Evening Report (VIP) -- November 7, 2012

November 7, 2012 08:55 AM

ETHANOL PRODUCTION RISES SLIGHTLY FROM LAST WEEK... According to the Energy Information Administration, weekly ethanol production averaged 827,000 barrels per day (b/d) – or 34.73 million gallons daily last week. That's up 2,000 b/d from the week before. The four-week average for ethanol production stood at 813,000 b/d for an annualized rate of 12.46 billion gallons. Stocks of ethanol stood at 18.1 million barrels -- a 5.7% decrease from last week and the lowest of the year. Reported stocks on the East Coast dropped 12.5%, likely the result of Hurricane Sandy-induced terminal outages.


NEUTRAL ENSO CONDITIONS TO CONTINUE... The Australia Bureau of Meteorology says the chance of an El Nino event developing in 2012 has been reduced with tropical Pacific Ocean temperatures remaining at neutral levels following cooling in this region since the beginning of September. This is consistent with atmospheric ENSO indicators which also remain at neutral levels. This helped to support wheat futures today, as traders worry the U.S. Central and Southern Plains face prolonged drought without the development of El Nino. Click here for more.


HOW OBAMA WON... After months of campaigning with billions of dollars spent, Democratic incumbent Barack Obama was reelected over GOP candidate Mitt Romney. The past two elections signal the public is shifting toward fewer married, more secular and more diverse voters. Many cited the results of the past two elections as a sign the Republican party must change if it hopes to win national and state elections ahead. As one GOP analyst pointed out, Obama is the "first president in history to be reelected with 43 months of unemployment over 8%."

Democrats turned out a heavily Democratic electorate. Obama won big majorities with Latino, African American and women voters. He lost among white men by a wide margin, as expected. These demographics helped him take swing states such as Florida and Virginia. In Ohio, Obama did better than usual among white men without college education, signaling the president's decision to bail out the U.S. auto industry gave him a boost.

Obama also won among voters aged 18 to 29 who make 19% of the electorate by 24 points. Hurricane Sandy and praise by New Jersey Republican Governor Chris Christie is also thought to have given Obama a boost. Get more details on the results of the presidential and congressional races.


IMPLICATIONS OF OBAMA SECOND TERM... Obama says he plans to sit down with Romney in the weeks ahead to talk about how the two can work together. We are hopeful this implies more willingness to reach across the political aisle lie ahead. This will be very necessary as Congress and Obama shift focus to addressing the U.S. fiscal cliff mess, reform entitlements (particularly Medicare) and the tax code and immigration reform. The president's approach to climate change and regulatory reform will also be key, as will how he deals with the Iranian nuclear program. See the full story online for more details.


LAME DUCK FARM BILL?... The upcoming lame-duck session of Congress will determine if a new farm bill comes this year or is punted until the new Congress in 2013. Senate Majority Leader Harry Reid (D-Nev.) signaled an ambitious, six-week Senate timetable for the post-election session set to start Nov. 13. Reid's aim is to keep pressure on lawmakers to reach a bipartisan debt deal by Dec. 21, the expected start of the Christmas recess. That should leave plenty of time to reach a final farm bill conclusion and at least scratch this from the "must-do" list for 2013. Some type of extension of the 2008 Farm Bill is likely no matter what happens on a new farm bill timeline.



CORN: Hedgers and cash-only marketers should get current with advised cash sales. With hedgers 100% sold on 2012-crop production in the cash market -- 90% for harvest delivery; 10% for March 2013 delivery -- we are watching for signs to reown a portion of sales in long futures/options, but the market is showing no signs of breaking out of the choppy, sideways pattern. Hedgers should hold the Dec. $6.50 put options purchased on 40% of 2012-crop for 31 1/2 cents as they are virtually worthless. Cash-only marketers are 75% priced on 2012-crop production -- 50% for harvest delivery; 10% for March 2013 delivery; and 15% for May 2013 delivery.

BEANS: Hedgers and cash-only marketers should get current with advised cash sales. With hedgers 100% sold on 2012-crop production for harvest delivery, we are watching for signs to reown a portion of 2012-crop, but futures are nearing key support that if violated, would open fresh downside price risk. Cash-only marketers have 75% of expected 2012-crop forward sold for harvest delivery.

WHEAT: Hedgers and cash-only marketers have 75% of 2012-crop sold in the cash market. Get current with advised sales, but there's no urgency to increase cash sales at this time as crop concerns are building and global supplies are tightening.

COTTON: Hedgers and cash-only marketers have 50% of expected 2012-crop production sold for harvest delivery. Get current with recommended sales as the near-term price outlook is bearish. But with a lot of time left in the marketing year, no additional cash sales are recommended at this time.

CATTLE: Fed cattle producers should continue to carry all risk in the cash market. While price charts are short-term bearish, downside risk is limited by tightening supplies. Feeder cattle buyers and sellers carry all risk in the cash market for now.

HOGS: Lean hog futures have seen increased volatility at the top of the recent price range, which is a sign of topping action. We'd much rather hedge strength than weakness, as there is limited projected downside risk from this week's lows.

FEED: 50% of remaining 4th-qtr. soybean meal needs are covered in long Dec. meal futures at $487.10 and 25% of expected 1st-qtr. meal needs are covered in long March meal futures at $468.50. Stick with this coverage for now as long-term fundamentals are bullish, but be ready to exit if support at the October lows is violated as that would open sharp downside risk. Remain hand-to-mouth on all corn-for-feed needs for now.

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