Evening Report (VIP) -- October 2, 2012

October 2, 2012 09:48 AM

BRAZILIAN SOYBEAN FARMERS COUNTING ON PROFITABLE YEAR... South American crop consultant Dr. Michael Cordonnier says Brazilian farmers are enthusiastic about increasing their soybean acreage due to expectations for a very profitable year. He says producers in southern Brazil are hoping improved weather brings three times the net profits of last season. Producers in Mato Grosso are also expecting to do better, but their profits will be trimmed as they face increased fertilizer costs.

Mato Grosso producers have reportedly forward sold about 60% of the expected crop and Parana producers have forward sold about 30% of the expected crop. Overall, about 45% of Brazil's soybean crop is thought to be forward sold, says Dr. Cordonnier.

Dr. Cordonnier left his South American crop estimates unchanged this week and says producers are waiting on another round of rains before returning to plant early soybeans. So far, about 2% of the intended soybean acreage has been seeded nationwide.



HOG PRODUCERS FACE MOUNTING LOSSES... Purdue University ag economist Chris Hurt says large losses for pork producers loom over the next six months. He says based on continued high feed costs and expectations for live hog prices in the mid-to-upper $50s for the final quarter of the year and low-to-mid $60s in the first quarter of 2013, losses of about $45 per head this fall and $30 per head this winter are expected. Unfortunately, this follows losses of an average of $18 per head the past six months.

Hurt says that represents a loss of $1 billion over the last six months and potentially $2 billion for the next six months. "For any hog production operations that are in a weak financial situation at this point, lenders and other creditors will be key to their ability to continue," he says.

But Hurt says creditors also need to look at the long-term outlook when making decisions to finance pork operations. "By spring, hog production is expected to return to breakeven with the start of some moderation in feed costs due to lower soybean meal prices... Currently the outlook for the last three quarters of 2013 is indicating a small positive return of $2 per head. While that would not allow much equity building, it would end the equity erosion," he says.



HSUS PRESIDENT ANNOUNCES CANDIDACY FOR BOARD SEAT AT TYSON FOODS... How serious is The Humane Society of the United States (HSUS) about ending the use of gestation crates in U.S. pork production? Very! Today Wayne Pacelle, HSUS president and CEO announced he has filed paperwork to become a candidate for election to the board of directors of Tyson Foods. According to a HSUS press release, "Pacelle will urge the company to commit to a definite time frame to phase out the confinement of sows in gestation crates -- tiny cages so small that the breeding pigs cannot even turn around for essentially their entire lives. Renowned investor Carl Icahn has agreed to serve as an advisor in Pacelle's efforts to join the board."



FARM CO-OPS SET SALES & INCOME RECORDS IN 2011... Agriculture Secretary Tom Vilsack today announced that farmer, rancher and fishery cooperatives posted record sales and income in 2011, surpassing the previous record sales year of 2008 by $10 billion while besting the old income record by $500 million. The 2,285 surveyed cooperatives had sales of $213 billion, exceeding 2010 sales by more than $40 billion. Net income before taxes for all agricultural co-ops was a record $5.4 billion, eclipsing the 2008 high of $4.9 billion. Net income was up more than 25%, or $1 billion, from 2010. Get more details here.



CHILTON CALLS FOR NEW ACTION ON POSITION LIMITS... At the G-20 Agricultural Market Information System Roundtable on Public-Private Dialogue, Commodity Futures Trading Commission (CFTC) Commissioner Bart Chilton said the CFTC should immediately appeal a recent, "flawed" court ruling that vacated the agency's position-limit plan and move forward with a new regulation on an expedited schedule.

The push for such position limits arose from the Dodd-Frank Financial Reform law. Chilton says these are necessary due to an influx in managed money that has flowed into U.S. commodity futures market (a $200-billion increase between 2005 and 2008). Chilton explains that while there isn't "anything wrong" with people investing in the futures markets, "these flows created an unprecedented link between financial markets and commodity markets."

Chilton also says the trading strategy linked to this increase in funds was different than typical speculators, in that dollars were simple "parked" in the market as investors "bet" that prices would go up over the long-term. These speculators based their positions on their outlook over several years and they are unconcerned about shorter-term price fluctuations. Chilton notes this style is more similar to bets in stocks than traditional futures investing. His major concern is that they ""have the ability to move markets just because of their sheer size."

While Chilton says speculators are necessary, he says the "buy pressure they bring to markets creates a speculative premium on commodity prices -- that's right, a speculative premium. That shouldn't be allowed in my view." He says speculative position limits "across all physical commodity derivatives" would be one step toward making sure commodity markets operate properly. Click here for more details on what Chilton says should be done.

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