February 7, 2015 • Vol. 43, No. 6

United We Stand

Grains bounce, livestock markets extend losses — The flip of the calendar to February spurred modest short-covering in grain and soy futures. Seasonally, futures should work higher this month, but we don’t anticipate a surge in buying interest as bulls face many hurdles, including a strengthening U.S. dollar. Any price recovery is more likely to be gradual — two steps forward, one step backward. Price action early this week will be guided by USDA’s Supply & Demand Report on Tuesday. Barring any major surprises, however, South American weather, demand news, outside mar-kets and speculative money flow will have a greater influence on price action. Despite strong corrective gains Friday, live-stock markets extended their price slides last week. Before cattle and hog futures can put in lows, traders will want to see lows in the cash and product markets. Until that happens, the upside will remain limited to modest corrective buying.profarmer.com

Visit your Member website www.profarmer.com

for additional perspective and breaking news.

‘Actively engaged’ defi-nition getting closer.USDA Sec. Tom Vilsack says his agency has sent its plan to define who is an active farmer to the Office of Management and Budget for review. The final definition won’t come for several months. Vilsack says the plan would have limited reach since Congress exempted family-run operations and corporations that include family mem-bers from the actively engaged rule. Limited and general partner-ships are most likely to be affected.

RFS announcement this week?Rumors surfaced last week EPA will make an announcement regard-ing Renewable Fuel Standard volume requirements this week. We are skeptical as so many previous rumors have been false.

Stabilizing rains across central BrazilBeneficial rains fell across central and east-ern Brazil last week and this week’s forecast calls for additional rainfall. That’s enough to stabilize mid- and late-maturing soy-beans in most areas, says Pro Farmer South American Crop Consultant Dr. Michael Cordonnier, but not enough to raise yield prospects. Meanwhile, soybean harvest is around 8% complete nationwide.

Labor market continues to strengthenThe U.S. economy added 257,000 non-farm payrolls last month. In addition, November and December payrolls were revised up a whopping 147,000 from previous report-ings. The unemployment rate ticked up to 5.7% from 5.6% the previous month, as 703,000 individuals entered the workforce, signaling Americans are more upbeat about the labor market.

Average hourly earnings rose 0.5% in January, stirring some speculation this could move up the timeline for a Fed interest rate hike. Fed Chair Janet Yellen’s Feb. 24 mone-tary policy testimony now gains importance.

U.S., Japan trade talks a work in progressIt appears Japanese trade officials are getting closer to U.S. requests for substantial open-ings of the country’s beef and pork markets, while smaller concessions are being talked about for the Japanese rice market. But Japan’s deputy chief trade negotiator said enough differences remain between the two sides following talks in Washington last week to prevent “official level” meetings.

Meanwhile, Rep. Paul Ryan (R-Wis.), the chairman of the House Ways and Means Committee, says the Obama administration should boot Japan (and Canada) from the 12-nation Trans-Pacific Partnership (TPP) trade talks if they do not agree to lower tariffs.

February S&D Report out TuesdayUSDA’s February Supply & Demand (S&D) Report typically consists of minor fine tun-ing. And that’s what we expect again this year. A focal point will be USDA’s domestic and global soybean projections. Some trad-ers expect USDA to increase soybean use, which would reduce carryover. But after making no such changes last month, there’s risk USDA could punt again. USDA’s South American soybean estimates will be the highlight of its global production forecasts.

West Coast port talks coming to a head?Pacific Maritime Association (PMA) said shipping companies at 29 West Coast ports have no intention of declaring a worker lock-out, but ports are gridlocked to the point where operations could effectively be shut down sometime this week. The chief labor negotiator for shippers and terminal opera-tors said work slowdowns at the ports are a threat to the U.S. economy.

By taking the situation public and releas-ing some details in the now nine-month long labor negotiations with dockworkers, PMA put the ball in the hands of the International Longshore and Warehouse Union. As we detailed on News page 4 last week, agricul-ture has a lot at risk in this situation.

U.S. ag trade off to sluggish start in FY 2015U.S. ag exports for December 2014 totaled

$13.925 billion while ag imports for the month totaled $9.501 billion for a trade surplus of $4.424 billion. For the first three months of fis-cal year 2015, which started Oct. 1, U.S. ag exports are down 4.5% from the same period in fiscal year 2014, while ag imports are up 10.0%. The trade data thus far reflects recent challenges U.S. ag exports have faced — slow-downs at West Coast ports and the surge in the dollar — and the improving U.S. economy.

