Evening Report (VIP) -- February 12, 2014

February 12, 2014 08:48 AM

Truck freight rates in Brazil surge... Pro Farmer South American Crop Consultant Dr. Michael Cordonnier says freight rates in Brazil have been climbing as soybean harvest gets underway and trucks are in short supply. Meanwhile, the law limits the number of hours a driver can stay behind the wheel -- further tightening the shipping availability.

Dr. Cordonnier says Mato Grosso truck freight rates have risen 27% over the past month and rates in Parana have jumped by 53% from last month and are expected to continue rising. "The Port of Santos has instituted a new scheduling system for how trucks are to arrive at the port," he says. "A truck will only be called to the port when there is capacity in the warehouses for the soybeans and vessels are available to load the soybeans. If a truck arrived at the port without being called, the truck will not be unloaded. The system is designed to avoid long lines of trucks clogging the nearby streets while they wait to enter the port. A similar system was instituted at the Port of Paranagua several years ago and it has eliminated the long lines of trucks that captured national and international attention."

PF Perspective: We have written several stories this winter highlighting efforts being made at Brazilian ports to avoid congestion and improve movement. But the tight supply of trucks in Brazil amid record soybean production is concerning and reminds us of what's happening in Canada -- where the infrastructure is much more developed. Record Canadian grain production last year is a shipping nightmare this year given more profitable returns for its railways to ship crude oil than grains. Brazil isn't likely to face a repeat of the logistic nightmares it suffered last year, but the trucking situation could allow U.S. soybeans to provide fill-in business for global end-users.



Weekly ethanol production improves... The Energy Information Administration (EIA) reports as of Feb. 7 ethanol production of 902,000 barrels per day (bpd) was up 7,000 bpd from the previous week. This takes the four-week average for ethanol production to 901,000 b/d for an annualized rate of 13.81 billion gallons. Ethanol stocks of 17.1 million barrels is 323,000 barrels above the previous week.



NASS announces reinstated ag reports... As expected, USDA's National Ag Statistics Service (NASS) announced it will restart a number of reports this year that it had discontinued due to the sequester. The massive FY 2014 appropriations measure signed into law last month included funding for it to do so. The reinstated programs include the following:

  • July Cattle Report
  • All Catfish and Trout Reports
  • Potato Stocks Reports
  • Non-Citrus Fruit, Nut and Vegetable Forecasts and Estimates & Monthly Prices
  • June Rice Stocks Report
  • All Hops and Hops Stocks Estimates
  • Mink Report

NASS has not determined the dates for publication of the reports listed above. It will announce the dates when they are set.



Senate clears debt limit hike... The Senate today passed a standalone debt limit bill that would extend the debt ceiling to March 2015. The House cleared the measure yesterday. Getting to a vote was not easy, however. As expected Sen. Ted Cruz (R-Texas) filibustered the bill, meaning 60 votes were needed to invoke cloture. Cruz and some other Republicans wanted the debt hike to come along with some spending cuts. Of note, GOP Leader Mitch McConnell (Ky.) and Sen. John Cornyn (Texas) voted in favor of ending debate.



PF midweek marketing game plan update...

Corn: Hedgers have 60% of 2013-crop production sold in the cash market, while cash-only marketers are 50% priced on old-crop. Hedgers and cash-only marketers have 20% of expected 2014-crop production sold via cash forward contract for harvest delivery. We still believe rallies must be used to advance old- and new-crop sales. With old-crop futures around 35 cents off the winter low and December futures around 20 cents off that low, we are prepared to pull the trigger on additional sales if the price recovery shows signs of stalling. We are watching Tuesday's low as a potential sales trigger. Hedgers and cash-only marketers should also be prepared to increase new-crop marketings at the same time as old-crop sales are made, though hedgers may do so with defensive hedges.

Soybeans: Hedgers are 100% sold on 2013-crop production in the cash market, while cash-only marketers are 75% sold on old-crop. Hedgers and cash-only marketers have 10% of expected 2014-crop production sold via cash forward contract for harvest delivery. With old-crop futures showing signs of stalling again at the top of the broad, sideways pattern, cash-only marketers must be prepared to trim old-crop supplies. We are also likely to reward the modest price recovery with additional new-crop sales when we advise old-crop sales.

Wheat: Hedgers are 100% sold in the cash market on 2013-crop production, while cash-only marketers are 75% sold. Recent price action gives us some hope a market low is in place. Wheat has performed better than we expected, but the upside remains limited and the price rally should be viewed as an opportunity to advance new-crop sales and to trim old-crop inventories for cash-only marketers.

Cotton: Hedgers and cash-only marketers now have 75% of 2013-crop production sold in the cash market and 25% of expected 2014-crop production sold via forward contract for harvest delivery. The technical picture is strong for old-crop futures. Therefore, we'll let the market go until there are signs of the rally stalling before advancing sales.

Cattle: Fed cattle producers are long April $136.00 put options at $1.325 covering remaining 1st-qtr. and 50% of 2nd-qtr. marketings and are short the same number of April $144.00 call options at $1.525. Continue to hold those positions unless there's a strong upside push that moves our short calls in the money.

Hogs: Fundamentals will strengthen seasonally and the technical picture is strong for summer-month futures. But with that said, hog futures are at very attractive prices, and therefore, hedges are likely to be advised soon.

Feed: 25% of 1st-qtr. protein needs are covered in long March meal futures at $410.80. Be prepared to claim profits if there are signs of a top. We'll definitely exit this position before the end of the month, when the March contract goes into delivery. While corn futures signal a low is in place, there's no urgency to add long corn coverage as the upside is limited.


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