April 21, 2014

North Dakota Congressman Cramer To Host Farm Bill Seminar

Congressman Kevin Cramer announced he will bring two senior staff members of the House Agriculture Committee to Fargo for a public Farm Bill seminar and question-and-answer session. Matt Schertz, senior professional staff member, and Bart Fischer, chief economist of the Committee, will answer questions on the implementation of the 2014 Farm Bill for agriculture representatives, crop insurance agents, and the public.

“Since the farm bill was signed into law, many agriculture professionals have questions on how it is being implemented. With the expanded crop insurance options presented in the new Farm Bill, farmers are confronted with decisions which will have multi-year consequences. In bringing to North Dakota two of the experts most involved in drafting and negotiating the Farm Bill, my hope is to provide answers and guidance,” said Cramer.

Event details are below:

Friday, May 2

 Seminar and Q&A Session with Senior Agriculture Committee Staff

10:00am to 12:00pm

NDSCS Fargo
Auditorium, Room 100

1305 19th Ave North

Fargo 

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Could Corn Carryout Still Shrink?

When the corn planters roll in force across the Midwest this spring - their owners will be far more optimistic than just a few months ago. Late in December the market for corn looked to be truly tanking. However - demand for the grain has been strong - and it looks to stay strong enough to use up the better part of a big crop harvested last fall. Strong demand has caused USDA to lower the projected number of leftover bushels down for five months running – notes University of Illinois Ag Economist Darrel Good…

Darrel Good 1

Compared to usage projections made in November - current projections are 100-million bushels larger for corn used for ethanol production - 350-million bushels larger for exports - and 100-million bushels larger in the feed and residual category. It leaves about 1.35-billion bushels in the bin. That’s called the carry out or the ending stocks figure and impacts how much corn USDA will project to be left in the bin 18 months from now – too. . .

Darrel Good 2
The whole thing is a moving target - but right now it appears to be pointing to a bit higher season’s average cash corn price for this year - and one next year that could be about the same. Both of those figures are higher than would have been projected late last fall.

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Weekly Market Analysis with Miller Risk Management

Weekly Summary

It was an active week this week with USDA reports, changing weather forecasts and a Chinese default on U.S. and South American soybeans.  In addition, outside markets saw steep declines in the financials with the U.S. dollar down sharply and the Dow Jones and Nasdaq seeing heavy losses.  The combination of events sent some investors in to hunker down mode, although to be fair, the bulk of the trade seemed more interested in taking profits after monthly WASDE data from USDA more or less confirmed what had been expected following the Quarterly Grain stocks report of last week.  Weather forecasts were unstable as well for both the Midwest and HRW country.

Midwest weather started the week out cool and wet before warming up nicely mid week.  That nice drying weather is expected to last until this weekend but starting in the west on Sunday, unseasonable cold weather and rain is set to make its way across major corn areas further slowing planting.  Additionally, while the east and south are wet, the north and west are more concerned about dryness.  The driest areas are located in the extreme southern South Dakota, Nebraska and western Iowa areas.  Weather is not dry enough to prevent planting, but it is creating concerns for later this year.  The remainder of South Dakota, Western MN and North Dakota are also tending towards the drier side, although there is some residual moisture at least in the top soil.  In the corn section below, we will include an example of soil temperatures through Iowa and Illinois.

Soybeans

Soybeans ended the week poorly as any enthusiasm from USDA’s WASDE report was quickly erased by confirmation that Chinese crush plants had defaulted on five to six cargoes of U.S. and South American soybeans.  First, the USDA WASDE report, however.  The report showed projected ending stocks of 135 mbu which is around 4 million bushels short of trade expectations.  That’s not a tremendous amount, but there was likely also some caution due to the number of changes made to the U.S. Balance Sheet.  Those changes are detailed below:

BEANS

USDA

USDA

MAR

MAR

CHANGE

Planted (mln acres)

76.5

76.5

Harvested (mln acres)

75.9

75.9

Yield (Bu/Acre)

43.3

43.3

Carry-In (mln Bu)

141

141

Production

3289

3289

Imports

35

65

+30

Total Supply

3464

3494

+30

Crush

1,690

1,685

-5

Exports

1,530

1,580

+50

Seed, Feed, Residual

99

95

-4

Total Use

3,319

3,360

+41

CARRY OUT

145

135

-10

Stocks-To-Use

4.4%

4.0%

Avg Farm Price

12.20-13.70

12.50-13.50

narrowed expected range
World Soybean End. Stks.