News this week...Page 2: Shipping index at nearly 30-year low.Page 3: FY ’16 budget tar- gets crop insurance.Page 4: Cattle herd unex- pectedly expands.

Februrary 7, 2015 / News page 2

Follow your Pro Farmer editors

on Twitter:Search for

#pfnews.@ChipFlory

@BGrete@Rich_Posson@JuliJohnston

@MeghanVick@WalstenM

@DavisMichaelsen

Ethanol produc-tion slows,

stocks rise.U.S. ethanol pro-duction declined by 30,000 barrels per day (bpd) for the week ended

Jan. 30, to a three-month low of 948,000 bpd.

Meanwhile, etha-nol stocks rose 355,000 barrels, to 20.99 million

barrels, the high-est level since

June 2012.Shrinking produc-tion margins and

waning ethanol demand point to

additional produc-tion declines

moving forward.

Agriculture remains top pri-ority for China.China lists agri-culture as a top

priority for a 12th straight year.

China says food safety, moderniz-

ing farms, protect-ing arable farm-

land and increas-ing lending to

farmers are its pri-mary focuses for

agriculture this year. An emphasis

is also being placed on improv-ing infrastructure

in rural areas, including laying

water pipes, upgrading exist-ing power grids

and constructing alternative energy

sources such as hydro and solar

power. China also realizes it needs to cut losses in

storage, transpor-tation and pro-

cessing of grain.

Shipping index falls to nearly three-decade low The Baltic Exchange’s dry freight index, which tracks shipping rates for vessels carrying bulk dry commodities, plunged to its lowest level since the summer of 1986 last week. Much of the decline is tied to a sharp decline in demand for panamax vessels, which typically are used to transport grain and coal around the world. The pana-max index has dropped nearly 50% over the past month.

Cheaper freight rates would appear to be a positive on the sur-face. Reduced shipping rates should encourage more demand for U.S. grains and other dry goods. While there are more vessels available to transport goods around the world now, the plunge through the 2008 recession low in the Baltic dry index reflects a sluggish global economy and some impacts from the extended labor dispute at West Coast ports.

Argentine corn crop raisedFavorable weather continued across much of Argentina’s main corn production area dur-ing January. That prompted Pro Farmer South American Consultant Dr. Michael Cordonnier to raise his Argentine corn crop by 1 MMT, to 22 MMT. Cordonnier left his Argentine bean crop estimate at 56 MMT this week, but he has a neutral to higher bias given mostly favorable weather.

For Brazil, Cordonnier left his soybean crop peg at 93 MMT as late-January rains through cen-tral Brazil were enough to tem-porarily stabilize crop condi-tions. But he is leaning to the downside with his estimate unless February rainfall is abun-dant. Cordonnier left his Brazilian corn crop peg at 74 MMT and he has a lower bias.

Plains winter wheat crop conditions declineWinter wheat crop conditions declined across most of the Central and Southern Plains dur-ing January, according to state statistician updates. The most pronounced decline was in the Colorado crop where only 38% is rated “good” to “excellent” ver-sus 62% at the end of December. Oklahoma’s wheat crop dropped 13 percentage points in the top two categories, while the Kansas crop experienced a 3-point drop, declining to 46% “good” to excellent” at the end of January. Texas didn’t provide a crop update at the end of December, but condition ratings slipped one percentage point in the top two categories from mid-January to month-end. Nebraska wheat crop ratings improved four percentage points, to 61% “good” to “excellent.”

Perspective: Condition rat-ings can change dramatically while the crop is dormant... and once the crop greens up. Crop ratings will be more significant once the winter wheat breaks dormancy this spring.

Egypt may buy U.S. wheatEgypt may soon tap a special $100 million line of credit pro-vided by the U.S. government to buy American wheat, according to the Mamdouh Abdel Fattah, vice chairman of Egypt’s state wheat buying agency. Fattah says buying U.S. wheat is a via-ble “option if prices are right.”

There’s speculation Egypt will buy U.S. SRW wheat to blend with French wheat imports, which have been running at higher moisture levels than mill-ers desire. But with U.S. wheat still priced $15 to $20 per ton above international prices, any Egyptian purchases of U.S. sup-plies are likely to be limited to amounts covered by the aid.

Canadian wheat stocks not as big as fearedCanadian wheat stocks as of Dec. 31 weren’t quite as hefty as expected at 24.818 million met-ric tons, but that still represent-ed the second highest figure for that date since 1996, behind last year’s 28.680 MMT.

