Proposed changes could limit agriculture futures hedging

The National Grain and Feed Association (NGFA) has expressed major concerns with the Commodity Futures Trading Commission's (CFTC) proposed regulations that would redefine what constitutes "bona fide" hedging and potentially increase speculative position limits for users of agricultural futures markets dramatically.
In a recently submitted statement, the NGFA said that under the CFTC's proposed rule, "we fear that a number of common hedging transactions used for business risk management in the grain, feed and processing sector, but not enumerated in the proposal, could be put at risk."
NGFA's comments, which are available online, were made in response to the CFTC's proposed rule to establish speculative position limits for futures and swaps on various commodities.
In its statement, NGFA said its members "rely on a consistent and predictable approach to bona fide hedging and position-limit policy decisions made by the CFTC," and that their risk management strategies are not structured as an investment or speculative tool. Rather, NGFA said, grain handlers, processors, feed manufacturers, exporters and agricultural producers rely on futures markets to manage business risk.
NGFA said the CFTC's proposal to change the definition of what constitutes a bona fide hedge could create uncertainty and invalidate several commonly used hedging transactions, including locking in futures spreads, hedging basis contracts and delayed-price commitments, and anticipatory hedging of commercial transactions and processing or storage capacity.
"To redefine bona fide hedging now in ways that may reclassify certain transactions long considered bona fide hedges by both the industry and the CFTC - as the proposed rule seems to suggest - would have far-reaching consequences for agribusiness hedgers and for U.S. agricultural producers," the NGFA said. Doing so would lead to a "markedly reduced ability for grain elevators, feed manufacturers, processors and other businesses to hedge their physical commodity risk and force grain and oilseed purchasers to lower bids to farmers, reduce liquidity, and restrict use of tools widely used by farmers and ranchers to manage their risk."
The CFTC's proposal also would establish new methodologies for determining speculative position limits for agricultural commodities, and for the first time establish such limits for many non-agricultural products.
Agricultural commodities, such as corn, soybeans and wheat, specifically enumerated in the Commodity Exchange Act long have operated under federal speculative position limits, which NGFA supports. But NGFA said that under the new methodology envisioned by the CFTC proposal for determining federal speculative position limits, the spot (current delivery month) month-based formula of 25 percent of deliverable supply could, in some cases, increase by nearly 10 times current spot-month limits. Meanwhile, the CFTC's proposed speculative position limits for all-months-combined for enumerated agricultural commodities could result in increases of as much as 79 percent for soybeans and 62 percent for corn.
"We believe strongly that a 'one-size-fits-all' approach is unlikely to provide the right solution for commodities as diverse as energy, metals, financial products and agricultural commodities," NGFA said. "Even within the agricultural commodities, grain and oilseed markets display characteristics different from other agricultural commodities. We urge the CFTC to recognize these unique characteristics - functionally and in terms of market size and participants."
For this reason, NGFA recommended for both spot-month and all-months-combined that designated contract markets, such as the CME Group and Minneapolis Grain Exchange, be authorized to reduce such speculative position limits for specific contracts so as not to repeat problems regarding convergence of futures and cash market values that roiled the industry several years ago.

