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Market Matters Blog           04/18 12:54
Railroad Delays Interrupt Field Work
Regulators Are People, Too
Observations of a Weary Traveler 
Baseball Season Opens, But River, Head of Lakes Grain Season Still on Break
Overbooked China Diverts Shipments to the U.S.
Parts of Ag Confidence Index Show Correlation to Corn Prices
Ag Confidence Index Foreshadows Things to Come
Rail Service Slow to Recover
CME Shifts to Variable Daily Limits
Intuitive, with the Potential for Confusion 

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Railroad Delays Interrupt Field Work

   OMAHA (DTN) -- Farmers are getting frustrated. Not only are they unable to 
empty their grain bins due to delayed railcar placements, but they are also 
concerned that rail delays will limit their ability to get fertilizer for 
spring field work. 

   "The rail problem is having a huge effect on us," said Dave Kjelstrup, who 
farms in the Underwood, N.D., area. "Urea cost is high because of 
transportation; in fact, some suppliers are telling their pre-paid customers 
they can't deliver the fertilizer. Thankfully, we have ours in bins on the 
farm." 

   Moving grain is still a problem, according to Kjelstrup. "The elevators are 
full and with no trains they can't get the farm grain in, and the bins in the 
country are full. Not serious now, but four months from now it will be. I 
personally can't move my sunflowers because Cargill can't move the oil and they 
are full waiting for rail cars."

   Help may be on the way. On Tuesday, April 15, the Surface Transportation 
Board announced it will direct the Canadian Pacific Railway Company and BNSF 
Railway Company to present their plans to ensure delivery of fertilizer 
shipments for spring planting by Friday, April 18. The STB has also requested 
both railroads provide weekly status reports beginning one week later regarding 
the delivery of fertilizer on their respective railways.

   The BNSF was one step ahead of the STB request, and on Monday, April 14, 
provided this plan on their website: "As we enter the next few weeks of peak 
demand for fertilizer, we understand the shortness of the season and the 
necessity of timely delivery in order to safeguard that producers can get this 
year's crops planted with the proper plant nutrients. BNSF is undertaking 
several specific actions to expedite fertilizer delivery to ensure our 
customers have the fertilizer where and when they need it." See the full 
announcement here: http://bit.ly/1paF0pi

   While elevators and farmers are hopeful the railroads get the fertilizer 
moved, it's a "catch 22" situation as the delay in grain car placement 
continues to keep elevators at a standstill. 

   Paul Lautenschlager, manager at Beach Co-op Grain in Beach, N.D., said his 
elevator is currently seven weeks behind in receiving cars, which prohibits him 
from accepting anything other than pre-contracted grain. 

   According to the last podcast update by the BNSF on April 11, ag rail car 
placements in North Dakota are still behind by over 7,000 cars and actually got 
worse from one week ago. The total of cars owed in the U.S. was barely improved 
from the prior week at 15,099 versus 15,127 one week ago. Days late increased 
again with the entire U.S. average at 26.7 days late versus 25.7 one week ago. 
North Dakota is behind 7,216 cars and later than last week at 26.1; Montana 
improved slightly at 3,300 cars behind but also later than last week at 31.6; 
Minnesota is behind from one week ago with 1,313 cars but days late improved to 
23.5 and South Dakota is slightly better with 1,020 cars behind but got further 
behind at 28.7 days late. The entire April 11 podcast can be heard here: 
http://bit.ly/1m88bHn

   In his written testimony to the STB April 10 hearing, Robert Zelenka, 
executive director of the Minnesota Grain & Feed Association, gave an example 
of how rail delays affected one unnamed grain elevator on the Canadian Pacific 
railway. "This elevator ordered its rail cars two months early, but the cars 
ended up 12 days late," he said. "This cost the elevator nearly a 
quarter-million dollars in late charges on a 100-car corn train. In contrast, 
the CP has no penalty for late car placements. One of our biggest concerns 
looking forward is the likelihood of going into this fall's harvest with 
elevators close to full of grain and no freight to ship it." He said in a 
separate interview that, "This is as bad as I have seen it in my 33 years in 
this job, and there are several elevators that stand to lose a lot of money as 
a result of the poor service be provided to grain shippers."

   CANADIAN FARMERS HAVING TROUBLE MAKING ENDS MEET

   Cash flow issues are mounting across the Canadian Prairies. "Lack of cash 
flow due to poor grain movement is impacting producers' ability to cover last 
year's debt, while making it difficult to meet this season's input needs," said 
DTN Canadian Grains Analyst Cliff Jamieson. A piece by the Globe and Mail 
suggests the demand for last season's federal cash advance program, which loans 
$400,000 with the first $100,000 interest-free, saw a 50% increase in demand, 
while next year's program has also already generated interest in the past two 
weeks.

   Meanwhile, debate surrounding Bill C-30, the Fair Rail for Grain Farmers 
Act, has been delayed until after the holiday weekend. 

   "While railways may be hitting the government-set target of 500,000 metric 
tons or approximately 5,500 cars for each of the two railroads, some farm 
groups continue to suggest it's not enough and that further changes in the 
legislation are needed to not only clear the current backlog of cars but the 
meet the needs of the future," Jamieson added. "The Western Canadian Wheat 
Growers Association would like to see a higher weekly target set for grain 
shipping, stating that the current weekly movement will continue to leave in 
excess of a 20-million-metric-ton carryout on farm by the end of the crop year 
and will lead to depressed prices for some time to come. As well, the Keystone 
Agricultural Producers passed a motion calling for increased running rights, 
which would force both railways to open their track to competing railroads as a 
means of increasing competition."

   SMOOTH SAILING FOR BARGES ON LAKE PEPIN

   On Monday, April 14, the USACE St. Paul, Minn., District said, "Our ice 
measurement team went out to Lake Pepin today to survey the current conditions 
only to discover that there wasn't anything to measure!" Then on Wednesday, 
April 14, the Angela K moved through Lake Pepin, pushing 12 barges and 
officially opened the 2014 Upper Mississippi River shipping season. Elevator 
operators on that portion of the river anxiously awaited the barges that would 
allow them to load grain bound for the Gulf, making space for farmers who have 
been waiting longer than usual to haul in grain they sold for opening.