Canada has plenty of wheat, but what it doesn’t have is abun-dant supplies of high-quality wheat. As a result, big Canadian wheat stocks shouldn’t have a major impact on U.S. wheat prices. A lack of high-quality wheat in Canada should eventu-ally strengthen demand for high-protein U.S. wheat, but not until global high-quality wheat supplies become ultra-tight or the U.S. price premium declines.

Weak El Niño still possibleMost climate models continue to predict a weak El Niño devel-oping during late winter/early spring, according to the latest update from the U.S. Climate Prediction Center (CPC). The meteorologists say odds of El Niño developing remain 50% to 60%, though there is some uncertainty with the forecast. Even if a weak El Niño devel-ops, CPC says climate models slightly favor a return to ENSO-neutral conditions.

Meanwhile, the Australian Bureau of Meteorology says most models it surveys forecast sea surface temperatures to remain above-average, but with-in the ENSO-neutral range through at least April.

CME Group to halt pit tradeCME Group announced last week it will shutter most of its open-outcry futures trading pits in Chicago and New York by July 2 of this year. The clo-sures will include the grain and livestock futures trading pits. CME Group says options pits will remain open.

Perspective: This is an end of an iconic era for U.S. futures trading. The writing has been on the wall for some time now that pit trade would cease as open-outcry volume has been on a steady decline since the start of electronic trade. Our primary concern is this removes the backup for those rare occasions when glitches cause electronic trade to go down.

Februrary 7, 2015 / News page 3

New study: Low risk of PEDV being spread via pig feed.The Pork Checkoff says new research indicates the risk of porcine epidem-ic diarrhea virus (PEDV) surviving in feed ingredients is limited. The research, conduct-ed by the University of Minnesota and technical experts from the animal feed and swine industries, evalu-ated the potential for PEDV trans-mission in ren-dered products, spray-dried blood products and pep-tone products derived by a hydrolysis pro-cess from pig intestines. These findings are con-sistent with previ-ous studies on this subject.

Scientists vs. the public.New Pew Research Center surveys of citizens and scientists connected to the American Association for the Advancement of Science (AAAS) show powerful dif-ferences of opin-ion on a host of topics. The widest gap in opinion were on food-related issues and animal research: Only 37% of U.S. adults say GMO foods are safe to eat, while 88% of AAAS scientists say they are safe. Only 28% of the general public believes food grown with pesti-cides are safe to eat, while 68% of scientists hold that belief. Forty-seven percent of adults favor the use of animals in research, while 89% of the scien-tists favor this.

Monetary easing continuesChina will require banks to hold less cash in reserve in an attempt to increase lending and boost eco-nomic activity. Effective Feb. 5, China’s bank reserve requirement ratio (RRR) was cut by 50 basis points, to 19.5% for big banks. The move came after China’s official purchasing managers index for January showed contraction in the country’s manufacturing sector.

Meanwhile, the Reserve Bank of Australia (RBA) cut interest rates by 25 basis points in response to slowing inflation and concerns over economic growth. RBA lowered its benchmark rate for the first time since August 2013 to a record low of 2.25%.

WOTUS remains under fireRepresentative Paul Gosar (R-Ariz.) recently introduced a bill to prevent the U.S. Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers from finalizing their controversial Waters of the U.S. (WOTUS) rule that would expand EPA’s Clean Water Act jurisdic-tion. The measure has garnered the support of 106 co-sponsors. Sen. John Barrasso (R-Wyo.) says he will introduce companion leg-islation in the Senate.

EPA also faced scrutiny at a joint hearing last week regard-ing WOTUS. The proposed rule has generated strong opposi-tions from the ag industry and others and it has been cited as one of the reasons EPA is a major target of Congressional efforts to harness “regulatory overreach.”

Push to revamp the RFSStakeholders are again riled up about an attempt in the House to decrease the amount of ethanol required in gasoline blends and to eliminate the advanced biofu-el mandate of the Renewable Fuel Standard (RFS). Rep. Robert Goodlatte (R-Va.) also plans to introduce legislation to repeal the RFS. Such efforts failed dur-ing the last Congress and are likely to face the same fate again.

