Evening Report (VIP) -- August 8, 2012

August 8, 2012 10:00 AM
 

TRADERS PREPARE FOR USDA REPORTS... Traders look for USDA to slash its corn production estimate by nearly 2 billion bu. from last month's projection, with the average pre-report trade guess at 10.971 billion bushels. The average guess for the corn yield is 126.2 bu. per acre, which if realized, would be down 19.8 bu. Per acre from the July projection.

Meanwhile, traders expect USDA to trim its soybean crop estimate by 264 million bu. From last month's projection to 2.786 billion bushels. The average trade guess for the soybean yield is at 37.2 bu. Per acre, which would be down 4.3 bu. Per acre from the July projection.

Crop Production

Avg.

Range

July

2011

in billion bushels

Corn

10.971

9.860-11.750

12.970

12.358

Soybeans

2.786

2.400-2.925

3.050

3.056

All wheat

2.220

2.112-2.294

2.224

1.999

All winter wheat

1.665

1.610-1.707

1.670

1.494

Other spring wheat
0.488

0.444-0.542

0.472

0.455

Durum
0.084

0.079-0.092

0.082

0.050

 

Traders expect USDA to raise its 2011-12 corn carryover peg by 42 million bu. From last month to 945 million bu. to reflect slower use due to high prices. However, traders look for USDA to trim its 2011-12 soybean carryover estimate by around 13 million bu. To 157 million bu. given ongoing strong demand.

2011-12 carryover

Avg.

Range

July

2010-11

in billion bushels

Corn

0.945

0.750-1.183

0.903

1.128

Soybeans

0.157

0.138-0.200

0.170

0.215

 

For 2012-13, traders expect USDA to trim corn and soybean carryover projections to 651 million bu. and 115 million bu., respectively. But for wheat, carryover is expected to climb by around 17 million bu. To 681 million bushels.

2012-13 carryover

Avg.

Range

USDA July

in billion bushels

Corn

0.651

0.400-0.850

1.183

Soybeans

0.115

0.095-0.140

0.130

Wheat

0.681

0.600-0.718

0.664

 


 

USDA DELIVERS NEW DROUGHT ASSISTANCE... USDA Secretary Tom Vilsack today highlighted that USDA will utilize nearly $16 million in financial and technical assistance to immediately help crop and livestock producers in 19 states cope with the adverse impacts of the historic drought. In addition, USDA will initiate a transfer of $14 million in unobligated program funds into the Emergency Conservation Program. These funds can be used to assist in moving water to livestock in need, providing emergency forage for livestock and rehabilitating lands severely impacted by the drought. Also today, Vilsack designated 44 more counties in 12 states as primary natural disaster areas. Click here for more details.

 

 

LOGICAL GRIDLOCK EXPECTED IN BRAZIL... South American crop consultant Dr. Michael Cordonnier says Brazilian farmers, grain merchants, processors and exporters are bracing for even more logical gridlock in 2012-13 when Brazil is expected to plant record acreage and expand safrinha (second season) corn production, as well. Even with last year's smaller soybean crop, he says lines at ports were long.

Carlo Lovatelli, president of the Brazilian Vegetable Oil Association (Abiove), expects a shortage of trucks next year to transport an expected record large soybean crop. He is also concerned the country does not have enough storage space for the soybean and corn crops.

Dr. Cordonnier says farmers in Mato Grosso are hoping for an early completion of the new highway linking Mato Grosso with the port city of Santarem, which is located on the Amazon River. "Once completed, the cost of transporting soybeans from northern Mato Grosso to the Amazon River port could be as much as 34% cheaper compared to shipping the soybeans out of southern Brazil," he says. "The new export facility could eventually handle as much as 30% of Mato Grosso's soybean and corn production, but currently the capacity at the port has not been increased enough to handle the expected flood of grain shipments from the state."

 

 

PF MIDWEEK MARKETING GAME PLAN UPDATE...

CORN: Get current with advised marketings and be prepared to increase downside price protection when the market shows signs of a major top. While futures have backed off their highs, there has been no significant technical damage. But we realize this is a mature bull market and traders have significant crop losses already priced into the market. 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: Get current with advised old- and new-crop marketings as significant crop losses are already built into the market. But we'll hold off on advising additional sales until there are signs of a major top as supplies will be very tight through the 2012-13 marketing year. 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.

COTTON: Hedgers and cash-only marketers have 50% of expected 2012-crop production sold for harvest delivery. Futures are signaling a potential upside breakout from the extended, sideways trading range. Be prepared to advance new-crop sales on a sharp 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. The boxed beef and cash cattle markets are strengthening, which is supportive for futures. But be prepared to hedge the corrective rally if the upside is overdone. Feeder cattle buyers and sellers should also carry risk in the cash market for now.

HOGS: Concerns high feed prices will force herd liquidation continue to weigh on hog 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 an overdue 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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