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BRIAN HOOPS

By Staff | Feb 19, 2016

Livestock marketing

CME Group announced it will take a number of steps designed to further enhance its livestock markets.

Reduction of CME livestock trading hours based on customer requests, CME livestock futures and options trading hours will be reduced to align with the period of greatest liquidity in these markets.

During 2015, roughly 87 percent of daily livestock futures and options trades occurred during the proposed hours.

Challenging year

Bunge Ltd expects a challenging year in 2016, said Soren Schroder, chief executive officer.

The global grain trader reported a lower-than-expected quarterly profit. The company, which is also a major agricultural processor, faces pressure from massive global supplies of corn and soybeans that farmers have accumulated after years of large harvests, Schroder said.

Historically, large crops have benefited traders and processors like Bunge and rivals Archer Daniels Midland Co., and Cargill Inc., by providing more grain for them to transport, store and sell.

However, Bunge said slow selling by farmers and weak export demand hurt results in its U.S. grain operations. Low crop prices have prompted farmers to keep their grain in storage instead of selling it, while importers are snapping up even cheaper supplies from South America and other parts of the world.

“Northern Hemisphere oilseed processing margins and grain exports will be pressured until markets adjust to the increased level of global supplies,” Schroder said in a statement.

In 2016, results in Bunge’s grain and oilseeds businesses should be driven largely by operations in South America, where Bunge is a major player, said Drew Burke, chief financial

officer. Agribusiness, the company’s largest unit, will probably “start the year slow,” with results weighted toward the second half of the year, he said.

Farm profits drop

The U.S. Department of Agriculture forecast that farmers will face a drop in profit for the third straight year as persistent surpluses depress crop and livestock prices.

Farm net income will be $54.8 billion in 2016, the USDA said, in a report on its website, 2.8 percent less than the $56.4 billion estimated for 2015.

The hard times follow an era of record profit that peaked at $123.3 billion in 2013, when rising global demand combined with a domestic drought that crimped supplies of corn and cattle, while a virus devastated hog herds.

Direct government farm-program payments are forecast to rise 31 percent to $13.9 billion in 2016 with the 2014 farm bill’s price-loss and risk coverage accounting for almost two-thirds of the total.

U.S. farm expenses will fall 1 percent to $376.5 billion this year, the first consecutive annual decline since 1986. ‘The drop in expenses is expected to alleviate, but not completely offset, the drop in cash receipts, and ultimately lead to tighter margins,” the USDA said in a report.

The U.S. farm debt-to-equity ratio will rise for a fourth straight year, indicating “a higher level of financial stress is building” relative to recent years, the USDA said.

CORN ANALYSIS

Corn closed the week 6.5 cents lower.

Last week, private exporters reported sales of 100,000 metric tons of corn to Mexico, 243,000 mt of corn to Japan and 152,400 mt to an unknown destination.

Corn export sales were disappointing at only 15.9 million bushels, the third largest weekly total of the marketing year.

Given the adjusted export sales forecast of 1.65 billion bushels, corn needs to average 25 mb each week to meet this forecast.

Annual sales are 970 mb, or 26 percent, slower than last year’s pace.

In the February supply/demand report, the USDA said 2016 corn carryout is reported at 1.837 bb, 35 mb higher than last month and 106 mb over last year.

This was led by a 50 mb reduction in exports and offset by a 25 mb increase in ethanol usage. No year is the same, but last year, prices ground lower into early June until weather issues rallied prices.

Without a weather problem, prices look to search for a price level which will stimulate usage. Additional downside should be expected until a weather problem develops this spring or summer as supplies remain large.

With corn acres likely increasing by 2 million acres in 2016 and assuming trendline yields, stocks look to swell to over 2 billion bushels.

Strategy and outlook: Producers should use rallies to make additional sales or buy protection if storing the crop until a weather scare develops in the summer months.

SOYBEANS ANALYSIS

Soybeans closed the week 4 cents higher.

Last week, private exporters did not announce any private sales. Weekly soybean sales came in at 24.5 mb.

The export pace of the 2015/16 marketing year now stands at 1.517 bb, or down 10.6 percent from last year’s pace.

In the February supply/demand report, the 2016 soybean carryout is reported at 450 mb, 10 mb higher than last month and 259 mb more than last year.

The USDA chose to leave exports unchanged, despite the slow pace compared to last year and lowered crush by 10 mb.

The 2016 Argentine bean production is reported at 58.5 million metric tons, 1.5 mmt higher than last month and compared to 61.4 mmt last year; while the 2016 Brazilian production is reported at 100 mmt, unchanged from last month and compared to 96.2 mmt last year.

Warm weather in Brazil will expedite harvest while rains in Argentina are still desired to finish off the crop.

Using a conservative 1 million acre increase for 2016, U.S. ending stocks looks to grow to 497 mb assuming trendline yields.

Unless weather problems develop in Argentina or in the U.S., it will be difficult to rally the soybean market.

In 2015, prices eroded into late May before a weather rally finally lifted prices.

With stocks 259 mb larger than a year ago, a significant weather issue will be needed.

Strategy and outlook: Producers should use rallies to make additional sales or buy downside protection if storing until the summer.

Do not store unprotected soybeans.

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.

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