAL GAIN... U.S. farm real estate (the value of all land and buildings on farms), rose 10.9% in 2012 from revised 2011 figures to $2,650 an acre, according to USDA. Its annual survey said farm real estate values rose the greatest in the Northern Plains, up 26.7% but fell 4.1% in the Southeast region. The highest farm real estate values were in the Corn Belt region at $5,560 per acre. The Mountain region had the lowest farm real estate value at $974 per acre. Click here for more from LandOwner Editor Mike Walsten.

 

NOW IS NOT THE TIME TO CHANGE THE RULES ON ETHANOL... Pro Farmer supports ethanol, but even when the industry was in "start-up" mode, we didn't support government involvement. We certainly didn't oppose the Renewable Fuels Standard (RFS) -- we just wanted the industry to grow on the back of market-driven forces.

When mandates were initiated, there was swift momentum for biofuels and building a domestic fuel supply. Lawmakers also "suddenly" started billing a renewable and domestic fuel supply as a security issue. And, don't forget the Environmental Protection Agency (EPA) was fully behind biofuels for the environmental benefits. The federal government asked for the ethanol industry to be built, it supported the industry and many of you helped to build corn-based ethanol production to what it is today.

There is no doubt ethanol production has helped lift corn prices over the past several years. But so has surprising strong meat demand in the face of very sluggish U.S. and global economies. And so has increasing feed demand in countries around the globe. The positive influence of ethanol on corn demand and prices along with increasing feedgrain demand around the world put the industry at odds with the food industry. The "food vs. fuel" debate kicked off and the feud between U.S. animal agriculture and cornbased ethanol started.

Now is not the time to change the rules. Now multiple livestock and poultry groups have requested a waiver from mandated ethanol use. The assumption is relieving the pressure of producing enough ethanol to satisfy usage mandates would free up enough corn to pressure prices, lowering feed costs. But it would also reduce ethanol byproducts as feed.

And while the request is for a temporary slowdown in ethanol use, the consequences could last much longer than wanted. A waiver now would undoubtedly slow efforts to climb and clear the blend wall. And if the 2013 corn crop finally reaches full potential, the country would be swimming in corn and even higher ethanol stocks.

Regarding feed prices, a slowdown in ethanol production would slow corn use and temporarily pressure corn prices. Even at today's corn price, ethanol production is at least breaking even at most facilities and many are making a small profit on every bushel of corn turned into 2.8 (or more) gallons of ethanol. Therefore, usage mandate or not, ethanol production will continue at the level driven by the market. Industry analysts suggest that level is between 12.0 billion and 12.5 billion gallons, using about 4.375 billion bu. of corn -- just 525 million bu. less than estimated by USDA in the July Supply & Demand Report.

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