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Market Matters Blog           07/25 13:51
Dread Grows as Harvest Nears 
Imaginary Numbers
Grain Shippers Worry Upcoming Harvest Will Put Railroads Further Behind
Winning at the Waiting Game? Not in Ag Commodities
Eight Locks and Dams Still Closed; St. Louis Rises Above Flood Stage
Informa Pegs Corn Yield at 165 BPA, Soybeans at 44.5 BPA
Reports Revive Old Questions
Heavy Rains in the Upper Midwest Hampering Rail and Barge Traffic 
Spring Rains Forced Some Regions to Switch Acres to Soybeans 
Meal Did What???

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Dread Grows as Harvest Nears 

   OMAHA (DTN) -- As harvest nears, elevator operators in the Northern Plains 
still waiting on railroad cars ordered months ago are experiencing feelings of 
dread, especially smaller operators or those handling specialty crops.

   Reports are that larger-shuttle loaders and those handling mainstream grains 
are receiving cars before single-car loaders.

   In its weekly update to the Surface Transportation Board on July 18, the 
Canadian Pacific railroad said they have a total of 23,761 open car order 
requests in North Dakota averaging 10.72 weeks late. The report from the prior 
week showed 24,280 open requests with an average of 10.14 weeks old.

   The problem with the CP reporting system is it does not separate older 
orders from more recent orders, making it unclear how much, if any, progress is 
being made on the past due cars. 

   However, if you talk to most CP shippers in the U.S., especially those who 
don't load 100-car trains, they will quickly fill you in as to how late the 
railroad really is.

   Jeff Kittell, manager of Souris River Cooperative of Lansford, N.D., an 
elevator serviced by CP, said he is "still waiting on a March 6 spring wheat 
unit train." He added, "Single cars ordered for February 3 are supposed come 
this week."

   Keith Brandt, manager for Plains Grain & Agronomy in Enderlin, N.D., said, 
"We loaded a May 5 shuttle yesterday but have orders for smaller units dating 
back to April 8," said Keith Brandt, manager for Plains Grain & Agronomy in 
Enderlin, N.D. "Railroads are really favoring the large unit sizes. That makes 
it tough for specialty crops and there is not a big market for shuttles of 
spring wheat."

   Robert Johnson, CP senior vice president of operations, told the STB, "We 
remain committed to working with our customers and the STB staff to move as 
much grain as possible and to find solutions to problems that may arise." Here 
is the link to the full July 18 report by the CP to the STB: 
http://goo.gl/Po7OZy

   But Kittell, like many other shippers, has little confidence in the CP's 
ability to catch up before harvest. He said his locations need at least three 
to four trains to clean out before harvest and that it was probably "not going 
to happen as winter wheat harvest is about three weeks away." 

   Brandt added, "We are plugged on wheat and wheat harvest is two weeks away. 
There is a lot of unpriced corn that wants to move before soybean harvest and 
that is going to muddle things up for soybean harvest."

   BNSF MAKING PROGRESS

   The BNSF railroad seems to be making progress, as cars owed and days late 
decreasing from last week. The BNSF also announced on July 22 that it "will 
offer more shuttles and COTs for this year's fall harvest than in 2013. 
Specifically, we will run at least as many COTs as we did in 2013 during the 
fall months."

   In their July 15 weekly service update, BNSF said, "For the week ending July 
15, overall on-time performance decreased a little over 8 percentage points 
compared to the prior week but is still 27 percentage points better than our 
baseline week in early February. System velocity, which is defined as miles per 
day (MPD), increased to 177 MPD for the week ending July 15 compared to 173.2 
the prior week. For the week ending July 15, our trains holding average is down 
9 percentage points when compared to the previous week and down more than 32% 
since the week ending Feb. 7. Fewer trains holding means more trains can begin 
their trips without delay due to congestion or a critical resource."

   In his weekly podcast of July 18, John Miller, vice president of BNSF 
agriculture products said on average, 6,154 cars were owed vs. 6,720 the prior 
week and days late were at 23.7 vs. 27.1 the prior week. North Dakota is still 
owed the most cars with 3,831 cars owed vs. 4,243 the week prior and has been 
waiting 26.5 days vs. 29 days the prior week. Montana is owed 1,098 versus 
1,212 cars the prior week, Minnesota is owed 425 cars vs. 613 cars the prior 
week and South Dakota's total rose to 489 cars owed vs. 229 cars the prior 
week. Here is the link to the BNSF July 18 service report: http://goo.gl/XkTt55

   RAIL, BARGE FREIGH COSTS SOAR

   Secondary freight costs continue to rise for U.S. BNSF shippers with the 
last trade reported at $3,500 per car and this is over and above the tariff 
rate paid to move the car. Cars in the primary railcar market (COT auction) 
have been trading at historic highs since late May for guaranteed railcar 
placement for grain shipments in August, September, and October. 

