Evening Report (VIP) -- October 30, 2013

October 30, 2013 09:40 AM

FOMC: STATUS QUO... As expected, the Federal Open Market Committee (FOMC) made no changes to its monetary policy, which brought a muted reaction in the marketplace. The committee said it will continue to purchase mortgage-backed securities and long-term Treasuries totaling $85 billion per month, as well as leave its "highly accommodative" target range for the federal funds rate at 0% to 0.25%.

Regarding its asset purchase program, the FOMC said it believes it has provided some growing underlying strength to the broader economy. However, the Fed will wait on more evidence that progress will be sustained before adjusting the pace of its purchases. Click here for more.



DELAYED CATTLE ON FEED REPORT TO BE RELEASED TOMORROW... Live cattle futures have been choppy this week as traders wait on the Cattle on Feed Report that was delayed from earlier in the month due to the government shutdown. The report will be released tomorrow at 2:00 p.m. CT.

Traders look for the report to show Placements close to year-ago levels, with a boost in Marketings (104.3%) expected to result in On Feed at 92.6% of year-ago levels. Click here for an audio preview of the report.

Report expectations

Avg. Trade Guess


% of year-ago levels

On Feed











INNOVATIVE PERMANENT LAW CHANGE... One of if not the most innovative items in the House (but not the Senate) farm bill is a change in the "permanent law" area, according to Washington consultant Jim Wiesemeyer. Under the House farm bill, the new Title I would become the new permanent law. That is every bit as significant as virtually anything else, especially what it means for agriculture policy moving forward. Southern-based crops and sugar support (or should support) the House in this area. Farm Bureau, NFU, and the national groups for corn and soybeans like the status quo whereby just the threat of going to sky-high support levels, especially for dairy, blackmail Congress into acting on a new farm bill, Jim notes.

"But imagine if the 2013 title I becomes permanent law. Then, perhaps, we could start focusing on titles that truly have been empty freight cars attached to this omnibus farm legislation locomotive. There was a separate research bill in 1997. A separate crop insurance bill in 2000. Why can’t we do that again? Take the pressure off and allow for more thorough policy examination and debate over things that some feel truly matter to the future of American agriculture, especially research and crop insurance," Jim says.

If the House commodity title becomes permanent law, some think it would take a lot of pressure off this quinquennial exercise. But some are becoming a fan of smaller bills much like the GOP did with more targeted appropriations measures during the shutdown. "Mega bills breed unseemly negotiations and attempt to masquerade serious policy concerns and questions that might be exposed to more vigorous debate and better outcomes if they weren’t tucked into 1,000-plus page bills," according to Jim.



KEY DIFFERENCES ON HOUSE, SENATE SAFETY NET PROVISIONS... Both the Senate and House farm bill packages cover the 2014 to 2018 time period and are similar in several respects. However, there are a few significant differences worth noting. The primary safety net provisions in the Senate bill are a shallow loss revenue protection plan called agriculture risk coverage (ARC) combined with a reference price triggered income support program named adverse market payments (AMP), an area-wide supplemental crop insurance option referred to as the supplemental coverage option (SCO), and the stacked income protection plan for producers of upland cotton (STAX).

The Senate ARC provisions allow producers to choose between coverage at the county level or individual producer level. This is described as a one-time irrevocable decision with the county option paying on more acres than the individual level coverage option. Both county and individual coverage ARC options are eligible for SCO coverage with a coverage band from 78% down to their individual insurance coverage level. In addition, the Senate farm bill package allows producers to opt out of ARC completely. If they choose this option, producers would have AMP and the option of purchasing SCO coverage but with a wider SCO coverage band (from 90% percent down to their individual insurance coverage level rather than 78% down to their individual insurance coverage level).

The House Title I provisions offer producers a choice of price or revenue-based risk protection. With this election, producers have a choice of a shallow loss revenue protection plan called revenue loss coverage (RLC) or a price loss coverage (PLC). RLC is similar to the county ARC option in the Senate farm bill with the most notable difference being how each utilizes reference prices. ARC uses reference prices in the actual revenue calculation where RLC replaces prices below the reference prices with the reference price in the benchmark revenue calculation.

The Senate AMP provision included with either the county- or producer-level ARC coverage is similar to the countercyclical payment (CCP) program in the 2002 and 2008 Farm Bills. The main difference is payment trigger levels are based on 55% of the moving five-year Olympic average of market prices for most covered commodities.

The most important difference between PLC and the current CCP program is that the PLC option pays on planted acres with a whole farm base limitation rather than being paid on base acres. Producers choosing PLC have an option to update their payment yields to 90% of the average yield per planted acre for the 2008-2012 crop years. For many more details and charts, click here.



ETHANOL PRODUCTION CONTINUES TO IMPROVE... The Energy Information Administration (EIA) reports for the week ended Oct. 25, ethanol production averaged 911,000 barrels per day (bpd), up 14,000 bpd from the previous week to a 17-month high. Ethanol stocks declined by 538,000 barrels from the previous week to 15.0 million barrels -- the lowest since weekly data was made public in June 2010. Tightening stocks came as gasoline demand hit a 16-week high.



JAPAN, RUSSIA REMOVE BAN ON ARKANSAS POULTRY... Japan lifted its ban on poultry imports from Arkansas, following Russia and Mississippi earlier this month. This summer, a number of countries and states banned poultry imports from the state following the discovery of a low-pathogenic strain of H7N7 bird flu on a Scott County farm in Arkansas, including: Russia, Japan, China, Turkey, Hong Kong and the U.S. states of Mississippi and Georgia.




CORN: Hedgers and cash-only marketers have 25% of expected 2013-crop production sold via cash forward contracts for harvest delivery. While the technical posture remains bearish, we don't see a lot of additional downside pressure as demand is starting to rebuild and funds are heavily loaded up on the short side of the market. 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 now have 100% of expected 2013-crop production sold via cash forward contract for harvest delivery, 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.

WHEAT: Hedgers are 75% sold in the cash market on 2013-crop production, while cash-only marketers are 50% sold. With futures rolling over, get current with advised sales. Long-term fundamentals are favorable, but another price recovery rally won't likely come until later if fresh bullish news dries up.

COTTON: Hedgers and cash-only marketers have 50% of expected 2013-crop production sold via cash forward contract for harvest delivery. Hedgers also have 50% of expected production hedged in December cotton at 83.87 cents. We are watching for signs of a bottom to take profits.

CATTLE: Fed cattle producers should continue to carry risk in the cash market. While a short-term top could come at any time, the downside is limited by tightening supplies. Feeder cattle futures are correcting after the recent price surge. Feeder cattle buyers should be prepared to lock in prices on the pullback.

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. We are actively watching winter-month futures for topping signs that would allow us to heavy up 4th-qtr. coverage (and average up our 4th-qtr. price) and add 1st-qtr. coverage.

FEED: 25% 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. We feel prices are ultimately headed higher, but there may be more near-term price pressure through harvest. 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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