Commodity prices could trigger payments

The forecasts for a bountiful U.S. corn crop and increased corn stocks could potentially trigger subsidy payments for farmers this year.  Pat Westhoff, with the Food and Agricultural Policy Research Institute (FAPRI-MU), says prices might trigger payments under the two programs in the new Farm Bill.  Westhoff tells Brownfield Ag News, “If we were to get corn prices below $3.70 a bushel on a season average basis producers who signed up for the new Price Loss Coverage (PLC) program would be qualified for payments. Even if prices are higher than that, people who sign up for the Agricultural Risk Coverage (ARC) program might  be getting payments on this year’s crop.”

At this moment, though, he says payments for some southern crops appear most likely. He tells Brownfield, “I think right now, taking a snapshot of today, peanuts and rice appear to be two commodities where it’s very likely that prices will fall below the reference prices in the new Farm Bill. It could happen for corn and other crops as well but it’ll depend on the final size of the crop and what ultimate demand for that crop proves to be.”

Westhoff says it’s been awhile since corn prices have been this low, “It’s been several years since we’ve seen these kind of prices. Two-thousand-10 was the last time futures prices were this low. And, we have the potential of having a season-average price that could be the lowest since the 2008 boom.”  A lot, of course, depends on the weather moving forward.

Interview with Pat Westhoff (3:00 mp3)

PEDv and hog futures

Uncertainty surrounding total swine herd losses to the Porcine Epidemic Diarrhea virus has lean hog futures for spring and summer contracts at record-high levels.

Purdue ag economist Chris Hurt says the industry doesn’t know how big those losses are just yet.  “We think the winter months are the months that we have the largest death loss,’ he says.  “What that means is that as we get to April through August is going to be that time period when we expect the death loss last winter and into this spring will really show up.”

Hurt tells Brownfield futures markets are anticipatory markets.  “What we don’t know is how big that death loss is,” he says.  “Buyers and sellers in the marketplace come up with – an anticipation.  I think this is a situation where perhaps we may see a “buy the rumor”.  The rumor drives the prices up – but the reality might be quite as extreme as death losses as what is expected.”

Hurt says the March 28th Hogs and Pigs report will give the markets their first look at how much affect PEDv will have on the hog supply.

AUDIO: Chris Hurt, Purdue (5:30mp3)

CFTC files civil suit in MF Global case

The US Commodity Futures Trading Commission filed a civil lawsuit against Jon Corzine for his role in the collapse of MF Global today.  According to the Wall Street Journal, Corzine and another former executive at the firm have been charged with the unlawful misuse of nearly $1 billion in customer funds.

MF Global’s 2011 collapse led to billions of dollars in missing client funds at the broker dealer and the eighth-largest bankruptcy in US history.

Senate Agriculture Committee Chair Debbie Stabenow praised the move. She issued a statement saying, “The loss of $1.2 billion in customer funds represents an extraordinary breach of trust and devastated thousands of farmers, ranchers and small businesses who rely on the futures market to hedge business risk.”

CFTC also fined MF Global $100 million.

 

 

An update on proposed changes to the live cattle futures contract

At the Iowa Cattlemen’s Association’s (ICA) summer policy conference this week in Ames, ICA president Ed Greiman, a cattle producer from Garner, Iowa, gave an update on efforts to move the live cattle futures contract to a position where it converges with the cash market.

Greiman heads up a special task force of the National Cattlemen’s Beef Association that has been having those discussions with the CME Group.

Specifically, the cattlemen have asked that fed heifers be included as deliverable cattle to honor a contract. Theyare also asking for an increase in maximum live weights from 1,500 pounds to 1,650 pounds.

In a phone interview with Brownfield, Greiman discussed the progress of those negotiations.  He also talked about an issue of particular concern to Iowa cattlemen—a proposal by the CME Group to add a one dollar discount to the Worthing, South Dakota delivery point.

AUDIO: Ed Greiman (1:49 MP3)

Bill clarifies margin requirements exemption

Nebraska Senator Mike Johanns is one of the co-sponsors of a bill that clarifies the exemption for farmers and ranchers from margin requirements in the Dodd-Frank financial reform law.

