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Report questions remain for corn and soybeans
On Friday, the soybean market was hit by some profit-taking as the market bulls booked profits after yesterday’s run-up.
There was some disappointment that the November contract was unable to take out the $14.00 level last night, and that added to today’s negative tone. Fresh news to trade was absent today. So the trade was left to digest yesterday’s report.
Most in the trade continues to question the pod weight that NASS used yesterday. The pod count per plant was the second lowest with the only last year’s crop being lower. The bean weight, estimated at second highest ever, just seems a little high. We can see why they did this in 2012 since the lowest pod count had the highest bean weight. But 2012 had late-saving rains that we did not have this year.
Remember, the “I” states had one of the driest July, August, and early Septembers on record this year. If we keep all USDA data the same but lower weights from 29.95 g/pod to 26.9 (same as 2010), then yield would fall from 41.2 to 37.00 bpa. We anticipate that the bean yields will continue to drop in upcoming reports and will work down to the Allendale producer survey yield of 39 bpa.
There are some decent rains in the forecast for the Midwest this weekend that should help beans that have not hit maturity yet. Unfortunately for most producers, the past few weeks' heat and lack of rain pushed the crop forward, and the bulk of the beans will not be helped by the rain.
On Monday, NOPA will release their August crush numbers. The trade is looking for the crush to be 110.7 million bushels. This would be down about 6 million for the July crush and the smallest number since September 2011. On Tuesday, the FSA will update their planted and prevent-planted numbers. The trade will be watching these numbers closely to get a hint as to what type of acreage revision we might see on the October WASDE report.
It is the October WASDE report when the USDA merges that FSA acreage number with their numbers. Most in the trade are looking for bean acres to drop due to prevented plant. Allendale anticipated the soybean acres will drop 1 million acres on the October report. On a side note, the September bean contract went off the board today with the last trade at the $14.95 level. Allendale expects the USDA to lower the new-crop ending stocks back down to last year’s 120 to 125 million-bushel area, but it may take them several revisions to get there.
Keep in mind, they (USDA) tends to use a scalpel rather than a butcher knife when they make revisions. We believe the true numbers will be even tighter than that, but USDA won’t post those numbers for now. We do expect a rally back to the $14.00 area for November soybeans, based on yesterday’s WASDE numbers and think the market will work its way to the $15.00 level when USDA recognizes our yield estimates of 39.0. This will not be a 2003 rally scenario. With an incredible supply coming from South America next spring, we have two to three months to get this rally done.
6-11-2013 Bought 1 unit of November $11.00 bean puts for 10 cents. Risk value of option will hold until anticipated “fall break.”
9-11-2013 Bought Dec 1400 call sold Dec 1500 call at 23 1/2 cents. Risk 10 cents stop close only; objective 1.00
Lean Hog Commentary
We have talked before about the problem with making supply comparisons against 2012. During the fall, hog producers were falling over themselves to market hogs in the face of excruciating feed costs. It was this week one year ago that the peak week of slaughter was made. Imagine that, the peak kill of the year during September! Normally we don’t hit that feat until later November. We should instead be making comparisons against 2011 for the second half of this year. This year’s kill, compared with 2011, was 3% to 6% over last year for the last three weeks of August. In the first two weeks of this month, it has been 2% to 5% under 2011. In other words, we marketed pretty aggressively in August and likely have another week of low market ready numbers to deal with. On top of the tight “right now” supply situation, this is also a key week for procurement for October’s National Pork Month features. These two issues show why cash hogs gained $2 last week and another $5 this week. The main issue of our discussion is that the current situation is not an October 14 situation (the day lean hog futures settle to the cash hog market (lean hog index). We are still bearish on the October contract but are holding off from sales so far. For the longer term picture, looking at the December contract, the industry is concerned about the September 27 Hogs and Pigs report. This may be the first report to show an actual PED impact for December and February. As it stands right now, that December contract is pricing in not just slaughters equal with last year, implying a 2% to 3% PED drop, but an actual marketing hole. We will tackle that issue next week.
(9/10) Stand aside.
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