   "Bids for the week ending July 17 ranged between $2,700 and $3,200 per car 
for BNSF Railway's guaranteed grain car placement in September and between 
$2,800 and $3,000 per car for placement in October," according to USDA's weekly 
transportation update. 

   While most trading typically occurs in the secondary railcar market where 
shippers buy/sell cars originally bought in the weekly COT auctions, shippers 
are worried that cars will be hard to come by this harvest. This has sent many 
shippers vying for the weekly allocated cars sold by the BNSF in the primary 
freight market.

   "Unlike premiums paid in the secondary railcar market, which are transferred 
between shippers and do not affect railroad profits," said the USDA, "premiums 
paid in the primary market accrue directly to the rail carrier."

   Barge freight rates on the U.S. river system have also been moving higher 
since the rivers reopened after nearly three weeks of closure due to flooding 
which caused locks in the Upper Mississippi River and parts of the Illinois 
River to close, stopping barge movements. Now, as shippers try to catch up on 
shipments, empty barges are in high demand, sending freight costs substantially 
higher. 

   "As of July 22, barge rates for export grain from St. Louis and the Lower 
Illinois River were $15.76 and $25.38 per ton, respectively," USDA reported. 
"Since July 1, the St. Louis rates rose 52% and the Lower Illinois River rate 
increased 44%."

   Barge operators are expecting demand to be higher than normal when the U.S. 
corn and soybean harvests start, which is sending October barge freight higher 
as well. "October rates for barge delivery to St. Louis and the Lower Illinois 
River are $25.86 and $34.66 per ton, respectively," USDA reported. 

   Higher freight costs both on land and in the river system will be and have 
been a big factor for U.S. corn, soybean and wheat basis levels this year. If 
end users are unable to procure grain when needed, they will absorb the freight 
costs for the most part. If grain is moving at a steady pace, it is likely that 
elevators and eventually farmers will have to absorb those higher costs.

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

   Follow Mary Kennedy on Twitter @MaryCKenn

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Imaginary Numbers

   The soybean market is still reeling from USDA's July 11 supply and demand 
report where soybean ending stocks for 2013-2014 were increased to 140 mb, due 
to a reduction of residual use to a minus 69 million bushels. Maybe you are 
asking yourself: How can a demand category can possibly be negative? 

   As DTN Markets Editor Katie's article "The Root of Residual," states, a 
negative residual use number isn't anything new. In fact, I remember working 
with her predecessor Pat Hill on a similar article back in 2007, the last time 
USDA played this powerful wildcard. 

   It should come as no surprise that I disagree with this practice and here I 
provide a point-by-point counter argument to USDA's explanation contained in 
Katie's article. I seriously question the process USDA follows.

   The piece states that residual is a statistics term, a numeric value that 
represents how far off your original predictions were. This includes the 
abstract (another fun math term) "discrepancies in measurement." Again, the 
idea that USDA, or anyone, knows how many bushels (tons) are actually produced, 
used, and left over is a fallacy. It's all estimates built on estimates, with 
things like residual use making up the difference. 

   For now I'll leave the assertion that the hilarity that is corn quarterly 
stocks can somehow be tied to the inability to reconcile its balance sheet 
alone, except for the comment "counting new-crop as old-crop." 

   The crux of the matter is that the National Agricultural Statistical Service 
seems to have an interesting equation. In the piece it states this formula: 
Supplies - Use - X (residual use) = Ending stocks. With it being stated that 
residual use is the ONLY variable, the conclusion is that ending stocks are 
assumed before all demand can be subtracted. In times when supplies don't seem 
to be there, that means residual use has to be dropped into negative territory 
to maintain the expected ending stocks figure. 

   I wish I could do my accounting that way. I would estimate my life savings 
considerably higher, then create a debit category that can be negative to make 
it a "reality." That would be fun right up to the point of another powerful 
government agency telling me it isn't exactly legal, with penalties soon to 
follow.

   I find it interesting that toward the end of the piece USDA says domestic 
soybean ending stocks-to-use hasn't fallen below that magical 4.5% level -- 
until now. But, given the open-ended system of accounting USDA has at its 
disposal, don't be surprised if enough 2013 bushels are eventually found to 
bring us back to this imaginary floor (the July ending stocks-to-use figure was 
4.1%). 

   Why the false floor in soybean ending stocks to use? It's simple: What would 
happen if the world's largest buyer of soybeans was told supplies might not be 
available to meet demand? And that your largest competitor has boatloads of 
them ready to move? 

   I could go on forever. The bottom line is as it always has been: These 
reports are unnecessary up until the point that all the variables, including 
residual use, have been given a value. In other words, there is no need for the 
monthly volatility created by USDA, NASS, and WOAB guessing at what the supply 
and demand situation is.

   Come this October, when all the tallying has been done for the 2013-2014 
marketing year (not the 2014 crop mind you), a single, final report should be 
released. The information would be outdated enough that the markets shouldn't 
react, but valuable enough for later study when analyzing past supply and 
demand issues. 