   DULUTH GRAIN SHIPPING SEASON STILL ON ICE

   With open water along the North Shore of Lake Superior, the first upbound 
convoy of lakers arrived in port on April 14. 

   According to Adele Yorde, public relations manager at Duluth Seaway Port 
Authority, the first full convoy of downbound lakers was loaded and lining up 
to leave for the Soo Locks midday on April 15. "The convoy will be headed by 
the heavy icebreaker Mackinaw as they still expect to run into solid ice fields 
as they head south below Isle Royale toward Whitefish Bay," Yorde said. 

   According to the Daily Great Lakes and Seaway Shipping News, "It has been 
almost a month since the Soo Locks opened for business, but traffic is still 
moving at a historically slow pace. There are currently more than 40 ships 
waiting to get through the locks, and at this point the flow of traffic is at 
Mother Nature's mercy. Ships are lined up throughout the St. Marys River 
system, waiting for their turn to go west across Lake Superior." 

   Jim Peach, Soo Locks assistant area engineer, told the Seaway Shipping News, 
"This is one for the record books as far as anybody's living memory; as for 
anybody on our staff this is the first time we've experienced this much delay." 
Next week's ship schedule still does not show any salties scheduled, which 
keeps grain from leaving the port later than normal. Updates on the convoys can 
be found here: http://www.boatnerd.com/

   Mary Kennedy can be reached at mary.kennedy@dtn.com

   Follow Mary Kennedy on Twitter at @MaryCKenn

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Regulators Are People, Too

   The Commodity Futures Trading Commission's relationship with the grain 
industry is rocky, at best. The House Agriculture Committee reprimanded the 
Commission's rulemaking process last week by including language in a bill that 
undid a controversial rulemaking on residual interest, a concept that 
commercial hedgers argue would cause the cost of hedging to skyrocket. 

   For the moment, it appears the grain industry dodged an expensive bullet, 
but the House bill reauthorizing the CFTC has a long journey before it becomes 
law. The full House must pass the bill; and Senate Agriculture Chairman Debbie 
Stabenow, D.-Mich., told a group of ag journalists last week that she hopes to 
bring her bill to a committee vote by the end of the year, if the election 
doesn't interfere. 

   House Ag Chairman Frank Lucas, R.-OKla., made it clear he wasn't pleased the 
bill had to undo what the CFTC did. 

   "If they (issues) can be addressed as the bill is moving along, they could 
have been addressed when concerns were raised over the course -- in some 
instances -- of two or three years before," Lucas said. "So, while some of my 
friends in bureaucracy in the commission would assure you that rulemaking is 
the best way to go, I still have this funny idea that Congress needs to draft 
the laws and that our friends in the bureaucracy are there to implement the 
laws. But then, the era of the previous chairman is over with, and now we need 
to enter into a new era."

   Former CFTC Chairman Gary Gensler earned quite a reputation with the ag 
crowd in Washington. A Financial Times article on Gensler's retirement at the 
end of 2013 summed him up pretty well: "Gary Gensler is regarded by some as one 
of the toughest regulatory cops policing Wall Street. Over the past five years, 
the former Goldman Sachs banker helped transform a sleepy Commodity Futures 
Trading Commission into a more powerful regulatory force. 

   "His critics, however, say he has been a bull in a china shop, so unyielding 
in his push for derivatives reforms that he has left confusion and anger among 
U.S. lawmakers, overseas regulators and market participants." (For the full 
article, http://on.ft.com/1iP0cZc)

   My impression is Gensler fell into the "bull in a china" characterization 
for most in ag that worked with him. Very few people want to criticize him 
publicly, but one of the more mild terms I've Gensler described as is 
"doctrinaire." 

   I've also learned that much of the frustration with Gensler was actually 
directed toward his staff, which I've frequently heard was the most troublesome 
for ag groups to work with. 

   So while there's a big, public turnover in CFTC leadership, the turnover in 
staff is worth noting, too. Some of Gensler's staff will stay at the CFTC, but 
a fair number are retiring or leaving for greener pastures.    

   Regulators are people, too. Sometimes it's easy to forget that while a 
government agency issues rules, real people author it, negotiate concerns and 
ultimately shape the outcome. It's why the turnover in commissioners and staff 
matters. It's a chance for CFTC and the grain industry to build new 
relationships and work towards a better (or worse) relationship. 

   There's hope the grain industry's relationship with the CFTC will improve 
when the new nominees are confirmed. The three nominees may lack agriculture 
experience, but several folks in D.C. have mentioned they seem genuinely 
interested in making sure the futures markets function properly for commercial 
participants. So far, Timothy Massad, Chris Giancarlo and Sharon Bowen have 
left agriculture leaders with the impression they're good listeners that'll be 
easier to work with than the prior commission. They've acknowledged their lack 
of background and have been urged to hire knowledgeable staff to support them. 

   We'll just have to wait and see whether the change of guard at CFTC 
rekindles warm feels or sparks a nasty break-up.

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Observations of a Weary Traveler 

   Suitcases, frequent flyer miles and hotel rooms -- I've become very well 
acquainted with all of them in my time with DTN. My most recent journey started 
on Hilton Head Island in South Carolina for the National Grain and Feed 
Association last week. Then I traveled through sprawling pine forests to a 
small town northwest of Augusta, Ga., to visit some family. 

   I spent a split second back in Omaha, with just enough time to unpack, 
repack and sleep for a few hours before heading to the airport for my next 
flight. This trip to Washington, D.C. included the North American Agricultural 
Journalists conference and the usual WASDE report lock up.  

   I landed in Omaha around 4 p.m. last night, and the first thing I did was 
sort through my seed packets, till my garden and plant onions, broccoli and 
lettuces. 

