Evening Report (VIP) -- December 18, 2012

December 18, 2012 09:12 AM

CONSULTANT: BRAZIL'S SOYBEAN CROP ESTIMATE COULD INCREASE... South American crop consultant Dr. Michael Cordonnier has left his estimate of Brazil's soybean crop unchanged at 80 MMT, but says he is "a little more optimistic toward the crop this week after the rains that fell in southern Brazil." He says the only weather concern in Brazil are pockets of dryness from eastern Mato Grosso eastward through central Goias, northern Minas Gerais and western Bahia.

Dr. Cordonnier says many of the early maturing soybeans in Mato Grosso will be harvested between Jan. 5 and 15, which would take some of the pressure off the U.S. to supply China with soybeans. But he says due to dry weather in October, some of the crop had to be replanted and those beans are still in early vegetative development, which will extend the growing season and harvest.

Meanwhile, Dr. Cordonnier left his Brazilian corn estimate unchanged at 70 MMT and says he is a little more optimistic toward the crop due to recent moisture in southern Brazil.


CONSULTANT LOWERS ARGENTINE SOYBEAN CROP ESTIMATE... A general thought in the market has been soybeans will gain acres in Argentina at the expense of corn, but Dr. Cordonnier says at just 65% planted, soybeans face an uphill battle. He says around 7 million hectares of intended soybean acres remain to be planted and his biggest concern is a significant portion of the full-season beans will be planted at the same time as the double-crop acres. "Even if they had good weather during the next two weeks, they will still be planting soybeans after the first of the year," he says. "If the weather turns wet once again, there could still be several million hectares or more of soybeans remaining to be planted after Jan. 1."

Dr. Cordonnier says yield potential on planting soybeans at such a late date is concerning. "You generally cannot plant soybeans two months later than normal and expect a normal yield potential from the crop," he says. As a result, he lowered his Argentine soybean crop estimate by 1 MMT from last week to 55 MMT and says the estimate "may continue to move lower in the coming weeks."

Dr. Cordonnier left his Argentine corn estimate unchanged at 22.5 MMT and says he has a neutral bias toward the crop. He reports corn planting is around 63% complete, which is around 10 percentage points behind the average. He says there are about 1.3 million hectares of intended corn acres yet to plant, with 36% of that in northern Argentina, 57% in central Argentina and 7% in southern Argentina. "The remaining corn in northern Argentina will be planted in approximately the right planting window, but the corn in central and southern Argentina will be planted very late over the next few weeks as weather permits," he says.


AUSSIE SCIENTISTS: ENSO-NEUTRAL CONDITIONS CONTINUE... The Australian Bureau of Meteorology says the tropical Pacific Ocean remains neutral -- neither El Nino nor La Nina. All dynamical models surveyed by the bureau suggest that sea surface temperatures (SSTs) in the tropical Pacific will stay in the neutral range for the remainder of 2012 and into the first quarter of 2013. This forecast is in line with the current projection from the U.S. Climate Prediction Center.


OBAMA'S FISCAL CLIFF COUNTEROFFER WON'T BE HIS LAST... As reported in "First Thing Today," President Obama's counteroffer signals major progress is being made toward a fiscal cliff agreement between him and House Speaker John Boehner (R-Ohio). In this offer, Obama backed away from his prior call for raising tax rates on households making more than $250,000 a year to now calling for increases for those making more than $400,000 a year. This followed Boehner's Friday proposal to raise tax rates on those with income over $1 million. But a final accord remains several issues and untold days away from the end zone.

Boehner joined other House GOP leaders this morning in commenting on President Obama's latest counteroffer regarding avoiding fiscal cliff issues, noting Obama has proposed $1.3 trillion in new revenue for only $850 billion in net spending reductions, which in his opinion, "is not balanced." (Boehner is demanding a 1-to-1 ratio between tax hikes and spending cuts.) So Obama's counterproposal will not be his final offer; Boehner made clear more movement is needed to garner needed Republican votes.

Legislation could be drafted, scored and cleared in as little as four days if Obama and Boehner can settle lingering differences. If so, that would make Dec. 27 the outside deadline for an agreement. Others say the real deadline for passing the legislation would be just before noon on Jan. 3, shortly before the 113th Congress convenes. Get more details here.


KEY FARM BILL ISSUES REMAIN... While some media report time is running out regarding farm bill negotiations, farm bill insiders signal that is not the case and that negotiations continue on reaching a farm bill end zone on lingering farmer safety net questions and disagreements. Following is a summary of the major farm bill issues remaining to be resolved:

  • Most believe a true farmer safety net choice is needed. The Senate bill lacks this; the House bill offers all major farm program crops a true choice between Ag Risk Coverage (ARC) or price loss coverage (PLC) with higher reference prices than current levels, not just limited to wheat, rice and peanuts.
  • What acres should safety net programs be based on? The Senate prefers base acres for PLC but actual plantings for ARC, something the House says is not equitable. The House bill keeps the payment acreage structure the same for both options.
  • Price/guarantee/percentage farm and county yield parameters/bands of the ARC and PLC. The percentages can and have already been tweaked to meet policy goals and budget needs. That will likely continue to occur.
  • The need for extending the 2008 Farm Bill for 2013 crops and refunding lapsed disaster programs and the Milk Income Loss Contract (MILC) program for dairy producers. Most believe a partial or full extension is needed, perhaps with a lower base percentage of base acres for direct payments to help offset the costs of extending lapsed programs. And with most spring-planted 2013 crops having a sales closing date on crop insurance of March 15, USDA would not likely be able to develop regs for the new program options and have farmers understand them in time to adjust their 2013 crop insurance coverage to reflect the new farm bill options.
  • Food stamp funding. The wide difference between the Senate (around $4 billion in cuts) and the House ($16 billion in spending reductions) can only be resolved by an agreement among House and Senate leaders, along with the Obama administration.

Bottom line: It looks like the best route is for a one-year farm bill extension with a net farm bill savings number provided to the Ag Committees to meet by a designated date in 2013, as part of the process and timeframe laid out in any fiscal cliff deal. Get more detailed analysis here.

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