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BRIAN HOOPS

By Staff | Apr 29, 2016

CFTC reauthorized

The Senate Agriculture Committee voted last week to reauthorize the Commodity Futures Trading Commission.

A local grain elevator needs to be able to hedge inventory it may receive when the markets are closed on a Saturday so it can provide the best price to a farmer, said Chairman Pat Roberts. Also, a grain company needs to be able to manage its hedges during a volatile market condition.

The chairman’s mark allows for anticipatory hedges and the management of a hedge when it serves as a risk management tool for producers and commercial end users. And not an investment for speculation. Ranking Member Debbie Stabenow proposed an amendment to establish a fee for services provided to the CFTC. Stabenow’s amendment didn’t pass. This was the first time in more than 10 years the Senate Ag Committee has held a markup for CFTC reauthorization.

Dropped income

CHS Inc. reports first half net income dropped 50 percent from the previous year. The lower earnings are attributed to the down economic cycles in the agricultural and energy sectors, which have resulted in lower commodity prices and lower margins globally. CHS ag segment earnings fell 81 percent in the first half, while energy earnings declined 55 percent. In the second quarter, CHS had a net loss of $31 million, compared to earnings of almost $93 million in the same period the previous year. This was the first quarterly loss for CHS in 13 years.

Farm economy

The House Ag Committee held a hearing on the state of the farm economy last week. American Farm Bureau Federation President Zippy Duvall said his organization doesn’t see a crisis in agriculture right now, but there could be a crisis on the horizon. A farmer’s operating debt has grown from $124 billion in 2012 to more than $165 billion today,” says Duvall.

“Meanwhile, farmers are drawing down on financial assets such as cash and equity. The importance of farm safety net programs was also a big focus at the hearing.

In an opening statement, National Farmers Union President Roger Johnson addressed the importance of farm safety net programs like ARC-County and PLC. We’ve seen cases in North Dakota, Texas, Colorado, Kansas and South Dakota where the benchmark yields and current year yields are from different sources and not providing representative revenue calculations, said Johnson. We are requesting administrative policy revisions and urge the Senate Ag Committee to work with us and the USDA to resolve some of these issues.”

CORN ANALYSIS

Corn closed the week 6.5 cents lower.

Last week, private exporters reported sales of 377,516 metric tons of corn to an unknown destination and 240,000 mt of corn to Japan.

Weekly export sales of corn showed a total of 52.2 million bushels. This year, the U.S. has sold 1.375 billion bushels, down 179 mb from last year, or 11.5 percent.

The weekly crop progress report showed the U.S. corn planting progress as of Sunday reached 13 percent complete versus 7 percent a year ago and 8 percent on average.

Of note, 58 percent of the crop has been seeded in Missouri,versus 21 percent on average; 35 percent is seeded in Kansas, versus 16 percent on average; Iowa and Minnesota are both 13 percent complete versus 3 percent on average; while Illinois is 12 percent done.

National progress should reach 35 to 40 percent next week.

News that NOAA raised odds for a La Nina event this summer sent prices sharply higher on huge short-covering, but if an event were to occur, it would not be until July, leaving a lot of time until production would actually be affected.

The latest COT report shows funds are now net long after covering all net short positions, leaving the market to pull back from resistance on the lack of buyers. The heart of the growing season remains and if the last two weeks are any indication, this summer promises to be volatile.

Strategy and outlook: Producers should have used the latest rally to liquidate remaining inventory and begin to become defensive on new crop sales. Use options to manage price risk and summer volatility.

SOYBEANS ANALYSIS

Soybeans closed the week30.75 cents higher.

Last week, private exporters reported 380,000 mt of beans to Mexico and 105,412 mt of meal to an unknown destination.

Weekly export sales of soybeans showed a total of 27.5 mb. So far this marketing year, the U.S. has sold 1.662 bb of soybeans, down 124 mb from last year, or 7 percent less.

Prices have shot higher since March 1, nearly trading the entire trading range of 2015 in less than 6 weeks. The market volatility looks to slow over the next several weeks as the market consolidates ahead of the growing season.

A drought in a small area of Brazil left some endusers in South America short-bought and were forced to cover positions, igniting a huge rally that was led by fund buying.

The funds have their largest net long position since May 2014 and are likely to par positions back after prices failed at major weekly resistance. We advised producers to make sales into this rally and become defensive as soybean acreage is very likely to increase in the June report as producers will switch corn to soybean acres due to profitability and possibly weather, if corn plantings become delayed in late April.

Now, if producers have sold 2016 production, a pullback in prices should be an opportunity to buy out-of-the-money calls in case weather rallies the market this summer.

Strategy and outlook: Producers should have used the latest rally to liquidate remaining inventory and begin to become defensive on new crop sales. Use options to manage price risk and summer volatility.

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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