January 11, 2014 • Vol. 42, No. 2

Smaller corn crop, corn stocks and corn carryover — All of USDA’s corn estimates in Friday morn-

United We Stand

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ing’s barrage of data came in below pre-report trade expectations. Most important is estimated 2013-14 corn carryover, which fell 161 million bu. from the December estimate. Soybean carryover was unchanged from December, but the balance sheet featured higher crush and export estimates. Wheat carryover unexpectedly increased 33 million bu. from December with lower-than-forecast feed & residual use pushing ending stocks higher. Cotton carryover was unchanged, but the biggerthan-expected cotton crop was completely offset by a rise in estimated exports (and unaccounted use). Live cattle futures were pulled higher last week by strength in the cash market and record-high boxed beef (Choice and Select) values. Lean hog futures started to find strength at week’s end on talk of higher cash hog bids.

2013 corn crop: 13.925 billion bu.

Jobs growth slows in December

Page 2: South American crop perspectives. Page 3: What’s “for certain” in farm bill. Page 4: USDA report perspectives.

Traders expected USDA’s final 2013 corn crop estimate to reach 14.053 billion bu., but a cut to the national average corn yield to 158.8 bu. per acre (was 160.1 bu. per acre) resulted in a 64-million-bu. cut to the crop from USDA’s November estimate. Due to the smaller-than-expected crop peg and record first-quarter 2013-14 corn use, Dec. 1 corn stocks in all positions came in 344 million bu. below the average pre-report trade estimate.

Executive briefing:

2013 bean crop: 3.289 billion bu.

Non-farm payrolls grew only 74,000 in December, well below pre-report trade expectations of about 200,000 new jobs. Still, the unemployment rate fell from 7.0% in November to 6.7% in December, the result of the lowest labor market participation rate since 1978 at 62.8%. A single month’s worth of data shouldn’t determine monetary policy at the Federal Reserve, but it can have influence. At the Jan. 28-29 Federal Open Market Committee meeting, don’t be surprised by a Fed decision to delay further tapering to hold down longand short-term interest rates.

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for more on that story!

News this week...

Annual Production — Corn: 13.925 bil. bu. Beans: 3.289 bil. bu. Cotton: 13.19 mil. bales 2013-14 U.S. Carry — Corn: 1.631 bil. bu. Beans: 150 mil. bu. Wheat: 608 mil. bu. Cotton: 3.0 mil. bales Global carryover trends from year-ago — Corn: Up Beans: Up Wheat: Up 1st-qtr. grain use — Corn: 4.32 bil. bu. Beans: 1.28 bil. bu. Wheat: 407 mil. bu. Dec. 1 Grain Stocks — Corn: 10.426 bil. bu. Beans: 2.148 bil. bu. Wheat: 1.463 bil. bu. Winter Wheat Seedings — All: 41.892 mil. ac. HRW: 30.1 mil. ac. SRW: 8.44 mil. ac. White: 3.39 mil. ac.

Trade expectations of 3.27 billion bu. fell short of USDA’s bean crop estimate. Compared to November, USDA’s bean yield is up 0.3 bu. per acre (to 43.3 bu. per acre) and the crop peg is up 31 million bushels. Despite the bigger-than-expected 2013 bean crop, Dec. 1 bean stocks in all positions were 22 million bu. below the average prereport trade estimate.

Record-large Chinese soybean imports

Winter wheat seedings down from 2013

USDA’s National Animal Health Laboratory Network said last week Porcine Epidemic Diarrhea Virus (PEDV) has spread to Wyoming and California, bringing to 22 the total number of infected states. New cases increased by 134 in the week ended Dec. 29, 2013, and total confirmed cases stand at 2,084.

All winter wheat seedings of 41.892 million acres were 1.808 million acres below the average pre-report trade estimate and are down nearly 1.2 million acres from 2013. The acreage shortfall was spread across all winter wheat flavors with soft red seedings 1.26 million acres below; hard red seedings 300,000 acres below; and white winter wheat seedings 110,000 acres below pre-report trade expectations.

Bigger-than-expected cotton crop USDA now puts the 2013 cotton crop at 13.19 million bales, up 121,000 bales from USDA’s previous estimate and 190,000 bales bigger than the average pre-report trade expectation. Cotton carryover was unchanged from December at 3.0 million bales.

China imported a monthly record 7.4 million metric tons (MMT) of soybeans in December, according to official customs data. December soy imports surged 22.7% from November and 25.6% from year-ago. For 2013, China imported a record 63.38 MMT, up 8.6% from 2012.

PEDV spreads to West Coast

Take profits on 1st-qtr. hog hedges Hog hedgers were advised Friday to take profits on hedges covering 50% of expected firstquarter marketings in Feb. lean hog futures.

