Evening Report (VIP) -- November 5, 2013

November 5, 2013 08:36 AM

CONSULTANT RAISES BRAZIL BEAN CROP PEG, LOWERS CORN... Crop Consultant Dr. Michael Cordonnier has raised his 2013-14 Brazilian soybean crop estimate by 2 MMT to 90 MMT due to improved weather and further expansion of acreage. Speculation farmers may plant safrinha (second crop) soybeans at the expense of safrinha corn early next year caused him to raise his soybean acreage estimate by 1 million hectares to 30 million.

However, he notes that agronomists and entomologists are advising farmers not to plant a second crop of soybeans due to the new threat from corn earworm, as well as their old nemesis soybean rust. "No one knows for sure how expensive it will be to control the corn earworm or if they will be successful in their control measures, but one thing is certain, the multiple sprays needed to control the insect are going to increase the cost of production," he says.

Meanwhile, Dr. Cordonnier says planting of full-season corn in Brazil is nearly complete and producers are reducing their acreage of full-season corn and the safrinha crop. "If the full-season corn acreage declines 10%, that would equate to a reduction of 3.4 MMT," he says. "If the safrinha corn acreage declines 20%, that would equate to a reduction of 9.2 MMT."

As a result, Dr. Cordonnier lowered his Brazilian corn estimate by 1.5 MMT to 68.5 MMT. He says yield prospects in southern Brazil look promising, but the yield of the safrinha crop will not be known until later.



CONSULTANT LEAVES ARGENTINE ESTIMATES UNCHANGED... Dr. Cordonnier has left his Argentine soybean and corn crop estimates unchanged from last week at 55 MMT and 25 MMT, respectively. Rains over the weekend were beneficial, although some localized flooding was reported. He says about 5% of the soybean crop has been planted and around 37% to 39% of the corn crop has been seeded. Dr. Cordonnier has a neutral to positive bias toward the soybean crop and a neutral to negative bias toward corn due to potential acreage shifts.



BRAZIL LOOKING TO RAISE BIODIESEL BLEND REQUIREMENTS... Due to the outlook for a record 2013-14 soybean crop in Brazil, the government is looking into a plan to raise its requirements for biodiesel blends required in diesel fuel as early as January. The Brazilian Energy Minister, Edison Lobao, said the government was evaluating a blend increase, but didn't provide any details.

Soy crushers have advocated in the past to increase the blend requirement by two percentage points to 7%, which would result in an additional 8 MMT to 9 MMT of soybeans being processed for biodiesel. Such an increase would also reduce imports of diesel fuel and speculation of an increase has caused companies like Cargill and Bunge to increase their biodiesel plant capacity in recent years.



CFTC APPROVES POSITIONS LIMITS PROPOSAL... The U.S. Commodity Futures Trading Commission (CFTC) approved two Position Limits Proposals on a 3-1 vote. Commissioners also unanimously voted for a proposal related to aggregating accounts under the position limits rule.

The commission generally set spot-month position limits at 25% of estimated deliverable supply. Non-spot-month position limits are set using the 10/2.5% formula: 10% of the contracts' first 25,000 of open interest and 2.5% thereafter. More here.

Reacting to the announcement, CME Group said it has always supported position limits, but says the CFTC proposal could increase the potential for price dislocation, especially in the final days of trading. "We are especially concerned about this five-times higher limits for cash-settled contracts given the updated deliverable supply information that we recently provided to the CFTC," it said.

"If implemented, these proposed rules could prevent people from hedging in the first place, or create the unintended consequence of pushing participants out of the best-regulated markets, into less-regulated markets that carry greater risk," states CME Group.



RMA SETS 2013 HARVEST PRICES FOR CORN, BEANS, SORGHUM, COTTON & RICE... The 2013 harvest prices for corn, soybeans, sorghum, cotton, rice and sunflowers have been approved for Revenue Protection and the Revenue Protection with Harvest Price Exclusion plans of insurance, according to the Risk Management Agency (RMA). Following are the set levels for 2013 crops, with 2012 levels included for comparison's sake in parentheses.

  • Corn: $4.39 per bu. ($7.50 per bu.)
  • Soybeans: $12.87 per bu. ($15.39 per bu.)
  • Cotton: 83 cents per lb. (73 cents per lb.)

Get more details about harvest price levels for these insurance plans, as well as approved 2013 harvest prices for Group Risk Income Protection.



ERS: FOOD PRICE INFLATION TO RETURN TO MORE NORMAL LEVELS IN 2014... The Economic Research Service reports the Consumer Price Index (CPI) was 1.4% over year-ago in September, unchanged from last month. The food-at-home (grocery store food items) CPI was also unchanged for September at 1% over the year-prior, while the food-away-from home (restaurant purchases) CPI rose 0.1% for the month to stand 1.9% above year-ago. This resulted in a 0.1% uptick in the all-items CPI for the month of September, bringing the index to 1.2% over year-ago.

ERS made no changes to its 2013 or 2014 CPI forecasts due to "relatively stable food prices in September. ERS forecasts inflation for all food at 1.5% to 2.5% for 2013, with food-at-home prices predicted to increase 1.0% to 2.0%. This implies prices would likely increase less than they did in 2012 and that annual inflation would fall below the 20-year historical average of 2.8%.

Looking ahead to 2014, ERS expects food price inflation will return to a range closer to the historical norm. "Inflationary pressures are expected to be moderate, given the outlook for commodity prices, animal inventories, and ongoing export trends," ERS explains. Therefore, ERS expects the food, food-at-home, and food-away-from-home CPIs to increase 2.5% to 3.5% over 2013 levels, assuming normal weather. Get more details.



USDA ISSUES LIVESTOCK COMPLIANCE GUIDE... USDA's Food Safety and Inspection Service (FSIS) has made available its compliance guide "to assist livestock slaughter establishments in complying with the regulatory requirements for humane handling and slaughter of livestock." FSIS says it encourages operators of livestock slaughter establishments to follow this guidance. Comments on the compliance guide will be received through December 30. Information on how to file a comment is available at this link.


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