News

*The grain markets are higher with beans leading the way, currently up 20 cents. The bulls are closely watching the seasonal patterns to determine potential harvest lows. Historically, corn and soybeans tend to put in the seasonal low during the first week of October, (15-year pattern, Moore Research).
*The outside markets are generally quiet with crude oil and natural gas trading lower, the dollar trending higher and equities bouncing slightly.
*Japanese Central Bank announcing they will be extending monetary easing by increasing their asset purchasing fund to 700 billion. This is an attempt to counter the strength of the yen and follows the U.S. Federal Reserve announcement last week to stimulate growth through additional quantitative easing.
*China domestic crush margins improving but still in the red.
*Russia Ag Minister reducing 2012 harvest estimate to 72-73 MMT’s; down from previous estimate of 70-75 MMT’s. Exports still estimated at 10-14 MMT’s.
*News wire poll estimating U.S. corn yield at 121.0 bpa versus USDA September estimate of 122.8 bpa. News wire poll estimating U.S. soy yield at 35.8 bpa versus USDA September estimate of 35.3 bpa.
*U.S. weather outlook is wetter for the Southern Plains and into the Southern Midwest in the 6-10 day outlook. Light rains will slow harvest progress in the ECB this weekend but mostly dry weather will dominate the entire Corn Belt into late next week.
*Moderate rains are forecasted late next week in Oklahoma, Kansas, Missouri, Iowa, Illinois and Indiana. After this event has passed, warmer and drier outlook should resume into the first week of October.
EARLY MARKET FEATURES
*The bulls resurface after a few days of liquidation.
*Rumors that China may have secured 4-5 cargoes of U.S. beans.
*Foreign and domestic feeders reportedly buyers of soymeal.

Distillers grain prices reached record high prices this summer due to both supply and demand factors that have largely resulted from the drought, says Darrell Mark, adjunct professor of economics at South Dakota State University during a recent iGrow Radio Network interview.

“The widespread drought has significantly lowered corn production for 2012, which has driven corn prices to record high levels,” Mark said. “As an input to ethanol production, these high corn prices have generated deeply negative margins for ethanol plants and have caused many to reduce production or shut down altogether. This reduced ethanol production correspondingly lowers distillers grain production because ethanol fuel and distillers grains are produced in fixed proportions. Thus, supply of ethanol coproduct feeds has declined this summer.”

He adds that on the demand side, livestock producers have bid up prices for distillers grains as they try to substitute it for drought-scorched pastures, record high hay and corn prices and limited availability of most feedstuffs.

“Interestingly, the slight pullback in South Dakota distillers grain prices in the last three weeks is likely due to the availability of silage that was cut in large quantities due to the drought,” he said.

Mark says the outlook for distillers grain prices going ahead will be highly dependent on the corn market.

“That, of course, is quite uncertain and highly volatile and will remain so until final yield estimates are available,” he said. “Some early yield estimates across the Corn Belt have sounded disappointing, but some have been better than expected too.”

USDA’s September crop production report only reduced national yield by 0.6 bushels per acre from its previous forecast.

“This was seen as somewhat bearish to the market,” said Mark, “but it might be the type of weakness to use to price two or three months of feed needs. Then see what harvest yields are before making more purchases.”

Mark points out that even at current price levels, there is some demand destruction occurring, which increases the potential for lower prices. It would take additional large reductions in corn production to spur the market much higher, he adds.

“Any decision to contract distillers grains now, at near record prices would be done with the belief that prices could move still higher,” he said. “While that could certainly happen, usually there is more downside possibility when prices of a commodity are at near record high prices. Still, if current prices offer an acceptable feeding margin, locking in distillers grain prices could be prudent risk management for some producers.”

For more information on this topic and to hear the iGrow Radio Network interview with Mark, visit iGrow.org.

Today’s USDA report is seen as bearish for corn prices, moderately bullish for livestock producers.

The prospect of larger-than-expected corn supplies after a season of drought dominated USDA’s World Agricultural Supply and Demand Estimates (WASDE) report today, consigning dairy forecasts to a relative nonevent.

Milk production, dairy demand and prices remained relatively unchanged from last month’s WASDE outlook. 2012 U.S. milk output is forecast at 199.9 billion pounds, down from 200 billion pounds projected in August but still higher than 2011’s production of 196.2 billion pounds.

USDA’s U.S. corn outlook reflected an increase in expected 2012-13 beginning stocks, which more than offset lower production. Today’s WASDE report put the nation’s 2012 corn crop at a 6-year low and pegged the soybean crop as the smallest in nine years. But, bucking expectations of shrunken corn supplies, USDA raised the carryover into the 2012-13 year by 160 million bushels from last month, to 1.181 billion bushels. It also raised expectations for higher feed usage.