Size of US corn and soybean harvest remains uncertain, USDA to resurvey

The corn and soybean markets continue to reflect uncertainty about the potential size of the 2013 United States corn and soybean crops. Over the past month, December 2013 corn futures have traded in an 80 cents range, and November 2013 soybean futures have traded in a $1 range as production expectations shifted up and down. Uncertainty about both acreage and yield prospects have contributed to the relatively wide trading range, according to University of Illinois agricultural economist Darrel Good.
"The U.S. Department of Agriculture's June Acreage Report showed that producers planted, or intended to plant, slightly more acres of both corn and soybeans than indicated in the March Prospective Plantings report," said Good. "The report also showed that the difference between planted acreage and expected harvested acreage of corn for grain was larger than average at 8.244 million acres. On the other hand, the expected difference between planted and harvested acreage of soybeans was smaller than average at 810,000 acres," he said.
Additional information about the likely level of planted and harvested acreage will continue to be available to the market. The USDA indicated that it will resurvey soybean acreage in 14 states during July and reflect any changes in the August Crop Production report. Some additional acreage information for both corn and soybeans may also become available through the normal survey process for the August, September, October and November production reports. Certified acreage data from the Farm Service Agency will also become available and should be reflected in the USDA's October production report.
Another source of information about the magnitude of planted acreage will be available with the Farm Service Agency reports of prevented planted acreage. Preliminary estimates are expected next month.
"The estimates of prevented planting are reported by crop and by state and will be used to judge the potential change between the June acreage estimates and actual planted acreage," Good explained. "The problem with using that information, however, is that there has been only a loose relationship between the magnitude of total prevented planted acreage and the difference between actual plantings and the June acreage estimate. In recent history, the largest prevented planted acreage occurred in 2011, when 9.6 million acres of all crops were reported as prevented planting. Prevented plantings of corn were reported at three million acres, but total planted acreage of corn was only 346,000 less than the June acreage estimate.
"Similarly, prevented plantings of soybeans were reported at 1.45 million acres, but actual planted acreage of soybeans was only 162,000 less than the June acreage estimate," Good said. "For 2009 and 2010, when prevented planted acreage was also large, the relationship between the magnitude of prevented plantings and the difference between actual acreage and the June estimate was only close for soybeans in 2010. For corn, actual acreage in 2010 exceeded June intentions by 320,000 acres even though prevented plantings were reported at 2.1 million acres," he said.
Given the lateness of the 2013 planting season, reported prevented planted acreage is likely to be large, Good said. In addition, some planted acreage has been lost to flooding. As a result, actual planted and harvested acreage of both corn and soybeans are likely to be less than the June estimates. The magnitude of the difference, however, may remain uncertain until October.
Good said that the same factors that have created uncertainty about planted and harvested acreage of corn and soybeans have also contributed to early-season yield uncertainty.
"Judging from current crop condition ratings, yield prospects at this stage of the growing season are quite good," he said. "However, overall yield prospects will be influenced less by developments to date and more by weather conditions over the next two months as the crops go through the reproductive and filling stages. Recent weather and near-term weather prospects are a bit of a mixed bag with almost ideal moisture conditions in many areas, but too much rainfall in some areas, dryness developing in some western areas, and generally above-average temperatures this week. As usual, there are some differences of opinion about longer-term weather forecasts. Prospects for moderating temperatures and thunderstorm activity, however, bode well for yield prospects. The markets will continue to monitor crop condition ratings for indications of yield potential," Good said.
Good concluded that even with harvested acreage less than currently estimated, prospects for corn and soybean yields near trend value in 2013 point to large crops and the likely buildup in stocks during the 2013-14 marketing year.
"Due to the extreme lateness of soybean planting in some western and northern growing areas, soybean yields may be at more risk than corn yields," Good said. "Soybean yield uncertainty could persist later in the season than is normally the case, with new-crop soybean futures reflecting more production risk than new-crop corn futures."

Corn futures continue drop on US planting outlook

Corn futures dropped for an eighth session, reaching their lowest price since October 2010, as mild weather improved prospects for a record crop in the U.S., according to reports.
Farmers seeded 97.4 million acres of corn as of June 28, said the U.S. Department of Agriculture, the most since 1936, and exceeded the 95.431 million that analysts expected in a Bloomberg survey. Temperatures in the U.S. Midwest, the country's biggest growing area, will be lower through the first week of July, minimizing the risk of yield losses from excessive heat, according to DTN.
"There's no heat in the extended forecast, so the weather is no real threat to anybody," said Mark Schultz, the chief analyst at Northstar Commodity Investment Co. "The fact that we have 97 million acres of corn was a shock to everybody."
Corn futures for December delivery fell 0.7 percent to $5.0725 per bushel at 9:59 a.m. on July 1 on the Chicago Board of Trade, after touching $5.0375, the lowest for a most-active contract since Oct. 8, 2010. Prices have slumped 11 percent over eight sessions, the longest losing streak since February.
The USDA on June 12 forecast a record harvest this year of 14.005 billion bushels, up 30 percent from 2012's drought-damaged crop.

Corn traders remain optimistic despite hot, dry weather

Despite unseasonably hot and dry weather in the Midwest, and growing demand for US corn from China, 19 of 27 corn analysts surveyed by Bloomberg expect prices to gain over the next week. Three analysts were neutral, the highest proportion since March 30.
Corn jumped 9.1 percent since May 11, heading for the best week in almost a year and rebounding from a slump caused by the USDA predicting a record crop. Hedge funds and other speculators have raised bets on higher prices for two consecutive weeks, according to the Commodity Futures Trading Commission and reported by Bloomberg.
Weather services are predicting that Iowa, Illinois and Indiana, which produce 40 percent of the U.S. corn crop, will receive another month of above-normal temperatures. National Weather Service data shows that sections of Midwest received 25 percent of normal rain over the past two weeks.
Late June and early July temperatures will give analysts a better picture of this year’s crop yields.

US corn futures may reach $8 per bushel

U.S. corn futures may jump to between $7.75 and $8 per bushel after the October harvest as concerns surface that global supply and yields might be less than expected, according to futures broker Newedge USA LLC.
Corn is king, according to the broker, and futures have already gained 37% in the last year. At the same time, demand is rising and global stockpiles are projected to hit a five-year low at the end of 2011-2012.
The U.S. grows about 37% of global output.