   It's hard for me to believe we're ten days into April already, and the first 
thing I'm working on today is sorting through the mountain of notes and 
observations from travels. Here's a brief look:

   NGFA

   Every conference and every commodity organization has its defining 
characteristics. Like every NGFA Annual Convention, the bronze statue of Ceres, 
the goddess of grain, passed from one office to the other. Two lifetime 
achievement awards were handed out, and one recipient also received a garden 
gnome to acknowledge his favorite past time.

   CME Group's chief operating officer sat in a leather armchair for a question 
and answer session. Bunge and Co Bank sponsored receptions. The general session 
presentations were broad and forward thinking, but the conversations in 
committee meetings and hallways addressed the hot-button issues: Viptera and 
Duracade's impact on country elevators and the supply chain and this winter's 
transportation logjam. 

   Unlike years past, MF Global and enhanced customer protections faded into 
the background as conversations shifted to the changing complexion of CFTC 
commissioners and how the agency's zeal could change the way end users do 
business. 

   I picked up a few interesting tidbits at the conference that don't quite 
have enough meat to become stories just yet. (I wrote about the Duracade issue 
last week, and a CFTC story is in the works.) 

   -- More than 311 million bushels of emergency storage and 543 mb of 
temporary storage were constructed this year to hold our bumper crops. The top 
states (in order): Iowa, Nebraska, South Dakota, Minnesota, Kansas. Usually, 
the temporary and emergency permits only last until the end of March, but 
Candace Thompson from the Farm Services Agency said elevators can apply for an 
extension. The agency's been flexible in the past, and "I think with the 
transportation issues this winter, we'll more than likely extend, but we must 
see that warehouse operators are trying to move grain out."

   -- The corn and hogs futures contracts are under review by CME. The exchange 
regularly reviews its contracts to assess how well they work for the 
marketplace. If you've got a concern about how these contracts work for you, 
please get in touch with the CME. They're open to ideas. One idea brought up in 
a committee meeting was whether or not a variable storage rate would be 
pertinent for corn and soybeans.  

   TIMBER! AND PINE POLLEN GALORE!

   The shortest route to McCormick, S.C., from Hilton Head took us down bumpy, 
worn-out logging roads. We passed through areas where they were burning off 
undergrowth, areas where crews felled trees and areas re-growing from logging. 

   I couldn't count the number of trucks hauling trees or 2x4s. We passed at 
least three lumber mills you could see from the road. The timber industry is 
much larger than I had ever imagined, and driving down those narrow logging 
roads made we want to learn more about how the industry works, and if that 
rural livelihood is flourishing or struggling. I simply don't know. 

   That brings me to something I learned a lot about: pine pollen. Everything 
was coated in a yellow-green dust. We were out fishing one afternoon and a 
front came through. The wind blew giant clouds of green smoke out of the woods, 
and the haze hung around all day. It was a sight to see, if you'd already taken 
allergy medicine.   

   AG REPORTERS 

   A group of 15 or so ag journalists took a tour of the NASS lockup room 
earlier this week. I tagged along, even though most of the information wasn't 
new to me. It was interesting to walk through the steps of how a report is 
assembled and understand what happened in various rooms down the hallway from 
the press lock-up facility. 

   Perhaps more interesting -- and I didn't realize what happened until after 
we left -- was that Hubert Hammer was pulled away momentarily, and when he 
reentered the room, he made a comment that he had work to do too. A little 
while later, I noticed the Twitter comments on a picture of the analysts' room 
where they decide NASS estimates made a lot of references to delays. My hunch 
is that Hammer was pulled aside to be notified of the delay to crop progress 
reports. I don't know anything about why they were delayed, and didn't put two 
and two together until I'd left the building and lost my chance to ask. 

******************************************************************************
Baseball Season Opens, But River, Head of Lakes Grain Season Still on Break

   OMAHA (DTN) -- Shuttle rail cars seem to be finding their way to elevators 
in the Northern Plains and some rail is beginning to move in Canada to ports 
full of waiting ships. However, one railroad official said rail car shortages 
will continue through winter wheat harvest.

   "Gradual improvement" has occurred across the BNSF system due to grain 
loadings increasing over the past few weeks, BNSF Vice President John Miller 
said in a March 28 podcast. However, North Dakota users are probably not 
convinced as they wait for 7,541 cars versus 7,472 cars the prior week. That 
number is 46.8% of the total number of cars the BNSF owes in the United States.

   Regarding the upcoming winter wheat crop, Miller said, "As we know, winter 
wheat harvest is fast approaching. In past years when there was plenty of 
available freight, the BNSF has been able to strategically preposition covered 
hopper cars to meet harvest demand. Due to the car order backlog we are 
currently experiencing this year, we will have limited availability to 
preposition cars." 

   Miller said the total number of cars the railroad was behind as of March 28 
was at 16,112 versus the prior week at 15,343. North Dakota and three other 
states account for 87% of those late cars; South Dakota is behind 1,372; 
Minnesota is behind 1,599; and Montana is behind 3,468 cars. Since the middle 
of February, the total number of cars late has increased by 4,277 and cars 
behind in North Dakota have increased by 2,480.

   Velocity has increased from 155.6 miles per day to 159, Miller said, but 
shuttle turns per month (TPM) to the PNW was slightly lower at 1.9 TPM. The 
only improvement reported for shuttle TPM was at the Texas Gulf which went from 
2.5 TPM to 2.8 TPM in one week. The trip from the Northern Plains to the PNW 
has experienced severe conditions most of this year in part due to the extreme 
cold weather. On top of that, there were derailments of oil and grain cars, 
there was an avalanche affecting traffic through Montana and recently, there 
was a mudslide in Washington affecting service there. According to the BNSF, 
service was restored to one main track in Washington late on April 1 with the 
second main track expected to open April 2. However, the BNSF stated on their 
website that, "Customers may experience delays of 24 to 36 hours on shipments 
moving through this corridor."

   The entire BNSF podcast can be heard here: http://goo.gl/du4MrN

   CANADA'S RAIL BACKUP CONTINUES

   The CN Railway will soon start to place the weekly minimum car requirement 
set by the government, CEO Claude Mongeau told news organizations this week. 
But CN is concerned added car volume may overwhelm grain facilities and create 
further problems. 