Red meat exports surge in November Pork exports reached the highest level of 2013 in November, but year-to-date exports are still about 6% behind 2012 at 1.95 MMT. Beef exports through November tallied a record 1.1 MMT, 3% ahead of year-earlier.

Follow your Pro Farmer editors on Twitter: Search for #pfnews. @ChipFlory @BGrete @JuliJohnston @MeghanPedersen @WalstenM @DavisMichaelsen

Winter storm slows down fuel consumption. Ethanol production in the week ended Jan. 3 was 919,000 barrels per day (b/d), up 6,000 b/d from the previous week. The four-week production average is now 922,000 b/d for an annualized production rate of 14.13 billion gallons. Ethanol stocks increased to 16.1 million barrels (a 3.6% increase on the week), the result of lower fuel use due to winter weather, according to the Energy Information Agency.

Conab inches up bean crop estimate. Brazil’s official bean crop peg is now 90.33 million metric tons (MMT), up slightly from Conab’s December estimate of 90.03 MMT.

Chinese corn import estimates fading. Private Chinese consulting firm Shanghai JC Intelligence Co. Ltd. last week lowered its estimate of Chinese corn imports to 4.4 MMT. That’s down from the firm’s estimate of 6.6 MMT made just last month. Rejections of U.S. corn shipments are one reason for the lower peg.

Brazilian bean crop could ‘easily’ exceed 95 MMT Well... at least that’s what the Brazilian ag minister says about his country’s 2013-14 bean crop. Ahead of that comment, there was growing consensus in the market that Brazil’s bean crop would be record-large, but market expectations were topping out around the 92-million-metric-ton (MMT) level. PF South American Consultant Dr. Michael Cordonnier’s current Brazilian bean crop estimate is 90 MMT with upside potential to 92 MMT and downside risk to 85 MMT. “At this point, it’s hard to point to any significant problems with Brazil’s soybean crop,” says Dr. Cordonnier. “The weather has generally been favorable and diseases and insects are not excessively bad. The one thing I am watching is the drier forecast for central Brazil and especially eastern Mato Grosso, Goias, Minas Gerais, Sao Paulo and Bahia. Soybeans in central Brazil can withstand a short period of dry weather. But beyond that, soils dry out very quickly and moisture stresses develop. Most of the soybeans in central Brazil are filling pods, so it’s a sensitive time for the crop.” Dr. Cordonnier’s 90-MMT bean crop estimate is unchanged from the previous week, as is his Brazilian corn crop estimate of 68.5 MMT. He says an earlier “watch area” in Rio Grande do Sul recently received beneficial rains after a too-dry pollination period. A warm and dry forecast into this week for western Parana and Minas Gerais makes these states a new “watch area,” but, “I think the full-season corn in Brazil will be okay,” says Dr. Cordonnier. He has a “steady” bias on his Brazilian corn and soybean crop outlooks. Argentine corn trimmed a bit In Argentina, he sees a corn crop of 23 MMT (down 1 MMT from his previous estimate) and a bean crop of 56 MMT

January 11, 2014 / News page 2

(unchanged from the previous week). He says, “The past several weeks in Argentina were historically hot with the country experiencing widespread blackouts due to electrical shortages. The heat wave was broken last week, but the forecast does call for hot and dry conditions again.” Roughly 20% of the Argentine corn crop still needs to be planted while the earliest-planted corn (one-third of the crop) has already pollinated and another one-third of the crop is set to begin pollination this month. The earliest-planted corn is at greatest risk to yield cuts due to crop stress in December... and there’s no guarantee all the unplanted corn will actually be planted. Argentine corn growers still have about 1.6 million acres of corn to plant.

Threat of bean cancellations overshadows strong sales China continues to buy U.S. soybeans for shipment in the 201314 marketing year. Already, total export commitments tally about 1.5 billion bushels. And the pace of actual shipments is very good. In the week ended Jan. 2, soybean shipments totaled nearly 1.7 MMT (about 61.5 million bu.), with China the destination for more than 1.2 MMT. Even with the stronger-thanexpected export commitments and strong shipment pace, traders are convinced China will eventually cancel a chunk of purchases. China’s aggressive purchase pace is viewed as a “hedge” against Brazil’s infrastructure. Importers may be confident in Brazilian producers’ ability to grow a record crop, but few are confident in Brazil’s ability to handle all the bushels in a timely manner. Most likely, China will keep bean buys on the books until at least late February. If Brazil has successfully positioned beans for timely export, Chinese cancellations will likely start. The longer it takes to get beans in position, the longer China will keep the buys on the books.

