Evening Report (VIP) -- February 26, 2014

February 26, 2014 09:07 AM
 

Consultant: Truck traffic in central Brazil 'worst ever'... South American crop consultant Dr. Michael Cordonnier, currently in Mato Grosso, says the traffic along highway BR-163, known as the "soybean highway," is the worst he has ever experienced.

"We personally know of three locations where it takes two to three hours to get through certain checkpoints," he says. "They are working on widening the highway to four lanes and the combination of construction zones, heavy rains and thousands of trucks make certain spots nearly impassable."

Dr. Cordonnier says potholes are especially a problem, as he came upon trucks overturned after losing control by trying to avoid the potholes or striking one. Additionally, he says the government is putting its resources into urban infrastructure ahead of the World Cup in June. "Fixing the potholes on the highways in the interior of the country is a very low priority," he says.

Bottom line: Dr. Cordonnier says the transportation problems couldn't have come at a worse time, as harvest is ramping up and thousands of trucks use this highway on a daily basis hauling grain to southern ports and bringing back fertilizers and other products. "Delays getting through this section of the highway will be hours long and it will increase the already high cost of transporting grain out of the state," he adds.

 

Slight increase in weekly ethanol production... The Energy Information Administration reports ethanol production the week ended Feb. 21 of 905,000 barrels per day (bpd) was up 2,000 bpd from the previous week. Ethanol production has remained in a fairly tight range the past six weeks of 894,000 bpd to 905,000 bpd. Ethanol stocks declined 179,000 barrels to 17.02 million barrels.

 

Attaché looks for U.S. wheat to fill Brazil's gap... The U.S. ag attaché in Brazil says the U.S. is poised to maintain a portion of Brazil's wheat business in 2014, as U.S. imports have not slowed so far this year. The attaché says Brazilian millers said they will continue to buy U.S. wheat since Argentina is a "problematic supplier" due to its current economic problems and government intervention in the wheat sector.

"It is speculated that Brazil may reduce the Common External Tarrif again in April to fill demand for wheat and keep prices stable during 2014, which is an election year," says the attaché. "Increased demand and economic issues in the Argentine market, combined with U.S. wheat's reputation for quality and reliability create a favorable climate for U.S. wheat in 2014." Link to full attaché report.

 

Crop insurance payouts close in on $11 billion for 2013 crops... Indemnities for 2013 crop losses reached $10.991 billion as of Feb. 24, moving the 2013-crop payouts to second highest level on record for the program, according to Risk Management Agency (RMA) data. The 2013 payouts passed the 2011 total of $10.867 billion but still remain below the record indemnity level seen for 2012, which stands at $17.429 billion. A year ago at this point, 2012 payouts stood at $14.652 billion. Corn indemnities moved to $5.097 billion, continuing to lead all commodities, with payouts for soybeans ($1.117 billion) and wheat ($2.248 billion) also atop $1 billion for the 2013 crop year.

 

House passes bill to prohibit gov't from exercising eminent domain power for economic development... Today the House easily approved (353-65) a measure that would overrule a controversial Supreme Court decision regarding the government's right to seize private property. It is unclear whether the Senate will take up the measure, known as the Private Property Rights Protection Act. The act would prohibit any government from exercising its eminent domain power for economic development reasons. If a government violates the bill, federal funds for economic development would be blocked.

The Supreme Court case that spurred this legislation was a 2005 decision on Kelo v. City of New London. In the 5-4 ruling, the justices said the city's decision to seize private property and give it to another private entity for the purposes of economic development was lawful under the "public use" clause of the Fifth Amendment, which specifies no property shall be taken for public use without just compensation. According to the Supreme Court decision, the city was justified in its seizure because economic development qualifies as public use.

 

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. Use the price strength to get current. We aren't wildly bullish, but our attitude is improving toward the corn market as futures remain in the modest uptrend. The August high is the near-term technical key and demand is the fundamental key in determining how much further the price rally extends. We are willing to wait to see how this plays out, but be prepared to advance old-crop marketings if uptrending support from the January and mid-February lows is violated. 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. Get current with those sales and hedgers should be prepared to reown a portion of old-crop sales in long futures/call options on a modest corrective pullback as attitudes are bullish and the market is one more bullish event away from a potential sharp extension of the rally. 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 continues to strengthen and should work in tandem with corn if that market builds its move off the winter lows. We'll let the market continue to rally as far as possible, but be prepared to advance new-crop sales on signs the rally is stalling.

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. Cotton futures are showing signs that a top may be in place. But we want to see how the market reacts tomorrow before making additional sales as the cotton market likes to use head fakes.

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. With April futures closing above $144.00, you can either cover those short calls or opt to stick with them to lock in a hedged price of $144.20. We are sticking with the short calls because they lock in a profitable price.

Hogs: Hog futures are at very attractive prices, and therefore, hedges are coming. But attitudes are very bullish and the market is currently showing no signs of stalling. Typically bull runs like this give a clear signal when they are coming to an end. Wait on such signs before hedging.

Feed: All corn-for-feed and meal risk is carried in the cash market. We sense a shift in attitude in grains -- and commodities in general. As a result, we have more urgency to extend coverage beyond hand-to-mouth. But we aren't willing to chase meal higher. Be prepared to use a corrective pullback to extend feed coverage.

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