Evening Report (VIP) -- December 18, 2013

December 18, 2013 09:14 AM
 

FOMC ANNOUNCES PLAN TO SCALE BACK ASSET PURCHASES... The Federal Open Market Committee (FOMC) at the conclusion of its policy-setting meeting today said due to progress toward maximum employment and improved labor market conditions it has decided to "modestly reduce the pace of its asset purchases."

Starting in January, the Committee will scale back its monthly purchases of agency mortgage-backed securities from $40 billion per month to $35 billion per month and will scale back its holding of longer-term Treasury securities from $45 billion per month to $40 billion per month. The FOMC says that it will likely continue to reduce the pace of its asset purchases in measured steps, based on its outlook for the labor market and inflation. The U.S. dollar index rose sharply immediately following the news, which added to price weakness in the grain markets. But the greenback has since moderated to trade near unchanged.

The FOMC also reaffirmed its expectations the current exceptionally low target range for the federal funds rate of 0% to 0.25% 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." Read more here.

 

WEEKLY ETHANOL PRODUCTION DECLINES SLIGHTLY... After posting a new yearly high the previous week, the Energy Information Administration (EIA) reports ethanol production the week ending Dec. 13 declined by 16,000 barrels per day (bpd) to 928,000 bpd. The four-week average for ethanol production is at 928,000 bpd for an annualized rate of 14.23 billion gallons. For the 11th straight week, imports were nonexistent and ethanol stocks climbed by 1.1% from the previous week to 15.6 million barrels.

 

INFORMA UPDATES 2014 ACREAGE OUTLOOK... Informa Economics, Inc. reportedly expects corn plantings in 2014 to come in around 91.846 million acres, which would be down roughly 3.5 million acres from 2013 plantings. Soybean plantings, on the other hand, are expected to rise around 5.4 million acres for 2014, to 81.929 million acres. The firm reportedly expects little change in winter wheat acres next year, with plantings expected to come in at 42.866 million acres, which would be a 224,000-acre decline from 2013. Cotton plantings are expected to rise 515,000 acres from year-ago to 10.651 million acres for 2014.

 

GLOBAL WEATHER UPDATE... We asked Meteorologist Gail Martell of MartellCropProjections.com for a a global weather update. She has provided this extensive update:

European warmth, Russia cold: December temperature extremes have become very pronounced in Europe and Russia. The jet stream has built up a warm ridge of high pressure over Europe, while digging a deep, cold trough over Russia. This is affecting the development of winter grains. Unseasonable warmth in Western Europe is promoting slow development in winter wheat. Northern France reached the low-mid 50s F yesterday, while Germany and United Kingdom reported upper 40s F. By contrast very cold conditions are occurring in the Volga, the northernmost winter wheat district in Russia, where Tuesday's temperatures barely reached 0° F (-17° C).

Heat stresses Argentina grains: Hot temperatures have developed in Argentina; the highs yesterday peaked in the mid and upper 90s F. November rainfall was abundant, 125% to 150% of normal, replenishing field moisture in the three leading farm provinces of Buenos Aires, Cordoba and Santa Fe. However, shallow-rooted corn and soybeans, planted very late, are succumbing to moisture stress. Variable showers developed overnight in Buenos Aires, but it was not enough rain to offset high evaporation in a heat wave. Low to mid 90s F are expected to prevail into Christmas week with little if any rainfall the next seven days. Hot, dry weather is blamed on a persistent ridge of high pressure in the jet stream.


South Brazil forecast hotter and drier: High pressure is nosing into southern Brazil, causing hotter temperatures in Rio Grande do Sul. Generous December rainfall has promoted favorable growing conditions in Brazil's third leading corn and soybean state, though the new five-day outlook is very dry. Parana is not expected to be affected by extreme heat and dryness as the ridge of high pressure would keep to the south. Mato Grosso rainfall has been abundant. Recurring strong showers have developed in December from a persistent trough of low pressure in Mato Grosso and throughout the tropics. Above-normal rainfall is expected to continue.

 

CROP INSURANCE INDEMNITIES FOR 2013 PASS $7 BILLION... Crop insurance indemnities for 2013 crops have now hit $7.134 billion, moving the loss ratio for the program to 0.61, according to Risk Management Agency (RMA) data. This still puts indemnities for 2013 behind the pace seen for 2012 crops at this point a year ago when indemnities were at $8.738 billion on their way to a record level of $17.429 billion.

Payouts for corn also moved into the top spot for major commodities, rising to $2.365 billion with a loss ratio of 0.51. Wheat indemnities had been leading all crops as the data has come in for 2013 payouts, but corn displaced wheat in that spot as of Dec. 16. Wheat and corn remain the only two major U.S. crops where payouts under the program have exceeded $1 billion for the 2013 crop year so far. Get more details.

 

BRAZIL TURNS TO U.S. ON FEAR OF ARGENTINE WHEAT IMPORT RESTRICTIONS... Brazilian mills reportedly bought at least 50,000 MT of U.S. HRW wheat today amid fears Argentina may further restrict its wheat exports due to a disappointing 2012-13 crop. Such speculation has not yet been confirmed, however.

 

USDA, MAPA AGREE TO AMEND RULES LIMITING BILATERAL TRADE... USDA and Brazil's Ministry of Agriculture, Livestock and Food Supply (MAPA) announced today that they have recently agreed on a path forward to amend rules that are currently limiting bilateral beef trade between the countries. The release notes that bilateral trade of all beef and beef products could occur once the countries meet one another's importing equivalence and technical requirements regarding animal health and food safety.

 

PF MIDWEEK MARKETING GAME PLAN UPDATE...

CORN: Hedgers and cash-only marketers have 25% of 2013-crop production sold in the cash market. We will use an overdue corrective rally to increase sales and start 2014-crop sales.

BEANS: Hedgers should be current with advice to have 100% of 2013-crop production sold in the cash market, while cash-only marketers are 75% sold on 2013-crop. Hedgers should be prepared to reown a portion of 2013-crop sales in long futures or call options if an extended price rally seems likely, but for now we will wait to see if futures post an upside breakout given prospects for record South American production. Hedgers and cash-only marketers should also be prepared to start 2014-crop sales.

WHEAT: Hedgers are 75% sold in the cash market on 2013-crop production, while cash-only marketers are 50% sold. The bearish technical picture continues to build on itself, with new contract lows posted each day this week. With the market searching for a price that increases the competitiveness of U.S. wheat on the global market, use periods of price strength to get current with advice.

COTTON: Hedgers and cash-only marketers have 50% of 2013-crop production sold in the cash market. Be prepared to advance 2013-crop cash sales on an extended recovery.

CATTLE: Fed cattle producers should continue to carry all risk in the cash market unless there are indications of sharp, extended price pressure. The long-term price outlook for feeder cattle is higher. Therefore, feeder cattle buyers should be prepared to add long coverage on an extended corrective pullback.

HOGS: Profits were claimed on all 4th-qtr. hedge coverage. Fifty percent of expected 1st-qtr. marketings are hedged in Feb. lean hog futures at $89.70. Profits on the 1st-qtr. hedges are accumulating. We'll lift coverage on signs a near-term low is in place.

FEED: Twenty-five percent of 1st-qtr. protein needs are covered in long March meal futures at $410.80. Stay in touch to increase coverage. There's no urgency to add long corn coverage at this time.

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