Evening Report (VIP) -- December 27, 2013

December 27, 2013 09:01 AM
 

H&P REPORT: FRIENDLY VERSUS PRE-REPORT EXPECTATIONS... The Dec. 1 U.S. hog inventory at 65.940 million head came in roughly 368,000 head under the average pre-report guess. The Kept for Breeding and Kept for Marketing categories were both down around 1% from year-ago. The September-November pig crop at 29.298 head was roughly 20,000 head fewer than traders anticipated.

Quarterly H&P Report

USDA

Avg. trade guess

Range

 

% of year-ago

All Hogs and Pigs

99

99.9

98.6-101.0

Kept for breeding

99

101.0

100.2-101.9

Kept for marketing

99

99.8

98.4-101.1

Sept.-Nov. pig crop

100

101.2

99.1-102.7

Sept.-Nov. pigs per litter

101

100.8

98.7-102.4

Sept.-Nov. farrowings

100

100.4

100.1-100.6

Dec.-Feb. farrowing int.

101

100.9

100.5-101.8

Mar.-May farrowing int.

101

101.2

97.6-102.0

Hogs under 50 lbs.

99

99.7

97.8-101.4

Hogs 50 to 119 lbs.

100

99.7

98.6-101.4

Hogs 120-179

100

99.9

98.1-101.3

Hogs 180 and over

100

100.1

99.2-101.1

Looking forward, hog producers intend to increase farrowings roughly 1% through winter and spring. That's not a surprise given lower feed costs, especially since they failed to trim their hog herds during the extended period of record-high feed prices. But if that 1% increase in farrowings is seen, it points to an even greater increase in the pig crop given continued year-over-year gains in the number of pigs per litter. The unknown remains how much porcine epidemic diarrhea virus (PEDV) will impact hog numbers.

USDA made revisions to past data, as well. USDA says, "All inventory and pig crop estimates for March 2012 through September 2013 were reviewed using final pig crop, official slaughter, death loss, and updated import and export data. Based on the findings of this review, an adjustment of less than 0.5% was made to the March 2012 total inventory and an adjustment of less than 2.5% was made to the December 2011-February 2012 pig crop. An adjustment of less than 1.5% was made to the June 2012 total inventory and an adjustment of less than 1.5% was made to the March-May 2012 pig crop.

"An adjustment of less than 1.5% was made to the March 2013 total inventory and an adjustment of less than 3.5% was made to the December 2012-February 2013 pig crop. An adjustment of less than 2.5% was made to the June 2013 total inventory. An adjustment of less than 2% was made to the September 2013 total inventory. An adjustment of more than 3.5% was made to the March-May 2013 pig crop."

Bottom line on USDA's revisions is that they are bullish. Market hog numbers were revised down for the December to February period for the past two years. Dec. 11 to May 2012 pig crop was revised down 1.4% from the September 2013 Hogs & Pigs Report. The December 2012 to May 2013 pig crop was revised down 2.8%. Those are major revisions.

 

WEEKLY ETHANOL PRODUCTION EASES... U.S. ethanol production slipped by 2,000 barrels per day (bpd) to 926,000 bpd the week ended Dec. 20, according to the U.S. Energy Information Administration. The four-week average for ethanol production is 927,750 bpd. Ethanol stocks rose by 35,000 barrels to 15.66 million barrels.

 

DROUGHT EASES ACROSS THE NATION'S MIDSECTION... The drought footprint of the contiguous U.S. improved by nearly 3 percentage points over the past week, with 53.65% of the U.S. now dealing with some type of drought. The High Plains saw some improvement over the past week, with 54.21% of the region now affected by drought, down nearly 1 percentage point from the week prior. Looking farther south, heavy rains resulted in the removal of abnormally dry conditions from central Arkansas and along the Mississippi River. Northeast Texas and southeast Oklahoma also saw the reduction of abnormally dry conditions, though elsewhere in Texas drought intensified. But overall, improvement outweighed the intensification and the drought footprint for the South shrank to 43.85%, which is down nearly three percentage points from the week prior.

The monitor also noted that recent rain removed moderate drought in Indiana, Michigan, Illinois and Missouri. The Midwest as a whole saw 6.65-percentage-point drop in drought coverage to 33.1%. For more maps and details, click here.

 

PERSPECTIVE: 10-YEAR TREASURY NOTE RISES ABOVE 3%... The 10-year U.S. Treasury note traded at 3.005% during Thursday's trading day before prices rose slightly to send the yield back under that level. The closing mark of 2.997% was still the highest since July 2011, and that is also the last time the 10-year note yield finished above the 3% barrier.

Still, there may not be as much concern as there was previously about eclipsing 3% as it took place after it was announced the Fed would start tapering its monthly asset purchases. This underscores that rising interest rates are likely to continue as the Fed winds down its stimulus efforts and the U.S. economy gains traction. But this rise in rates won’t produce the worry it did earlier this year when the economy was still struggling more than data suggests it is now. The risk, however, is that rising long-term yields slow the economic recovery. Learn more.

 

JAPANESE DATA SHOWS GAINS FROM "ABENOMICS"... Japan's November core inflation rose to a five-year high, increasing to 1.2% from 0.9% in October and topping the consensus of 1.1%. This marked the first mark over 1% in five years. The "core" CPI (minus food and energy) rose 0.6% after a 0.3% gain in October. That was the biggest gain in 15 years. Crucially for Japan's fight against deflation, total cash wages rose for the first time in five months with an increase of 0.5%. Other data including retail sales, industrial production, unemployment and household spending also seem to indicate Japan's economy is improving.

Japan is still moving forward, though some of the gains now in the data could be action by consumers to step up their purchases before an increase in the country’s sales tax takes effect in April. Already the government has put stimulus plans in place to help offset the negative impact a tax increase is expected to have on the fragile Japanese economy. Economic data will become even more important as that tax rise approaches and then the key will be whether the numbers echo fears that the tax increase will negatively impact the Japanese economy. Get more details.

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