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BRIAN HOOPS

By Staff | May 27, 2016

Hostile takeover?

HC2 Holdings Inc, a company run by former hedge fund manager Philip Falcone, said it has made a bid to buy U.S. grain handler Andersons Inc for about $1 billion in cash.

Andersons is not looking to be acquired, the company’s new chief executive officer told Reuters a day earlier.

“As a public company, we like where we’re at,” Patrick Bowe said in an interview. A spokeswoman for Andersons did not immediately respond to a request for comment.

HC2, a diversified holding company, said it would also assume $402 million of Andersons’ debt. Andersons’ shares were up 26 percent at $32.74 in extended trading, while HC2’s shares were little changed.

Andersons’ stock price is down 45 percent over the past year. Analysts have long considered the company, which has a market value of about $748 million, to be a prime takeover target in the farm sector because of its medium size and diversified assets, including grain storage facilities and rail cars.

Grain challenges

A new research report from CoBank says U.S. grain merchandisers are facing significant challenges. CoBank senior economist Tanner Ehmke says low price volatility is the biggest challenge.

You need to have volatility in the markets if you want to make money. Co-ops are no exception to that rule. Unfortunately for co-ops, since last fall’s harvest, there hasn’t been a lot of basis appreciation. They’re trying to trade a very tight market, which has penalized them on profitability.

We’re seeing co-ops cutting back on capital expenditures and a slip in credit quality. There’s probably more of that to come. Ehmke says pressure for consolidation will

likely intensify in this environment of slimmer profit margins.

RFS for 2017

U.S. regulators proposed a modest increase in the amount of corn-based ethanol and biofuels that fuel producers must mix into diesel and gasoline in 2017, disappointing two major industries – Big Corn and Big Oil.

Unveiling the latest stage in its controversial biofuels program, the Environmental Protection Agency called for 18.8 billion gallons to be blended into the nation’s fuel supply in 2017, up 4 percent from the 18.11 billion gallons set for this year. That includes 14.8 billion for conventional biofuels, mainly ethanol, up from 14.5 billion for this year, the EPA said.

As expected, the new total for the Renewable Fuel Standard is well below the 24 billion gallons outlined in a 2007 law aimed at cutting U.S. oil imports and boosting renewable fuel use.

Deere profits

Deere & Co., the world’s biggest farm equipment manufacturer, lowered its fiscal full-year profit outlook on projections for reduced sales of tractors and combines as farmers face a decline in income.

Full-year net income will be about $1.2 billion, Moline, Illinois-based Deere said in a statement compared with the $1.3 billion it forecast in February.

CORN ANALYSIS

Corn closed the week 4 cents higher.

Last week, private exporters reported sales of 125,000 metric tons of corn to Columbia and 128,000 mt of corn to South Korea.

Weekly export sales of corn showed a total of 79.3 million bushels (2.01 million metric tons) with 58 mb (1.47 mmt) for the 2015 -2016 marketing year. This was the third largest weekly sale of the year. This was well above the 11.9 mb (303,400 mt) needed to be on pace with USDA’s May demand projection of 1.725 billion bushels.

The weekly crop progress report showed U.S. corn plantings came in at 75 percent complete, at the high end of trade estimates of 70 percent to 75 percent seeded.

This is behind last year’s pace of 82 percent, but ahead of the average of 70 percent.

Iowa is 88 percent planted versus 78 percent normally; Illinois is 83 percent versus 76 percent normally; Minnesota is 93 percent versus 64 percent average; Indiana is 45 percent complete versus 61 percent on average; and Nebraska is only 74 percent done versus 81 percent on average.

Informa revised its 2016 corn and soybean seeding expectations with corn acreage at 93.4 million, down from 93.6 million the USDA used in the May supply/demand report.

Prices could easily move $1 higher or $1 lower from here. Time to manage that risk ahead of the pollination season is now.

Strategy and outlook: Producers should use weakness during May to re-own sales with options to manage price risk and summer volatility.

SOYBEANS ANALYSIS

Soybeans closed the week 12.75 cents higher.

Last week, private exporters reported sales of 129,000 mt of soybeans to China.

Weekly export sales of soybeans showed a total of 26.3 mb (714,700 mt) with 20.4 mb (556,400 mt) for the 2015-2016 marketing year. This was well above the 2.3 mb (61,400 mt) needed to be on pace with USDA’s May demand projection of 1.74 bb.

The weekly crop progress report pegged soybean seedings as ahead of estimates at 36 percent versus estimates of 30 percent to 35 percent.

The average pace is 32 percent, while 41 percent was done a year ago.

NOPA crush came in very near expectations at 147.6 mb versus estimates of 147.704 mb in April. Last year crush totaled 150.363 mb. In March, processors crushed 156.69 mb.

NOPA oil stocks were 1.943 mb, higher than expectations of 1.866 mb and the seventh straight month of increasing stocks, while its soybean acreage estimate was 83 million, up from the USDA figure of 82.2 million.

Soybean meal has been the upside leader as Argentina, the world’s leader meal exporter, has largely been out of the market, leaving U.S. endusers to scramble to secure supplies as their export business has dramatically improved.

Until U.S. new crop supplies can be guaranteed, prices will remain strong.

Strategy and outlook: Producers should look to re-own sales with options to manage price risk and summer volatility during price weakness in May.

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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