Evening Report (VIP) -- January 21, 2014

January 21, 2014 09:03 AM

Improved weather for Argentina weighs on soybean futures... Traders returned from their extended holiday break to learn the weather forecast was much improved for Argentina, which resulted in sharp price pressure for soybean futures. Meteorologist Gail Martell of MartellCropProjections.com says parts of Buenos Aires received heavy rains overnight and the system is expected to spread northward through the grain belt.

Martell says weather models indicate up to 2 inches of rain will be seen across a large area from the system, which is also bringing relief from extreme heat that has stressed crops.

Meanwhile, Martell notes January rainfall has been abundant in the southern Brazil, with more rain expected in Parana and Rio Grande do Sul this week to maintain favorable conditions.


Economist: Interest rate surprise may be ahead... LaSalle Economics, Inc. President Dr. Vince Malanga, says interest rates could be a surprise in 2014 if the labor market continues to disappoint. Next week the Federal Open Market Committee (FOMC) meets to discuss its policies and the economy, and the market expects it to follow its December decision to taper its asset purchases, with further scaling back beginning in February.

"The next labor report is scheduled for the following week. If this report shows relative weakness with minimal revisions to past data, the FOMC action may appear as a policy mistake," says Malanga. "The result might be investors shy away from equities and embrace bonds," he adds.

"This might be self correcting," adds Malanga, as markets would shift expectations of further tapering and when interest rates might rise. This would revive business, consumer confidence and economic activity unless "simmering deflationary expectations actually take hold. In this case, the surprise might be instead of 10-year Treasuries heading toward 4% as widely expected, the yield actually heads back toward 2%," he explains.


ERS: Cow slaughter expected to decline in 2014... The monthly Livestock, Dairy and Poultry Outlook released by USDA's Economic Research Service (ERS) notes cow slaughter in 2013 continued at a high rate, leading to declines in cow inventories and the "expectation of continuing declines in January 1, 2014, cow inventory."

The report notes commercial beef cow slaughter in 2013 was the sixth consecutive year to exceed 10% of January 1 beef cow inventories. ERS says it expects cow prices to be higher in 2014 due to "anticipated declines in cow slaughter as a result of expected efforts to rebuild cow herd inventories."

Also hinting at herd expansion, ERS says it expects dressed cattle weights to be higher in 2014 on average in part due to lower corn prices. But it also notes that "more steers and fewer cows and heifers in the slaughter mix could also result in a tendency for dressed weights to be higher." USDA will release its Cattle Inventory Report on Jan. 31.


ERS: Despite PEDV, pork production expected to rise in 2014... Also in its livestock outlook, ERS notes that despite evidence Porcine Epidemic Diarrhea virus (PEDV) is having an impact on the nation's hog inventory, USDA looks for pork production in 2014 to be up from last year.

The report states: "Although the December (Hogs & Pigs) report provides some evidence that PEDV may be affecting breeding herd efficiencies and contributing to lower market hog inventory numbers, the disease’s potential -- a very real one -- to reduce pork production in early 2014 is not significantly reflected in animal numbers reported in the December report. Moreover, other factors, such as producers’ farrowing intentions and sharply higher live weights, point to higher pork production in 2014... So, while estimated commercial slaughter numbers are expected to increase only fractionally in 2014, higher average dressed weights are expected to contribute to increases in pork production of just under 2% in 2014."

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