Evening Report (VIP) -- December 12, 2012

December 12, 2012 08:54 AM

FED TO EXTEND SECURITY PURCHASES... The Fed committed to monthly purchases of $45 billion in Treasuries on top of the $40 billion per month in mortgage-backed bonds it started buying in September at the conclusion of the two-day Federal Open Market Committee meeting. The Fed action was expected and triggered a relatively muted market reaction.

The committee decided to keep the target range for the federal funds rate at 0% to 0.25%, but in a new twist, set some parameters. It says this "exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee's 2% longer-run goal, and longer-term inflation expectations continue to be well anchored."

"Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative," the committee said. Click here for more.



TURN AWAY FROM CURRENT FISCAL CLIFF & FARM BILL TALK... Washington Consultant Jim Wiesemeyer says the following are words you won't likely read or hear too many other places: Don't read or listen to anything about the farm bill or fiscal cliff issues until later this month and maybe not until after Christmas, but before year's end. That is because it may take that long for serious discussions by sometimes not-so-serious "players" to get to the nitty gritty of the issues at hand. Offers and counteroffers are being made, but they have been baby steps. Needed are grownup steps with detailed offers. President Obama is still in campaign mode and almost overreaching, while Republican leaders are mostly posturing. Click here to read more.



EXTENSION/TRANSITION OF THE 2008 FARM BILL NEEDED... An extension/transition of some or all 2008 Farm Bill programs for one year is needed. Even if the anemic leaders in Washington finally start leading and reach a fiscal cliff and related farm bill deal, it will take time to implement those agreements. An extension would give USDA the time it needs to do a far better job of implementing new farm programs when they take effect. This includes public rulemaking -- history shows USDA doesn't always get it right in implementing what they think Congress has legislated.

Another reason there should be time to implement a new farm bill is to allow farmers to educate themselves, with the help of private industry and extension personnel, regarding the various safety net options that will result from a new farm bill. Something that very few people in Washington realize is that farmers need to mesh their crop insurance options with whatever new safety net options are made available. That takes time, which is something the hurry-up lobbyists and lawmakers in Washington have in the past forgotten in their push for a new farm bill with little regard as to its implementation. Click here for more details.



WEEKLY ETHANOL PRODUCTION DOWN SLIGHTLY... The Department of Energy reports ethanol production for the week ended Dec. 7 of 824,000 barrels per day (b/d) was down 11,000 b/d from the previous week. The four-week average for ethanol production is down 12.5% from year-ago. Meanwhile, ethanol inventories rose 3.6% from the previous week to 20.028 million barrels.



U.S. PORK AND BEEF EXPORTS STAYED STRONG IN OCTOBER... According to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF), U.S. pork exports set new monthly records in October and beef exports increased 10% over last year in terms of value.

Pork exports in October of 218,132 MT were up 9% from year-ago -- valued at $607 million. USMEF says this is the first time pork export value has exceeded $600 million -- breaking the previous high by 1.5%. Year-to-date pork exports are running 3% ahead of year-ago in terms of volume and 6% ahead of year-ago in terms of value.

Beef exports in October of 101,447 MT were down 4% from year-ago, but up 10% in terms of total value at $496 million. USMEF says this is consistent with this year's pattern, which has seen an 11% decline in volume, while export value is 2% above last year's record pace.




CORN: Hedgers are 100% sold in the cash market, with cash-only marketers 75% priced on 2012-crop. With corn futures back in the lower portion of the nearly three-month, sideways trading range, hedgers and cash-only marketers should wait to get current with advised 2012-crop cash sales. If futures violate support at the bottom of the range, it would signal something has changed and increase the urgency to get current with sales. Otherwise, wait for futures to move back into the upper end of the choppy range to get current. Also, hedgers and cash-only marketers should be prepared to make initial 2013-crop sales if Dec. 2013 futures violate support at the fall low or on a challenge of the contract high.

BEANS: Hedgers are 100% sold in the cash market, with cash-only marketers 75% priced on 2012-crop. Hedgers and cash-only marketers should wait for now to get current with advised cash sales. A low-range close this week would signal the recent corrective rally has run out of steam, increasing the urgency to get current with advised sales. Otherwise, give the market a chance to extend the rally from the November low. With hedgers 100% sold on 2012-crop production, we are watching for signs to reown a portion of 2012-crop, but March beans must find sustained buying around old $14.57 to indicate an extended price recovery is underway.

WHEAT: Hedgers and cash-only marketers have 75% of 2012-crop sold in the cash market. Get current with advised sales as futures have violated long-standing support, opening sharp downside price risk. Given crop struggles in the Plains and other areas around the world, we don't want to get too aggressive with cash sales, but confirmation of a downside breakout would encourage more old-crop sales and initial 2013-crop sales.

COTTON: Hedgers and cash-only marketers have 50% of expected 2012-crop production sold in the cash market. Get current with recommended sales if futures move back into the upper end of the broad, sideways trading range. The likelihood of a sharp drop in cotton acres next year is keeping us from advising 2013-crop sales at this time.

CATTLE: Fed cattle producers should continue to carry all risk in the cash market as supply fundamentals are bullish and demand is holding up relatively well. Feeder cattle buyers and sellers carry all risk in the cash market for now, although feeder cattle buyer should be prepared to hedge a portion of needs on an upside breakout from the extended, choppy range.

HOGS: Bears have momentum on their side as fundamentals have weakened and the technical picture has turned bearish. With February lean hog futures in line with the cash index, we don't want to hedge at this time. But be prepared to hedge if the contract moves back to a strong premium to the cash index.

FEED: Carry all corn-for-feed and meal risk in the cash market for now. The corn market remains choppy and is showing no signs of an upside breakout, but meal futures are signaling a low is in place and that futures could return to the November high. As a result, be prepared to extend meal coverage. While basis is strong, any extended coverage should be done in the cash market as futures price action is likely to be volatile.


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