Evening Report (VIP) -- May 15, 2013

May 15, 2013 10:04 AM

FARM BILL TIMELINE UPDATE... The Senate farm bill will likely be brought up next week for debate and final approval. Senate Ag committee Chairwoman Debbie Stabenow (D-Mich.) has said floor amendments to the bill will likely need at least 60 votes for passage, which could limit the number offered.

Meanwhile, House Ag Committee markup should be completed today. Some 101 amendments to the farm bill were offered, with around 25% of them included as part of an en bloc amendment for the bill. A Republican conference took place at 2:00 p.m. CT today, and at 4:00 p.m. CT there will be a series of votes on the House floor. House Ag Chairman Frank Lucas (R-Okla.) today told panel members they would reconvene at 5:30 p.m. CT and said the panel would take as long as necessary to complete the farm bill markup.


LIKELY ISSUES IN HOUSE AG PANEL MARKUP... The most extensive debate so far during the markup session came on an amendment that would have removed the $20-billion reduction in SNAP funding from the bill. Impassioned remarks were heard on both sides of the issue with the debate taking many winding and twisting turns over the course of more than an hour before the vote. The measure failed on a 17-27 vote.

An effort by Representative Bob Goodlatte (R-Va.) to alter supply management language in the proposed Dairy Security Act did not have enough votes for passage, but the issue will likely be part of another attempt on the House floor. Efforts will also be made both in committee and during the likely June House floor debate regarding increasing food stamp funding cuts. The existing U.S. sugar program may also generate some amendments to alter it, but the program is expected to remain intact. Representative Austin Scott (D-Ga.) will likely propose repealing country-of-origin labeling. A similar amendment was withdrawn during Senate Ag Committee markup yesterday.

An amendment is expected to be approved that would bar states such as California from imposing production standards on out-of-state farms. The language is aimed at protecting egg producers from having to increase cage sizes due to standards being imposed in several states. The amendment is seen as an alternative to an approach pushed by the United Egg Producers setting national cage standards, but is strongly opposed by hog and cattle groups. Senator Stabenow backed off an earlier attempt to include the cage standards in the Senate farm bill after she and her staff realized it was causing vote problems. On Tuesday, Stabenow said the amendment would not be considered germane on the Senate floor, even though cage standards are likely to be an amendment topic on the House floor.


CRP CONTAINS NEARLY 27 MILLION ACRES; NEW FARM BILL WILL LIKELY TRIM ACRES... Some 26.999 million acres of ground were enrolled in the Conservation Reserve Program (CRP) at the end of April, as work on the new farm bill commences in the House and Senate Ag Committees. Both panels will seek to reduce the level of acreage allowed in the program from the current maximum of 32 million acres. The House version of the bill would trim maximum CRP acres to 24 million by 2017; the Senate plan would reduce the acreage cap to 25 million by the end of the bill.

Of the 26.999 million acres in the program at the end of April, 21.506 million were enrolled via general signups and 5.493 million were enrolled via continuous signup efforts. But no new acres have been enrolled via the continuous signup so far this fiscal year as USDA did not authorize new enrollments via this route until May 13. USDA reminded growers of a May 20-June 14 general signup in a press release yesterday.

For FY 2012, USDA said that a total of 627,000 acres were enrolled via the continuous signup -- 334,000 re-enrolled acres and 293,000 "new" acres. That level of re-enrollment interest tracks relatively closely with the general signups held the past three to four years, which have seen more than 50% of acres enrolled in the general signup process being land that had been under a CRP contract previously. Historical patterns suggest that around 1.7 million acres or more of maturing CRP contracts this fall will be offered for re-enrollment in the program during the May 20-June 14 general signup.

CRP remains one of the most popular conservation programs operated by USDA, something reflected by the fact that 50% or more of the acres enrolled in general and continuous signups in recent years have been acres that had already been under a CRP contract. Efforts to lower the maximum acre cap for the program are coming about as lawmakers seek to produce farm bill savings. The net result will be a program that is even more focused on environmentally sensitive lands, a transformation that has been taking place in the program over the past decade. Get more details.



CORN: Hedgers are 100% sold in the cash market, with cash-only marketers 75% priced on 2012-crop. Cash-only marketers should be prepared to trim old-crop stocks if basis sharply weakens and/or futures violate support at the April low. Otherwise, continue to hold old-crop inventories as gambling stocks in case there's a weather market this summer. For 2013-crop, hedgers and cash-only marketers have 10% of expected 2013-crop production sold via cash forward contract for harvest delivery. We are not overly comfortable with sales at this level. Therefore, be prepared to advance new-crop sales on a corrective price recovery. Hedge coverage may be added if support at the April low falters.

BEANS: Hedgers are 100% sold in the cash market, with cash-only marketers 75% priced on 2012-crop. Cash-only marketers must continue to hold some old-crop in the bin given tight supplies and the strong cash market. But be prepared to trim old-crop inventories if futures return to the top of the extended, choppy range. For 2013-crop, hedgers and cash-only marketers have 10% of expected 2013-crop production sold via cash forward contract for harvest delivery. Hedgers also have 50% of expected production hedged in November soybean futures at $12.19. Stick with the hedge for now as the downtrend remains in place, but be prepared to lift the coverage if November soybean futures push above the downtrend and last reaction high to signal a low is in place.

WHEAT: Hedgers and cash-only marketers have 75% of 2012-crop sold in the cash market. The end of the 2012-13 marketing year is quickly approaching, so we need to move remaining old-crop bushels soon. For 2013-crop, we continue to believe there will be a crop-scare rally at some point, though that's unlikely prior to harvest. Be prepared to make aggressive sales on a strong price rally.

COTTON: Hedgers are 100% sold on 2012-crop in the cash market, with cash-only marketers 85% sold on old-crop. Hedgers and cash-only marketers have 50% of expected 2013-crop production sold via cash forward contract for harvest delivery. Hedgers also have 50% of expected production hedged in December cotton at 83.87 cents. Stick with the hedge for now as new-crop futures are struggling to break out above the downtrend from the March high. But be ready to lift the hedge if there are clear signs of a low.

CATTLE: With futures well below the cash market, we aren't willing to hedge in a hole. But with that said, traders will remain comfortable with futures at a discount to the cash market until demand concerns ease, even with tight market-ready supplies. Feeder cattle buyers should also continue to carry risk in the cash market until there are clear indications of a low.

HOGS: Hog producers should carry all risk in the cash market for now as supplies are tightening seasonally and demand is improving. Plus, summer-month futures are working on a potential upside breakout from the extended, choppy range.

FEED: Continue to carry all corn-for-feed and soybean meal risk in the cash market for now as there are now signs of a major low. A sharp price break would be a "value" buying opportunity.

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