US corn, soybean futures hit highs on eroding yields

Soybean futures climbed to $14.54 on Aug. 29.

U.S. corn futures hit an 11-week high and soybeans reached their highest prices since February on continuing speculation of eroding yields due to continued drought, particularly in the Midwest, according to reports.
Corn futures for December delivery hit $7.79 on Aug. 29, the highest for the most-active contract since June 9. Prices are up 77% in the past year, including 15% in August. Soybean futures for November delivery reached $14.54 on Aug. 29, the highest for a most-active contract since Feb. 10. “The fear is that supply is falling faster than demand,” said Don Roose, the president of U.S. Commodities Inc. “Oppressive heat in July damaged crops, and now the dry weather is further reducing yields.”
The first two weeks of September call for less rain than normal from Nebraska to Indiana, leaving roughly one-third of the main growing areas in the Midwest too dry, according to Commodity Weather Group LLC.

US drought may increase corn prices

Corn prices may reach a record $8.75 per bushel before the harvest if the current drought in the southern U.S. reaches the Midwest, according to Jack Scoville, vice president for Price Futures Group in Chicago.
On the other hand, if the crop is not harmed by extreme weather and production is "very good," prices may drop to $4.50 per bushel. "A lot will depend on what we see in the weather forecast the next few weeks," said Scoville. If it's dry, "you can probably throw some of these lower ideas out the window and look for significantly higher prices, as the U.S. market tries to regulate demand against the potentially available supply."

Corn futures drop on favorable weather, yield predictions

December corn futures reached a one-month low on expectations of higher yields.

December corn futures hit $6.7475 per bushel on the Chicago Board of Trade on June 14, a one-month low, on reports that favorable weather may boost yields in the U.S.
On June 10, July corn futures reached a record $7.9975 per bushel on the CBOT after updated reports decreased U.S. harvest predictions by 2.3%. “The markets are focused on rapid planting progress and improving crop conditions,” said Nate Smith, a broker at the Linn Group in Chicago. Warmer weather and some rain are expected to maintain favorable growing conditions. Roughly 69% of the U.S. corn crop was in good or excellent condition as on June 12, up from 67% a week earlier, according to the U.S. Department of Agriculture.
As of 8:29 a.m. on June 15, corn was trading at $7.51 per bushel.

USDA: US corn harvest estimate down due to Midwest storms

Corn futures rose on reports that the U.S. harvest may be 2.3% lower than originally estimated.

The U.S. corn harvest may be 2.3% smaller than originally forecast due to excessive storms in the Midwest, reaching a total of 13.2 billion bushels (as opposed to the initial estimate of 13.505 billion bushels), according to the U.S. Department of Agriculture.
The USDA estimate of inventories before the 2012 harvest is down to 695 million bushels, a 23% decrease from the 900 million bushels estimated in May. In response to the new numbers, corn futures for July reached a three-year high, hitting $7.84 a bushel — a 2.6% increase — at 10:34 a.m. on the Chicago Board of Trade.
In spite of the report, Geoff Cooper, vice president of research and analysis at the Renewable Fuels Association, said it's too early to necessarily take the numbers at face value. "It is extremely early in the season and much will change between now and harvest," said Cooper. "Historical data has shown that the weather in July and August is a much more important factor in determining final yields than the planting date." He said the June 30 acreage report will provide a better picture of actual corn acreage, once estimates of acres lost to flooding or abandoned due to prevented planting are taken into account.

US corn and soybean futures drop as exports slow

U.S. corn exports were down 43% in the week ending April 21, to 348,969 metric tons from a week earlier and the smallest amount in six months.

July corn futures on the Chicago Board of Trade dropped by the limit of $0.30 (4%) to close at $7.2925 on April 28, the biggest decline since March 15, according to analysts.
An easing of demand for U.S. supplies has contributed to the numbers. U.S. exporters sold 348,969 metric tons of corn in the week ending April 21, down 43% from a week earlier and the smallest amount in six months, according to the U.S. Department of Agriculture.
The price also fell on forecasts for drier weather in the Midwest that may allow for increased planting, said Dale Durchholz, senior market analyst at AgriVisor LLC. Only 9% of the U.S. corn crop was planted as of April 24, compared with 46% by this time in 2010, due to unfavorable weather. “Worries about U.S. planting delays may have peaked,” said Durchholz. “There is plenty of time to plant corn next month, and people are going to be surprised by how many acres farmers can plant in a short period.”
Soybean futures also fell from a two-week high as overseas and domestic demand eased, by $0.31 (2.2%), to close at $13.535 a bushel in Chicago. Earlier, the price reached $14.005, the highest since April 11.