Evening Report (VIP) -- May 8, 2013

May 8, 2013 10:14 AM
 

USDA TO RELEASE FIRST 'OFFICIAL' LOOK AT 2013-14 BALANCE SHEETS FRIDAY... USDA will offer its first "official" look at the 2013-14 balance sheets on Friday at 11:00 a.m. CT when it issues the May Supply & Demand Report. At the Outlook Forum in February, USDA projected 2013-14 corn carryover at 2.177 billion bu., wheat carryover at 639 million bu. and soybean carryover at 250 million bu. -- reflecting expectations of a big increase in corn and soybean stocks from the current marketing year.

Since then, USDA has released its Prospective Plantings Report and the corn planting pace is running historically slow, leading to expectations that corn carryover for 2013-14 will come in just under 2 billion bushels. The average pre-report guess for soybean carryover is at 239 million bu. and traders look for wheat carryover near 627 million bushels.

2013-14 carryover

Avg.

Range

in billion bushels

Corn

1.973

1.387-2.427

Soybeans

0.239

0.147-0.347

Wheat

0.627

0.486-0.726

 

Traders look for just fine-tuning of the 2012-13 balance sheets, with little change expected in carryover forecasts from last month.

2012-13 carryover

Avg.

Range

USDA April

2011-12

in billion bushels

Corn

0.754

0.684-0.802

0.757

0.989

Soybeans

0.124

0.107-0.130

0.125

0.169

Wheat

0.731

0.681-0.747

0.731

0.743

 

USDA will also deliver its first survey-based estimate of the winter wheat crop on Friday. Due to the poor condition of the HRW wheat crop, traders look for yield declines in the Central and Southern Plains to more than offset expectations for a larger crop in the SRW Wheat Belt to result in a total winter wheat crop about 170 million bu. smaller than last year.

2013 wheat production

Avg.

Range

USDA 2012

in billion bushels

All wheat

2.059

1.832-2.165

2.269

All winter

1.477

1.359-1.555

1.645

HRW

0.765

0.676-0.834

1.004

SRW

0.496

0.473-0.524

0.420

White winter

0.217

0.204-0.226

0.222

 

SOUTH AMERICA SHIPPING BEANS TO U.S... Soybean futures absorbed reports today that beans from South America are being shipped to the U.S. to offset tight supplies. A Reuters report citing trade sources with knowledge of the deals says at least three cargoes of soybeans from Brazil and Paraguay are headed to the U.S. shortly. Based on today's price action, traders aren't overly surprised U.S. end-users are importing some beans. USDA currently projects 2012-13 soybean imports to rise by 25% from the 2011-12 marketing year.

 

ETHANOL PRODUCTION SLOWS... For the week ending May 3, the Energy Information Administration reports ethanol production averaged 843,000 barrels per day (bpd), down 14,000 bpd from the previous week. Weekly production was also lower than the four-week average of 846,000 bpd. But ethanol stocks tightened by 1.1% from the previous week to 16.8 million barrels due to a slight increase in gasoline demand.

 

GREENREPORT REFLECTS STRESS ACROSS PLAINS... The Kansas Applied Remote Sensing (KARS) "GreenReport" reflects stressful vegetative conditions across the bulk of the Plains, with the most severe stress observed across South Dakota and central Nebraska. The eastern portions of Southern Plains have some smatterings of "good" vegetative health, but overall the map reflects what we know -- the condition of the HRW wheat crop is in very tough shape. Click here to view the map.

 

CME LIFTS FORCE MAJEURE ON ILLINOIS RIVER... Today CME Group lifted its force majeure declaration on Illinois River grain shipments. The exchange says while river conditions may still prevent loading at some terminals, shippers are now responsible for providing grain at alternative locations.

 

CHINA TO RAISE STATE CORN PURCHASE PRICE... Premier Li Keqiang said the Chinese government will raise the state-set purchasing price for corn in an effort to encourage producers to increase production. At a cabinet meeting, the premier said, "Maintaining the healthy development of the agricultural sector is an important safeguard for stabilizing economic growth and controlling inflation."

He also said the government will boost its pork stockpiling program to help stabilize prices and encourage producers to increase production.

 

SURE AND MILC PAYMENTS AND CRP SIGNUP RESUME... The suspension of processing payments under the Supplemental Revenue Assistance Payments (SURE) and Milk Income Loss Contract (MILC) programs has been lifted as of today. USDA has also now lifted its suspension on enrolling acres in the Conservation Reserve Program (CRP) under the continuous signup effort, which will restart May 13. SURE payments were halted as the sequester situation unfolded in March as USDA was contemplating reducing those payments. USDA instead opted to reduce direct payments by 8.5%. The sequester also effectively halted the payment process for MILC and the software to make program payments was taken offline March 1.

The continuous signup under the CRP program was not authorized for FY 2013 and USDA had limited activity under the program to only those adjustments that did not result in new outlays of funds. Some had speculated the lack of authorization was linked to a desire by USDA to see how many acres would be offered during the general signup this month, while others linked it to the sequester uncertainty. It now appears the latter was the case. Get more details about the restarted payments and CRP signup here.

 

PF MIDWEEK MARKETING GAME PLAN UPDATE...

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. For 2013-crop, hedgers and cash-only marketers have 10% of expected 2013-crop production sold via cash forward contract for harvest delivery. Be prepared to advance new-crop sales on a strong 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 technical posture remains bearish, but we'll lift the coverage if the downtrend is violated and November soybean futures push above the last reaction high.

WHEAT: Hedgers and cash-only marketers have 75% of 2012-crop sold in the cash market. For 2013-crop, there are signs of bottoming action and we continue to believe there will be a crop-scare rally at some point, though that now appears 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 futures at 83.87 cents. Stick with the hedge for now, but with bulls making a run at violating the downtrend from the March high, that coverage may need to be lifted.

CATTLE: Tightening supplies give us the confidence to keep all risk in the cash market for fed cattle producers. Plus, we aren't willing to hedge in a hole. Traders will remain comfortable with futures at a discount to the cash market until demand concerns ease. 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. Supplies are tightening seasonally and demand is improving. Plus, the technical picture is gradually strengthening.

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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