China has ‘lightened up’ on inspections of U.S. DDGs Okay... this stinks. Either the MIR 162 GMO trait is acceptable, or it’s not. Chinese inspectors should not be drawing a line between the trait in corn and in dried distillers grains (DDGs). Nonetheless, Chinese inspectors have reportedly lightened up on inspections of DDGs and continue to rigorously inspect shipments of U.S. corn. That should be all the proof necessary to show the rejections of U.S. corn shipments to China are a back-door effort to support domestic corn prices. By rejecting U.S. corn shipments, it drives more feed-maker demand to the domestic market, lifting prices. But the damage has been done. The trade disruption with China was enough to cast doubt over corn export demand in general and is one of the reasons oldcrop corn futures slumped to new contract lows last week.

After assumptions, what are potential market surprises? • China will cancel a “chunk” of U.S. bean buys. That’s an assumption in the market. The surprise for the market would be if Chinese cancellations don’t “amount to much” and 2013-14 U.S. soybean exports climb into the 1.52- to 1.53-billion-bu. range. That would likely pull 2013-14 bean carryover under year-ago levels. • Another market assumption — EPA will set 2014 corn-based ethanol use at the proposed 13-billion-gallon minimum. The surprise to the market would be if EPA actually follows the law of the Renewable Fuel Standard and keeps 2014 cornbased ethanol use at 14.4 billion gallons. It’s clear EPA’s reason for the 13-billion-gallon cornbased ethanol proposal is the “blend wall,” but the blend wall isn’t one of the “allowed factors” to waive mandated use. If EPA pushes its latest proposal, expect a stiff court challenge.

CARD: The ‘supply concern’ is pumps, not the ethanol If EPA reads the logical conclusions of a recent study by Iowa State University’s Center for Ag and Rural Development (CARD) and still goes forward with plans to drop mandated corn-based ethanol use to about 13 billion gallons in 2014, something’s wrong. The 16-page study has a twopage executive summary, but the conclusions of the study’s authors (ISU’s Bruce Babcock and Sebastien Pouliot) are best summed up in one paragraph. “EPA’s proposed rule would reduce mandated volumes of biofuels in part, because of ‘supply concerns associated with the blendwall.’ We demonstrate in this paper that the important supply concern associated with the E10 blendwall pertains to the supply of stations that sell E85, not the supply of the biofuel. The lack of stations that sell the fuel results in a lack of demand for ethanol, not a lack of supply. EPA’s justification for reducing ethanol mandates means that mandates will not be increased beyond E10 levels until the number of stations that sell E85 increases sufficiently. Our results demonstrate that the number of stations that sell E85 will not increase until EPA sets ethanol mandates beyond E10 levels. If increased mandates wait for the stations to be built, mandates will never increase.”

Very simply: “Build it and they will come.” The Congressional intent of the RFS was to give retailers clear economic incentive to build the infrastructure to handle ethanol mandates higher than the limited E10 market. Changes to the RFS would change economic incentives and (perhaps most importantly) would be a big “so what?” from EPA to the Congressional intent of the RFS. This is just another “change in the fundamentals” that has done serious damage to the corn market.

Dairy policy a political issue? Farm bill conference efforts are thought to be in their final stages. Ironically the most contentious end-of-process issue is not the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) but rather dairy policy. Conference members have reportedly agreed to cut $8.8 billion from SNAP funding over 10 years, including some language dealing with “able bodied worker requirements.” The struggle over dairy policy has shown signs it may become an election-year, political issue, with both sides privately wondering which party would be blamed the most for a farm bill conference report failure. At the center of the debate is Rep. Collin Peterson (D-Minn.), ranking member of the House ag panel who is pushing dairy supply management language, and House Speaker John Boehner (R-Ohio), who continues to insist that no such language be in the final conference package. Boehner has reportedly said he would not bring up the farm bill conference report for consideration on the House floor if it includes dairy supply management language. Meanwhile, House Ag Committee and Conference Chair Frank Lucas (R-Okla.) laments he is “dealing with forces that are so diametrically opposed with such intensity, who are operating from positions of personal knowledge and experience.” And Sen. Patrick Leahy (D-Vt.) is reportedly working on various dairy policy options and having them scored by the Congressional Budget Office (CBO) to skirt the dairy policy hurdle. If Peterson doesn’t get his way on dairy policy, the question is, will he vote “no” for the overall conference report because of just one issue? If so, how many Democratic members would follow suit?