   "A war of words has broken out between the grain industry and the railways," 
said DTN Canadian Grains Analyst Cliff Jamieson. "The railways point towards 
the potential for the grain industry to fail in meeting the targeted volume of 
one million tonnes per week, while the grain industry claims they can handle 
even more if the railways were to only maximize movement into each of the five 
freight corridors -- the west coast, Thunder Bay, eastern Canada, the U.S. and 
the domestic industry.

   "CN hit approximately 5,100 cars in week 34, with the goal to soon reach 
5,500 weekly in the coming weeks, while CP will be doing the same. Small 
shippers have expressed frustrations over warnings from the railways over the 
potential detrimental impacts of the pending legislation," Jamieson said.

   "Farm groups presented to the House of Commons Agriculture Committee this 
week on the concerns surrounding the proposed government legislation to address 
the grain shipping backlog. Many point to the need for clarity around the 
definition of acceptable service, while are concerned about the need for 
equitable treatment as railways are placed in a position to determine which 
regions see shipping, which grains move along with what direction the movement 
will take place as they ramp up movement to meet the government mandate."

   ICE STILL TOO THICK ON LAKE PEPIN

   Ice thickness on Lake Pepin has improved a little, but most of the lake is 
showing ice depth of 19 to 26 inches, according to the latest ice measurements 
by the USACE, St. Paul District. Barges are unable to break through ice that is 
deeper than 12 to 15 feet without risking damage to their vessels. The other 
part of the equation is the amount of blue ice versus white ice and currently 
there is more blue than white. The USACE describes the difference as: "Blue 
ice, sometimes called black ice, is clear and solid. White ice or snow ice has 
air bubbles. Together they equal the total ice thickness." Basically, blue ice 
is harder to get through. 

   See the entire report and graphs here: http://goo.gl/VJYjDR

   LAKE SUPERIOR STILL FIGHTING ICE; CUTTERS LIMP HOME FROM THUNDER BAY

   While progress has been made in Duluth in handling the extreme ice cover 
this winter in the Great Lakes, some areas are still battling thick ice. Ice 
cutters have been traversing the Great Lakes from Duluth to Thunder Bay to the 
Straits of Mackinac in order to clear the way for ships. 

   Adding to the time consuming task was damage to two ice cutters last weekend 
while trying to cut ice in Thunder Bay and along the Canadian shoreline, 
downbound to Whitefish Bay and eventually through the Soo Locks. Both ships had 
to be helped back to port in Duluth for repairs. 

   Mark Dobson, Coast Guard vessel traffic controller in Sault Ste. Marie told 
news organizations early this week, "The ice thickness the cutters are 
encountering was at least three feet in some places, four feet in others. In 
the middle of Lake Superior, ice rubble fields six feet thick were being 
encountered."

   See an update here: http://duluthshippingnews.com/

   SPRING THAW MAY BE NEAR

   Help may soon arrive from Mother Nature, according to DTN Senior Ag 
Meteorologist Bryce Anderson. "Temperature trends next week should offer some 
thawing in northern crop areas," he said. "The core of the latest cold-air 
pattern will migrate from the Canadian Prairies into Ontario and Quebec, and 
this will allow for a more westerly air flow and a more moderate pattern. 
Overnight lows will be around the 28-33 degree F mark with most daytime highs 
ranging in the low 50s F."

   Mary Kennedy can be reached at mary.kennedy@dtn.com

   Mary Kennedy can be followed on Twitter @MaryCKenn

    

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Overbooked China Diverts Shipments to the U.S.

   It appears that overbooked Chinese soybean importers have diverted shipments 
to the United States, split between deliveries to the East Coast and the Gulf 
of Mexico. 

   DTN analysts report that three industry sources in the U.S. and Brazil say 
that 20 cargos, or roughly 18.4 million bushels, that were originally booked 
for delivery to China have been sold to the United States in the past week. 

   One source noted that China rolled another 20 shipments to a later delivery 
date. Another source added that an additional six or seven cargo loads could be 
on their way to the U.S. soon. 

   "The global soybean situation is interesting because the U.S. doesn't have 
the supplies to meet its current commitments and China has overbooked," DTN 
Senior Analyst Darin Newsom said. "The result is an equally interesting coming 
and going of ships leaving port in the U.S. headed to China while at the same 
time, China may be redirecting some of its purchases from Brazil to the U.S." 

   An article in the Wall Street Journal on Thursday morning highlighted that 
private Chinese importers were backing out of deals on soybeans and rubber, 
"adding to a wide range of evidence showing rising financial stress in the 
world's second-biggest economy."

   The article went on to say: "But now as jitters rise over the health of the 
economy, the fallout is rippling through into agricultural commodities, just 
weeks after the price of copper and iron ore tumbled on worries they had been 
used in risky Chinese financing deals." (You can read more here: 
http://on.wsj.com/1iERf7o)

   Those risky Chinese financing deals -- China's made them on soybeans, too. 
DTN China Correspondent Lin Tan explained in an article in late January that 
some Chinese importers used soybean import contracts to access credit in 
China's tight lending environment. Here's an explanation from that article:

   "Companies have found they can get credit from the bank much easier by using 
soybean import contracts as collateral because it's normal import business. For 
example, a soybean importer signs a contract to buy beans, takes it to the bank 
and gets a loan. Often, they sell the beans to another crusher, or if the price 
is right, they'll cancel the contract and use the funds for other purposes."

   China's soybean crushing margins are negative right now, another reason why 
they don't want more cargos to show up at their docks. After several years of 
rapid expansion, Tan told DTN there are two kinds of companies that could go 
bankrupt in this kind of market: the ones with no experience, and the companies 
that bought soybeans for financial reasons. 

   His sources in China indicate that at least three soybean crush companies 
could default on Brazilian bean purchases at a rate of about 10 cargos a piece. 

   The diverted shipments to the U.S. point squarely to tightness of U.S. 
domestic supplies. Newsom said USDA's projected 35 mb of imports would fall 
well short of allowing the U.S. to meet its commitments. To do so would require 
at least two to three times that amount.