Johanns says the bill ensures that farmers can continue to use derivatives to manage their risks and insure against extreme price fluctuations on commodities and inputs, “without facing costly margin requirements meant to cover day-traders who play the markets”.

“Clearly, farmers and ranchers aren’t using these tools to get rich quick.  What they’re trying to do is to defend against unexpected market shifts,” Johanns says. “This bill clarifies currently law by explicitly stating that these folks are not the same as speculators and should not be subject to the costly new rules and requirements.

Johanns says that, despite Congress’ intent with Dodd-Frank, there has been a debate over how broadly the end-user exemption would apply.

An identical bill received unanimous approval from the House of Representatives Financial Services Committee earlier this week.

NCBA seeks changes in live futures contract

The National Cattlemen’s Beef Association (NCBA) is asking the CME Group to move its live cattle futures contract to a position where it converges with the cash market.

Specifically, NCBA is asking that fed heifers be included as deliverable cattle to honor a contract. The cattlemen are also asking for an increase in maximum live weights from 1,500 pounds to 1,650 pounds.

Ed Greiman, a cattle producer from Garner, Iowa and president of the Iowa Cattlemen’s Association, says the objective is to increase the deliverable supply of cattle against the futures market, which would force the futures and cash markets to converge.

“For instance, we’re into April right now—if, for some reason, the futures market was two to three dollars higher than the cash market is going to trade this week, you would see cattle want to deliver against the contract,” Greiman says. “It would then bring the two together and that’s what we need as hedgers.  We need those two to reflect each other so that our basis is appropriate.”

Greiman, who headed up an NCBA task force on the issue, says that by bringing futures and cash prices closer together, there should be more transparency as to what is happening in the market.

AUDIO: Ed Greiman (5:20 MP3)

NCBA asking for changes in live cattle futures contract

The National Cattlemen’s Beef Association is asking the CME Group to move its live cattle futures contract to a position where it converges with the cash market.

Specifically, NCBA is asking that fed heifers be included as deliverable cattle to honor a contract. For the past decade, fed heifers have averaged 38% of slaughter cattle. NCBA says that, in an environment of decreasing fed cattle supply, including heifers would benefit both buyers and sellers.

The cattlemen are also asking for an increase in maximum live weights from 1,500 pounds to 1,650. Current carcass weights of 1,050 pounds aren’t discounted, and that carcass weight typically would be yielded from a 1,667-pound animal. The 1,650 pound maximum individual live weight is a reasonable and logical standard, NCBA told the CME.

Ed Greiman, a cattle producer from Garner, Iowa and president of the Iowa Cattlemen’s Association, headed up a task force that looked into the issue.  Greiman tells Brownfield that the changes being sought from the CME would protect the live futures contract as a viable and valuable risk management tool, while increasing deliverable supply, better reflecting the trend of increased cattle weights, and improving convergence of futures and cash markets.

AUDIO: Ed Greiman (5:20 MP3)

Discussing grain marketing strategies for 2013

Ryan Sherwood is the head of grain marketing for Aurora Coop, one of Nebraska’s largest ag cooperatives.  In a recent interview with Brownfield, Sherwood talked about the Aurora Coop’s grain marketing program and shared his thoughts on marketing strategies for 2013.

AUDIO: Ryan Sherwood (3:00 MP3)

CME Group ponders changes to live cattle futures contract

andreiesen-tim-cmeThe CME Group is considering whether to make adjustments to the weights of deliverable cattle in the live cattle futures contract.  At the recent Cattle Industry Convention in Tampa, Florida, we discussed that topic with Tim Andriesen, managing director of agricultural products and alternative investments with the CME Group.

AUDIO: Tim Andriesen (1:53 MP3)

CME Group establishes new customer safeguards

In the wake of scandals involving MF Global and Perigrine Financial, the CME Group has taken a number of steps to establish greater safeguards in the marketplace. 

CME Group COO Bryan Durkin

CME Group COO Bryan Durkin

In an interview with Brownfield at the Cattle Industry Convention in Tampa, the chief operating officer of the CME Group, Bryan Durkin, talked about the company’s efforts to strengthen customer protections and re-instill confidence in the markets.

AUDIO: Bryan Durkin (6:04 MP3)