   That's it. One report that looks back rather than trying to project forward, 
and without the fanfare that surrounds what we see today. 

   But it will never happen. It will never be allowed to happen. Therefore 
imaginary numbers like soybean residual use will continue to cause havoc for 
U.S. (and global) producers.

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Grain Shippers Worry Upcoming Harvest Will Put Railroads Further Behind

   OMAHA (DTN) -- Deliveries of past-due rail cars are still lagging in parts 
of the U.S. and Canada, and grain shippers worry the upcoming harvest will put 
railroads even further behind schedule.

   A North Dakota Canadian Pacific Railway shipper told DTN he just loaded a 
wheat train that was ordered for March 3 and his next train that comes will 
have a March 6 want date. He said he is "...dumping old crop daily and it seems 
to be coming out of (the) woodwork."

   In their weekly service report to the Surface Transportation Board, CP 
reported it has "Cumulative Open Requests (unconstrained)" car orders of 24,280 
in North Dakota and 7,888 in Minnesota and is 10 weeks behind. "Grain hoppers 
online in the U.S. are at 3,649 and their grain hoppers offline in the U.S. are 
at 4,513," CP stated.

   "Demand remains stable for Eastern milling markets, and we continue to fill 
all Pacific Northwest (PNW) demand presented. The demand for movements west 
through the PNW continues to be weak. Despite the fact that we have nearly 
13,000 open PNW requests, actual go-forward demand on the PNW at present is 
between 600 to 800 cars per week," CP reported. Here is the link to the full 
July 14 CP service report to the STB: http://goo.gl/Q2iKOw 

   A BNSF shuttle loader in eastern North Dakota said he has one more corn 
shuttle to load and hopes to be cleaned out by mid-August and ready for 
harvest. A non-shuttle station operator in western North Dakota said he is 
currently loading cars he had ordered for early June. "There is a lot of old 
crop left to move and the situation is not looking good. On top of that, 
secondary freight costs have risen and last week singles went for $2,000 per 
car to $2,300 per car. This week, secondary freight is trading at $3,000 per 
car with shuttle offers at $3,500 per car," he said.

   On July 11, the BNSF updated the STB on their service and car placements. 
According to the July 11 podcast, there were on average, 6,720 cars owed vs. 
7,388 the prior week and days late were at 27.1 vs. 26.6 the prior week. North 
Dakota is still owed the most cars with 4,243 cars owed vs. 4,696 the week 
prior and has been waiting 29 days vs. 28.5 days the prior week. Montana is 
owed 1,212 cars, Minnesota is owed 613 cars and South Dakota is owed 229 cars.

   John Miller, vice president of BNSF ag products, said, "Despite the impact 
of localized flooding along the Mississippi River, the overall network 
performance experienced areas of good improvements." 

   Miller said, "For the week ending July 8, overall on-time performance 
increased 13 percentage points compared to the prior week and is 35 percentage 
points better than our baseline week in early February. System velocity, which 
is defined as miles per day (MPD), slowed to 173.5 MPD for the week ending July 
8 compared to 177.5 the prior week, but is still nearly 2% better that our 
baseline week in early February when we were at 170.8 MPD." Here is the link to 
the BNSF July 11 filing to the STB: http://goo.gl/5IKRMW

   CANADIAN RAIL UPDATE

   The CN railroad reported an average weekly car-spot (cars placed on tracks 
at an elevator siding) of 5,544 in June, 2,311 cars per week above the 
five-year average of 3,233 cars," said DTN Canadian Grains Analyst Cliff 
Jamieson. "Canadian Grain Commission data for week 49, or the week ending July 
13, indicates 919,000 metric tons of all grains were shipped from the primary 
elevator system on the Prairies, which is just slightly higher than the 10-week 
average."

   Jamieson continued, "CP Rail's announcement of a record quarter is being 
heralded by the media as the company's turnaround continues, with the company's 
second quarter profits up 48% at $371 million. Revenues from grain rose 32% 
from the previous year in Canada while achieving a 26% increase in the United 
States. The company reports that oil by rail movement could increase to one 
train per day by the company's fourth quarter." 

   MISSISSIPPI RIVER MAY OPEN BY JULY 18

   Ingram Marine barge company reported July 17 on their website that, "Upper 
Mississippi River locks have all reopened. The river is still closed at the 
Louisiana railroad bridge, forecast to reopen to navigation sometime Thursday, 
July 17, 2014."

   The Louisiana Railroad Bridge crosses the Mississippi River between 
Louisiana, Mo., and Pike County, Ill. While rail traffic on the bridge is 
operating normally, the USDA's Grain Transportation Report said, "Additional 
work is needed to allow barge traffic to pass through the swing bridge portion. 
Assuming river levels continue to fall, and the bridge is cleaned and 
maintained, barge traffic will be able to travel the entire navigable portion 
of the Mississippi River by July 17 or July 18."

