Evening Report (VIP) -- December 5, 2012

December 5, 2012 08:33 AM

ISU CLIMATOLOGIST: CORN BELT DROUGHT MAY LINGER INTO 2013... Iowa State University climatologist Elwynn Taylor says based on history, severely deficit precip years of the magnitude of 2012 do not recover to normal annual precip in a single year. "Accordingly, an additional year of significant moisture stress is considered to be not unlikely and a fourth consecutive year of below-trend U.S. corn yield a distinct possibility," he says. "The probabilities will become more definitive in the early weeks of 2013 as the likely phase of the El Nino/La Nina for the growing season becomes manifest."

Taylor notes that in the drought years of 1956 and 1988, the subsequent year also was a below-normal precip year and below-trend corn yields were seen in Iowa. "It is not likely that subsoil moisture will be fully replenished by the beginning of the 2013 planting season," he adds. "Moisture deficit in the subsoil increases the risk of crop yields being below trend and prevents the recovery of river, pond and well water to normal levels."


STATS CANADA RELEASES FINAL PRODUCTION ESTIMATES... Statistics Canada this morning released its final 2012 crop production estimates of the year, with its total wheat crop of 27.205 MMT coming in slightly above traders' expectations of 27.1 MMT. Canola at 13.31 MMT came in below traders' expectations of 13.7 MMT, with the barley crop at 8.012 MMT coming in well below traders' expectations of 8.6 MMT.

Pro Farmer Canada Editor Mike Jubinville says the canola estimate is slightly bullish for the market, but the change should not significantly alter the market's current path. "And regardless of what anything on crop size StatCan issued this morning, demand for canola from the export and domestic sectors will guarantee that year-end stocks will be tight," he says. Click here for more.


CHINESE INVESTORS CLOSER TO BUILDING RAILROAD IN MATO GROSSO... South American crop consultant Dr. Michael Cordonnier says after years of meetings between Brazilian and Chinese officials, it now appears Chinese construction companies may be one step closer to taking over the construction of the only railroad within Mato Grosso. The total length of the proposed project is 1,215 miles and will cut through the heart of soybean production country.

"The railroad alone could save soybean producers in the state R$2 billion annually in reduced transportation costs," says Dr. Cordonnier. "Finding more efficient ways to move agricultural products to export markets is very important in Brazil because agricultural exports represent about 40% of Brazil's surplus balance of payment."

Dr. Cordonnier says if the railroad is built all the way to the Amazon River, it could represent a savings of 40% on the internal cost of getting grain from Mato Grosso into exportable position.



CORN: With corn futures trading in the upper bounds of the two-plus month, sideways trading range, hedgers and cash-only marketers should get current with advised 2012-crop cash sales. Hedgers are 100% sold in the cash market, with cash-only marketers 75% priced on 2012-crop. Hedgers should be prepared to reown a portion of 2012-crop cash sales in long futures/options on an upside breakout from the choppy range. Also, hedgers and cash-only marketers should be prepared to make initial 2013-crop sales if Dec. 2013 futures challenge the contract highs.

BEANS: Hedgers and cash-only marketers should reward recent price strength if they are not current with advised cash sales to get current with advice. Hedgers are 100% sold in the cash market, with cash-only marketers 75% priced on 2012-crop. With hedgers 100% sold on 2012-crop production, we are watching for signs to reown a portion of 2012-crop, but January beans must clear old support at $14.84 to indicate a short-term, technical bottom is in place

WHEAT: Hedgers and cash-only marketers have 75% of 2012-crop sold in the cash market. Get current with advised sales as prices are historically strong. But with global supplies tightening and multiple crop concerns around the world, we aren't advising additional sales at this time. Also, be prepared to use a strong rally to make 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. But with a lot of time left in the marketing year, no additional cash sales are recommended at this time and there are no strong technical sell signals.

CATTLE: Fed cattle producers should continue to carry all risk in the cash market as supply fundamentals are bullish and demand is holding up well. Feeder cattle buyers and sellers carry all risk in the cash market for now.

HOGS: Hog producers should continue to carry all risk in the cash market, but be prepared to hedge a portion of winter production on signs the upside has been exhausted. We'd much rather hedge with futures at a premium to the cash market, which currently is the case.

FEED: Carry all corn-for-feed and meal risk in the cash market for now. Be prepared to extend coverage on an upside breakout from the extended, choppy range in corn futures and on violation of the sharp downtrend from the all-time high in meal futures. While basis is strong, any extended coverage should be done in the cash market as futures are likely to be volatile.

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