Evening Report (VIP) -- November 13, 2013

November 13, 2013 09:02 AM


U.S. CROP INSURANCE INDEMNITIES PASS $5.5 BILLION FOR 2013 CROPS... Indemnities for 2013 crops have reached $5.517 billion as of Nov. 11, moving the loss ratio for the year up to 0.47, according to Risk Management Agency (RMA) data. Wheat payouts remain the largest component so far at $2.094 billion or nearly 38% of total payouts to date. However, indemnities for corn continue to edge higher and are likely to start increasing more rapidly as harvest advances.

Corn and wheat remain the only two major crops with more than $1 billion in indemnities so far for the 2013 crop year, with cotton approaching $700 million and soybeans at $435 million. Cotton, rice and wheat are the only three major commodities to have a loss ratio greater than 1.0 (more indemnities have been paid out than total premiums paid in).

Indemnities for 2013 crops continue to run ahead of those registered at this point a year ago for 2012 -- $5.5 billion for 2013 versus $5.004 billion for 2012 at this point last year. But the 2012 indemnities started increasing more rapidly at this point in 2012 on their way to the record total payouts of $17.426 billion. Get more details.


NASS TO RELEASE INITIAL CENSUS OF AG DATA IN FEBRUARY... National Ag Statistics Service (NASS) announced it will release the preliminary results of the 2012 Census of Agriculture on Feb. 20, 2014 at the Ag Outlook Forum. NASS is still working to determine when it will release the full Census results. The report was initially scheduled for Feb. 4, 2014, but the government shutdown in October delayed its release.


PACE OF PROGRESS IN BRAZIL REMAINS SLOW... Crop consultant Dr. Michael Cordonnier has reported in the past that because of bureaucratic red tape, lack of funding, labor laws and more, the pace of progress on infrastructure or improvement projects in Brazil remains slow. He reports the Chinese are finding out the hard way that project completion is difficult. He reminds that as much as two thirds of infrastructure investments announced since 2007 are either on hold or have been canceled.

"Brazilians themselves are also becoming less friendly toward Chinese investment due to the belief that China is only interested in securing raw materials from Brazil and then flooding Brazil with cheap Chinese-made goods," he says.

"Another problem in Brazil is the fact that a lot of federal resources have been diverted to building two soccer stadiums and related infrastructure projects for next year's World Cup and the Rio Olympics in 2016," adds Dr. Cordonnier. "Those expenditures coupled with a cooling economy have left the country struggling to finance badly needed infrastructure for the surging agricultural production."


EIA SEES LOWER GASOLINE PRICES IN 2014... The Energy Information Administration (EIA) says it expects U.S. regular gasoline prices to average $3.50 per gallon in 2013 and $3.39 per gallon in 2014. It says gasoline prices have fallen by more than 40 cents since its September outlook report. It projects U.S. crude oil production averaging 7.5 million barrels per day in 2013 and rising to 8.5 million barrels per day in 2014. Click here for more details.


CORN: Hedgers and cash-only marketers have 25% of 2013-crop production sold in the cash market. Corn futures are hinting harvest lows have been struck, but we can't rule out another move to the lows before the end of the year. But with downside risk limited to the recent lows, wait to get current on cash sales. We will use an extended recovery to increase cash sales.

BEANS: Hedgers have 100% of 2013-crop production sold in the cash market, while cash-only marketers are 75% sold on 2013-crop. We are watching for an opportunity to reown a portion of sales, but upside potential for now appears to be limited given the prospect of record South American production. Use the recent rally to get caught up on cash sales advice.

WHEAT: Hedgers are 75% sold in the cash market on 2013-crop production, while cash-only marketers are 50% sold. Futures are pointed lower and appear headed back to the lows. Fresh bullish news is needed for the market to secure a short-term low. With the downside limited to the August lows (for now), wait to get current with cash sales advice. We'll reevaluate the market's weakness if support is violated.

COTTON: Hedgers and cash-only marketers have 50% of expected 2013-crop production sold via cash forward contract for harvest delivery. We lifted profitable hedges last week. Be prepared to reestablish short hedge coverage on an extended price recovery.

CATTLE: Fed cattle producers should continue to carry risk in the cash market. You should also be prepared to add light, short-term hedge coverage if packers slow slaughter runs, as that could put more near-term pressure on the market than we currently anticipate. Due to concerns about reduced packer demand, we are hesitant to add long feeder cattle coverage.

HOGS: Hog producers have 50% of expected 4th-qtr. production hedged in Dec. lean hog futures at an average price of $82.12 1/2. Hog futures are signaling a top is in place. Therefore, be ready to add first-quarter 2014 coverage.

FEED: Twenty-five percent of 4th-qtr. protein needs are covered in long Dec. soybean meal futures and 25% of 1st-qtr. needs are covered in long March meal futures. Recent price strength opens the door for additional near-term upside potential. We'll wait for confirmation of a low to add long corn coverage.

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