   With the Mississippi and Illinois Rivers now open as waters recede, barge 
freight rates have begun to rise as terminals unable to move grain the past 
three weeks are looking for empty barges. USDA reported as of July 15, barge 
rates for the Twin Cities to New Orleans were $31.45 per ton, 18% higher than 
before the flood began three weeks ago. On the lower Illinois River, barge 
rates were $18.79 per ton, a 17% increase over last week.

   USDA's Grain Transportation Report from Thursday stated, "During the week 
ending July 12, barge grain movements totaled 491,048 tons -- 29.2% lower than 
the previous week and 19.6% lower than the same period last year. During the 
week ending July 12, 322 grain barges moved down river, down 22.8% from last 
week; 600 grain barges were unloaded in New Orleans, up 4.3% from the previous 
week."

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

   Follow Mary Kennedy on Twitter @MaryCKenn

   Follow DTN on Twitter @dtnpf

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Winning at the Waiting Game? Not in Ag Commodities

   Investors can win by waiting in commodities, as a recent Wall Street Journal 
article suggests, but it's only when markets have a bullish, or inverted, 
structure. It's a risky proposition in most agricultural commodities right now, 
DTN Senior Analyst Darin Newsom said.  

   The Journal article explained the "rolling" strategy: "A fund manager buys a 
futures contract for delivery next month. Right before it expires, the investor 
sells the contract, buys a cheaper one for delivery at a later date and pockets 
the difference."

   It went on to say that this strategy would work in 11 of the 24 commodities 
in the S&P GSCI Index, and that a fund tracking the index itself would have 
earned 1.8% from rolling contracts forward this year, even though the overall 
index was down slightly.(Here's the article: http://on.wsj.com/1nbf6k5). 

   "The article states that investment traders can make money in a situation 
where the nearby futures contract is higher priced than the deferred contract. 
That is simply an inverted (backwardation) situation, and as such a forward 
curve reflecting a bullish view of supply and demand by commercial traders. So 
restating the writer's thesis, investment traders can make money in a market 
with bullish supply and demand. 

   "How do they do that? Buying the nearby contract, holding it short-term, and 
rolling to the next, and the next, as long as the market remains inverted is 
standard operating procedure. Investors that do that in a carry (or contango) 
market usually suffer the consequence (e.g. 2008 crude oil)."

   So what markets might this work in? Which ones have a bullish forward curve? 

   -- Corn: The new-crop forward curve shows a strong carry (roughly 67% of 
cost of carry) = Bearish

   -- Soybeans: The old-crop forward curve remains inverted, but an investor 
will take his life in his hands betting on the August or September contract 
against the new-crop November

   -- Wheat: Moving on. 

   -- Crude oil: The forward curve is showing contango (carry) but this has 
been weakening of late. Along with that, investors have lightened their 
net-long futures holdings. 

   -- Natural gas: Deferred contracts show a contango in the forward curve. 
However, what will happen in the market known as "The Widowmaker" is anyone's 
guess. 

   -- Gold: A different breed of commodity in that it has a more stable S&D 
situation. The market tends to show a slight contango, and such is the case 
again this year.

   -- Live cattle: A minefield for an investor that doesn't understand the 
dynamics of a livestock market. Each contract is a harvest in and of itself. 
The investor has to be aware of how the current spread relates to historic 
levels, meaning a backwardation could still be bullish or a contango bearish. 

   -- Lean hogs: Ditto live cattle, but for traders who also like playing 
Russian roulette. 

   -- Cotton: Strong carry in the futures market hints at a continued bearish 
supply and demand situation despite the recent collapse (seasonal sell-off) in 
price.

   -- Sugar: Forward curve situation similar to cotton

   -- Coffee: Contango anyone? 

   -- Cocoa: Finally, a market in backwardation that investors might buy into. 
The only problem is that cocoa has been rallying for almost 2 years now.

   What I find interesting about the timing of this article is its timing. 
Money has been flowing out of commodity hedge funds over the past few years, 
and as Newsom pointed out: "In general, noncommercial positions (mostly 
net-long) are smaller than they have been in years past. One exception is crude 
oil where the continued backwardation has led to recent long holdings of 
550,000 contracts (more or less)."

   While some investors may be happy making 1.8% on commodities, it pales in 
reflection of the potential earnings in equities right now. The author's 
premise may be correct. Yet, it's an obvious strategy that's more applicable in 
some markets than others. It's not a strategy for the grain markets right now.

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Eight Locks and Dams Still Closed; St. Louis Rises Above Flood Stage

   OMAHA (DTN) -- Conditions are improving for barge freight on the upper 
Mississippi River, but downstream problems remain an issue.

   The U.S. Army Corps of Engineers, St. Paul District, reopened its three 
Minneapolis locks to commercial navigation Saturday, July 5, when flows dropped 
below 40,000 cfs. "So far this navigation season, the three Minneapolis locks, 
have been closed to commercial navigation four times, totaling 47 days," said 
the USACE. "Commercial traffic at these locks is shut down at 40,000 cfs."

