Evening Report (VIP) -- July 26, 2013

July 26, 2013 09:30 AM

NWS 6- TO 10-DAY FORECAST: HEAT MOVES INTO SOUTHERN CORN BELT... The National Weather Service (NWS) forecast for Aug. 1-5 calls for a continuation of normal to below-normal temps over the Upper Midwest, but a large bubble of above-normal temps now appears over Missouri, the southern half of Illinois, the southern third of Iowa, most of Nebraska and all of Kansas, along with the Southern Plains, the Mid-South and Delta. The precip outlook continues to call for normal to above-normal rainfall across the Corn Belt, with the heavier amounts in Minnesota, far northwestern Iowa and the Dakotas. Traders will keep a watch on subsequent forecasts to see if the heat bubble builds out of the South to cover more of the Corn Belt.



FOCUS RISES ON FATE OF OLD-CROP 'UNKNOWN' SOYBEAN EXPORT SALES... A pickup in farmer sales early this week and rumblings of export sales cancelations (by China) for the 2012-13 marketing year, which ends Aug. 31, prompted a significant selloff in the nearby August soybean futures this week.

USDA's Weekly Export Sales Report for the week ended July 18 showed outstanding sales of just 76,500 MT of soybeans to China for 2012-13 -- unchanged since the week ended July 4. The last listing of soybeans exported to China was from the week ended May 9. However, outstanding soybean sales to unknown destinations stood at 576,605 MT as of July 18.

So what will happen to these sales? Over the last five years, the level of outstanding sales to unknown destinations has shown a decline from levels at this point in the marketing year to Aug. 31 -- the end of the current marketing year. However, not all of these sales are canceled outright as a review of export sales data shows that a portion of these sales are often switched from unknown destinations to a known destination as the marketing year winds down, while other portions are canceled outright. But a portion of the business is often carried into the new marketing year. Over the last five years, an average of 178,860 MT of sales to unknown destinations has been carried into the new marketing year when the current marketing year ends. If the average of the last five years holds, it would appear that around 397,000 MT of 2012-13 soybean sales to unknown destinations will either be canceled or shifted to a known destination as the marketing year winds down.



ADDITIONAL PERSPECTIVE ON 45TH CRP GENERAL SIGNUP... Additional details are still awaited such as a state-by-state breakdown of acres to be enrolled in new Conservation Reserve Program (CRP) contracts Oct. 1 via the 45th general signup, but initial analysis of the activity shows some ongoing trends with the program.

CRP remains attractive: When crop prices rise, it typically spurs thoughts of acres exiting CRP to be brought back into row-crop production. However, recent general signup efforts have seen high percentages of land offered for new contracts coming from a pool of acres scheduled to exit the program.

Behind the data: Eighty-one percent of the 1.7 million acres accepted into the program -- 1.377 million acres -- were already under a CRP contract that was scheduled to expire Sept. 30, 2013. Contracts on a total of 3.302 million acres are scheduled to expire Sept. 30. Results of signup 45 should mean that less than 2 million acres -- 1.827 million -- will be exiting the program as of Sept. 30, 2013.

Acreage well below cap: Acres enrolled in CRP are limited to 32 million via U.S. farm law, but there are far fewer acres currently in the program. At the end of June, total CRP acreage stood at 26.929 million acres, of which 21.443 million were enrolled via general signup efforts and a total of 5.486 million acres were enrolled via various continuous CRP initiatives. If there are no additional enrollments and all the acres approved for enrollment end up in CRP, that would take the CRP tally to 25.1 million acres as of Oct. 1, just above the level the Senate has in their farm bill and above the 24 million acre level in the House farm bill.

USDA noted in announcing Signup 45 results that 370,000 acres had been offered for enrollment into the CRP via the continuous signup. That would suggest another roughly 310,000 or more acres will end up entering CRP via the continuous signup beyond the just over 58,000 acres enrolled that way since the authority was restarted in May.

Comments: It appears there will be little trouble in meeting the expected legislative cap on CRP acres that is part of both the House and Senate farm bills. And given the recent trend of hefty re-enrollment of acres into the program, it would appear USDA would have little trouble maintaining the CRP at whatever acreage limit Congress agrees upon as part of a new farm bill.



'SUGAR-FOR-ETHANOL' RULE PUBLISHED... The government published a rule today that would allow it to sell excess sugar at a loss to biofuels companies for the production of ethanol -- the so-called "sugar-for-ethanol" program. USDA says it can use the program "if needed as an additional tool to manage the domestic sugar supply." A sugar industry source told Reuters the government would probably implement the sugar-for-ethanol" actions in August or September if prices stay low.

As we reported earlier this week, USDA announced it would allow domestic sugarcane processors to solicit bids to sell sugar pledged as collateral for Commodity Credit Corporation loans in an effort to reduce domestic supplies and push prices higher. There's concern that if prices remain low, producers will forfeit the sugar to the government and keep the loan money.



INVESTOR INDEX SHOWS MODERATION IN FARMLAND VALUES... An index used by institutional investors to price the risk of farmland investments in the U.S. shows a decline in returns in the second quarter of 2013 compared to prior periods. The Farmland Index monitored by the National Council of Real Estate Investment Fiduciaries (NCREIF) consists of 547 investment-grade farm properties across the United States.

According to the index, total return for the second quarter of 2013 was 1.97%, comprised of 0.83% appreciation and 1.14% income return. "This was a significant drop from first quarter's 5.44% and the second lowest total return in the past eight quarters," the association states.
The 1.97% return is also below the 2.34% return from the second quarter of 2012 and the long-run second quarter average of 2.29%, but above the 1.48% return from second quarter of 2011. "The difference in the quarterly performance between 2012 and 2013 was mostly income," NCREIF states, "but the gap between 2013 and the long-term average was due to lower appreciation this quarter." The one-year total return is 20.03%.

The decline in return has not dimmed institutional investor interest in farmland ownership. Notes Christopher Jay, Chairman of the NCREIF Farmland Committee and Director of Financial Analysis with Prudential Agricultural Investments: "There continues to be strong interest from institutional investors as well as local farmers on property that comes up for sale."


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