President’s budget puts crop insurance on chopping blockFor the first time in five years, President Barack Obama met his budget deadline. This gives Congress time to review the adminis-tration’s plans and hold hearings before its joint budget resolution is due April 15. The president’s $4 trillion budget blueprint for fiscal year 2016 busts previously agreed-to budget caps and does little to blunt the threat of rising deficits and debt beyond FY 2018. Following are some of the ag-sensitive topics it touches on.

Crop insurance: The low-hanging fruitThe president again proposed cuts to federal crop insurance, but

this time he targeted the premium subsidy for revenue-based insur-ance with the harvest price election and tightened rules on prevented planting. Ag panel leaders in both chambers called the proposal dead on arrival, while Ag Sec. Tom Vilsack said they would help USDA stay within the 2014 Farm Bill’s ag program spending parameters.

Federal crop insurance is a popular, effective risk-management tool. But the pairing of revenue protection with hefty buy-up subsi-dies has drawn attention from opponents of federal crop insurance support. Two senators have already introduced legislation to cap the federal government’s share of crop insurance premiums to $50,000 a year for large farm operations, and more amendments to cut crop insurance are likely in the FY 2016 ag spending debate.

Such attempts will likely fail near-term thanks to declining annu-al budget deficits. But Washington’s attention will eventually return to the bulging debt and crop insurance subsidies will be reduced. The new farm bill’s blending of crop insurance elements into the farmer safety net and potential big Ag Risk Coverage payments to corn producers in October up the odds for cuts.

Section 179 expensingA welcome budget proposal was Obama’s push to permanently

extend Section 179 business expensing, which would let small busi-nesses write off investments in equipment up front (up to $500,000 in 2015 and $1 million in 2016). House Ways & Means Panel Chair Paul Ryan (R-Wis.) called this one of the “baby steps” the adminis-tration is taking toward improving the tax system.

Ryan’s panel last week marked up seven tax extenders measures, most of which expired at the end of 2014 after being retroactively extended late last year. This included permanent enhanced expens-ing for small businesses in Section 179. Ryan’s bill would set an expensing maximum of $500,000, reduced by the amount by which the cost of qualifying property exceeds $2 million. The $1 per gallon biodiesel credit is not included; it will be part of broader tax reform.

Other ag proposalsThe president again proposed shifting up to 25% of overseas food

aid dollars in emergencies toward the purchase of local or regional food, cash transfers or food vouchers. He also requested funding for USDA to develop alternatives to antibiotic use on farms and improve animal care practices. In addition, he asked for money for the Food and Drug Administration (FDA) to evaluate antibiotic stewardship in animal agriculture.

The president also makes a bid to combine USDA’s Food Safety and Inspections Service (FSIS) with FDA to form a “single federal food safety agency.”

On the $478 billion in transportation spending over six years Obama requested, Republican leaders rejected the one-time taxa-tion of overseas corporate profits used to pay for the plan, but they did not take issue with the length. Lawmakers want a longer-term solution for funding transportation programs.

Februrary 7, 2015 / News page 4

News alert and analysis exclusively for Members of Professional Farmers of America® P.O. Box 36, Cedar Falls, Iowa 50613-9985Sr. Vice President, Chuck Roth • Publisher/Editorial Director, Chip Flory • Editor, Brian Grete • Editor Emeritus, Jerry Carlson

Sr. Market Analyst, Rich Posson • Digital Managing Editor, Julianne Johnston • News Editor, Meghan Vick • Inputs Monitor Editor, Davis Michaelsen Member Relations Manager, Shelley Eilderts • Washington Consultants, Jim Wiesemeyer and Roger Bernard, 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)©2015 Professional Farmers of America, Inc. • E-mail address: editors@profarmer.com

CEO, Andrew Weber • President, Jeff Pence

Cattle Inventory Report signals cycle low in cattle numbersby Editor Brian Grete

The U.S. cattle herd expanded in 2014 for the first time since 2007. According to USDA’s Cattle

Inventory Report, the U.S. cattle herd totaled 89.8 mil-lion head on Jan. 1, up 1.274 million head (1.4%) from the start of 2014. Expansion of the cattle herd was most pronounced in the Southern Plains. Texas added 700,000 head (6%), Oklahoma added 300,000 head (7%) and Kansas increased its herd by 200,000 head (2%) over the past year. Those three states represented nearly all of the year-over-year increase in the U.S. cattle herd.

While the cattle herd expanded, instead of the mod-est 0.l% contraction the average pre-report trade esti-mate reflected, the Jan. 1 cattle inven-tory number was still 1.55 million head less than the five-year average. The process of rebuilding the U.S. cattle herd after seven years of major contraction has just barely begun.

