Evening Report (VIP) -- July 10, 2013

July 10, 2013 10:00 AM
 

MARTELL: LONG-RANGE FORECAST THREATENING... Meteorologist Gail Martell of MartellCropProjections.com says a large stable heat dome is expected to move into the central U.S. next week, which is threatening to crop development. "The next extended range forecast for mid-July, includes more heat and dryness in the U.S. heartland," she says.

 

BEEF EXPORTS CLIMB; PORK EXPORTS SOFTEN IN MAY... According to data from USDA that was compiled by the U.S. Meat Export Federation (USMEF), beef exports were 3% higher in volume in May and up 9% in terms of value, while pork exports dipped 3% in volume and dropped 3.6% in value. USMEF says the inability to ship beef and pork to Russia continues to put a damper on red meat exports.

U.S. beef exports in May of 97.82 MMT were valued at $513.6 million. For January through May, export volume dipped 3% to 440,840 MT and was valued at $2.26 billion, a 3% increase over last year's record-setting pace. Total pork exports of 180,637 MT were valued at $505.4 million in May. For the first five months of the year, exports were down 9% from year-ago to 882,905 MT and were valued at $2.47 billion, down 8%. Click here for more.

 

WEEKLY ETHANOL PRODUCTION RISES... According to the Energy Information Administration, ethanol production the week ended July 5 of 881,000 barrels per day (bpd) was up 18,000 bpd from the previous week. Ethanol stocks of 15.7 million barrels rose 274,0000 barrels from the previous week. Gasoline demand averaged 390.6 million gallons a day -- the highest since August 2012.

 

TREASURY DEPT RESPONDS ON SMITHFIELD LETTER... The Department of the Treasury yesterday responded to a letter sent in June by Senate Ag Committee Chair Debbie Stabenow (D-Mich.) and a bipartisan group of senators just ahead of a hearing with the Senate Ag Committee members on the proposed purchase of Smithfield Foods by Shanghui International, a Chinese food company. The senators' letter encouraged the Committee on Foreign Investment in the U.S. (CFIUS) and the Treasury Secretary to include USDA and the Food and Drug Administration in the oversight process so that the oversight process includes food supply and food safety experts. It also expressed "broader questions about how these transactions are reviewed and whether the appropriate authorities are evaluating potential risks and proposing sufficient mitigation measures to protect American interests."

Yesterday's response from the Department of the Treasury noted the CFIUS by law "may review only mergers acquisitions and takeovers that could result in foreign control of a U.S. business. Importantly, CFIUS reviews focus exclusively on national security concerns." The letter continues to explain that due to the sensitivity of national security matters, "confidentiality is critical to the effective functioning of the CFIUS process" as well as to foreign investors and their U.S. partners. In light of this, the Treasury Department says it has consistently declined to comment on transactions that may be reviewed by CFIUS. The letter cited former Treasury Secretary Paulson who explained to Congress, "CFIUS should be required to promptly notify Congress of transactions, but only after all deliberative action is concluded."

 

STILL COUNTING FARM BILL VOTES... House Republican leaders are continuing their efforts to determine if they can find the 218 votes needed to pass an ag-only farm bill in the House. One piece of evidence that there still wasn't enough support for the ag-only bill came from Rep. Tom Latham (R-Iowa) who is a close ally of House Speaker John Boehner (R-Ohio). "I am not going to say yes or no," Latham told CQ Roll Call. "This is historic, taking the [farm bill] apart." He noted that once it has been split into two separate packages, "I think it would be hard to put it back together."

The evidence that the votes have yet to be found was accented by the fact the House Rules Committee adjourned Tuesday evening without posting the text of a new bill or scheduling a debate on a rule for the bill. However, Rules panel Chairman Pete Sessions (R-Texas) left the door open to considering a farm bill yet this week.