The report was considered bearish for corn prices. December corn closed at $7.69 per bu., down 8¢.

The WASDE projections, however, may boost the outlook for livestock producers.

“High corn prices have been killing demand,” said Robin Schmahl, marketing and hedging specialist with AgDairy LLC.

Corn at $8 per bu. has resulted in heavier-than-normal livestock culling, slower ethanol production and fewer exports, Schmahl said.

“A weakening corn price will stop or slow dairy cow culling,” he said. Likewise, rising milk prices should help dairies “stop the bleeding,” added Schmahl.

Class III futures prices have surpassed $19 per cwt. on declining milk production and expectations of stronger demand in the coming months.

Today’s report estimated the 2013 All-Milk price at $17.85 to $18.85 per cwt., up from $17.80 to $18.00 per cwt. that USDA has estimated for 2012.

Beans are 4% harvested versus 2% on average and 1% a year ago.
Average trade estimate for U.S. 2012-13 wheat ending stocks is 704 mb; world wheat carryout for 2011-12 estimated at 198.3 MMT and 174.5 MMT for 2012-13. Average trade estimate for Wednesday’s USDA crop report has corn yield at 120.6 bpa versus 123.4 bpa in August. Total production estimated at 10.380 bb versus 10.779 bb in August. Soybean yield estimated at 35.8 bpa versus 36.1 in September. Total soybean production estimated at 2.657 bb versus 2.692 bb last month.
Average trade estimate for corn and soybean carryout in Wednesday’s report has old crop corn at 1.044 bb versus 1.021 in August. New crop corn at 592 mb versus 650 mb last month. Old crop soybean carryout estimated at 134 mb versus 145 mb last month, new crop estimated at 109 mb versus 115 mb in August.
The weather outlook is similar today as that of yesterday. A cold front will trigger showers and thunderstorms on Thursday with totals averaging between .25-.75” with Midwest coverage near 70%. Next week, temperatures look to average cooler than normal with precipitation near 80-100% of normal.

EARLY MARKET FEATURES
Another quiet session expected ahead of Wednesday’s S&D report.
Outside markets mildly supportive with a weaker dollar and stronger equities. Rain and cooler temps still forecasted to move across the Midwest on Thurs. Germany to rule tomorrow on participation in the European Stability Mechanism.

AUGUST 18, 2012
By: JOHN H. CUSHMAN JR., The International Herald Tribune

Three big intertwined but rival American agribusinesses – corn farmers, meat and poultry producers, and biofuel refineries – are in a political fight to protect their interests as a drought ravages corn producers and industrial consumers alike across the United States.
At issue is whether to suspend a five-year-old federal mandate requiring more ethanol content in gasoline each year, a policy that has diverted almost half of the domestic corn supply from animal feedlots to ethanol refineries, driven up corn prices and plantings, and created a desperate competition for corn as the drought has gripped the nation’s farm belt.
Meat producers are demanding that the administration of President Barack Obama waive the ethanol quota to ease rising feed prices. But ethanol producers worry that the loss of the quota would undermine the ethanol industry and do little for corn farmers but drive down the price of their stunted harvest.
The meat industry, backed by several governors, lawmakers and even international food agencies, argues that the quota has distorted grain markets by sucking up corn when ranchers can least afford it.
But the ethanol industry says that its corn consumption is down 12 percent since the start of the summer and that weekly ethanol production is at a two-year low. As corn prices have risen, refineries have scaled back production, idled dozens of plants and sold ethanol inventories. As a result, the industry may consume 10 percent less of this summer’s crop than last years, government and industry officials said.
”The market is already responding to the reality of this drought,” said Agriculture Secretary Tom Vilsack, a former Iowa governor who supports the quota.
Meat and poultry producers countered that the government was still ”picking winners and losers” and urged the Obama administration to ”let the market work and embrace free-market principles,” as J.D. Alexander, president of the National Cattlemen’s Beef Association, put it when he announced a petition to waive the quota two weeks ago.
Four governors, dozens of senators and scores of House members have petitioned the administration to waive the ethanol standard.
Corn growers, caught in a political tug of war between their biggest customers, are asking the government to move cautiously, if at all. (Many ethanol refineries are owned by corn farmers.)
”We have great concern and empathy for not only our members who are suffering, but all who we supply,” said Garry Niemeyer, president of the National Corn Growers Association, in a statement this week. ”This includes the domestic livestock sector, our export customers, the domestic food industry and the ethanol industry. All are suffering because of the drought.”
The corn farmers said a waiver should be allowed only if careful study showed a severe economic impact.
So far, the Obama administration seems inclined not to interfere. The president ”has been a strong believer in ethanol,” a spokeswoman, Jennifer Psaki, said during Mr. Obama’s trip to Iowa this week. ”He absolutely believes in it – he thinks it’s a driver of the economy here and a key […]