WEEKLY ETHANOL PRODUCTION DECLINES, STOCKS RISE... According to data from the Energy Information Administration, ethanol production for the week ended July 19 declined by 23,000 barrels per day (bpd) to 853,000 bpd. The four-week average for ethanol production stood at 868,000 bpd for an annualized rate of 13.31 billion gallons.
Despite the lower output and an increase in imports, ethanol stocks rose 679,000 barrels to 17.26 million barrels.
MORE BRAZILIAN IMPORTS OF U.S. WHEAT MAY BE NECESSARY... Brazil's wheat crop has been hit by multiple frosts this week, including wheat in the country's key production state of Parana. And more frost is possible in the state tomorrow. Therefore, Brazil may have to expand its 2-MMT wheat import quota for North America, according to Reuters. Traders say this quota has already been exhausted. A Brazilian ag ministry official today said it is monitoring the situation, but thus far the ministry has not made a decision to expand its import quota. Brazil typically sources its needs from Argentina, but a poor crop in that country along with export restrictions has forced Brazil to seek out alternative sources of wheat.
INDEMNITIES ON 2013 CROPS ALREADY OVER $1 BILLION... Indemnities on 2013 crop losses already have reached $1.173 billion as of July 22 under the federal crop insurance program, more than double the pace seen at this point last year as 2012 payouts worked their way to a new record, according to the Risk Management Agency (RMA). Data shows that there are 178.761 million net acres insured, behind the year-ago pace of 206.113 million and the total acreage thus far for 2012 of 282.766 million net acres insured. Payouts at this point a year ago were at $547.147 million.
As for 2012-crop data, there is actually a decline in indemnities, a typical development as policies, claims and other data are reconciled in the RMA system. Payouts are now put at $17.371 billion as of July 22, down slightly from $17.384 billion reported for the week ended July 15. The decrease in payouts also lowered the loss ratio to 1.56, leaving it still as the first year since 2002 that the program has seen a loss ratio of 1.0 or greater. Get more details.
CFIUS TO CONDUCT A SECOND-PHASE REVIEW OF SMITHFIELD-SHUANGHUI INTERNATIONAL DEAL... Smithfield Foods Inc. today announced that the Committee on Foreign Investment in the United States (CFIUS) has notified the parties that it will conduct a second-phase, 45-day review of the proposed Smithfield-Shuanghui International transaction. CFIUS is responsible for reviewing foreign acquisitions of U.S. companies for potential national security concerns. The committee decided to exercise the option to extend the process for a maximum of 45 additional days at the conclusion of its 30-day review. The CFIUS process is confidential and Smithfield and Shuanghui International do not intend to comment further on that process while it is ongoing. Smithfield and Shuanghui International still expect the transaction to close in the second half of 2013. Learn more.
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 contracts for harvest delivery. December corn futures are weakening and more near-term pressure appears likely as weather is deemed as favorable. As a result, we may add hedge coverage to trim downside risk for hedgers.
BEANS: Hedgers and cash-only marketers are 100% sold in the cash market for 2012-crop. With old-crop basis dropping sharply, you should be current. 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. But we may also add hedge coverage if November soybean futures violate the early July low as that would open downside risk to the April low.
WHEAT: Wheat futures are trying to put in a low, but we don't feel the market has enough support to lead a price rally. The demand side of the wheat market is perking up, but the U.S. isn't getting much of the business. Be prepared to advance new-crop sales on an extended price recovery rally. If corn futures continue to slide, we may add hedges to trim downside risk.
COTTON: Hedgers are 100% sold on 2012-crop in the cash market, with cash-only marketers 85% sold on old-crop. With the 2012-13 marketing year down to the last week, we'll finish old-crop sales for cash-only marketers on an up day. 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'll maintain this hedge coverage unless there's a shift in market fundamentals that dramatically changes the price outlook.
CATTLE: Fed cattle producers should keep all risk in the cash market as the cash cattle market should start to firm seasonally once the boxed beef market finds a bottom. We are close to adding long coverage for feeder cattle buyers as futures are signaling a technical low is in place and tight calf supplies point to higher prices. Our primary concern remains the big premium futures already hold to the cash index.
HOGS: Hog producers have 50% of expected 4th-qtr. production hedged in Dec. lean hog futures at an average price of $82.12 1/2. Once the current corrective rally has run its course, we'll look to rehedge a portion of 3rd-qtr. production in Oct. lean hog futures. We'll also look to extend hedge coverage into the first quarter of next year.
FEED: Continue to carry corn-for-feed risk in the cash market for now as prices are sliding. We don't want to chase the soybean meal market higher at current price levels. We'll wait on an extended pullback to extend soybean meal coverage.