Farm bill conferee Rep. Jim Costa (D-Calif.), says farm bill negotiators should call Boehner’s “bluff.” With most conservative Republicans expected to vote no on any coming farm bill conference report, the measure will need more than a few Democratic votes to win House approval. Of note, members of both parties soundly approved a provision that deleted supply management language from dairy policy during the House farm bill debate. Country-of-origin labeling (COOL) is another issue yet to be decided. Sources indicate this could be decided via a vote among all conference panel members. Actively engaged language is another uncertainty. Farm bill “certainties” • Direct payments eliminated • Base acres used for calculating Ag Risk Coverage (ARC) & Price Loss Coverage (PLC) target price payments • House’s target price levels will be used for PLC • Crop insurance linked to conservation compliance • No means test for crop insurance • Transition (direct) payment likely in 2014 cotton instead of Stacked Income Protection (STAX) program What if it all falls apart? If conference efforts fail, necessitating a one- or two-year extension of the 2008 Farm Bill, a coming CBO baseline update in early February could show corn growers might garner billion of dollars in payments via an attractive Average Crop Revenue Election (ACRE) program for the 2014 crop safety net option. If so, that could limit the decline in corn plantings some are forecasting. But that would also clearly show ACRE skews plantings. This would be noticed by several World Trade Organization (WTO) member countries. It also underscores why deferring a farm bill much longer will make it even more difficult.

Important takeaways from ISU’s CARD study of EPA’s proposed RFS changes. “The large impact that adding new [E85] stations has on the retail price of E85 given a level of E85 sales gives EPA a powerful tool to incentivize investment in new stations that can facilitate meeting expanded ethanol consumption targets.” “...there exists an inverse relationship between the cost of compliance with mandates and the number of new E85 stations. That means that owners of oil refineries who bear the costs of complying with mandates can reduce their compliance costs by investing in new E85 stations.” “Adopting a 14.4billion-gallon ethanol mandate would send a clear signal that EPA is not locked into keeping ethanol mandates below E10 levels. It would also increase RIN prices enough to incentivize investments in new E85 stations, which would give EPA the freedom to move the ethanol mandate to 15 billion gallons in 2015.” “[A] dramatic decrease in the total cost of RINs from adding new E85 stations is what gives EPA the tool they need to incentivize the investments that would facilitate expanded ethanol mandates.”

January 11, 2014 / News page 3

Record first-quarter corn use by Editor Chip Flory and Sr. Market Analyst Brian Grete

Record first-quarter soybean use — Soybean use in the first-quarter of 1400 the 2013-14 mar1200 keting year was 1000 also a record at 1.28 billion bushels. 800 That beats the year600 ago usage pace by about 4%. The 400 record usage pace 200 was the result of 0 stronger-thanexpected U.S. crush and exports as both estimates were increased in USDA’s S&D Report. Estimated 2013-14 soybean exports were increased to 1.495 billion bu., which roughly matches total soy1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Million bushels

Sept.-Nov. Soybean Use

bean export bookings at this time. With more than seven months left in the current marketing year, there is clearly room for an even higher bean export estimate in upcoming S&D updates and the current pace of shipments suggests exports could top 1.5 billion bushels this year. (See News page 2 for more.) What makes the smaller-than-expected Dec. 1 soybean stocks tally most impressive is that it includes a larger-than-expected 2013 bean crop estimate. That means the increase in 2013-14 total supplies was completely offset by a 10-million-bu. increase in estimated crush and the 20-million-bu. increase in estimated exports. The “risk” in the bean carryover estimate looking forward is down. Until the market confirms Chinese bean-buy cancellations, odds are usage estimates will work higher in months ahead. Bottom line — soybean carryover might not increase from year-ago by the time all demand is accounted for in the S&D balance sheets. Wheat use slumps in face of global competition — Wheat use in the second-quarter of the 2013-14 marketing year was down 6% from the same period last year. The reason is simple — despite lower prices, wheat is still searching for “the price” that will give U.S. supplies a competitive edge in the global market. Unfortunately, we haven’t found that price yet. Wheat stocks in all positions on Dec. 1 were 53 million bu. bigger than pre-report trade expectations, resulting in a nasty sell-off in Sept.-Nov. Wheat Use prices following the 600 report. But, the 500 market is working to “fix” the price400 negative funda300 mentals. USDA’s Winter Wheat 200 Seedings Report showed total acres 100 well below pre0 report trade expectations. With a smaller 2014 wheat crop likely, total supplies are likely to continue to shrink by the end of the 2014-15 marketing year. The bigger-than-expected Dec. 1 stocks flowed through to the bottom of the S&D balance sheet, resulting in a 33-million-bu. increase in estimated 2013-14 wheat carryover at 608 million bushels. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Billion bushels

