ADM

Archer Daniels Midland warned U.S. officials against reforms which could cut U.S. demand for ethanol, saying it would change rules which encouraged it to make hefty investments,.

Rival Valero Energy termed the proposals “poor.”

John Luciano, the ADM chief operating officer, said that he would be “highly disappointed” if the U.S. enacted a proposal from the Environmental Protection Agency which would cut to 13 billion gallons, from 14.4 billion gallons, the mandated level of ethanol blended into gasoline.

“We have invested based on the policy, and we invested for the long-term,” Luciano told investors. The EPA said “no final decision” has been made on its proposals, which are being reviewed by the White House.

The comments came as Valero unveiled an operating profit of $113 million for its ethanol division, compared with a $73 million, reflecting higher margins – which have been boosted by low corn prices and demand for the biofuel and its byproducts – and higher output volumes.

Production levels were at an average of 3.38 million gallons a day during the quarter, up 1 million gallons a day over the same period last year.

ADM reported operating profits of $71 million for the quarter at its bioproducts division, which is focused on ethanol manufacture, compared with a loss of $26 million a year before.

Luciano said there was growing potential for U.S. ethanol exports, which some experts were forecasting at “maybe even 1 billion gallons for next year.”

He added that ADM would be protected from ethanol market headwinds by the “first quartile” efficiency of its operations, with high-cost producers more vulnerable.

Derivative protection

The U.S. derivatives regulator approved a plan to better protect customers of futures brokers after the collapse of MF Global left clients struggling to get their cash back.

The new customer protection rule requires brokers – the biggest of whom are units of large Wall Street banks – to tighten up reporting and disclosure procedures, and set aside their own cash to cover client shortfalls.

The Commodity Futures Trading Commission built in a long phase-in period for the hotly debated client protection requirement, after the futures industry complained it would be overtly costly and depress trading.

The CFTC, which oversees futures and swaps markets, voted 3-1 in favor of the plan, which was first proposed a year ago.

Futures brokerage MF Global collapsed in October 2011, leaving customers reeling after finding about $1.6 billion was missing from their accounts, money the company had used to stop gaps in its business, which is unlawful.

The CFTC’s new rule bans a broker from dipping into one client’s funds to cover a shortfall of another, requiring them to put up enough of their own money – known as residual interest – to cover any gaps in the funds.

The Futures Industry Association, an industry lobby group, had said the requirement would force the industry to pour an additional $100 billion into the business.

And clients – for instance, farmers who use futures to hedge the value of their harvests – feared that they would ultimately have to foot the bill.

CORN ANALYSIS

Corn closed the week $.12 3/4 lower. Last week, private exporters reported a sale of 103,600 metric tons of corn to an unknown destination, 174,000 mt to South Korea and 123,040 mt to Japan.

Weekly export sales of corn showed a total of 208.4 million bushels, well above what’s needed each week to reach the USDA forecast of 1.225 billion bushels.

The USDA announced corn harvest has advanced to 59 percent completed, slightly behind the average pace of 62 percent.

The remaining stages of harvest is right in front of us, but this is when the majority of cash sales and pressure against prices will occur.

Thus, the corn market looks to find hedge pressure as harvest progresses into today’s report. The trade will be concentrating on the strong possibility the USDA will increase its production estimate in today’s supply/demand report.

The likelihood the USDA will increase production, means the trade will want to be short going into the report. Look to sell small rallies into resistance.

Informa pushed corn yield to 161.2 bushels per acre versus 158.8 in its October report. It estimated production is a record 14.223 billion bushels.

Strategy and outlook: Producers are 50 percent sold of 2013/14 crop and own the December 560 strike puts on 50 percent of production. Exit at $4.10.

Producers are 10 percent sold of the 2014/15 crop.

SOYBEANS ANALYSIS

Soybeans closed the week $.34 lower from last week. Last week, private exporters reported a sale of 230,000 mt of soybeans to China and 230,000 mt of to an unknown destination.

There was also a sale of 33,000 mt of bean oil to an unknown destination.

Weekly export sales of soybeans showed a total of 174.2 mb, well above what is needed each week to reach the USDA forecast of 1.370 bb.

The USDA reported soybean harvest has reached 63 percent complete, slightly behind the average of 69 percent.

Farmers are in the latter one-third of harvest and should complete the soybean harvest in the next several weeks.

The last stages of harvest should bring the most pressure as farmer selling will intensify as storage space becomes scarce.

The traders will be bracing for a large production figure today from the USDA as private yield estimates are coming in larger than expected.

Last week, Informa increased the national soybean yield estimate from 41.7 bushels per acre last month, to 43.3 bpa.

Production was also increased from October’s estimate of 3.176 bb to 3.298 bb.

November and January still have a carry being offered compared to storing soybeans into the summer, so storing soybeans at harvest makes no financial sense.

Strategy and outlook: Producers are 80 percent sold of the 2013/14 crop.

Producers are 10 percent sold of 2014/15 production.

Producers are 80 percent sold of the 2013/14 crop. Producers are 10 percent sold of 2014/15 production.

This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solution’s Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such.

Brian Hoops can be reached at (605) 660-1155.