70.64

69.42

tighter, mostly due to   U.S. changes
Stocks-To-Use

26.2%

25.8%

As you can see, USDA did get the balance sheet to work, although it took some doing.  The most notable change here is that increase in import levels, which, if reached would be a record import year.  That’s not all that surprising given the price differential between the U.S. Gulf and Brazilian ports, which remains around $50/ton, or certainly enough to get barges into the Southeast. USDA did make some strong adjustments to exports to account for our quick year to date pace, a move which the trade was been waiting to see for some time.  Which brings us to our next point.

U.S. soybean markets have been trying valiantly to work off some Chinese demand and while the bulk of U.S. soybean sales to China have been shipped for the year, there was some news mid week which could prove challenging to South American soybeans and new crop U.S. beans (old crop soybeans not being immune to being pulled down as they have a huge inverse).  Thursday markets became aware of a situation involving five to six cargoes of both U.S. and South American soybeans sitting in Chinese ports that were officially defaulted on.  Another five to six cargoes of soybeans are en route.  The problem?  Chinese crush plants, who were/are known to be operating in negative territory were unable to obtain letters of credit from banks as Chinese credit situations tighten.  Now this isn’t to say the market wasn’t aware of two things; the negative margins and the fact that credit was getting harder and harder to come by.  However, the fact that Chinese buyers would officially default on any previous purchases caught the market off guard and officially stemmed any rally attempt following the report.  Prices treaded water briefly before giving in, moving lower into Friday.

Technically, the market remains above the $12.02 support level that was breached around the time of the quarterly grain stocks report.  However, its more than likely just a matter of time before that level is broken.  News of this sort is taken quite seriously and while the event in and of itself is small, the implications are huge.  China has long been the underpinning support of a long term rally in U.S. soybean markets and struggle there will easily affect U.S. prices.  Now, that isn’t to say we are headed for an immediate collapse, but we certainly will see a correction and to come out of it and regain the previous highs, it will take some sort of fresh news or an improvement in the Chinese economy.

Corn

Corn markets struggled this week after getting off to a decent start.  However, the USDA WASDE report, as friendly as it was, inspired more of a buy the rumor sell the fact scenario that the market never pulled out of, at least through Friday when prices closed near the lows of the week.  There’s a few different points here, but first the report:

CORN            2013-2014

USDA

USDA

MAR

APR

CHANGE

Planted (mln ac)

95.4

95.4

Harvested (mln ac)

87.7

87.7

Yield (Bu/Acre)

158.8

158.8

Carry-In (mln Bu)

821

821

Production

13,925

13,925

Imports

35

35

Total Supply

14,781

14,781

Food,Seed&Ind.

6,400

6,400

Ethanol (inc. in above)

5,000

5,000

Feed & Residual

5,300

5,300

Exports

1,625

1,750

+125

Total Use

13,325

13,450

+125

CARRY OUT

1,456

1,331

-125

Stocks-To-Use

10.9%

9.9%

Avg Farm Price

4.25-4.75

4.40-4.80

raised by 5-15 cents
World Corn End. Stks.

158.47

158.00

tighter, mostly due to   U.S. changes
Stocks-To-Use

16.8%

16.6%

.

As you can see, the friendliness in old crop corn stemmed from a revision higher in export values.  The trade had discussed this for some time, export trends have been strong.  This revision by USDA is certainly not an impossible number, but it does take some aggressive shipments from here on out.  Much of that news was priced in Monday and Tuesday as the market remained above the $4.90-$5.00 area that had capped prices through much of March.  The report inspired a brief five to ten cent rally before floating lower and then hovering around the $5.00 area once again on Friday.  The underlying point here to the market is that it was only a few months ago that many analyst believed a 2 bbu carryout was nearly a sure thing and now here we sit at 1.33 bbu.