Bigger calf crop in 2014, but... The 2014 calf crop at 33.9 million head was 170,000

head (0.5%) bigger than the previous year. Traders expected the calf crop to be down 371,000 head (1.1%), according to the average pre-report estimate. But the increase in the calf crop size last year was due entirely to a downward revision of 200,000 head (0.6%) to the 2013 calf crop. Without that revi-sion, last year’s calf crop would have been a scant 30,000 head small-er than the previ-ous year.

Even with the modest year-over-year increase, the 2014 calf crop came in 1.147 million head less than the five-year average. Assuming the calving rate is the same as the past two years, the 2015 calf crop will expand around 675,000 head (2%), according to the Daily Livestock Report.

Herd rebuilding much more aggressive than anticipatedThe most surprising aspect of the report was the num-

ber of beef heifers held back for breeding. Beef replace-ment heifers totaled 5.777 million head, 226,000 head (4.1%) more than were held back the previous year. The

majority of the beef herd retention, not surprisingly, took place in the Southern Plains. Texas (50,000 head), Oklahoma (80,000 head) and Kansas (20,000 head) accounted for two-thirds of the expansion of the beef

breeding herd.Of heifers held

back for breeding, 3.546 million head are expected to calve in 2015. That’s an extra 241,000 head (7.3%) of heif-ers expected to drop calves this year compared to 2014.

Dr. Derrell Peel, Oklahoma State University Extension livestock market-ing specialist, points out beef replacement heifers rep-resented a record 19.5% of the beef cow herd on Jan. 1. Whereas the cattle inventory and calf crop were still well below the 2010-2014 average, the number of beef replacement heifers was 421,000 head greater than the five-year average pace. Assuming a normal calving rate, the 2015 calf crop would grow by around 675,000 head (2%) — equal to about one big week of slaughter.

What’s the impact?The report data was bearish compared to pre-report

expectations as all categories came in on the negative side of the average trade estimates. While a cycle bot-tom in the U.S. cattle herd occurred before it was expected and cattle numbers will continue to rebuild, we see nothing in this report that greatly alters the fun-damental outlook for the cattle market for the remain-der of this year. If anything, a continuation of the aggressive herd rebuilding would remove even more heifers from the slaughter mix, which will keep beef supplies tight. Continued tight supplies of market-ready cattle will in turn support the cash and product markets, along with cattle futures. Once the market has waded through the recent rush of negative news, we expect cattle futures to post a strong price recovery — potentially rallying to a new high sometime this year.

The “hidden” impact we see from this report is to feed demand. A greater supply of calves means more will be entering feedlots, which points to increased feed consumption. Key will be whether feedlots continue to feed animals to heavier weights amid cheaper feed costs if they have more calves to place.

As beef supplies build into 2016 and 2017, it will put pressure on the cash and product markets and cattle futures. Once we get into the second half of this year, the urgency to look for hedging opportunities will increase in anticipation of building beef supplies.

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

8587

8991939597

99101103105

All Cattle & Calves

Million head

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

33.0

34.0

35.0

36.0

37.0

38.0

39.0

40.0

41.0Calf Crop

Million head

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

5

5.2

5.4

5.6

5.8

6

6.2

6.4

6.6Beef Replacement Heifers

Million head

Game plan:Fed cattle p r o d u c e r s carry risk in the cash market. Feeder cattle buyers should be prepared to cover a por-tion of needs on signs of a low. The price drop is overdone.

Corn I’15 100% II’15 100% III’15 0% IV’15 0%Meal I’15 100% II’15 100% III’15 0% IV’15 0%

Analysis page 1

February 7, 2015

HOGS

CATTLE

FEEDFeed Monitor

Position Monitor

Game plan:Cash to futures spreads suggest there is little pre-mium in futures for a hedge. With the intensity of the price drop making it difficult to forecast a low, put options can pro-vide a floor price at a fixed cost.

Position Monitor Lean Hogs

I’15 0% II’15 0% III’15 0% IV’15 0%

Corn game plan: Feeders are long July $4.20 call options at 13¢ as a hedge for 100% of first-half 2015 needs. A near-term sea-sonal rally is expected. We don’t advise this hedge if you have corn on farm to feed.Meal game plan: Feeders have hedged 100% of first-half 2015 meal needs via long July $350.00 call options purchased for $12.05. A seasonal rally is due.

