Evening Report (VIP) -- February 19, 2014

February 19, 2014 09:08 AM

Discord in Ukraine not having major market impact yet... Civil unrest is increasing corn prices in Ukraine, the world's third largest exporter of the grain, but so far the price rise has not impacted exports. An official at private firm UkrAgroConsult reports spot corn prices rose $7 per MT over the past two days to $225 per MT. While this hasn't impacted exports yet, there is some fear that if the violence continues, credit access and trade relations with the country could suffer. UkrAgroConsult expects Ukraine to export between 18 MMT to 19 MMT of corn for the 2013-14 marketing year; so far this year, the country has shipped between 11 MMT and 12 MMT of corn.

While the U.S. doesn't get much nitrogen from Ukraine -- around 7% annually -- they are a major supplier to the rest of the world. But Pro Farmer Inputs Monitor Editor Davis Michaelsen says unless the unrest spreads to the industrial areas around the Black Sea and disrupts shipments, there will be little impact on fertilizer prices.


FOMC minutes hint at policy change... Federal Reserve officials had their most candid discussion regarding raising its target for federal funds rate in years, according to the newly released minutes from the January Federal Open Market Committee (FOMC) meeting. The minutes state, "Participants agreed that, with the unemployment rate approaching 6.5%, it would soon be appropriate for the Committee to change its forward guidance in order to provide information about its decisions regarding the federal funds rate after that threshold was crossed."

Additionally, the minutes said that "a few" members indicated "that it might be appropriate to increase the federal funds rate relatively soon." In previous meetings, the Fed has set 6.5% for the jobless number and 2.5% for inflation as the points when it would consider raising rates from its current level of zero to 0.25%. The Department of Labor said the unemployment rate was 6.6% in January.

As for tapering of its asset purchases, the FOMC minutes indicated several Fed policymakers favored predictable, $10-billion cuts unless the economy's performance noticeably weakens.


Canada & U.S. livestock reports rescheduled... USDA's National Agriculture Statistics Service (NASS) and Statistics Canada today announced they rescheduled the U.S. and Canadian Hogs and the U.S. and Canadian Cattle and Sheep Reports for March 5, when the Canadian data are available. These reports were originally slated for release Feb. 20.


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. While the corn market continues to build the modest uptrend from the winter lows, nothing has happened to change our attitude that price strength must be sold. If uptrending support from the winter lows is violated, be prepared to advance old-crop sales. 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 90% sold on old-crop. Hedgers and cash-only marketers have 10% of expected 2014-crop production sold via cash forward contract for harvest delivery. Old-crop fundamentals remain bullish, but there will eventually be a shift in focus to new-crop. We are willing to let the market run as far as possible, but if November futures violate uptrending support from the winter low, be prepared to advance new-crop sales.

Wheat: Hedgers are 100% sold in the cash market on 2013-crop production, while cash-only marketers are 75% sold. Wheat has performed better than we expected, but we continue to view price strength 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 bullish but prices are at levels that have stalled multiple rallies in the past. 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 these positions unless there's a strong upside push that moves our short calls in the money.

Hogs: Hog futures are at very attractive prices, and therefore, hedges are likely to be advised soon. But the market is currently showing no signs of stalling. Wait on an indication of a top before hedging.

Feed: We have claimed profits on the long first-quarter meal coverage. Carry all risk in the cash market for now as we don't want to lock in current prices for an extended period. While corn futures signal a low is in place, there's no urgency to add long corn coverage as we continue to feel the upside is limited.


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