Evening Report (VIP) -- September 18, 2013

September 18, 2013 09:54 AM

FOMC: NO TAPERING OF ASSET PURCHASES... The Federal Open Market Committee (FOMC) said it will await more evidence that progress in the economy is sustainable before adjusting its pace of Treasury and mortgage-backed security purchases. Investors largely expected the FOMC to announce a plan to scale back purchases. The lack of tapering triggered a sharp downward move in the U.S. dollar index, which supported many commodity markets late in their trading sessions.

Specifically, the FOMC said it has decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.

The FOMC says it will judge when to moderate the pace of purchases based on labor market conditions and inflation moving back toward its longer-term objective. "Asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's economic outlook as well as its assessment of the likely efficacy and costs of such purchases," it states.

Voting against the action was Esther L. George, who was concerned the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations. Click here for more.



USDA ANNOUNCES 2.112 MMT IN DAILY SOYBEAN SALES... USDA this morning announced that China purchased 1.93 MMT of soybeans and also announced a sale of 182,000 MT of soybeans to an unknown destination -- all for 2013-14. Traders suspect the "unknown" sale is also to China. The large Chinese purchases are largely thought to be part of China's annual "buy America tour," in which they reaffirm their commitment to remain a strong buyer of U.S. soybeans.

As we reported in "First Thing Today" on Tuesday, Chinese importers signed 13 non-binding letters of intent to purchase 4.83 MMT of U.S. soybeans valued at $2.8 billion for 2013-14. Grant Kimberley, Director of Market Development with the Iowa Soybean Association, said the purchase agreements were higher than what he expected, but represent the growing relationship that's being built between the U.S. and Chinese grain buyers. "Some of these folks on trade missions I have seen multiple times and we're really starting to get to know each other. The Chinese prefer buying U.S. soybeans over South American beans because they like our technical support and the reliability of our logistics," said Kimberley.

Kimberley adds this perspective, "Whatever the world produces, the Chinese will have demand for over at least the next decade. Their demand will continue to grow as their feed demand is strong and livestock production is back on an upswing. Their demand could grow a lot or a little bit, but the bottom line is it's growing and they prefer U.S. soybeans."



WEEKLY ETHANOL PRODUCTION SLIPS SLIGHTLY... According to data from the Energy Information Administration (EIA), ethanol production the week ended Sept. 13 slipped by 10,000 barrels per day (bpd) from the previous week to 838,000 bpd. Ethanol stocks also declined by 91,000 barrels from the previous week to 16.2 million barrels due to a rebound in gasoline demand.



CHINA MAKES INITIAL 2013 COTTON BUYS FOR STOCKPILES... The first 780 MT of new-crop Chinese cotton has been purchased for state reserves -- the first purchase for its state stockpiling program from the 2013 crop, according to the China Cotton Information Center. There has been talk recently China would end its cotton stockpiling program in favor of a farmer-subsidy policy.




CORN: Hedgers and cash-only marketers have 25% of expected 2013-crop production sold via cash forward contracts for harvest delivery. The corn market is going to fight seasonal pressure moving forward as harvest activity picks up, but we aren't in the camp that there's a lot of downside price risk from current levels -- even if futures violate support at the August low. For now, we are willing to wait on an overdue corrective rebound to develop, though that will likely take some time.

BEANS: Hedgers and cash-only marketers have 50% of expected 2013-crop production sold via cash forward contract for harvest delivery. Be prepared to increase cash sales and/or add hedge coverage if Nov. soybean futures fill the Aug. 26 gap, as that would signal at least a short-term top is in place. Otherwise, we'll wait to see if the contract can push out to a new high before increasing sales.

WHEAT: The technical posture is still bearish and price action may remain choppy to lower as the Plains are getting needed rainfall as planting efforts get underway. But we'll wait on an overdue price recovery before advancing 2013-crop sales.

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. After bouncing off support at the bottom of the broad, sideways range, cotton futures are moving back toward the middle of the range. We expect more choppy trade near-term.

CATTLE: The cattle market is struggling to find buying interest despite tightening supplies. A fresh bullish catalyst (demand) is needed to fuel a strong price recovery. Without a strong pickup in demand, there is additional downside risk, though fed cattle producers should continue to carry all risk in the cash market for now. If support at the August low is violated, short-term defensive hedges may be required. Feeder cattle buyers should also wait on clear signs of a low before entering long hedge coverage.

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're hoping to heavy up 4th-qtr. coverage and to add 1st-qtr. 2014 hedges in Feb. lean hog futures, but we want some confirmation a seasonal top is in place before adding to our existing hedges.

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. Be prepared to extend coverage on an extended price pullback as we feel prices are ultimately headed higher. We're also looking to add long corn coverage after the market signals a low is in place.


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