   "The idea that it is better for shipments to be coming to the U.S. now 
rather than waiting for early summer is spot on," Newsom said. "Again, it is 
another indication of just how tight U.S. supplies are and how tight 
merchandisers are expecting them to get. By June we would be scraping the 
bottom of the bins, leading to a skyrocketing inverse in the futures spreads 
and extremely strong basis. This way it may be a more orderly short supply 
rally into summer."  

******************************************************************************
Parts of Ag Confidence Index Show Correlation to Corn Prices

   One of my favorite parts about the DTN/The Progressive Farmer Agriculture 
Confidence Index is that I do a lot of interviews with farm broadcasters. It's 
fun to be the "expert" in interviews every once in a while. 

   One of the broadcasters asked me about the role the weather plays in the 
index's findings. I had, after all, discussed at great length how the index 
reflected the past year's corn price decline, and that's not exactly what the 
conversation had been in the past. 

   It's an interesting question, and one that doesn't have a hard and fast 
answer, but we're getting closer. We now have four years of data to look at, 
and that's a big step. When we first wrote stories about the Ag Confidence 
Index, it was difficult to pick out trends and explain the drivers. There just 
wasn't enough data for comparison. 

   Last week, I asked DTN senior analyst Darin Newsom to dig into the numbers a 
little bit for me, particularly whether the index tracked along with the price 
of corn. Newsom found that when you look at crop producers' response separate 
from livestock producers responses, there was a correlation when you look at 
how farmers rate their present input and income situation. 

   "The strong correlation between the monthly close of the DTN National Corn 
Index (national average cash price, or NCI.X) prior to the collection of data 
for the Ag Confidence Index highlights just how heavily the corn market can 
influence opinion," Newsom said. "The chart compares the NCI.X with the current 
grain producer index, with the two showing a very strong correlation of 72.5%. 
As for the general index, the previous monthly close of the NCI.X has a 
correlation of approximately 64%, still a strong tie. 

   "Yes, I understand the statistical rule that correlation does not prove 
cause, but the link between the two seems mostly unbreakable. I say mostly 
because of the outlier Ag Index from September 2012. That month saw the index 
drop 20 points from the March numbers despite cash corn closing at an all-time 
high. It is just as interesting to note that the Ag Index bounced back for the 
next release in December 2012."

   September 2012 was an interesting point in time to take a survey of the 
sentiment of farmers -- that summers' "flash drought" robbed them of good 
yields, and many were just figuring the damage. Our methodology asks farmers to 
rate their current input prices as good, bad or normal. Then we ask whether 
they think prices will be better, stay the same or get worse 12 months down the 
road. We ask the same questions about farm income. That fall, we saw a strong 
shift in how farmers viewed their income. More than 25% of farmers called their 
income "bad," up from 10% in the spring. My guess is that this reflects farmers 
who forward contracted grain early in the season and got caught upside down. 
Also, our survey was taken before the harvest price for crop insurance was set. 
So there were a few variables that could explain why that fall's reading broke 
away from the correlation to corn prices. 

   Now, let's return to my friend's question on weather's impact on the index. 
The weather during the growing season of 2012 took a distinct toll on the 
psyches of farmers before harvest. Production concerns reigned, and higher 
prices appeared to be a small consolation. As farmers tallied the elevator 
tickets and reconciled their checkbooks, higher prices alleviated some of the 
angst. 

   What we don't know yet is if this pattern in our index would repeat if we 
encountered another 2012-esque growing year. Will September 2012 become an 
outlier in our data set? It'll be on the "things to watch for" list. 

   One other note on the weather: I think weather plays an important role is in 
how farmers define their expectations for the year ahead. No one can plan for 
the weather. We talked to Peru, Ind., farmer Allie Wilson last week, who said 
he expects income will be lower in 2013, but he could see 2014 income going 
either way. 

   "It all depends on what Mother Nature gives us this growing season for 2014 
farm income," Wilson said.

   So, I've laid out the case for market prices and for the weather. There's 
still plenty to study. For instance, how closely to farmers' expectations of 
conditions 12 months from now track with the next year's December futures 
prices? And, with the corn supply expected to grow this year, will the 
correlations shift to soybeans as that crop makes up a larger portion of 
income? 

   Like Newsom said, correlation is not cause, but it provides an interesting 
window into the data. 

******************************************************************************
Ag Confidence Index Foreshadows Things to Come

   The latest results of the DTN/The Progressive Farmer Agriculture Confidence 
Index highlight a very predictable trend: as commodity prices decline, crop 
producers feel the pinch and livestock producers become more profitable. 

   Some trends are bold and hard to ignore. Others are more subtle, more like 
foreshadow than forecast. Five simple questions make up the Ag Confidence Index 
survey, but the breakdown of responses from different categories of farmers 
(region, crop/livestock, annual sales) provides lots of food for thought. It's 
an intriguing exercise, but often needs the statistical disclaimer that 
whenever your narrow your sample size, the data's not always representative. 

   That said, Robert Hill, an economist at Caledonia Solutions who helped 
design the DTN survey, found a few pieces of data that reflect some interesting 
trends that go beyond the "livestock, up; crops, down" trend. 

   Every ag economist these days points to projected profit margins for crops 
that are thinner than the past few years, and remarks that profitability will, 
by and large, depend on a farmer's land costs.

   One piece of the data DTN collects in its survey categorizes farms by annual 
sales (remember my smaller sample size disclaimer). This time, it showed that 
farms with more than $1 million in annual sales were very pessimistic. Farms in 
the $500,000 to $1 million range sat at neutral. Both groups' expectations for 
income and input costs in the year ahead appear grim. 

   "We may be seeing an interesting phenomenon playing out in how land prices 
work their way through the market by size of farm," Hill said. "Larger 
operators feel the pressures of land price movements long before the smaller 
operators. So there is a lag effect of land prices through the market, where 
first it seems to be felt by the larger operators and then after some time, the 
effect ripples through to the smaller operators." 

