Evening Report (VIP) -- September 25, 2012

September 25, 2012 09:48 AM

RAINS ENCOURAGE SOYBEAN PLANTING IN BRAZIL... South American crop consultant Dr. Michael Cordonnier says scattered rains recharged soil moisture enough to insure soybean establishment in Brazil last week, encouraging producers to begin planting.

Recent rains are leading to optimism about a good start to the growing season, but Dr. Cordonnier says producers face more challenges. Some Brazilian producers are still waiting on their fertilizer due to bottlenecks at the Port of Paranagua and there have also been seed shortages for the most popular varieties. "Additionally, there is the possibility that soybean rust may become a serious concern this growing season especially in Mato Grosso," he says.

Early corn planting has gotten off to a slow start in Argentina due to flooding but is expected to improve as the near-term forecast is drier.

Dr. Cordonnier left his 2012-13 South American corn and soybean crop estimates unchanged this week. He pegs the Brazilian soybean crop between 81 million metric tons (MMT) and 83 MMT; the Argentine soybean crop between 55 MMT and 57 MMT; Brazilian corn between 72 MMT and 73 MMT; and Argentine corn between 26 MMT and 27 MMT.



CONSULTANT RAISES U.S. SOYBEAN CROP ESTIMATE... Dr. Cordonnier says while soybean yield reports in the U.S. have been highly variable, there have been a "significant" amount of higher-than-expected yield reports, leading him to increase his yield estimate by 0.5 bu. per acre to 35 bushels. He is now "neutral" toward the soybean crop, which he projects at 2.56 billion bushels. Dr. Cordonnier left his corn yield estimate at 119 bu. per acre for a crop of 9.87 billion bu. and he says the final yield will be highly dependent on how USDA determines harvested corn acreage.



ODDS OF EL NINO EASE... The Australian Bureau of Meteorology says the ENSO indicators its tracks signal values are still neutral. While indicators are closer to El Nino, recent cooling of equatorial Pacific waters suggest the odds of El Nino have been lessened. The bureau still expects El Nino to develop before the end of the year, but for the event to be short-lived and over by early 2013.

"Despite the shift towards neutral conditions, the tropical Pacific remains warmer than average," says the bureau. "When combined with the patterns of cloud and ocean temperatures in the Indian Ocean, conditions continue to favor below-average spring rainfall over much of Australia." Click here for more.



ILLINOIS GRANTED AFLATOXIN BLENDING WAIVER... As reported in "First Thing Today," Illinois requested the approval from the Food and Drug Administration (FDA) to blend corn containing aflatoxin with "clean" corn this fall. FDA has granted the waiver. Click here for more.



CONSUMER CONFIDENCE IMPROVES IN SEPTEMBER... The Conference Board's Consumer Confidence Index, which declined in August, improved more than expected in September to 70.3 -- up 9 points. Consumers say they are more upbeat about present-day conditions with those expecting more jobs in the months ahead increasing from 15.8% last month to 18.5% in September. The better-than-expected reading provided a lift to outside markets today and is closely watched by livestock traders as they monitor the month-to-month fluctuations in the index to gauge meat demand. Click here for more.



FOOD PRICE OUTLOOK: DROUGHT IMPACT EXPECTED IN 2013... USDA's Economic Research Service (ERS) reports retail food prices, on average, have been flat so far in 2012 and left its outlook for food inflation unchanged from its previous forecast at 2.5% to 3.5%. The food-at-home Consumer Price Index (CPI) was unchanged from January to August 2012, with deflationary pressure due to unusually low fruit and vegetable prices as well as decreased prices for fluid milk and pork. On the other hand, prices for beef and veal, poultry and fats and oils have increased in 2012.

The year-over-year increase in the food-at-home CPI has fallen each month so far in 2012, indicating that food price inflation has slowed since 2011 and that the impact of the drought has yet to be realized on food prices. But ERS projects food prices in 2013 to climb by 3% to 4%. Click here for more details.



WHICH FARM BILL IS BETTER: SENATE OR HOUSE?... A new farm bill should not only be an adequate and equitable safety net for farmers, but it must be budget conscious. Considering those parameters, it's easy to conclude that the House plan is the better farm bill version in Congress.

The House farm bill is more logical and equitable in that it offers farm program options for both revenue and target price programs. The House bill includes several revenue-type programs, including a revenue price loss and an add-on Supplemental Coverage Option (SCO) program. In contrast, the Senate bill dictates farm programs that are unfavorable to southern producers and offers no target prices. In fact, Washington Consultant Jim Wiesemeyer deems the Senate farm bill as "one of the most regionally tilted farm bills in my over 30 years" covering them.

Also, if a farm bill is not finalized by March 2013, a new and more realistic CBO farm bill baseline may put the Senate-dictated revenue program into budget cost overdrive (hence the hurry-up push for passage). CBO's March 2012 baseline assumes the price of corn would be just $4.96 this year and $4.54 in 2013. The case is similar for soybeans and wheat. Prices for 2012-crop corn, soybean and wheat will be far higher than CBO's old baseline, though a big jump in 2013-2017 average prices is as yet unclear. While the revenue proposals' use of an Olympic average of market prices means the high 2012-13 prices won't go into the averages, it does mean that other relatively high prices, such as those from 2011-12, will be included.

In contrast, the House target/reference price loss option may score less in a new budget baseline due to those higher prices.

Charges that target prices would distort plantings have not been proven by several independent analyses. And Jim fires back, "wouldn't a payment-tilted revenue program in the Senate bill tilt some farmers to grow crops that have very high revenue guarantees at least for a few years?"

Another criticism of the House bill is that it would not help farmers in years when their crops are poor from weather factors but prices are high. But again, the House bill offers producers an option to at least temper any such impact by buying an additional crop insurance policy, SCO.

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