   Barges that were parked down river of the closure near Minneapolis were 
placed for loading at river terminals in St. Paul. However, they will be unable 
to get downriver yet as Locks 16 through 18 and 20 through 22 remained closed 
in the Rock Island District as of July 11 due to the water overtopping the 
miter gates, making them inoperable according to the USACE. Here is the link to 
the USACE Rock Island District Lock closures:

   
http://www.mvr.usace.army.mil/About/Offices/EmergencyManagement/Flood/Mississipp
iRiverLockStatus.aspx 

   Farther down the Mississippi River in St. Louis, the water rose above flood 
stage and is at 30.98 feet as of July 11. Levels are expected to reach 31 feet 
by July 12 before falling. Flood stage is 30 feet above zero gauge. 

   The USACE St. Louis District said barge traffic on the river will continue 
to be affected by high water. Lock and Dam 24 in Clarksville, Mo., and Lock and 
Dam 25 in Winfield, Mo., are still closed to traffic as of July 11.

   "Lock closures are essential to protect critical components and facilities 
from flood waters and be able to restore services as quickly and economically 
as possible after water levels recede," said the USACE. Barge lines have 
reported it could be sometime during the week of July 14 before the river 
reopens to traffic. Here is the link to the USACE ST. Louis District, river and 
reservoir daily report: http://mvs-wc.mvs.usace.army.mil/dresriv.html 

   HIGH WATER ALSO HITS RAIL TRAFFIC IN U.S., CANADA

   The BNSF reported on July 3 that it experienced flooding at multiple 
locations through the Missouri and Iowa regions on the Hannibal Subdivision. 

   According to the latest service update, "flooding and the potential for 
flooding along various sections of the Mississippi are keeping our crews and 
meteorologist busy. While the size of our network allows our dispatchers to 
re-route trains and plan trips around areas that are at risk for disruptions, 
those re-routes can create some challenges. Some trips will take longer since 
we are not able to use the most optimal route and adding traffic to certain 
traffic lanes means that our velocity and throughput becomes temporarily 
affected.

   "In particular, our Hannibal subdivision, which is located in central 
Illinois along the Mississippi river, is out of service due to flooding in the 
area. We are managing that outage by re-routing traffic and using alternative 
lanes so as to continue service to customers. On our Ottumwa subdivision, which 
is also near the Mississippi in southern Iowa, our crews have been able to 
raise the track as much as 12 inches at a critical location in Burlington, 
Iowa, which allows that section of track to remain in service." 

   The CN (Canadian National Railway Company) reported on July 9 that "A number 
of branch lines suspended operations on Sunday, June 29, and have since resumed 
at least partial operations. The Cromer line partially reopened on Sunday, July 
6. Both the Cromer and the Quappelle lines are scheduled to resume full 
operations on Monday, July 7. In the interim, local service to customers 
located along these branch lines may continue to encounter some delays. CN 
continues to keep a close watch on conditions in southern Saskatchewan and 
southwestern Manitoba and will continue to respond as required."

   The CN reported a derailment along the Kingston subdivision of the CN main 
line on Thursday, July 10, near Brockville, Ontario, which affected trains due 
to transit along the Montreal/Toronto corridor.

   On July 11, the CN reported that "repairs to the site were completed as of 
1100 hours EDT on Friday. July 11. Customers should expect that traffic 
scheduled to run through the affected area may incur minimal delays during the 
return to normal traffic levels."

   "Speed restrictions remain in effect along the Sprague and Fort Frances 
subdivisions. As a result, trains running between Winnipeg, Manitoba, and our 
Ranier, Minn., border crossing are operating with some delays." Here is the 
link to the CN State of the Railroad web page: http://goo.gl/T7ZI6X 

   BNSF, CP RAIL COMPANIES PROVIDE SECOND SERVICE UPDATE TO STB

   On July 7, the BNSF reported to the STB (Surface Transportation Board) there 
was an average of 7,388 past due cars vs. 8,462 for the prior week and were 
26.6 days late. Minnesota was owed 743 cars with days late at 16.9; Montana was 
owed 1,415 cars with days late at 29.8 and North Dakota was owed 4,696 grain 
cars, with days late at 28.5 days late. The entire report (PDF) by the BNSF to 
the STB can be seen here: http://goo.gl/r7Ut0U 

   The Canadian Pacific (CP) reported it was behind 10,000 to 12,000 cars and 
on average and were nearly 10 weeks late. The CP also reported new open order 
requests of 24,786 cars in North Dakota and 8,186 in Minnesota. The entire 
report (PDF) by the CP to the STB can be seen here: http://goo.gl/Uk7aCO 

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

   Follow Mary Kennedy on Twitter @MaryCKenn 

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Informa Pegs Corn Yield at 165 BPA, Soybeans at 44.5 BPA

   OMAHA (DTN) -- Private analytical firm Informa Economics said U.S. farmers 
have the potential to produce a 13.7 billion bushel corn crop and a 3.7 bb 
soybean crop this year. 

