First Thing Today (VIP) -- December 31, 2012

December 31, 2012 12:00 AM


PRICE PRESSURE OVERNIGHT... Markets are on edge as the fiscal cliff negotiations continue. As of 6:30 a.m. CT, corn futures are trading 2 to 4 cents lower, soybeans mostly 13 to 15 cents lower, Chicago wheat 6 to 8 cents lower, Kansas City wheat 7 to 9 cents lower and Minneapolis wheat 7 to 10 cents lower. The U.S. dollar index is firmer this morning.

NOT A QUESTION OF IF BUT WHEN 2008 FARM BILL IS EXTENDED... An extension through the 2013 crops is now evident, with farmers getting direct payments on 82.5% of base acres. Some farm-state lawmakers continue to push a new controversial dairy program as part of the extension, but there are just as many opponents. A new farm bill will be completed in 2013, giving USDA time to issue rules and implement some of the major new programs included in the measure. Funding for livestock disaster and other lapsed programs will be part of the farm bill extension.

FISCAL CLIFF DIFFERENCES NARROWING... Negotiators have yet to settle several major issues, including allowing income tax and estate tax rates to increase at higher levels, if and how long to avert automatic spending cuts and proposals that would alter the costs of entitlement programs. Democrats acknowledge they will not be able to include stimulus funding for transportation and infrastructure projects. Republicans say Democrats have dropped their demand to raise the debt ceiling. If the Senate approved a deal on this evening or Tuesday morning, it would give the House a chance to vote on New Year's Day before the markets open again on Wednesday. Bottom line: We monitored talks all weekend and see a chance of an agreement, but it won't really deal with the U.S. debt and deficit all that much.

CHINA'S MANUFACTURING SECTOR EXPANDING... China's manufacturing sector showed further signs of expansion in December after struggling for much of this year. The final HSBC purchasing managers' index came in at 51.5 for December, a full point above the November reading and the highest mark since May 2011. The new orders sub-index was the strongest reading since January 2011. Meanwhile, China will maintain a prudent monetary policy and keep consumer prices stable in the new year, according to outgoing central bank governor Zhou Xiaochuan.

RUSSIAN GRAIN HARVEST SLIGHTLY SMALLER THAN FORECAST... Russia harvested 70.4 MMT of grain this year, according to the government statistical agency, slightly below the ag ministry's forecast of 71 MMT. Russian grain production dropped by 25.3% from year-ago as yields were trimmed by drought.

CATTLE FUTURES AT A PREMIUM TO CASH MARKET... Cash cattle traded $1 higher around $127 in the Plains last Friday. But with futures at a premium to that level, the market may face some profit-taking in today's pre-holiday session. Post-holiday boxed beef trade is likely to set the tone for cash cattle trade later this week.

PRESSURE EXPECTED ON HOG FUTURES... Lean hog futures are likely to face pressure today as last Friday's Hogs & Pigs Report had a bearish tone, with most categories coming in above expected levels. Meanwhile, packer demand for cash hogs is expected to be limited to start the week as some plants are closed today and Tuesday is a holiday.

HOLIDAY TRADING SCHEDULE... Grain and livestock markets will observe normal trading hours today. All markets and government offices are closed Tuesday, January 1, for New Year's Day.

WEEKEND DEMAND NEWS... Iraq tendered for a minimum of 50,000 MT of optional origin wheat.


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