orn traders continued to look for “the price” that would increase corn use right up to the final second ahead of Friday morning’s USDA Quarterly Grain Stocks Report. Well they’ve found it. Unfortunately, they’d found it weeks earlier and hadn’t realized it. Corn use in the September-November period was a record for the first-quarter of any marketing year at an impressive 4.32 billion bushels. Stronger-than-expected feed & residual use Sept.-Nov. Corn Use is the reason, 4.5 according to 4.0 USDA’s Supply & 3.5 Demand (S&D) 3.0 Report. In it, USDA 2.5 increased feed & 2.0 residual use 100 1.5 million bu., to 5.3 1.0 billion bushels. 0.5 Combined with the 0.0 smaller-thanexpected 2013 corn crop estimate, USDA cut estimated 2013-14 corn carryover 161 million bu. from December, to 1.631 billion bushels. At 13.925 billion bu., last year’s corn crop is still a record, it’s just not as big as traders expected. While corn carryover is now estimated well-below pre-report trade expectations, there’s no denying there is still plenty of corn in the system to satisfy all demand. Carryover could still work lower in upcoming S&D updates, but it will take increases in either corn-forethanol use or corn exports (or both) to drop estimated ending stocks from current levels. Right now, an increase in domestic corn use does not seem likely, which would hold carryover near current levels.

Million bushels

C

USDA ups Brazilian bean crop estimate — USDA Friday morning increased the current-year Brazilian bean crop estimate by 1 million metric tons (MMT), to 89 MMT. The Argentine bean crop estimate was unchanged at 54.5 MMT.

News alert and analysis exclusively for Members of Professional Farmers of America® P.O. Box 36, Cedar Falls, Iowa 50613-9985 Sr. Vice President, Chuck Roth • Publisher/Editor, Chip Flory • Editor Emeritus, Jerry Carlson Sr. Market Analyst, Brian Grete • Digital Managing Editor, Julianne Johnston • Associate Editor, Meghan Pedersen Inputs Monitor Editor, Davis Michaelsen • Member Relations Manager, Shelley Eilderts • Washington Consultant, Jim Wiesemeyer, Informa Economics Subscription Services: 1-800-772-0023 • Editorial: 319-277-1278 • To record your news alert for PF editors: 1-800-PFA-NEWS (1-800-732-6397) ©2014 Professional Farmers of America, Inc. • E-mail address: [email protected] CEO, Andrew Weber • President, Jeff Pence

January 11, 2014 / News page 4

January 11, 2014

CATTLE

Position Monitor

Fundamental analysis

Feds Feeders Game plan: I’14 0% 0% Fed cattle pro0% ducers should II’14 0% 0% continue to III’14 0% 0% carry all risk in IV’14 0% the cash market as the price outlook is bullish. Feeder cattle buyers should be prepared to establish long coverage on an extended pullback. Average Cash Steer Bids

$140.00

2012

2013

2014

$135.00 $130.00 $125.00 $120.00

Dec

Nov

Oct

Sept

Jul

Aug

Jun

Apr

May

Mar

Feb

$110.00

Jan

$115.00

Record cash cattle prices and wholesale beef values are supporting cattle futures as the price recovery from the mid-year 2013 low continues. But traders are signaling they sense a short-term top is near. Despite bullish cash fundamentals, tight market-ready supplies and inclement weather in the Plains and Midwest, nearby live cattle futures carry no premium to the cash market. With Choice and Select boxed beef values above the $200 level that has curbed retailer demand in the past and cash cattle prices in the upper-$130s, traders wonder how much farther packers will push cash bids near-term, especially with cutting margins deep in the red. But tight supplies limit downside risk when a short-term top is posted.

Daily February Live Cattle Trend is higher. The last remaining resistance on the daily chart is the contract high at $138.40. Above that, resistance is at psychological levels, starting at $139.00 and then every 50¢ higher. $135.40

$131.28 $129.85

Pullbacks on the rally have taken out the previous highs but not the previous lows. If that happens, it would signal a top. That makes $131.28 more critical support than $135.40 on a pullback.

HOGS Position Monitor

Fundamental analysis

Lean Hogs Game plan: I’14 50% Be prepared to II’14 0% claim profits on III’14 0% the 50% 1st-qtr. IV’14 0% hedges in Feb. futures that were established at $89.70. The contract still holds a sizable premium to the cash index but a seasonal low should come soon.

The wait for a seasonal low in the hog market continues. While the calendar says hog supplies should be gradually easing, the cash and product markets, along with hog futures, are struggling to find their footing. The cash market saw some modest price strength early last week, but much of that was due to inclement weather conditions across the Midwest that temporarily slowed hog movement. The factor that’s delaying a seasonal low is record hog weights. With each hog that’s run through kill lines packing more pounds, it’s going to take longer for the start of the seasonal decline in market-ready slaughter supplies to take hold and have a price-positive impact on the cash and product markets, and on lean hog futures.