   The national average corn yield is forecast at 165 bushels per acre, 1.6 bpa 
above its previous estimate, and a soybean yield of 44.5 bpa, even with its 
last forecast. Both are slightly below USDA's estimates. 

   Informa adjusted USDA's acreage figures using data from its own survey of 
farmers. It thinks farmers planted corn on 91.39 million acres with harvested 
acres projected at 83.24 ma. 

   The corn harvested acreage estimate is 600,000 less than USDA's with the 
difference stemming from a 250,000 acre reduction in planting and 350,000 acres 
abandoned due to excessive moisture.  

   "Informa said Thursday that they expect the 2014 U.S. corn crop to total 
13.73 bb, down 1.4% from 2013, but still large enough to expect increased 
supplies in 2014-15," DTN analyst Todd Hultman said. "Their estimate is 
reasonable, given USDA's estimate of 91.6 million planted acres of corn and 
suggests a yield of 165 bpa." 

   Farmers are likely to harvest 83.23 ma of soybeans, Informa said, 830,000 
less than USDA's June estimate with the reductions coming fewer planted and 
harvested acres in from Ohio, Michigan, Louisiana, Illinois, and South Dakota. 
Informa sees abandonment increasing in Minnesota, Iowa and North Dakota. 

   "Informa's estimate of 3.7 billion bushels is slightly below my estimate of 
3.8 billion bushels, but it is too early to take any slight differences 
seriously," Hultman said. "The clear point is that outlooks for both corn and 
soybeans are bearish this year, but that was already known before Informa's 
estimates.

   USDA's World Agricultural Outlook Board will release its initial projections 
of U.S. production in its next report on July 11 at 11 a.m. CT. As Informa and 
Hultman pointed out, these early estimates could readily change as growing 
conditions improve or worsen. 

   USDA will also update supply and demand tables in its upcoming report to 
include the recent Grain Stocks report, which indicated larger corn and soybean 
supplies on hand than previously thought.

   Informa also sees sorghum production exceeding last year's production by 39 
mb, totaling 428 mb. Although acreage has decreased, yield prospect are likely 
to improve. Informa estimates yield at 66.9 bpa, up 7.3 bpa from last year. 

   Informa also released its Crop Production report for the wheat complex. USDA 
will update its winter wheat production and issue its first spring wheat 
production numbers in its next report.

   "Informa's estimate of U.S. winter wheat production was reduced to 1.37 b 
bu, slightly below USDA's estimate of 1.38 bb, but not a significant change," 
Hultman said. 

   Informa forecast spring wheat production at 534 million bushels with an 
average yield of 43.2 bpa. 

   The firm's global forecasts included a few changes. Informa increased 
Brazilian corn production to 76.5 million metric tons, which is 2.5 mmt above 
USDA's estimate and "suggests that USDA may increase its world corn production 
estimate in the July 11 WASDE report."

   Informa also reduced its India wheat production forecast to 99 mmt, which is 
3 mmt higher than USDA's June estimate. Argentina wheat production was boosted 
from 13 mmt to 13.75 mmt, which is above USDA's estimate of 12.5 mmt. 

   "Overall, the outlook for world wheat is bearish and nothing in Thursday's 
Informa numbers changed that," Hultman said. "I see nothing here to change the 
markets' already bearish outlooks for corn, soybeans, and wheat." 

******************************************************************************
Reports Revive Old Questions

   A bearish confirmation of the markets' outlook sent the grain complex down 
pretty hard on Monday. Tuesday followed up with another slide, although there 
was an attempt at a late session rally. 

   As Darin Newsom pointed out in his column following the report, now that the 
smoke has cleared, the reports did nothing more than solidify the trends and, 
in the case of soybeans, kick it into hyper speed. 

   But they did raise -- perhaps resurrect is a better word -- questions about 
the crops' supply and demand tables. If corn stocks are really 3.85 billion 
bushels, is the 5.3 bb of feed demand for the 2013-14 crop year still valid?  

   DTN's analysts have written many times about how the math on the feed number 
seemed a little out of place. The cattle herd is at a historic low. Hog farms 
are struggling to fend off the PED virus. At corn's low price (especially 
compared to wheat), the animals might eat more it in their rations, but the 
feed consuming units just aren't there. 

   In a webinar Tuesday morning, University of Illinois ag economists Darrel 
Good and Scott Irwin explained that they dropped their feed forecast by 100 
million bushels following the stocks report. They also tweaked their ethanol 
use figure upwards by 25 mb and trimmed exports by 25 mb. Those changes would 
boost the ending stocks figure to 1.25 billion bushels with a stocks-to-use 
ratio of 9.2%, compared to the June WASDE estimates of 1.15 bb and 8.4%. Prices 
will likely remain below USDA's average price of $4.55.

