Evening Report (VIP) -- March 26, 2014

March 26, 2014 10:07 AM
Finally, rain falling in the Plains... Wheat futures reacted negatively to much-needed rains moving across the Central and Southern Plains, as nearby HRW futures posted losses of 18 to 20 cents today. Meteorologist Gail Martell of MartellCropProjections.com says weather models suggest up to 0.50 inch of rain is expected across the heart of the HRW wheat belt over the next 48 hours, with north-central Kansas is in line for up to an inch of rain. We also talked to World Weather, Inc. Meteorologist Drew Lerner this week, and while he expects a less drought-prone weather pattern for the HRW wheat belt through the growing season, the area is still at risk of being warmer and drier than usual. He's also keeping an eye on what happens in this area, as he says if drought in the region is not relieved, it raises the risk of less desirable weather for a larger portion of the western Corn Belt this summer. Senate strips IMF changes from Ukraine aid bill... Yesterday, Senate Majority Leader Harry Reid (D-Nev.) announced that Democrats in the chamber will drop their demands for changes to the International Monetary Fund (IMF) included in legislation to aid Ukraine and increase pressure on Russia. This had been a major holdup to forward progress on the measure. The Senate measure includes $1 billion in loan guarantees to Ukraine and it would increase sanctions on some Russian officials and human rights violators. Both the House and Senate are expected to vote on their versions of the aid bill tomorrow, but it remains unclear whether the eventual final bill will be sent to the White House before week's end. Brazil and Paraguay increase safrinha soybean acreage significantly... Pro Farmer Crop Consultant Dr. Michael Cordonnier says reports from Brazil and Paraguay signal producers are planning (or have planted) a significant increase in safrinha soybean acres compared to previous years to take advantage of strong soybean prices and relatively weak corn prices. However, he reminds that most crop specialists advise against this due to the increased risk of insect and disease pressure. Dr. Cordonnier says the Brazilian Institute of Geography and Statistics is reporting that 745,000 hectares of safrinha soybeans have been planted. "If confirmed, this would represent a six-fold increase in safrinha soybean acreage over the last growing season," he says. "If these soybeans yield 29 bu. per acre, which is two-thirds of the full-season soybeans, then the safrinha soybean crop would be approximately 1.5 MMT." In Paraguay, Dr. Cordonnier says it is estimated that farmers planted 550,000 hectares of safrinha soybeans -- more than double last year's acreage and five-times that of two years ago. If realized, this would imply a crop of around 1 MMT, he says. Ethanol stocks rise for first time in weeks... According to information from the Energy Information Administration, ethanol stocks rose for the first time in five weeks. The report shows that stocks rebounded to about 15.7 million barrels, an increase from 15.3 million barrels the previous week. For the week ended March 14, ethanol production of 885,000 barrels per day (bpd) was down 6,000 bpd from the previous week. Crop insurance indemnities reach $11.473 billion for 2013 crops... Crop insurance indemnities have pushed to $11.473 billion for 2013 crops with the loss ratio at 0.98, according to Risk Management Agency (RMA) data for the week ended March 24. The loss ratio of 0.98, however, is still behind the 2012 crop mark of 1.57 but ahead of the 2011 crop loss ratio of 0.91. The loss ratio is calculated by comparing the total indemnities against total premiums paid into the program. Corn payouts are nearing $5.45 billion, accounting for nearly 48% of the total indemnities for 2013 crops. Corn accounts for more than 28% percent of net acres insured with soybeans next at nearly 23% and pasture and rangeland at just over 18% and wheat at just over 16%. Click here for details about coverage levels and premium subsidies involved with 2014 crops. Crop insurance remains in the crosshairs... The focus on the crop insurance program will remain high, with some lawmakers and others focusing intently on the costs for the program and how many dollars have flowed to producers in terms of the premium subsidies. In addition, the focus is also on how many improper payments were made, with that percentage for crop insurance put at 5.2%. Some Democratic lawmakers, in particular, continue to cite that percentage figure as running higher than the same percentage for the Supplemental Nutrition Assistance Program (SNAP) of 3.4%. But House Ag Appropriations Subcommittee Chairman Robert Aderholt (R-Ala.) responded by pointing out the 3.4% error rate in SNAP amounts to $2.6 billion, while the 5.2% error rate in crop insurance amounts to $566 million. Vilsack: COOL decision expected by June... USDA Secretary Tom Vilsack expects to find out in June how the World Trade Organization (WTO) will rule on USDA's final country-of-origin meat labeling (COOL) requirements. The formal notice would likely come in July, he told the Senate Agriculture Appropriations Subcommittee today. While Vilsack was not specific on the dates, trade source previously indicated a WTO panel is expected to a deliver a confidential interim report in the case to the Canadian and Mexican governments June 20, with a final report due July 22. Vilsack said there is no fallback plan if the WTO decides that new regulations imposed last year violate international rules. USDA implemented the new regulations after an earlier WTO ruling. PF midweek marketing game plan update... Corn: Hedgers have 70% of 2013-crop production sold in the cash market, while cash-only marketers are 60% priced on old-crop. Hedgers and cash-only marketers have 30% of expected 2014-crop production sold via cash forward contract for harvest delivery. We recommend getting current with those sales levels ahead of USDA's reports next Monday, but we aren't willing to push sales at this time. If you want additional downside protection ahead of Monday's reports, buy puts as insurance. From a longer-term perspective, a downside breakout from the short-term trading range would be incentive to increase old- and new-crop sales. An upside breakout would be an opportunity to potentially reown a portion of old-crop sales. For new-crop we are still looking to sell strength. Soybeans: Hedgers are 100% sold on 2013-crop production in the cash market, while cash-only marketers are 90% sold on old-crop. Hedgers and cash-only marketers have 25% of expected 2014-crop production sold via cash forward contract for harvest delivery. We recommend getting current with those sales levels ahead of USDA's reports next Monday. On a pullback to the $13.60 area in July soybean futures, we may recommend reowning a portion of old-crop sales for hedgers. An upside breakout above $12.00 in November soybean futures would eventually be an opportunity to increase new-crop sales. We still believe price strength must be used as a selling opportunity for new-crop. Wheat: Hedgers are 100% sold in the cash market on 2013-crop production, while cash-only marketers are 90% sold. Hedgers and cash-only marketers are 50% forward priced on expected 2014-crop production. Use price strength to get current with that advice. We'll wait on a sign buying is exhausted before increasing new-crop coverage given concerns with the U.S. HRW wheat crop and heightened political tensions in the Black Sea region. Cotton: Hedgers and cash-only marketers have 75% of 2013-crop production sold in the cash market and 25% of expected 2014-crop production sold via forward contract for harvest delivery. Get current with those sales levels and be prepared to increase marketings. The broadening pattern/increased volatility is a potential topping signal. Cattle: Fed cattle producers are effectively hedged on 1st-qtr. and 50% of 2nd-qtr. marketings at $144.20 in April live cattle futures. In addition, you hold April $136.00 put options that were purchased for $1.325 covering 1st-qtr. and 50% of 2nd-qtr. marketings. Stick with these positions for now. Hogs: Hog producers have 50% of 2nd-qtr. and 50% of 3rd-qtr. marketings hedged in $126 June lean hog put options that were purchased for $3.90. That puts a floor on these marketings at $122.10. Hold those puts as insurance against a potentially very steep correction. Don't be surprised to see another push to the upside, however. Be prepared to extend coverage on another strong push to the upside. Feed: All corn-for-feed and meal risk is carried in the cash market. We aren't willing to chase the market higher by locking in current prices, but would use a corrective pullback to lock in some coverage.

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