By the end of the week, attention had shifted to weather forecasts and planting progress.  The first USDA Crop Progress report of the season was released Tuesday (delayed a day due to a technical glitch) but did not contain and planting progress for corn.  That’s expected to change this Monday when the first national report comes out.  According to state releases, Delta states are catching up in progress although they are still moderately behind.  The bigger concern right now is the southern and eastern cornbelt areas that should be in the field right now but simply haven’t warmed up enough. Further east and south areas are also more likely to be in a wet situation that will hamper progress.  This past week provided some relief from that, but starting this week we slide back into a cold and wet trend.  Soil maps released this week showed areas are warming modestly, but the bulk of Iowa soils remain in the mid 40 degree area, still far short of the 50 degree mark that the market typically looks for.  Also, as noted above, there is some concern about the longer term soil moisture outlook for areas in the west.

Technically, prices are sitting at or just below support levels, with the old crop contracts in a slightly more perilous spot that new crop.  Momentum on Friday definitely seemed to favor the downside, but extended forecasts for cold temps could change that.  From a larger view, $4.90 is the mark that would present the opportunity for a larger correction lower while a push below $4.75 would put the market back in bear market mode.

Wheat

Of the three major grains, wheat is the one that seemed basically immune to the monthly WASDE numbers, although the news there wasn’t great.  There are several reasons for this, but the basic one is that monthly WASDE data focuses on old crop and the marketing year is nearly complete (May 31st).  There is also some structurally issues in the marketplace involving the premiums and/or discounts of various classes that are creating some problems.

One report that the market was looking forward to is the first USDA weekly Crop Progress report data.  The report was scheduled for release Monday of this week and was then delayed until Tuesday due to a technical glitch.  Still, upon release, the results weren’t much different than expected.  The crop was rated 29% poor/very poor and 35% good to excellent, which is comparable to last year’s first rating.  That’s a reflection of the nations crop as a whole, and the HRW portion of those ratings were substantially worse.

U.S. drought monitor data this week showed that despite the recent rains that have moved through the area, the area of major winter wheat areas that have worsened in condition grew.  Oklahoma expanded to 14.5% of the state in some form of exceptional drought, which is the worst category.  That compares to just 8.6% the prior week, which is a substantial change considering the rains that were received.  Forecasts remain very conflicted but in general point to little or no rain in the western reaches of KS, OK and TX.  Eastern areas of these states are better off.  The more concerning part of this is that the crop isn’t using a ton of water right now and temperatures haven’t been overly warm.  A few weeks from now if there’s no rain and temps heat up and winds pick up, it won’t take long to dry out plants.  Conflict that with a SRW crop that is experiencing nearly ideal conditions and generally overwhelming supplies of world wheat and you can see the awkward position that the market finds itself in.

As friendly as all this is, the market has undergone a substantial correction in recent weeks and finished near the week’s lows.  There’s no reason to believe this won’t continue early next week, although the market will remain very sensitive to forecasts. Further reductions in condition will likely lead to some sort of bump but we need a longer term news item to push prices back to the old highs.  I would say however, that HRW will remain the leader of the market and will maintain it’s abnormal premium over Mnpls, especially with such large HRS supplies in the Northern Plains and Canada.  Those producers with HRW should call and we can discuss sales percentages depending on the conditions of the fields as they emerge from dormancy here.

On HRS note, Canadian officials are projecting are return to “normal” production, partially due to lower planted acres since producers there are still swimming in grain but primarily because yields are forecasted to return to normal following last years (literal, in some cases) bin buster.  Railroad shipments in Canada have picked up substantially following the government’s emergency order.  Still, it will take awhile to get the piles cleaned up.  On the flip side, producers in the U.S. should not expect any substantial improvement in our basis as there’s been little change in rail shipments of grain in many locations.  Due to the long term nature of this problem, we will need to be aggressive in setting basis for new crop futures.

On that same item, producers will want to make sure they have their fertilizer in their firm possession at the start of the season as the rail delays are also backing up fertilizer deliveries.  Most retailers will have their first shot of fertilizer in the shed, but refills for later in the season could be delayed.

Miller Risk Management is a subsidiary of Clayton Pope Commodities, Champaign, Illinois

RISK DISCLAIMER: Trading in futures products entails significant risks of loss which must be understood prior to trading and may not be appropriate for all investors. Please contact your account representative for more information on these risks. Past performance of actual trades or strategies cited herein is not necessarily indicative of future performance

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