Evening Report (VIP) -- November 20, 2013

November 20, 2013 08:51 AM

ETHANOL PRODUCTION SLOWS... According to data from the Energy Information Administration (EIA), ethanol production the week ended Nov. 15 of 904,000 barrels per day (bpd) was down 23,000 bpd from the previous week. The four-week average for ethanol production suggests an annualized rate of 13.97 billion gallons. Ethanol stocks declined 70,000 barrels from the previous week to 15.08 million barrels.



FOMC MINUTES PROVIDE NO CLEAR ANSWERS ON TAPERING... The Federal Reserve today issued its minutes from the October Federal Open Market Committee (FOMC) meeting, which state unwinding of its monthly asset purchasing program will come when labor market conditions improve.

The minutes provided no clear-cut clues as to how much longer the stimulus operation would be fully in place. "Participants also considered scenarios under which it might, at some stage, be appropriate to begin to wind down the [bond-buying] program before an unambiguous further improvement in the outlook was apparent," the minutes state.



FARM BILL UPDATE: DECISION TIME... A myriad of program proposals have been scored by the Congressional Budget Office (CBO). Lacking is final decisions by the four farm bill principals to move the process to the next step: House and Senate floor consideration of a conference report ironing out those differences, including the major difference of food stamp funding between the Senate's $4 billion cut over ten years, and the $39 billion cut in the House. Most expect that if/when a conference report comes, the hard work will be to get it cleared in the House. Some key dates are approaching to urge the four farm-state lawmakers to quit listening to staff and others and finally reach an agreement:

  • Nov. 21: House members are slated to depart for their Thanksgiving break.
  • Dec. 3: When the GOP caucus next meets. The GOP caucus must be given a conference report in final form to consider at that session. That means ahead of Dec. 3, farm bill conferees must have decisions in place for the report to be legislatively written and scored in finality by CBO. That process takes around 10 days, which is why House Ag Chairman Frank Lucas (R-Okla.) says it is critical to have an accord by the time lawmakers leave for the Thanksgiving recess.
  • Dec. 13: House Speaker John Boehner (R-Ohio) has told House members that they can depart for home and this session of Congress ends "at 11 a.m. ET on Dec. 13." There are only eight legislative days on the House agenda for December.

For more details and perspective, click here.



FARM BILL ISSUES UPDATE: SAME ISSUES, NO DECISIONS... Farm-state lawmakers, their staffs, and some commodity group lobbyists continue to debate (argue) about most of the same issues that have surfaced repeatedly over the past three years in trying to birth a new farm bill. All of these issues could, however, go away quickly if the two leaders of the conference panel -- House Ag and farm bill conference Chairman Frank Lucas (R-Okla.) and Senate Ag Chairwoman Stabenow (D-Mich.) -- can reach decisions.

These matters include farm bill safety net issues, such as on what acres target price payouts are made, the House price loss coverage (PLC) program and World Trade Organization compliance questions, as well as questions as whether there should be an extension of the 2008 farm bill, and, if so, whether it should be a long or short one.

The bottom line is that all of these issues should have been dealt with quite some time ago. Regardless, the time for decisions is no later than this week. If not, then congressional leaders in the House and Senate will or should take over the process, as was the case when the 2008 farm bill was last extended. Learn more about these issues.



CORN: Hedgers and cash-only marketers have 25% of 2013-crop production sold in the cash market. The technical picture points to choppy to lower near-term price action as the market struggles to find a seasonal low. But with demand improving, we don't see a lot of additional downside price risk. We are content to wait on an extended corrective price recovery to advance cash sales, though that may take time and could be relatively short-lived.

BEANS: Hedgers have 100% of 2013-crop production sold in the cash market, while cash-only marketers are 75% sold on 2013-crop. With hedgers sold out of 2013-crop production in the cash market, we are watching for an opportunity to reown a portion of sales, but the market must signal an extended move higher is coming first. And that hasn't happened yet. In fact, the current technical posture suggests more near-term price pressure is likely.

WHEAT: Hedgers are 75% sold in the cash market on 2013-crop production, while cash-only marketers are 50% sold. With futures back at the lows, the market is at a critical crossroads. A bounce from support would mark a double-bottom and suggest a period of price strength lies ahead. But if support falters, futures would move the next leg lower.

COTTON: Hedgers and cash-only marketers have 50% of 2013-crop production sold in the cash market. If futures drop through the lows posted earlier this month, it would signal another leg down in prices is coming, which would be a sign to reestablish hedge coverage. If futures bounce from current levels, it would suggest at least a short-term price recovery is underway.

CATTLE: Live cattle futures have put in a top, but we see limited downside risk from current levels due to tight supplies. Fed cattle producers should continue to carry all risk in the cash market unless there are signs of extended price pressure. Feeder cattle buyers should be prepared to establish long hedge coverage on the corrective price break.

HOGS: Hog producers have 100% of expected 4th-qtr. production hedged in Dec. lean hog futures at an average price of $83.74 and 50% of 1st-qtr. 2014 production hedged in Feb. lean hog futures at $89.70. With futures pausing after recent price pressure it suggests another wave of selling pressure is coming, especially given record hog weights and rising market-ready supplies that are weighing on the cash market.

FEED: 25% of 4th-qtr. protein needs are covered in long Dec. soybean meal futures at $422.20 and 25% of 1st-qtr. needs are covered in long March meal futures at $410.80. We feel prices are ultimately headed higher, but there may be more near-term price pressure. Therefore, we may have to exit the long meal coverage if there's a bearish downside price breakout. We're waiting for signs of a low to add long corn coverage.


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