Evening Report (VIP) -- October 5, 2012

October 5, 2012 09:50 AM

INFORMA RAISES CORN AND SOYBEAN CROP PEGS... Sources familiar with Informa Economics say the firm raised its corn crop estimate to 11.194 billion bu. with a yield of 127 bu. per acre. Informa also puts its "likely final" corn estimate at 11.147 billion bushels. In September, USDA pegged the crop at 10.727 billion bu., with a yield of 122.8 bu. per acre.

Informa reportedly pegs the soybean crop at 2.86 billion bu., with a yield of 37.8 bu. per acre. In September, USDA estimated the crop at 2.634 billion bu. with a 35.3-bu.-per-acre yield.

Informa's all cotton crop estimate is reportedly at 17.617 million bales, with a yield of 810 bales per acre. In September, USDA pegged the crop at 17.11 million bales, with a yield of 786 bales per acre.



UNEMPLOYMENT DECLINES TO 7.8%... The Department of Labor reports the U.S. added 114,000 non-farm payrolls in September and the unemployment rate decreased to 7.8%, the lowest since July 2009. Investors expected the report to show around 113,000 jobs were added and the unemployment rate at 8.2%. In last month's report, unemployment was reported at 8.1%. Revisions to July and August payroll numbers added 86,000 more jobs than reported last month. The labor force participation rate in September stood at 63.6%, up from 63.5% in August. The average hourly work week increased 0.1 hour from August, to 34.5 hours. Average hourly earnings were up 0.3%.

There were all kinds of "conspiracy theories" flying around the market after the release of the data. But digging deeper into the numbers, there is some justification for the drop in the unemployment rate given the upward revisions to July and August payrolls. Also, the number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) rose 582,000 in September.



CBO: $1.1 TRILLION BUDGET DEFICIT FOR FY 2012... At the close of the 2012 fiscal year, the Congressional Budget Office (CBO) estimates the federal budget deficit was about $1.1 trillion, which is about $200 billion less than the shortfall in 2011. This budget deficit represents 7.0% of GDP, which is down from 8.7% of GDP in 2011, 9.0% in 2010 and 10.1% in 2009. But outside of those years, this is the highest as a percent of GDP the budget deficit has been since 1947.



HARD FREEZE FOR MIDWEST, NOT ENOUGH MOISTURE... Meteorologist Gail Martell of MartellCropProjections.com has provided the following weekend weather highlights:

  • A hard freeze is predicted tonight, definitively ending the growing season in the north-central United States.
  • Conditions were dry this week in the Midwest, not relieving drought. Drought has intensified the past several weeks in a large area of central United States.
  • A strong cold front pushing through the Midwest today is producing only light and scattered showers, not reversing severe drought in the Western Corn Belt and Central Great Plains.
  • Topsoil moisture in early October is among the lowest on record in Nebraska, central Iowa, South Dakota, Minnesota and northwest Wisconsin.
  • The 7-day rainfall forecast is dry in the Central and Northern Great Plains and the majority of the Midwest.
  • Southern Plains winter wheat areas are expecting good rain in Texas and Oklahoma, but Kansas may miss out. The subtropical jet stream is expected to strengthen, encouraging generous rainfall in the Southern Great Plains.



WHY RFS ETHANOL MANDATE WAIVER MAY NOT HAVE THE DESIRED IMPACT... In "First Thing Today" we reported that Food and Agricultural Policy Research Institute (FAPRI) analysis shows the desired impact of lowering corn prices for livestock producers this marketing year by waiving the ethanol mandates of the Renewable Fuels Standard (RFS) may not be met or at least not to the degree those producers would like. This is because:

  • Overall ethanol use and production are projected to be motivated mostly by crop and fuel market conditions in the current marketing year, not the RFS.
  • Extra biofuel use in one year typically can help to meet the next year’s mandate. If this practice is permitted, a waiver in 2012-13 could make it far easier to satisfy the RFS in 2013-14, when limits on E10 blending make mandate compliance difficult. If the waiver also disallows counting biofuel use in 2012-13 against the mandate in the next year, then the mandate might be more difficult to meet in 2013-14. In this case, corn prices in the year after the waiver would be higher than in the baseline.
  • Waiving the advanced mandate reduces sugar cane ethanol imports, leading to more corn starch ethanol production and a higher corn price in 2012-13.
  • Generally, mandate changes can have partly offsetting ethanol trade impacts. I.e., reducing domestic use of corn starch ethanol tends to cause more exports, while reducing imports of advanced ethanol tends to cause fewer exports.



SIZING UP THE PRESIDENTIAL DEBATE... For more on this week's first presidential debate between President Obama and Republican nominee Romney, check this link.

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