Lean Hog Carcass Bids

$110.00

2012

$105.00

2013

2014

$100.00 $95.00 $90.00 $85.00 $80.00 $75.00

Dec

Nov

Oct

Aug

Sept

Jul

Jun

May

Apr

Mar

Feb

$65.00

Jan

$70.00

Daily February Lean Hogs Trend is down. The contract must clear the downtrend and push above old support at $87.75 to confirm a low is in place. Turning $87.75 into support again would open the upside to $91.40.

$91.40

$87.75 $84.95

$82.30

The spike of $84.95 so far failed to attract fresh selling interest. If that level turns into resistance, bears’ target would be $82.30.

FEED

Feed Monitor

Corn I’14 II’14 III’14 IV’14

0% 0% 0% 0%

Meal I’14 II’14 III’14 IV’14

25% 0% 0% 0%

Daily March Meal Corn game plan: Continue to carry all cornfor-feed risk in the cash market. There’s no urgency to establish long coverage as the market is struggling to put in a low. Meal game plan: Hedges are held against 25% of 1st-qtr. protein needs in March meal futures at $410.80. Stay in touch to exit this coverage if the market signals an extended period of price pressure is likely.

Contract-high resistance is at $440.40.

Trend is choppy. Initial resistance is at $434.10. The last push above that level failed to attract active buying.

$440.40

$434.10

$401.70 $378.40

Support is at $401.70. Below that, bears’ target would be $378.40.

Analysis page 1

CORN

Position Monitor ’13 crop

’14 crop

Cash-only:

50%

20%

Hedgers (cash sales):

60% 0%

20% 0%

Futures/Options

Daily March Corn Trend is lower.

Game plan: We advised old- and new-crop sales for hedgers and cashonly marketers ahead of USDA’s Jan. 10 crop reports last week. See “From the Bullpen” on Analysis page 4 for details. Given the bearish price outlook for corn, a corrective bounce would be an opportunity to further advance sales. If prices and attitudes continue to erode, we’ll recommend other moves to protect downside risk.

To confirm a low, bulls need closes above $4.49 1/2 and $4.59. The further the contract drops below that level, the more difficult it becomes for bulls to get a trend reversal on a corrective rebound.

$5.22 1/2

$4.49 1/2

The old contract low at $4.18 1/2 is now resistance. Psychological support is at $4.00. Below that, support comes from the weekly continuation chart at $3.92 and $3.85.

$4.59

$4.18 1/2

Fundamental analysis

Daily May Corn

Average Corn Basis

0.90

Trend is lower.

Basis March futures

Bulls need closes above $4.58 1/2 and $4.67 1/2 to confirm a low. A bounce that stops short of that key resistance would be just a correction to the bear market.

0.70 0.50 0.30 0.10 -0.10

Dec

Oct

Nov

Aug

Sept

Jul

2014

Jun

Apr

May

Mar

Feb

Jan

3-year avg. -0.30

$4.67 1/2

$4.26 3/4

Aug

Old support at $4.26 3/4 is now initial resistance. Next support is at the psychological $4.00 mark. May Jun July

Feb Mar Apr

Dec Jan

$4.58 1/2

USDA

WHEAT

PositionMonitor Monitor— All Wheat Position

Daily SRW March Wheat Trend is lower.

$5.31

Total Corn Export Bookings 40 '12-13 '13-14 35 Million metric tons 30 25 20 15 10 5 Sept Oct Nov

USDA’s January crop reports provided a bullish surprise as the 2013 crop estimate was unexpectedly lowered, Dec. 1 corn stocks came in 344 million bu. less than traders expected and projected 2013-14 carryover was cut 161 million bushels. With total supplies not as big as previously thought and implied first-quarter use stronger than expected, the report data should help corn futures put in a post-harvest low. But the road to a price recovery will be bumpy as projected ending stocks are still plentiful at nearly double what was left at the end of 2012-13. Because the longterm price outlook is still negative, a recovery rally in the corn market must be viewed as an opportunity to advance sales. That’s especially true for old-crop as the vast majority of the 2013 corn crop is in storage and much of that is still unpriced.

’13 crop ’14 crop

To signal a low is in place, the contract must push above the downtrend and old support at $6.47 3/4. Even then, bulls would need to clear tough resistance at $6.88 1/4 and $7.20 1/2 to signal a trend change. $6.88 1/4 $7.20 1/2

Cash-only:

75%

35%

Hedgers (cash sales): 100% Futures/Options 0%

35% 0%

Game plan: We advised old- and newcrop sales for hedgers and cash-only marketers last week. See “From the Bullpen” on Analysis page 4 for details. Fundamental analysis

$6.47 3/4

The contract is nearing key weekly chart support at the 2011 low of $5.72 1/4. A drop through that level would open hefty downside risk and point to a sharp acceleration of the downtrend.

