Evening Report (VIP) -- September 12, 2012

September 12, 2012 09:51 AM

USDA DATA LEADS TO STRONG PRICE MOVES... While USDA didn't provide any major surprises in its Crop Production and Supply & Demand Reports this morning, soybean futures charged higher to reflect the tightening supply situation while corn futures faced followthrough selling pressure in reaction to a higher-than-expected production estimate. Click here for our report reaction.



JULY BEEF EXPORTS LARGEST OF 2012, PORK EXPORTS DECLINE... According to USDA data compiled by the U.S. Meat Export Federation (USMEF), pork exports in July were slightly lower than June and beef exports posted their strongest month of the year. Beef exports in July of 108,971 metric tons (MT) were 9.5% lower than year-ago, but up 16% from June. Export value for beef in July of $513.5 million was slightly higher than year-ago and up 11% from June.

July pork exports totaled 164,720 MT, down nearly 3% from year-ago and the smallest volume since October 2010. Pork export value was also down about 3% from year-ago to $467.4 million. Still, year-to-date pork exports through July are 4% above last year's record pace in volume (1.3 million MT) and 11% higher in value ($3.63 billion). Click here for additional details.



USDA 2012 RAISES BEEF PRODUCTION FORECAST, LOWERS PORK... In this morning's Supply & Demand Report, USDA raised its 2012 beef production forecast by 200 million lbs. from last month due to expectations for more fed cattle and cows to be slaughtered. USDA raised the 2013 beef production forecast by 95 million lbs. from August "as higher forecast placements in second-half 2012 will result in larger fed cattle supplies in the first part of 2013." But USDA still expects beef production in 2013 to be down 4.3% from this year.

USDA lowered its 2012 pork production forecast by 25 million lbs. from last month to reflect a slightly slower expected pace of slaughter in the third quarter and slightly lower carcass weights in the second half of the year. Pork production for 2013 was reduced by 40 million lbs. from last month due to expectations for lower weights. USDA expects pork production in 2013 to be down 1.3% from this year.

USDA left its 2012 beef export forecast unchanged from last month, but lowered the 2013 forecast as it says supplies will remain tight. Weaker expected pork demand from Asia led to reductions in the 2012 and 2013 pork export forecast from last month.

USDA raised its 2012 cash steer price projection by $1 on the bottom end for a range of $120 to $122 per cwt. due to stronger second-half demand, but the forecast for 2013 was left at $122 to $132 per cwt. despite higher forecast production as it says demand should remain "relatively strong." USDA lowered its 2012 cash hog price projection by $2 on both ends for a range of $60 to $61 per cwt. to reflect the recent drop in prices, but left its price outlook for 2013 unchanged from last month at $62 to $67 per cwt.



MURKY TIMELINE FOR FARM BILL... Guessing the time when the frustrating farm bill process will be completed has been thrown into even more uncertainty with the coming election and continued visceral attitudes prevalent among the two main political parties in Washington. Some say a signal could come when a final decision is made on whether a 2008 Farm Bill extension will be included in the coming continuing resolution, and if so, how long the extension.

If a farm bill extension is for only three months, that would up the odds that house leaders want the farm bill completed by the end of 2012 -- most likely during the post-election lame-duck session of Congress. A one-year farm bill extension, on the other hand, would up the odds the new bill end zone would be pushed into 2013, because pressure to complete it on an accelerated timeline would be lessened. Plus, Washington is good at kicking the can down the road and postponing difficult decisions. If a six-month extension is the result, that would leave farm bill timing murky as the potential finish could be in either 2012 or 2013.

As for the presidential election, a growing number of observers say if Republican candidate Mitt Romney wins and the Senate gets a GOP majority, Republican leaders in Congress would likely punt the farm bill conclusion into 2013. Besides, some add, outgoing president Obama would not likely want to compromise on tax issues and other issues like the farm bill. If Obama wins, the reasoning goes that it would up the odds for a series of compromises during the four to six week lame-duck session that could include the farm bill conclusion. Click here for more.




CORN: Futures are showing increased signs of at least a short-term top. As a result, it's recommended you get current with advised with 2012-crop sales. And with USDA's Quarterly Grain Stocks Report on Sept. 28 likely to be bearish, be prepared to advance downside price protection. Hedgers are 35% sold on expected 2012-crop production via cash forward contracts -- 25% for harvest delivery; 10% for March 2013 delivery -- with another 40% of expected production hedged with Dec. $6.50 put options purchased for 31 1/2 cents. Cash-only marketers are also 35% priced on expected new-crop production via forward contract -- 10% for harvest delivery; 10% for March 2013 delivery; and 15% for May 2013 delivery.

BEANS: The price outlook remains very bullish as supplies are tight and prices haven't deterred end-user buying yet. But with that said, the market could still face seasonal pressure as combines start to actively roll. As a result, get current with advised sales, but hold off on making additional sales at this time. Hedgers are 50% sold on expected 2012-crop production via cash forward contract for harvest delivery with another 25% of expected production hedged with Nov. $14.00 put options purchased for 42 3/8 cents. Cash-only marketers have 50% of expected 2012-crop forward sold for harvest delivery.

WHEAT: The wheat market is holding up relatively well in the face of seasonal pressure on corn futures as there's increased attention on global supply concerns. Hedgers and cash-only marketers have 75% of 2012-crop sold in the cash market. Be prepared to increase cash sales if futures signal a technical top is in place. Hedgers may also add hedge coverage to protect downside price risk if there are signs of a top.

COTTON: Hedgers and cash-only marketers have 50% of expected 2012-crop production sold for harvest delivery. Be prepared to advance new-crop sales on a sharp price bounce as there are demand concerns with China's economy continuing to slow.

CATTLE: Fed cattle producers should carry all risk in the cash market for now. Tightening supplies are overshadowing any concerns traders have with beef demand. But be prepared to add hedge coverage if futures fail to post a sustained upside breakout. Feeder cattle buyers and sellers carry all risk in the cash market for now.

HOGS: Concerns with hog supplies are keeping futures on the defensive, but traders already have seasonal pressure built into the market. Be prepared to hedge an overdue corrective rebound as supplies will be burdensome into winter.

FEED: We are not interested in locking in current, historically high prices for an extended period. But be prepared to aggressively extend coverage on a sharp price pullback as corn and meal supplies will be tight through the 2012-13 marketing year. Given the supply concerns, price corrections are likely to be short-lived.

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