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BRIAN HOOPS

By Staff | Jan 6, 2017

Farm equity declining

The USDA’s Economic Research Service is predicting U.S. farm equity will decline 3.1 percent in 2016 to $2.47 trillion.

Farm debt is expected to rise 5.2 percent to $375.4 billion in 2016.

Exports exceed USDA estimates

U.S. farm exports totaled just under $130 billion in fiscal year 2016, a decrease of 7 percent from the previous year.

But exports are $2 billion above USDA’s previous projection.

Exports of bulk commodities like corn and soybeans increased and agriculture’s share of overall U.S. exports also increased.

USDA trade analyst Bryce Cooke said the U.S. had a farm trade surplus of $16.6 billion last fiscal year, considerably less than some recent years.

There started to be an increasing trade surplus leading up to 2014 where the surplus exceeded $43 billion.

Best exporting month: October

October was a good month for U.S. farm exports. USDA economist Bryce Cooke said the nearly $5 billion trade surplus for the month helped cumulative exports catch up with last year.

The October total for ag exports was $14.2 billion compared with $9.4 trillion for ag imports.

Cooke said the main reason for the increased exports was the volume of bulk commodity exports.

Through the first 10 months of 2016, soybean export volume increased 22 percent and export value has increased 18 percent.

Amazon beef?

In 2017, the National Cattlemen’s Beef Association will be promoting beef on the virtual Amazon grocery store, Amazon Fresh.

The grocery delivery service is not something that’s currently available in South Dakota. Rather, the cattlemen are eyeing an urban market and looking to appeal to millennials who are open to trying new conveniences like online grocery shopping.

In 2015, each citizen ate 53.9 pounds of beef – an all-time low. Instead, they favored chicken, turkey and fish.

Chicken consumption has grown steadily, surpassing pork in the 1980s and taking over beef’s popularity in the 1990s.

The NCBA uses money that producers pay toward the beef checkoff to try to increase sales. Uden said the program helps protect demand by promoting beef as a tasty, convenient and safe food.

Broken wheat contracts

Kansas wheat farmer Michael Jordan is breaking with a century-old tradition grain producers have trusted to protect their businesses: He has stopped using futures to hedge risks to his crops.

The CME Group’s Kansas City wheat contract sets grain prices for millers, exporters and other grain buyers both today and in the future.

Traditionally, prices converge with the price of wheat sold in local cash markets. But Jordan and other U.S. farmers say they no longer trust this hedging tool, amid growing complaints among producers and grain elevators that the hard red winter wheat contract is broken.

The last three expiring contracts have gone off the board with wider-than-normal basis at their registered delivery locations, with cash prices 25 percent or more lower, according to exchange and cash market data.

CORN ANALYSIS

Corn closed the week 4 cents higher.

Last week, private exporters did not report any private sales.

Weekly export sales of corn showed a total of 39.6 million bushels (1 million metric tons) with 37.7 mb (958,600 mt) for the 2016-2017 marketing year.

This was above the 23.5 mb (597,000 mt) needed this week to be on pace with USDA’s December demand projection of 2.225 billion bushels.

This month’s supply/demand report has the potential to be a major market mover as the USDA will issue the final production forecast for the 2016 crop and update the demand figures.

Export forecasts are nearly 325 mb above last year at this time.

In addition, ethanol usage is also well above last year’s figures, giving corn usage a nearly 1 bb advantage over last year.

Traders are going to look for USDA to increase its final 2016 corn production estimate and to increase its demand estimates as well.

The size of the increase of 2016 will be the determinate of how bullish or bearish the crop report is.

Farmer selling should increase after the first of the year as farmers will need to move some corn to maintain the quality of the stored crop, but basis levels should narrow through the winter months.

Strategy and outlook: A rally into weekly resistance was a great time to sell inventory, look to re-own on weekly support.

SOYBEANS ANALYSIS

Soybeans closed the week 6 cents higher.

Last week, private exporters did not report any private sales.

Weekly export sales of soybeans showed a total of 36 mb (979,200 mt) with 35.8 mb (974,100 mt) for the 2016-2017 marketing year.

This was well above the 8.8 mb (239,100 mt) needed this week to be on pace with USDA’s December demand projection of 2.05 bb.

The huge demand base for soybeans, estimated at a record 4.1 bb, comes in the form of record strong export demand and a very strong crush figure.

Ending stocks are forecast to remain large at 480 mb, however the market has become used to dealing with this figure.

The market is anticipating a record soybean crop in South America and updates on this year’s production from South America will be a major driving force for prices throughout the winter.

This month’s supply/demand report has the potential to be a major market mover as the USDA will issue the final production forecast for the 2016 crop and update the demand figures.

Export forecasts are 115 mb above last year at this time and with the ongoing strong sales, look for the USDA to again tighten balance sheets and increase exports.

Traders are going to look for the USDA to increase their final 2016 soybean production estimate and to increase their demand estimates.

Farmer selling looks to be a minimum this winter as producers are more interested in selling corn and holding onto their soybeans in case another weather problem develops in South America and prices move higher.

Strategy and outlook: A rally into weekly resistance was a great time to sell inventory, look to re-own sales on weekly support.

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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