   The second trend Hill pointed out is one that's been a long time in the 
making.  

   "The big surge in capital expenditures on farm equipment and land is behind 
us. We have entered a period of more rational behavior on such expenditures," 
Hill said. "Three main factors may explain this draw down on capital 
expenditures. First is the fact that the farm fleet has been substantially 
upgraded during the surge of the past 3 to 4 years. Second is that the tax 
advantages of year-end purchases are disappearing. Third is that prospects for 
net farm income are down from historical highs. Farmers now are entering a 
cycle driven more by 'replace as needed' for their equipment."

   What do you think, readers? Are cash rents on your mind, and how are they 
going to affect your income prospects this year? Are you going to hold off on 
equipment purchases next year? 

******************************************************************************
Rail Service Slow to Recover

   OMAHA (DTN) -- Despite weather easing as we move into spring and some small 
reductions in the number of late rail cars in a few states, the number of days 
that cars were late increased in the past week and shuttle turns are taking 
longer than usual. In addition, those needing rail cars to fill are paying more.

   The spike in average March non-shuttle secondary railcar bids/offers per car 
"added $0.45 per bushel to the cost of shipping grain in jumbo hoppers" for the 
week ended March 13, according to USDA's weekly Grain Transportation Report. 
Record high shuttle freight costs "added $1.47 to the cost of shipping grain in 
jumbo hoppers, USDA reported. "These costs are in addition to what shippers 
must pay directly through tariffs and fuel surcharges (that change monthly), 
which currently total between $4,000 and $6,000 per car on key BNSF grain 
routes." Mileage based fuel surcharges for all railroads can be found at: 
http://rsi.rsilogistics.com/railroad-fuel-surcharges

   Two key states in the western Northern Plains -- North Dakota and Montana -- 
are still seeing the number of late rail cars increase, according to a BNSF 
podcast on March 14. 

   "Late cars in North Dakota were at 7,305, up 9% from the March 6 report. The 
average days late were 22.4, up from 18.6 days two weeks ago," said John 
Miller, BNSF vice president. "Montana showed 3,176 late cars, up 9% from March 
6. Average days late were 23.2, up from 18.8 days two weeks ago."

   Other states named by Miller showed decreases in the number of late cars, 
but the cars that were late were later than they were last week. Minnesota had 
1,309 late cars, down 5% from a week ago and those cars averaged 23 days late, 
compared to 20.5 days the prior week. South Dakota reported 1,284 late cars, 
down 8% from March 6, and those cars averaged 21.8 days late compared to 19 
days the prior week. 

   The entire podcast can be heard at http://goo.gl/HFZtiy

   FOCUS ON NORTH DAKOTA

   In eastern North Dakota, Finley Farmers Grain & Elevator Co. manager Dave 
Fiebiger said, "Getting cars isn't the problem for me, it's the cost of getting 
them. ... If you want March cars, the conversation starts at $7,000" per car 
for shuttles. As for getting shuttles placed, he said he had shuttles placed on 
March 9 and March 15. "The cars billed March 10 were pulled March 14 and the 
cars billed March 16 were pulled on March 17." These turn-around times, from 
cars arriving at the elevator, getting filled and the railroad actually pulling 
the full cars away from the elevator, are longer than usual.

   Shuttle turn times for the whole BNSF system averaged 2.1 turns per month 
versus the normal average of three turns per month. 

   Farther west in Beach, N.D., Beach Cooperative Grain Company manager Paul 
Lautenschlager is not very optimistic. Earlier this week he said his 27-car COT 
train ordered for Feb. 1 was finally spotted at his siding, but was missing 23 
cars. As for service and freight costs in his neck of the woods he said, "Beach 
Co-op Grain is seven weeks behind in railroad service. I bought a 24-car COT 
for mid-April shipment last week. It cost me $2,800 per car. I called the 
railroad to place it and they told me without a smile I would not see that 
train until June." 

   Lautenschlager added, "Today I am seriously looking at buying a May train 
for $3,000.00. This situation is not good nor is it going away any time soon. 
Maybe years if you ask me. Obviously the railroad will eventually get caught 
up. They have not offered any cars for sale in the COT auction for over two 
months now. Secondary freight is running out and that is why it is so 
expensive. I am out of cars."

   This must frustrate Lautenschlager's patrons as well. A notice on the 
company website pretty much sums up his current inability to get rail cars and 
ship grain: "We are only taking contract wheat. No cash or price later."

   CANADA RAIL STRUGGLES CONTINUE

   Canada's two major railways unloaded 569,800 metric tons of western grain in 
the week ending March 16, DTN Canada Grains Analyst Cliff Jamieson reported. 
This volume was almost entirely made up of West Coast unloads at the Port of 
Vancouver and Prince Rupert. This is 25.6% higher than the combined volume 
unloaded in the previous week at the Pacific ports as well as Thunder Bay and 
Churchill, although remains well below the one million metric ton weekly  
target as mandated by the federal government, which is to start in April. 

   "Frustrations remain high," Jamieson said. "Prairie oats are not moving 
south as a result of the focus on western movement. Some terminals have 
expressed their doubts that the government target can be reached, while the 
Provinces of Alberta and Saskatchewan have suggested that the weekly target as 
well as the daily fine for not hitting the target are not set high enough, 
setting their sights on a 13,000-car-per-week target for the two railroads 
combined rather than the 11,000-car target in the order, while preferring to 
see a daily fine of $250,000 rather than the $100,000 per day as announced by 
the government."

   On moving Canada's 2013/24 crop, CN CEO Claude Mongeau said, "It will take 
more than the summer, continue into the fall, into next year." This is not 
welcome news for producers who have contracts that are months overdue, or are 
waiting for supplies to tighten on the Prairies, which will in turn improve 
basis levels on new sales.

   RIVERS FLOWING SMOOTHLY

   As water levels increased on the Mississippi River near St. Louis and ice 
began to break up and melt on the Illinois and Ohio rivers, more barges were 
able to get downriver to the Gulf for export. 