Daily March MealThe trend is down.

Fundamental analysisThe ratio of the pork cutout value to the lean hog index is still a bit high, which strengthened packer margins, but also pulled support from cash hogs. USDA’s Weekly Meat Production Report as of Jan. 31 adds pressure to hogs. It showed year-to-date slaughter down 1.6% versus the prior week, which was down 3.6%. With the hog-futures-to-corn ratio in steep decline, pro-ducers are likely to soon feed for lower hog weights. But producers will increase hog numbers this year. Pork demand is soft and year-to-date pork production has nearly returned to last year’s levels. Although the decline since July is overdone, a 10-year seasonal study shows on average the market strug-gled to find support until March.

Feds FeedersI’15 0% 0%

II’15 0% 0% III’15 0% 0% IV’15 0% 0%

CME Feeder Cattle Index

CME Lean Hog Index

Daily April Live CattleThe trend is down.

Daily April Lean HogsThe trend is down.

Support is the Jan. 26 low at $149.00. If it is violated, traders will

use weekly lows for support levels.

Fundamental analysisFor the week ended Jan. 31, year-to-date beef production was still below the prior year, but it did improve from the previous week. Although production ticked up a bit, average cattle weights declined 3 lbs. from the previous week to 1,365 pounds. Traders attribute the rise in cattle production to rebuild-ing of the herd. But rebuilding will take long enough that the summer grilling season is likely to see sup-plies fall short of demand (see Newspage 4). A 10-year seasonal study of August futures suggests prices typ-ically work higher into August. Analysis suggests the fear of rising near-term supplies is unfounded and buyer interest is likely to create a bottom some time this month. A new high is likely by summer.

Nearby resistance is the 40-day moving average (green line) near $344.40.

Support is the November 2010 low on the continuous chart at $65.15. With the trend turning straight down,traders will lack confidence in picking support levels.

Nearby resistance is the downtrend near $149.00. Next resistance is the Jan. 29 high at $152.92 1/2.

Nearby support is at $321.10. Major support is $292.10.

$321.10

$152.92 1/2

Nearby resistance is the downtrend in the

$72.00 to $68.00 area.

$72.10

$292.10

$149.00

Position Monitor — All Wheat ’14 crop ’15 cropCash-only: 85% 15% Hedgers (cash sales): 100% 15%Futures/Options 0% 0%

Game plan: A cyclical and seasonal recovery in prices likely began last week. We’ll wait on an extended rally to add to sales.

February 7, 2015 / Analysis page 2

CORN

Jan

Feb

Mar Apr

May Jun Jul

Aug

Sept Oc

tNo

v

Dec-0.30

-0.10

0.10

0.30

0.50

0.70

0.90

3-year avg. 2015

Sep

tO

ct

Nov

Dec Jan

Feb

Mar

Apr

May Jun

July

Aug

5152535455565

'13-14 '14-15 USDA

Total Corn Export Bookings

Average Corn Basis

The downtrend was violated.Daily SRW March Wheat

Daily March CornThe downtrend was violated.

Position Monitor ’14 crop ’15 cropCash-only: 65% 10% Hedgers (cash sales): 65% 10% Futures/Options 0% 0%

WHEAT

Fundamental analysisCorn export sales for the week ended Jan. 29 were lower than the previous week, but the four-week average of sales made a new high since September. Exports have improved despite the strong dollar, but they remain near levels seen during the 2013-14 marketing year. Last week’s non-farm jobs numbers showed impressive growth while an uptick in earnings and hours worked signals the U.S. economy is moving forward. This will likely strengthen gasoline demand this summer, which in turn should sup-port ethanol usage. Domestic usage of corn is likely to rise a bit, and importers likely need to ignore the strong dollar and get caught up on 2015 procurement. Analysis sug-gests rising buyer interest this month will offset last month’s sea-sonal price pressure.

Fundamental analysis

SRW: On average, traders expect USDA in its report next week to show 2014-15 wheat carryover about the same as seen in the January report. But last week, traders rallied prices on hopes of improved exports. Last month, U.S. futures declined faster than global markets.

Game plan: Last week’s upturn in prices is a sign the decline during January has been exhausted. A seasonal recovery in prices is fore-cast. We will wait on an extended late-winter rally to make addi-tional old- and new-crop sales. However, you should get current on advice in order to protect against an unforeseen disruption of the seasonal rise in prices.