January 11, 2014 / Analysis page 2

SRW: USDA raised both its U.S. and global wheat carryover projections for 2013-14, which more than offset a lower-than-expected winter wheat seedings figure. With big global supplies hanging over the market, it’s likely going to take an extended recovery in corn to rally wheat futures.

SOYBEANS

Position Monitor

Game plan: We advised initial newcrop sales for hedgers and cash-only marketers ahead of USDA’s Jan. 10 crop reports last week. See “From the Bullpen” on Analysis page 4 for details. Cash-only marketers should be prepared to trim old-crop gambling stocks if the price structure weakens. We’ll also look to reduce downside risk on 2014-crop production if the longerterm outlook turns more bearish.

$13.77 3/4 $13.36 1/2

$12.42 1/2 $12.33 1/4 $12.01 1/4 $11.74

Key support is at the November low at $12.33 1/4. A drop through that level would make $12.01 1/4 the next level of strong support, followed by the August low at $11.74.

Fundamental analysis

Bulls must clear tough resistance at $13.32 1/4 and $13.49 to get a breakout from the extended, broad choppy range.

0.40 0.20 0.00

$13.49

-0.20

$13.32 1/4 Dec

Oct

Nov

Sept

2014

Jun

Apr

May

Mar

Feb

-0.40

Jan

3-year avg.

Total Soybean Export Bookings 45 40

$12.24

35

$12.08 1/2

30

Million metric tons 25

$11.75 1/2 '13-14

USDA

Aug

The November low of $12.24 is key support if prices continue to slide.

Daily HRW March Wheat

Average Wheat Basis

A bounce must clear old support at $6.94 1/4 to signal it’s anything more than a modest correction.

0.10

Basis March futures

0.00

2014 SRW

-0.10 2014 HRW

-0.20

$7.75 1/2

-0.30

$7.55 3/4

3-year SRW avg.

-0.40 -0.50

The old downtrend is now acting as support.

3-year HRW avg. Dec

Oct

Nov

Sept

Jul

Aug

Jun

Apr

May

Mar

Total Wheat Export Bookings USDA

Apr

Mar

Feb

Jan

Dec

Million metric tons Oct

$7.10

'13-14

Nov

$7.76 1/4

'12-13

Aug

The downtrend is converging with flat resistance at $7.10, lessening the odds of an extended rally.

35 30 25 20 15 10 5 0

Sept

Daily HRS March Wheat

Weekly chart support is at $5.97 1/4 and then $5.80 1/4.

Jan

$6.94 1/4

-0.70

Feb

-0.60

May

Feb

Jan

Dec

Oct

Nov

15

'12-13

July

20

July

HRS: Spring wheat basis is exploding higher due to rail congestion and shipping delays out of Canada. The transportation problems are expected to last into spring, suggesting HRS basis will remain strong as exporters struggle to get supplies. Despite strength in the cash market, HRS futures continue to slide amid bearish attitudes.

Trend is choppy.

Basis March futures

June

HRW: While the winter crop was exposed to extreme cold for an extended period during the recent polar vortex, winterkill concerns were minimal. Some of the crop was protected by snowcover, but the bigger factor was that the crop was well established heading into dormancy. Traders will want proof of winterkill damage before it’s price-supportive.

0.60

Daily May Soybeans

Average Soybean Basis

0.80

Sept

USDA’s January crop reports were generally neutral for soybeans. With no shockers in the data, the soybean market is set up for a battle of bullish old-crop fundamentals, driven by strong Chinese demand, versus the coming record South American crop and the projected sharp rise in global soybean ending stocks. While China continues to actively buy U.S. soybeans, there are questions about how much longer those purchases will last, with Brazilian supplies expected to be ready for export by late winter. In fact, there’s an assumption in the market that China will eventually cancel a fair amount of the U.S. purchases it has on the books. That could make it more difficult for soybean futures to generate buying interest unless the Chinese purchases continue or the corn market is able to provide some help to soybeans.

Jun

10% 0%

The $13.36 1/2 mark stalled the last rally attempt, marking it as strong resistance. Bulls need a push above that level to reopen the upside to the summer 2013 high at $13.77 3/4.

May

Hedgers (cash sales): 100% Futures/Options 0%

Trend is choppy.