   Barge freight has moved lower, most noticeably on the Illinois River, where 
freight costs dropped 60% to 65% this past week for March barges. "During the 
week ending March 15, barge grain movements totaled 757,024 tons -- 45% higher 
than the previous week and 71% higher than the same period last year," reported 
USDA. "During the week ending March 15, 479 grain barges moved down river, up 
41.3% from last week; 726 grain barges were unloaded in New Orleans, up 5% from 
the previous week."

   With better water conditions, more empties were able to make the trek 
upriver for loading, which added to a lower cost in barge freight as well. "For 
the week ending March 15, 665 total barges, were able to transit Mississippi 
River Locks 27, Arkansas River Lock and Dam 1, and Ohio River Locks and Dam 52, 
up 371 barges from the previous week," USDA reported. 

   The only area of the river still not 100% open for business is the UMR, St. 
Paul Distinct. The USACE has been measuring the ice depth in Lake Pepin and it 
is thicker than in years past. The next measurement should be taken March 26 
and shippers in that area are hoping to be able to start loading barges by 
mid-April. 

   NOAA released its spring flood outlook on March 20, showing minor to 
moderate risk in the Midwest. "Recent snowmelt has increased the near-surface 
soil moisture and elevated the potential for rapid runoff from rain events," 
NOAA reported. "In addition, significant river ice increases the risk of 
flooding related to ice jams and ice jam breakups." The concern over ice jams 
is that they could affect the operation of the locks and dams along the river, 
many of which are currently under repair due to damage sustained over the 
winter.

   DTN Senior Ag meteorologist Bryce Anderson said the NOAA outlook is 
reasonable and there may be some planting delays in some areas of the Corn Belt.

   "The NOAA spring flood outlook has a category of "moderate" for much of the 
Mississippi and Red river valleys, along with the upper Missouri basin as well 
as the Great Lakes, with a rating of "minor" in the Ohio Valley. This is a 
reasonable outlook considering the moderate snow cover in the Upper Midwest and 
the northern Rockies. Combine this with a below-normal temperature outlook for 
the rest of March through April, and I think we will see some issues with 
flooding-related field-work delays in portions of the Corn Belt this spring. 
The flood outlook also may complicate river transport at times during the next 
couple months." 

   The complete outlook can be found on the NOAA website: 
http://www.nws.noaa.gov/hic/nho/

   Mary Kennedy can be reached at mary.kennedy@dtn.com

    

    

******************************************************************************
CME Shifts to Variable Daily Limits

   OMAHA (DTN) -- The daily limits on how far grain futures contract prices can 
move each day will be reset twice a year according to a new formula, CME Group 
announced on Wednesday. 

   The new variable price limit mechanism will allow higher limits when prices 
are high and lower limits when prices are low. It replaces the current fixed 
limits of 40 cents per day in corn contracts and 70 cents per day in soybean 
contracts.  

   The variable limits, which must be approved by the Commodity Futures Trading 
Commission, are scheduled to go into effect on May 1 for all standard and mini 
corn, soybean, soft red winter wheat, hard red winter wheat, soybean oil, 
soybean meal, oats and rough rice contracts. 

   CME will also eliminate daily price limits on all of the grains and oilseeds 
options products. 

   Dave Lehman, CME's managing director for commodities research and 
development, said the variable limits proposal is on track for CFTC's 45-day 
approval process.

   CME last changed limits on futures contracts in August 2011, when it boosted 
corn's daily limit from 30 cents to 40 cents. CME previously raised corn daily 
price limits to 12 cents in 1993; 20 cents in 2000; and 30 cents in 2008. 

   CME began working in a new price limit mechanism after 2011's change. In 
conversations with customers at that time, Lehman said they heard a lot of 
concern that the price limits were constraining the market after a recent 
run-up in prices. 

   "At the same time, there was interest in a mechanism that would allow limits 
to contract when prices went down," Lehman said. 

   DTN Analyst Rick Kment said that when corn was trading in the $2-per-bushel 
range in 1993, a 12-cent limit would allow a 6% price swing. When corn prices 
moved to $4 per bushel, the 12-cent limit only let the market go up or down 3% 
each day. 

   "In the past, I think CME felt that it had always been playing catch-up 
because any push to increase limits and maintain the desired percentage market 
shift has always followed a price movement, and not kept up with the 
movements," Kment said.

   Lehman said there was always a lot to consider when making an "ad-hoc" 
change to limits, chief among them changing the terms on existing contracts. 
The new method gives two weeks between when the new limits are set and when 
they go into effect. 

   He said customers liked that limits provided a "cooling-off period" on hot 
market days. "We think this mechanism strikes a balance between cooling off and 
letting the market function as the price discovery tool it's designed to be."

   Under CME's new variable formulation, the daily limit would be set at 7% of 
the average settlement price of 45 consecutive trading days. It will 
automatically readjust on the first trading day of May and November each year. 
The May readjustment will be based on the July contract's settlement prices 
while the November adjustment will use the December contract for most grains, 
and the November contract for soybeans and rice. 

   Lehman said CME arrived at 7% from a statistical perspective: Historically, 
99% of price changes in the grain market have been 7% or less. 

   "So out of 100 days, maybe there's one day with more than a 7% change," 
Lehman said. So under the variable limit format, "maybe we can expect one or 
two days of limit moves in a year."  

   CME also established minimum daily price limits -- 20 cents on corn, 50 
cents on soybeans and 30 cents on the wheats -- in case the 7% formula is 
overly restrictive. The higher of the two calculations will be used as the 
price limit.  

   The new variable price limit mechanism allows for expanded daily limits. If 
the contract settles up or down the limit, the next day's limit will be 
expanded 50% and rounded up to the next 5-cent mark. For example, if corn 
futures settle up 25 cents per bushel (in two contract expirations or in the 
last contract of the crop year), the limit will expand to 40 cents per bushel 
the next day "and remain at that level until no corn futures contract 
expirations settle at the expanded 40 cents limit."

   If the criteria is met in one of the contracts of the soybean complex 
(beans, meal or oil), the limits will expand for the whole complex. 