Basis March futures

Position Monitor

Million metric tons

Nearby support is at $3.76. Next support is the former downtrend in the low $3.70s to upper $3.60s.

Strong resistance is the 40-day moving average (green line)

near $5.69.

Resistance is the 40-day moving average (green line) near $3.95. On an extended

price recovery, bulls are likely to target the July gap to $4.26.

Daily December CornThe downtrend was breached.

Nearby resistance is at the 40-day moving average

(green line) near $4.21.

Support is the formerdowntrend in the $4.00 area.

$3.64 1/4

Nearby support is at $5.20 3/4. Major support is the September low at $4.80.

$3.76

$6.77

$4.40 3/4

$4.26

$5.20 3/4

$4.80

$3.30 1/2

Game plan: Last week’s upside price reversal signaled exhaustion of the January downtrend and place-ment of a seasonal low. Technical studies have improved for beans and last week’s Gulf export bids were strong. We’ll wait on a price recovery to add to old- and new-crop sales. But given high global supplies, you should take advantage of a rally to get current on advice.

February 7, 2015 / Analysis page 3

Daily November SoybeansThe trend has started to turn up.

Average Soybean Basis

Position Monitor ’14 crop ’15 cropCash-only: 80% 15% Hedgers (cash sales): 80% 15% Futures/Options 0% 0%

Fundamental analysisThe pace of export sales has slowed, but total bookings are well above the same time in the 2013-14 mar-keting year. Soymeal export sales were strong the past three weeks and the four-week average shows sales have trended up since November. Prices rallied last week on strong Gulf export demand for early February shipment, despite news central Brazil received rains following an extended dry spell. Traders assume the rains were ben-eficial, but with the main thrust of harvest due next month, persistent rains could cause harvest complica-tions. A cyclical rise in buyer inter-est is due this month and a 10-year seasonal study of futures shows prices rallied on average into March. Traders expect next week’s USDA reports will show a modest decline in 2014-15 carryover.

SOYBEANS

Sept

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May Jun

July

Aug15

2025303540455055

'13-14 '14-15 USDA

Total Soybean Export Bookings

Jan

Feb Mar

Apr

May

June

July

Aug

Sep

t

Oct

Nov

Dec

-0.50

-0.40

-0.30

-0.20

-0.10

0.002015 SRW

2015 HRW

3-yearSRW avg.

3-yearHRW avg.

Average Wheat Basis

Total Wheat Export Bookings

HRW: The relentless drop in prices last month was likely overdone and last week’s recovery was a sign of an oversold market. Business cycle analysis of demand forecasts a rally this month. On average for the past 10 years, HRW futures rallied into March. Last week, traders learned of a decline in winter wheat crop conditions in Kansas and Oklahoma.

HRS: Cold weather is forecast to move into the Plains and snow-cover is variable. Ratios of HRS to other wheats show HRS is the stronger market. Weather con-cerns may provide a risk premi-um and the 10-year seasonal study signals price strength this month.

Daily HRW March Wheat

Daily HRS March Wheat

Basis March futures

$12.42 1/2

The trend begins to reverse.Daily March Soybeans

Major support is the October low at $9.27 1/2.

Million metric tons

Strong resistance is the 40-day moving average (green line) near $9.94.

July

Aug

Sep

tO

ct

Nov

Dec Jan

Feb Mar

Apr

May

05

101520253035

'13-14 '14-15 USDA

Nearby resistance is the trendline around $5.90. Strong resistance

is the 40-day moving average (green line) near $6.04.

Jan

Feb

Mar Apr

May Jun

Jul

Aug

Sept Oct

Nov

Dec-0.40

0.00

0.40

0.80

1.20

1.603-year avg. 2015

Million metric tons

Strong resistance is the 40-day moving average (green line)

near $10.16. Next resistance would be the uptrend in

the $10.50s.

Key support is the October low at $9.20 3/4.

Basis March futures

Resistance is the 40-day moving average (green line) near $6.04.

Support is at $5.54.

Support is the October low at $5.41.

$6.80 1/4

$7.05 3/4

$10.56 3/4

$10.89 3/4

$5.54

$5.41

$9.20 3/4

$9.27 1/2

February 7, 2015 / Analysis page 4

FROM THE BULLPEN

Average Cotton Basis

COTTONPosition Monitor ’14 crop ’15 cropCash-only: 50% 0% Hedgers (cash sales): 50% 0% Futures/Options 0% 0%

Fundamental analysisExport bookings remain in a strong uptrend. Clearly, USDA needs to revise its export peg higher. Some global manufacturing indicators ticked higher for January, which sug-gests improved economics. With the dollar showing signs of rolling over, let’s give cotton bulls some room.

