Evening Report (VIP) -- March 8, 2013

March 8, 2013 08:54 AM

PF REACTION TO USDA'S MARCH S&D REPORT... USDA updated its balance sheets today, and while none of the adjustments were major, reactions to the data emphasize the importance of pre-report expectations. USDA left both its corn and soybean carryover estimates unchanged from last month at 632 million bu. and 125 million bu., respectively. This sparked a bullish reaction in corn and a bearish reaction in soybeans; traders had expected USDA to raise its soybean export forecast and to cut carryover. As expected, USDA raised its wheat carryover estimate by 25 million bu. due to a cut to estimated exports. USDA cut its cotton carryover estimate by 300,000 bales to 4.2 million bales due to an increase in estimated exports and unaccounted use. Get more details here.



USDA TRIMS BEEF & PORK EXPORT FORECASTS... In its Supply & Demand Report today, USDA trimmed its red meat production forecast by 34 million lbs., as an increase in expected beef production was more than offset by a reduction in pork production.

USDA raised its 2013 beef production forecast by 15 million lbs. from February due to higher carcass weights and an increase in cow slaughter. It also lowered its 2013 beef export projection by 10 million lbs. from last month as a pickup in Japanese beef buys following the easing of import restrictions has been slower than anticipated. Thus, USDA lowered its average steer price projection for 2013 from $129.50 last month to $128.50.

USDA also made some adjustments to its balance sheet for hogs. It cut its pork export forecast by 90 million lbs., though it also lowered its 2013 pork production forecast by 50 million pounds. USDA made no changes to its estimated cash hog price forecast, however.



ARGENTINA WARNS OF BARLEY EXPORT CURBS... The latest sign the Argentine government is pushing producers toward wheat production is a warning from the country's domestic commerce secretary that more growth in barely farming at the expense of wheat would not be tolerated and that this would lead to increased export taxes and export curbs for barley. Farmers have been switching to barely production as a way to skirt government control over corn and wheat exports, which they say are taking a big bite out of profits. Barley is not currently subject to such export controls. Thus, barley production has soared at the expense of wheat. Wheat production is forecast to decline 4.7 MMT to 9.4 MMT for 2012-13.

As we reported earlier this week, the Argentine government announced it would allow 5 MMT of wheat exports in 2013-14. This was much earlier than export allotments have been announced in the past, with the government hoping that giving producers extra time to plan before finalizing 2013-14 planting plans will lead to more acres being seeded to wheat.



DOW HITS A NOMINAL HIGH... The Dow Jones Industrial Average reached a new nominal high this week, taking out the October 2007 record. However, the Dow is still roughly 11% below the all-time high from 2000 and around 9% below the 2007 peak, when taking inflation into account. But conditions are much different than they were in 2007. At that time, everything was very rosy (though the country was unknowingly in the beginning stages of a major recession). In contrast, the stock market is currently climbing a "wall of worry." Other major differences now relative to 2007 include:

  • Gas prices are $1 per gallon higher
  • Unemployment rate is double what it was then
  • The Fed balance sheet is 3.5 times larger
  • Consumer confidence is down 30%
  • GDP is 0.9% lower
  • The U.S. deficit is 10 times greater

The Dow's ability to move to a new high despite all the negatives signals the stock market is viewed as the best value investment, suggesting there's more upside potential if economic disaster is averted.



STRONG JOBS DATA SPARKS FED POLICY SPECULATION... A 236,000-increase in non-farm payrolls for February came in well above expectations for 160,000 jobs to be added. This helped the jobless rate to decline 0.2 percentage points to 7.7% for February -- the lowest unemployment rate since December 2008. The increase came from the addition of 26,000 jobs in the private sector, that was somewhat offset by the loss of 10,000 jobs in the government sector. The report also included a 38,000 downside revision to the January number to 119,000 jobs added, while December was revised up by 23,000 to 219,000 jobs added.

The number of unemployed persons edged lower in February to 12 million and the number of long-term unemployed (those jobless for 27 weeks or more) was about unchanged at 4.8 million, or 40.2% of the unemployed. The employment-population ratio held at 58.6% in February. The average workweek for all employees on private non-farm payrolls edged up by 0.1 hour to 34.5 hours, while average hourly earnings rose 4 cents to $23.82.

The dollar shot higher in reaction to this bullish employment data, as this sparked questions about whether this will cause the Federal Reserve to shift its stimulus approach. So far, that answer is likely "no." While the decline in the unemployment rate was slightly greater than expected, the figure is still well above the Fed's target of 6.5% or under. However, it will spawn more talk in the market ahead of the Federal Open Market Committee meeting on the timing of any Fed tempering of stimulus efforts. If the U.S. dollar continues its recent rally, it could draw more investment dollars out of commodities and would make U.S. raw materials less competitive on the global market. Get more details.


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