Evening Report (VIP) -- June 12, 2013

June 12, 2013 10:02 AM
 

NEGATIVE REACTION TO USDA REPORTS... Traders' reaction to USDA's June Supply & Demand and Crop Production Reports was negative. While new-crop corn, soybean and wheat futures posted double-digit losses, corn and soybeans worked off their daily lows into the close. Click here for Pro Farmer's report reaction.

 

ONLY MINOR CHANGES TO USDA LIVESTOCK PROJECTIONS... USDA made only minor changes to its livestock supply and demand projections in this morning's monthly report. USDA raised its 2013 beef production forecast slightly as "poor forage conditions have resulted in relatively large placements of cattle in feedlots in the first half of 2013 and cow slaughter remains high." Meanwhile, the 2013 pork production forecast was lowered based on slaughter data and a slight reduction in carcass weights.

USDA lowered its 2013 beef export forecast slightly from last month to reflect "relatively weak" trade data and left its 2013 pork export forecast unchanged. USDA once again lowered its 2013 cash cattle price projection by a dollar on both ends of the range to $125 to $130. USDA raised its 2013 cash hog price projection by a dollar on both ends of the range to $59 to $61 to reflect the impact tighter supplies are having on the cash market.

 

NWS 6-10 DAY FORECAST: WARMER, BUT WET IN EASTERN CORN BELT... The National Weather Service (NWS) forecast for June 18-22 calls for above-normal temps for the bulk of the Corn Belt and a mix of precip. Above-normal precip is forecast across the upper and eastern Corn Belt, with normal precip expected over most of Iowa and eastern Nebraska. Below-normal precip is expected in the western two-thirds of Nebraska southward.

 

ETHANOL PRODUCTION DECLINES MARGINALLY... For the week ended June 7, the Energy Information Administration reports ethanol production of 884,000 barrels per day (bpd) was down 1,000 bpd from the previous week for an annualized rate of 13.44 billion gallons. Ethanol stocks declined by 2.6% from the previous week to 16 million barrels.

 

CROP SCOUTS FRUSTRATED BY SPRING WEATHER TROUBLES... We have digested crop comments from present and past Pro Farmer Crop Tour scouts. Our reporters from Iowa, Minnesota and Nebraska have had a tough spring, while our scout in Illinois had more favorable conditions, but still reports crop maturity is lagging. Click here to read the comments. Send us an email with your location and comments to be added.

 

BOEHNER WILL BACK FARM BILL... House Speaker John Boehner (R-Ohio) told said today he will vote for the farm bill, even though he does not like everything that's in it. Boehner's support comes as GOP leaders whip to see how many votes are possible in favor of the farm bill. His support, sources say, will likely bring some additional GOP members to the approval column. Boehner did not reveal when the farm bill would come up for floor debate. One source told us the bill should be voted on "by the July Fourth recess." Get more details.

 

PF MIDWEEK MARKETING GAME PLAN UPDATE...

CORN: Hedgers are 100% sold in the cash market, with cash-only marketers 75% priced on 2012-crop. We are holding remaining old-crop supplies as gambling stocks in case new-crop supply concerns build this summer. If July corn futures push above tough resistance at $6.76, we look for a rally to at least $7.20 that would be a selling opportunity. For 2013-crop, hedgers and cash-only marketers have 10% of expected 2013-crop production sold via cash forward contract for harvest delivery. The technical posture is neutral to slightly negative, but given the new-crop uncertainty, we feel there will be a better selling opportunity on a weather rally at some point during the growing season.

BEANS: Hedgers are 100% sold in the cash market, with cash-only marketers 90% priced on 2012-crop. Cash-only marketers should hold the remaining 10% as gambling stocks. For 2013-crop, hedgers and cash-only marketers have 20% of expected 2013-crop production sold via cash forward contract for harvest delivery. Hedgers also have 50% of expected 2013-crop hedged in November soybeans at $12.19. If November futures push above the recent highs, we'll lift the hedge and make cash sales to capture the price strength. We'd then wait until the market shows topping action before reentering hedge coverage. As a price-enhancing move, we may eventually sell call options against the hedge to recapture some of the losses on that position, but we'd need to see solid proof of a top before considering such a move.

WHEAT: You should be 100% sold on old-crop in the cash market as the 2012-13 marketing year is complete. For 2013-crop, the upside is limited for wheat futures with harvest underway, but we're willing to wait out an overdue corrective rebound before making sales.

COTTON: Hedgers are 100% sold on 2012-crop in the cash market, with cash-only marketers 85% sold on old-crop. 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. While recent price action has been more bullish and the hedge is currently a losing position, we are willing to hold onto it as the price is still attractive.

CATTLE: Demand concerns continue to hang over the live cattle market. But tight supplies limit downside risk. Fed cattle producers should continue to carry all risk in the cash market. Feeder cattle buyers should also continue to carry risk in the cash market until there are clear indications of a low.

HOGS: Recent price action has been very bullish. But we feel the market may soon run out of steam as the upside is getting overdone. Be prepared to add at least light hedge coverage for second-half marketings on topping signs in hog futures.

FEED: Continue to carry all feed risk in the cash market. Soymeal futures are at levels we don't want to lock in for an extended period. For corn, it would take a breakout above tough resistance at $6.76 in July futures to extend coverage beyond hand-to-mouth.

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