Evening Report (VIP) -- May 10, 2013

May 10, 2013 10:21 AM

PF REACTION TO MAY USDA REPORTS... USDA today updated its 2012-13 balance sheet for grain and soy markets and released its first 2013-14 supply and demand projections. These initial estimates show USDA expects a sharp rebound in new-crop corn and soybean carryover from current tight levels. USDA also released its initial winter wheat production forecasts for the season. Click here for a digest of today's Supply & Demand and Crop Production Reports from your Pro Farmer editors.



NWS 6- TO 10-DAY OUTLOOK: WARM, BUT WET... The National Weather Service (NWS) forecast for May 16-20 calls for above-normal temps over the entire Corn Belt except far northern and northwestern areas. But the outlook also calls for above-normal precip over virtually the entire region during the period. This forecast suggests planting delays will persist deep into this month -- or longer. View the maps.



10-YEAR CYCLE HIGH FOR CATTLE PUSHED INTO 2014?... USDA in its Supply & Demand Report today raised its 2013 beef production forecast by 214 million lbs. from last month and it trimmed its beef export forecast by 13 million lbs. from last month. USDA narrowed its 2013 average cash price projection from $125 to $132 in April to $126 to $131.

The S&D Report also featured USDA's first 2014 projections for cattle, which signals the cycle high may be pushed into next year. The text highlights noted, "Tighter cattle supplies and potential heifer retention during late 2013 and into 2014 are expected to limit cattle available for placement, thereby reducing fed cattle slaughter in 2014. Lower cow numbers and herd rebuilding will also limit non-fed beef production." USDA projects production in 2014 will decline just over 1 billion lbs. from 2013, while beef exports are expected to decline by 112 million pounds. It expects an average cash price of $128 to $138 for 2014.

USDA trimmed its 2013 pork production projection 23 million lbs. from last month, but it also cut its export projection by 177 million lbs. from last month. For 2014, USDA expects pork production to rise by 543 million lbs. from this year and for exports to rebound by 227 million pounds. USDA details, "pork production is forecast to increase more rapidly than in 2013 as lower forecast feed costs provide incentives for producers to expand farrowings and increase carcass weights from 2013 levels. USDA projects an average cash hog price of $56 to $60 per cwt. for both 2013 and 2014.



HOUSE FARM BILL DRAFT CUTS $40 BILLION... The House Ag Committee today released its farm bill draft for its tentative May 15 markup session. The bill would cut farm program spending $40 billion over 10 years, including $6 billion in sequestration cuts, $14 billion in combined commodity program (Title 1) and crop insurance cuts, $20 billion in SNAP (food stamp) cuts and $6 billion in reduced conservation spending. The Congressional Budget Office (CBO) will score the bill as saving $34 billion due to the sequestration cuts. This compares to 10-year savings of $23 billion in the Senate farm bill draft. The biggest difference between the two bills is on the Supplemental Nutrition Assistance Program (SNAP), as the Senate version saves $4 billion while the House bill saves $20 billion.

Also important, the House bill offers producers a choice between Revenue Loss Coverage (RLC) or Price Loss Coverage (PLC), with an optional Supplemental Coverage Option (SCO). Target price levels are considerably above those in the Senate bill, although the spread between the two proposed levels narrows for peanuts and rice. The bill would eliminate direct payments for all crops except cotton.

The House farm bill draft includes some key changes for the cotton program, with a scaled-based direct payment program for 2014 and 2015 (70% of base payment factor for 2014 crop; 60% for 2015 -- cotton direct payment rate would be 6.667 cents per lb.), to give USDA’s Risk Management Agency time to implement the new STAX program. Of note, the House cotton program language will no longer have a reference price, which is a bow to Brazil’s previous challenge of prior U.S. cotton policy.

The draft legislation also suggests there will be heated House-floor debates on dairy and sugar policy as well as crop insurance. Get more details.



SENATE FARM BILL SKEWED TOWARD CORN BELT GROWERS?... In the Senate bill, producers would not have to choose between the Adverse Market Payment (AMP) target-price-based payment and Ag Risk Coverage (ARC) -- the same acres could qualify for both programs. In the Senate bill, ARC moves to using a full market year price as opposed to the mid-season (five-month) price that was used in the 2012 version of the bill. This would save an estimated $3 billion to $4 billion from the previous version. However, the House bill maintains the five-month price calculation for both ARC and PLC, and payments (like the Senate) are paid in October. Under the House bill, farmers would at least know the payment calculation in advance, and could thus factor the expected payment into enterprise planning.

A quick analysis shows that under the Senate bill, 80% to 90% of Title 1 (safety net) spending is for ARC, which some say shows the Senate bill is skewed toward Midwest and northern Corn Belt states. The House farm bill appears to provide more balance and provides producers with the option approach between RLC and PLC. Learn more.


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