Jul

10%

Aug

75%

Apr

Cash-only:

Daily March Soybeans

’14 crop

Mar

’13 crop

January 11, 2014 / Analysis page 3

COTTON

Position Monitor

Average Cotton Basis

Increased volatility may signal the rally is running out of steam. To reignite upside momentum, bulls need a close above 85.29¢. 87.62¢

Dec

Nov

Oct

Aug

Sept

Jul

Jun

Apr

May

Mar

85.29¢

Total Cotton Export Bookings 81.64¢

11000 9000 7000 5000

’000 running bales

A close below 81.64¢ would signal a short-term top is in place. A sharp drop through that level would open downside 76.65¢ risk to the November low at 76.65¢.

July

June

USDA

May

'12-13

April

1000

'13-14

Mar

3000

Jan

The price recovery from the fall lows has stalled as export demand is slowing amid the price rise. Funds have also rebuilt a sizable long position. To reignite upside momentum, fresh bullish news is needed as traders are expecting a rise in U.S. cotton plantings and there are some Chinese demand concerns.

Short-term trend is up.

13000

Feb

Fundamental analysis

Daily March Cotton

2014

Basis March futures

Dec

Game plan: Be prepared to advance 2013-crop cash sales as the price recovery is showing signs of stalling. Also be prepared to start 2014-crop sales.

Nov

0% 0%

Jan

0%

Feb

50%

Hedgers (cash sales): 50% Futures/Options 0%

3-year avg.

Oct

Cash-only:

100.00 0.00 -100.00 -200.00 -300.00 -400.00 -500.00 -600.00 -700.00 -800.00

Sept

’13 crop ’14 crop

GENERAL OUTLOOK Energies: Crude oil futures tumbled to a five-week low last week despite inventories dropping sharply for the week ended Jan. 3 — the sixth straight week of declining stocks. Countering the bullish supply-side news are demand concerns as petroleum product inventories are on the rise. But traders have their attention on more than energy market fundamentals. A firming U.S. dollar index is also weighing on crude oil futures. The Fed began easing its monthly

FROM

THE

asset purchases this month, which is supporting the dollar, and there’s speculation more quantitative easing will be seen in the months ahead. If the dollar continues to rise, it will put additional pressure on crude oil. While crude oil has lost some of its role as “king” of the commodity sector, it still carries a lot of weight. A prolonged slump in crude oil futures would be price-negative for the commodity sector as a whole and would make it difficult for grain and soy futures to get traction.

Weekly Crude Oil Futures Trend is choppy. Buying interest has dried up in the $100.00 to $110.00 range the past two years.

Tough resistance is at the 2011 high of $114.83. $114.83

$74.95

Violation of the uptrend drawn off the 2010 and 2011 lows could lead to an eventual challenge of strong support at $74.95.

BULLPEN by Sr. Market Analyst Brian Grete

We fought the trend in the grain and soybean markets too long. With attitudes and the technical posture in corn, soybean and wheat futures eroding further last week, we wanted (needed) to get some additional sales on the books ahead of USDA’s barrage of report data last Friday. Following are the marketing moves we advised Jan. 9: Corn: We pushed hedgers to 60% sold on 2013-crop in the cash market with a 35% cash sale. Cash-only marketers were advised to make a 25% 2013-crop sale to get to 50% priced on old-crop. We also advised hedgers and cash-only marketers to sell an initial 20% of expected 2014-crop production via forward contract for harvest delivery. Beans: We advised soybean hedgers and cash-only marketers to sell 20% of expected

2014-crop production via cash forward contract for harvest delivery. We got hedgers sold out on 2013-crop soybeans in the cash market ahead of harvest. We still recommend holding 25% of old-crop gambling stocks for cash-only marketers, though our attitude may change quickly. Cash-only marketers should be prepared to trim the amount of old-crop beans held as gambling stocks if USDA’s Jan. 10 crop reports are bearish. Wheat: We advised 25% 2013-crop cash sales for hedgers and cash-only marketers. That pushed hedgers to 100% sold and cashonly marketers to 75% priced on old-crop. We also advised hedgers and cash-only marketers to sell 35% of expected 2014-crop production via cash forward contract for harvest delivery.

Key Market Items on My ‘To Watch’ List 1) NOPA crush report — Wednesday, Jan. 15, 7:30 a.m. CT Given very strong soybean export demand, a strong monthly crush pace would be price-supportive for nearby soybean futures. 2) USDA Weekly Export Sales Rpt. — Thursday, Jan 16, 7:30 a.m. CT Attention remains on Chinese purchases or cancellations of U.S. corn and soybeans. 3) NWS extended weather forecast — Thursday, Jan. 16, 7:30 a.m. CT The forecast for February-April will give the market a potential read on late-winter/early spring weather conditions.

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 January 11, 2014 / Analysis page 4