Total Cotton Export Bookings

GENERAL OUTLOOK

Game plan: A seasonal rally is underway and exports provide support. We’ll wait on a price recovery before adding to sales.

by Sr. Market Analyst Rich Posson

Read Pro Farmer on Friday!Put the news and analysis of Pro Farmer newsletter to work for

you as early as Friday afternoon — before it hits the mail. Get Pro Farmer newsletter via email.

Call 1-800-772-0023 for details.

weeks, followers are likely disin-clined to ignore this characteristic of the stock market.

The stock market has been choppy since December, which is a sign of a lack in confidence of direction of trend. But analysis suggests the mar-ket is hesitating to allow the growing economy to catch up with stock valu-ations. Trade below 15,855.12 for the DJIA would be problematic. Barring that, the bull market since the 2009 low would remain intact.

Stock Market: The performance of January is often touted as the “January Barometer.” Followers assume the year’s performance is likely to follow that of January. With the Dow Jones Industrial Average (DJIA) closing down for the month, the January Barometer logic suggests 2015 will be a down year for the stock market.

For the past 15 years, the indicator was right 53% of the time. This is not a strong rate of accuracy, but with the roller coaster action in recent

May

June July

Aug

Sept Oct

Nov

Dec

Jan

Feb

Mar

April

May

June July

1000

3000

5000

7000

9000

11000

13000'13-14 '14-15 USDA

’000 running bales

Register for Profit Briefing SeminarsLearn what lies ahead for land prices, farm policy, the economy,

world trade, technology, marketing strategies and inputs. Feb. 9 — Dayton, OH | Feb. 10 — Champaign, IL

Feb. 11 — Madison, WI | Call 1-800-772-0023 to register.

Key Market Items on My ‘To Watch’ List

1) USDA Crop Production and Supply & Demand Reports — Tuesday, Feb. 10, 11:00 a.m. CTTraders seek insight to the trends of supply and demand.2) Weekly Export Sales Report — Thursday, Feb. 12, 7:30 a.m. CTTraders are watching for signs of strength in corn export sales.3) Consumer Sentiment — Friday, Feb. 13, 9:00 a.m. CTRecently, consumer sentiment was near an 11-year high. Consumer sentiment relates to consumer spending, which is the largest driver of the U.S. economy.

Jan

Feb

Mar Apr

May Jun Jul

Aug

Sept Oct

Nov

Dec-800.00

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

0.003-year avg. 2015

Basis Marchfutures

A seasonal rally is due this month for the grains, and last week there were signs that a low is in place. With analysis suggesting a wide range of price possibilities for the seasonal uptrend, I will present option strategies in “Posson’s Profit Watch” that relate to business-cycle model analysis of demand. The idea is to be flexible while providing buyback or additional hedge strategies. You will find the daily update at www.profarmer.com.

Last week in “Posson’s Profit Watch,” I recommended using call options in wheat, corn and soybeans in order to participate in a seasonal and cyclical rally this month. I am watching feeder cattle for an option-based hedge for summer production of fed cattle.

Next week, I intend to discuss a heating oil option-based hedge to limit upside risk

in diesel prices. Crude oil and related mar-kets collapsed late last year and the drop is likely overdone. January manufacturing sta-tistics for the euro-zone and the world showed signs of improvement. And Brent oil, which relates to European markets, showed strength relative to the U.S. market.

The euro currency negatively correlated with the drop in oil prices and there are signs the euro is finding its legs. A rally in the euro should relate to a decline in the dol-lar and traders will likely then be less con-cerned of still lower oil prices. For addi-tional risk management and analysis of energy and fertilizer, see the Pro Farmer Inputs Monitor newsletter.

I believe it is time for a correction in the U.S. dollar and this should support prices of agricultural commodities.

Daily March CottonThe trend is down.

Violation of three major trendlines in a fan formation is a bullish sign. Violation of

62.84¢ will cause the Critical Point to show an objective

of 67.25¢ to 69.79¢.

Nearby support is the 40-day moving average near 60.14¢. Key support is at 57.05¢.

Monthly Dow Jones Industrial Average

57.05¢

15,855.12

Resistance is the trendline in the upper 18,000 area.

Support is at 15,855.12.

62.84¢