   It seems the question surrounding new-crop corn is the perpetual one this 
time of year: will corn yields meet or exceed trendline estimates for the first 
time in years? Right now, Irwin and Good say the market is pricing in a yield 
in the mid-160s. All in all, it looks like ending stocks will increase to 1.69 
bb with a stocks-to-use ratio of 12.6%. That scenario puts the average corn 
price at $4.15. If the national average yield ends up closer to 170 bpa, corn 
prices would average less than $4, perhaps $3.85, Irwin said. 

   There are also questions floating around about drowned out acreage in the 
northwestern Midwest, and the FSA's prevent plant acreage reports will be 
watched with interest.  

   The question on old-crop soybeans: where did this increase come from -- 
imports or domestic production? We're going to have to wait for that answer, 
but we'll get an idea soon enough. June 1 stocks, at 405 mb, were higher than 
the average trade estimate. The demand side of the soybean table over the last 
quarter has appeared to be robust on expanded export demand in the off-season. 
So, analysts look to the supply side. We know the U.S. has dramatically 
increased soybean imports this year, so it's quite possibly the source of extra 
beans. We also know that USDA does a full reconciling of soybeans in the 
September Grain Stocks report, and has a history of revising the previous 
year's production number, like it did for the 2012 crop. Irwin said it's very 
hard to predict changes based off of one quarter's surprising stocks report, 
and users will have to wait and see. It'll also be worth watching how USDA 
accounts for those bushels in the next WASDE report. 

   How low can new-crop soybean prices go? Irwin and Good think the average 
price could be $10.25. With increased acreage and, like corn, the potential for 
a record yield above 44 bpa, ending stocks could be 380 million bushels with a 
stocks-to-use ratio of 11%. That's the largest since 2006. 

   We will get USDA's opinion on how the Acreage and Grain Stocks figures 
change the supply and demand outlook on July 11 at 11 a.m. CT when the next 
WASDE report is released. In the meantime, enjoy your holiday weekend. 

   Irwin and Good's slides from the webinar are available here 
(http://bit.ly/TADTAS) and a copy of the webinar will soon be available here 
(http://bit.ly/1iSdjzm) 

******************************************************************************
Heavy Rains in the Upper Midwest Hampering Rail and Barge Traffic 

   OMAHA (DTN) -- The Angela K moved 12 barges through Lake Pepin on Wednesday, 
April 16, officially opening the 2014 Upper Mississippi River shipping season 
and marking the latest start to a shipping season on record.

   The late start was attributed to the unprecedented amount of ice covering 
the lake over the winter. Two months after the ice cleared, shipping was 
stalled as flood waters, due to a record amount of rainfall in Minnesota, 
closed Lock and Dam No. 1 located just north of the confluence of the 
Mississippi with the Minnesota River at Mississippi River mile 847.9, in 
Minneapolis. 

   To reduce the flood risk upstream of the lock, the U.S. Army Corps of 
Engineers (USACE) opened the Tainter gate at Upper St. Anthony Falls lock, in 
downtown Minneapolis on June 20. The Tainter gate is a type of radial arm 
floodgate used in dams and canal locks to control water flow.

   "This is the sixth time the St. Paul District has passed water through the 
chamber," USACE stated in a news release. "The previous years that this has 
been done include 1965, 1969, 1997, 2001 and 2009." 

   The Corps added, "Due to the high flows, the St. Paul District anticipates 
having to pull Tainter and roller gates at each of its dams from Lock and Dam 
2, in Hastings, Minn., to Lock and Dam 10, in Guttenberg, Iowa, no later than 
June 23. The gates are pulled when they are no longer required to maintain the 
9-foot navigation channel. When the gates are out of the water, the river is 
flowing naturally, as if the locks and dams weren't there."

   While barges are still able to move, they face high water restrictions, 
which include slow speeds to avoid causing any wakes. The danger of moving 
through flood waters is debris underneath the water, which creates obstacles 
for moving barges. Barges also find difficulty loading and unloading in high 
water.

   As of midweek, Minnesota received a record 10.85 inches of rain in June with 
more rain expected in the next week. The current level of the Mississippi River 
Twin Cities District is at 19.94 feet about flood stage after reaching its 
crest of 20.5 feet on June 26. The river is expected to remain above flood 
stage at least through July 3; minor flood stage is 14 feet above zero gauge 
and major flood stage is 17 feet. However, with more rain in the forecast, the 
Mississippi River at St. Paul, at its highest reading since 2001, could remain 
at flood stage longer. Barge lines reported late in the week that logistics 
continue to worsen on the Illinois River and mid-Mississippi River as well.