   HOW VARIABLE PRICE LIMITS WILL BE FIGURED

   CME's mechanism for figuring variable price limits aims to keep the market 
from swinging more than 7% in one day. When prices are higher, the limit will 
be higher. When they're lower, the limit will drop. This is what would have 
happened to daily limits if this rule had been in place before 2012's harvest. 

   From Aug. 13 to Oct. 16 in 2012, the average December settlement price was 
$7.74. Seven percent of that figure is little more than 54 cents, so the limit 
would be rounded up to 55 cents. It'd be in place from the first trading day of 
November to the last trading day in April. 

   CME would begin tallying the July 2013 contract's price around Feb. 11 and 
would calculate the average on April 16. Last year, the average settlement 
price would have been $6.73, resulting in a 45-cent daily price limit. 

   During the fall of 2013, the average December settlement price from Aug. 13 
to Oct. 16 was $4.59. Seven percent is 32 cents, which would be rounded down to 
a 30-cent daily price limit. 

   "If you look at prices now, the corn limit would probably go down (from the 
40-cent fixed limit), and the soybean limit would probably go up (from the 
70-cent fixed limit)," Lehman said.

   Katie Micik can be reached at katie.micik@dtn.com 

******************************************************************************
Intuitive, with the Potential for Confusion 

   CME Group outlined its new mechanism for setting daily price limits on the 
grain markets. One of our editors saw a tweet and asked: What does this mean, 
and do we need to tell people about it? 

   The answer from our Senior Analyst Darin Newsom was a resounding yes, 
followed by a technical description of how the new method would work. But while 
Newsom answered in wonderful detail, I think the editor's question was just as 
revealing. 

   Not every DTN reader (or every DTN staffer) understood what this headline 
said at first glance. They've probably heard of days where the market has 
locked limit-up or limit down, but it's probably not the first thing they 
thought when they saw CME's announcement. I'd bet "Huh?" was a more realistic 
reaction. 

   Even remembering the fixed price limits can be hard. Currently, it's 40 
cents on corn, 70 cents on soybeans and 60 cents on wheat. I had to ask our 
analysts to remind me of the wheat limit. 

   I think CME's variable price limit mechanism is intuitive and will work well 
for the market, but there's also plenty of potential for confusion. 

   At its core, CME Group is moving from an "ad-hoc" system of adjusting fixed 
daily price limits to a fluid system that's responsive to the markets. When CME 
changed the limit for corn in 2011, they were criticized for being behind the 
curve. Prices had already risen, and traders felt the 30-cent limit restricted 
the market on its upswing. Others felt it'd be hard for CME to reduce the limit 
when prices swung lower, given its tortoise-like approach to increasing the 
limit. After all, the corn limit only changed four times since the 1990s.

   CME's taken themselves out of the equation with their new mechanism, which 
will reset the daily limits twice a year on the first day of May trading and 
November trading. The exchange will average the price of the July or December 
futures contract over 45 days, multiply it by 7% and round the answer to the 
nearest nickel. 

   "For example, instead of a standard 40 cent daily price limit for corn, it 
would be a variable amount depending on price. If the six week average for July 
corn was $4.50, times 7%, equals 31.5 cents. Rounded to the nearest 5-cent 
increment would be 30 cents. In contrast, if July corn closing prices averaged 
$6.00, 7% would be 42 cents that would round to 45 cents," Newsom said. 

   Joe Hofmeyer, a market analyst at CHS Hedging, said that overall it's not a 
huge change, but it's one that could increase flat price volatility and could 
create confusion among commercial grain traders' customer base. Hofmeyer's 
thoughts: 

   "Overall I don't think it's a big deal, although it does have the potential 
to increase flat price volatility in the futures market if the markets can 
justify it. Allowing limits to move proportionately to the futures market (with 
6 month increments) should create cleaner/more transparency if the market can 
justify limit expansion through higher prices. Right now on lock limit days the 
big players with a certain level of sophistication can simply move over to 
synthetic options and continue to trade. It is interesting to do the math and 
see the that in order to maintain our current 40 cent limit in corn we'll need 
a 6 month average in July 14 corn futures of $5.72 (no way we get to that), so 
it seems that limits will actually shrink. Intuitively it makes sense the 
limits should be proportionate to the futures market in which they are 
limiting, this is how option values work. 

   "From the commercials perspective, specifically, I do think that it will 
create some confusion with their customer base. I get questions all the time 
from producers wondering what the limits on corn, soybean and wheat are. 
Imagine how much additional confusion there will be when these limits are 
moving every 6 months."

   Here are a few resources to help you be minimally confused. The new limit 
scheme will go into place on May 1, using the 45-day average from mid-February 
to April 16. It will change again in November, just about in time for you to 
forget it all again. I've got your back on that one though; I've already put a 
reminder in my calendar to write a blog next fall when the limit changes again. 

   Here's a link to CME's executive report, which outlines the changes in 
detail. http://bit.ly/1cR5cjc   

   The information below is from the DTN article published last Friday. 
Essentially, it's just walking you through the math using the past year and a 
half of prices as an example. 

   HOW VARIABLE PRICE LIMITS WILL BE FIGURED

   CME's mechanism for figuring variable price limits aims to keep the market 
from swinging more than 7% in one day. When prices are higher, the limit will 
be higher. When they're lower, the limit will drop. This is what would have 
happened to daily limits in corn if this rule had been in place before 2012's 
harvest.

   From Aug. 13 to Oct. 16 in 2012, the average December settlement price was 
$7.74. Seven percent of that figure is little more than 54 cents, so the limit 
would be rounded up to 55 cents. It'd be in place from the first trading day of 
November to the last trading day in April.

   CME would begin tallying the July 2013 contract's price around Feb. 11 and 
would calculate the average on April 16. Last year, the average settlement 
price would have been $6.73, resulting in a 45-cent daily price limit.

   During the fall of 2013, the average December settlement price from Aug. 13 
to Oct. 16 was $4.59. Seven percent is 32 cents, which would be rounded down to 
a 30-cent daily price limit.

******************************************************************************


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