One key that House Ag Committee Ranking Member Collin Peterson (D-Minn.) is signaling is that if the amendment from Rep. Steve Southerland (R-Fla.) and Majority Eric Cantor (R-Va.) on SNAP/food stamps is removed from the bill, there would be the votes for the overall farm bill that the chamber rejected last month.

The House farm bill situation remains very fluid and House Speaker Boehner told Republican colleagues "wants the farm bill up and out of the House" by August. The keys to watch are the House Rules Committee as Republican leaders will not bring a bill to the House floor that faces defeat. And if they can't find the votes, the Rules panel will not take the matter up. Learn more.

 

POTENTIAL CHANGES FOR FARM BILL... There has also been talk the 1949 Act or "permanent law" may be removed from the House farm bill package. Some expressed concern at that situation, noting it would remove the reason for lawmakers to do another farm bill. But sources say that if the current permanent law is removed from the bill, what would take its place would be whatever the current provisions in the commodity title of the bill. Also of note, Rep. Marlin Stutzman (R-Ind.) told a Heritage Foundation blogger gathering Tuesday that reform of SNAP if the farm bill were split apart could come as a larger anti-poverty plan that Southerland and Republican Study Committee Chairman Steve Scalise (R-La.) are compiling. "For us to make the reforms in the food stamp program, it has to stand alone," Stutzman said. "We could come back with a stronger bill that makes more reforms, more cuts in the food stamp program immediately."

 

PF MIDWEEK MARKETING GAME PLAN UPDATE...

CORN: Hedgers and cash-only marketers are 100% sold in the cash market for 2012-crop. For 2013-crop, hedgers and cash-only marketers have 25% of expected 2013-crop production sold via cash forward contract for harvest delivery. December corn futures ran out of sellers below $5.00, but to spark a sustained rally, it will take weather/crop concerns, end-user buying and fund buying. We still feel price strength must be sold, especially if futures get back to the $5.75 area.

BEANS: Hedgers and cash-only marketers are 100% sold in the cash market for 2012-crop. For 2013-crop, hedgers and cash-only marketers have 20% of expected 2013-crop production sold via cash forward contract for harvest delivery. Be prepared to advance new-crop sales on a challenge of the June high in November soybean futures. A push through that level would open upside potential to the $13.50 level.

WHEAT: Wheat futures are working on a seasonal low, but we don't feel the market has enough support to lead a price rally. With that said, wheat will willingly follow if corn or soybeans lead the way. Be prepared to advance new-crop sales on an extended rally. We need confirmation of a low before we look to reown a portion of new-crop sales for hedgers. Otherwise, we are still looking to advance cash sales on periods of price strength.

COTTON: Hedgers are 100% sold on 2012-crop in the cash market, with cash-only marketers 85% sold on old-crop. Cash-only marketers should be prepared to finish old-crop sales on the next price bounce as the 2012-13 marketing year is coming to an end. For 2013-crop, hedgers and cash-only marketers have 50% of expected production sold via cash forward contract for harvest delivery. Hedgers also have 50% of expected production hedged in December cotton at 83.87 cents. We are willing to maintain that coverage as that's still an attractive price.

CATTLE: Attitudes are improving in the cattle market and there seems to be a rotation of money in the livestock sector from long hogs to long cattle. Until the boxed beef and cash cattle markets put in short-term lows, buying interest will be limited. Fed cattle producers should continue to carry all risk in the cash market. Feeder cattle buyers should be prepared to add long coverage as the market is signaling a low is in place and tight calf supplies point to higher prices. Our concern is the big premium futures already hold to the cash index.

HOGS: Hog producers have 50% of expected 3rd-qtr. production is hedged in Aug. lean hog futures at an average price of $97.67 1/2 and 25% of expected 4th-qtr. production is hedged in Dec. lean hog futures at an average price of $82.12 1/2. Be prepared to heavy up that coverage on an upside push or signs a major top is in place.

FEED: Continue to carry corn-for-feed risk in the cash market for now. We don't want to chase the soybean meal market higher, but recent price action signals traders are showing greater concern about supply prospects.

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