   Here is the USACE St. Louis District RIVER & RESERVOIR DAILY REPORT: 
http://mvs-wc.mvs.usace.army.mil/dresriv.html 

   RAIN AFFECTING RAILROADS, TOO

   "Recent heavy rainfall and high water levels disrupted CN operations in 
southwestern Iowa," The Canadian National railroad reported on June 25. "In 
particular, our yard facility in Council Bluffs, Iowa, was evacuated and 
suspended its activities over the weekend. Water levels crested on Monday, June 
23, as expected, and the main line returned to normal service as of 1415 hours 
CDT on Monday. Speed restrictions remain in effect along the Sprague and Fort 
Frances subdivisions. As a result, trains running between Winnipeg, Manitoba, 
and our Ranier, Minn., border crossing are operating with some delays."

   The BNSF is also dealing with washouts. In his weekly podcast, BNSF Ag Group 
Vice President John Miller reported, "While periodic weather events will 
undoubtedly challenge our maintenance and expansion efforts, our team continues 
to do a tremendous job of remaining focused on completing projects. Most 
recently, sections of track on two subdivisions were washed out due to 
flooding, and fortification with sandbags is occurring on another subdivision 
to prevent any additional washouts."

   Miller reported key outages in the Twin Cities division along the 
north-south routes. The line from Wilmar, Minn., to Sioux City, Iowa, and 
another through the Sioux Falls, S.D., to Mitchell, S.D., closed for three days 
due to flooding through mid-last week. 

   In his past-due car update, Miller said, "Twenty-seven previously committed 
grain shuttle sets became available and were redeployed as added capacity to 
allow BNSF to work down the number of past-due cars. For the week ended June 
20, past-due ag cars were reduced by more than 1,200 cars and at the lowest 
level owed since February. In fact, last week past-due cars related to our 
agriculture business were at their lowest level since February and were reduced 
by more than 1,200 cars from the prior week. The only state which actually saw 
an increase in cars owed was South Dakota, which was in part due to washed-out 
tracks." Past due cars were at 316 in South Dakota vs. 217 owed the prior week; 
North Dakota was owed 5,133 cars vs. 6,137 cars the prior week; Minnesota was 
owed 845 cars vs. 1,208 the prior week and Montana was owed 1,798 cars vs. 
2,129. 

   STB DIRECTS RAILROADS TO FILE WEEKLY REPORTS

   On June 20, 2014, the STB "directed Canadian Pacific Railway Company and 
BNSF Railway Company to report their plans to timely resolve their backlogs of 
grain car orders, as well as respective weekly status reports pertaining to 
grain car service." These reports are to include a state-by-state count of any 
past-due car orders still outstanding. While the BNSF already offers this 
information to the public on its website via a weekly podcast (they are 
currently on the 19th week of podcasts), the CP does not publish a weekly 
report on car backlogs and some shippers in the U.S say they are still waiting 
for unfilled orders from as far back as February. Here is the link to the STB 
decision: http://goo.gl/B5LTMI

   CANADA CRACKS DOWN ON RAILROADS

   The Canadian government announced this week that it will speed up plans to 
conduct a review of Canada's transportation system. "Challenges facing the 
movement of grain this winter along with issues such as the rapidly increasing 
movement of oil by rail have shed light on issues which can hamper Canada's 
ability to serve export customers, while remaining competitive and nimble 
enough to meet the needs of the market," said DTN Canadian Grains Analyst Cliff 
Jamieson.

   "We need the right conditions for a system that has capacity and flexibility 
to respond to global and domestic demands," Canada's Transport Minister Lisa 
Raitt said in a statement."

   "While the grain industry waits for the final rules that will govern the 
Fair Rail for Grain Farmers Act, or Bill C-30," said Jamieson, "the success of 
the current initiatives taken depends largely on who you talk to. The 
government is suggesting that railways are meeting their weekly targets of 
5,500 cars each, totaling 1 million metric tons of movement. CN has responded 
by saying that it would have achieved current volumes regardless of government 
intervention. Farmers would respond by questioning where was the needed 
capacity all winter when the railroads fell some 70,000 cars behind in meeting 
the needs of the industry while totally eliminating movement in some shipping 
corridors and leaving grain shippers and customers without service?"

   While numbers would suggest movement has improved, small shippers, shippers 
on branch lines and farmers counting on producer car shipments continue to 
struggle. North-south movement continues to suffer along with movement of 
smaller specialty crop volumes. The equitable and reliable distribution of 
freight services remains an issue that needs to be addressed in Ottawa in the 
final push to make Bill C-30 law, Jamieson said.

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

   Follow Mary Kennedy on Twitter @MaryCKenn

******************************************************************************
Spring Rains Forced Some Regions to Switch Acres to Soybeans 

   OMAHA (DTN) -- A rainy spring made planting difficult for some farmers this 
year, but for the most part, growers stuck with their original planting plans, 
a recent DTN 360 Poll shows. 

   The poll highlighted the regional nature of this spring's rain, but it also 
showed that a majority of farmers prefer to stick to their typical crop 
rotation. 

   More than 400 farmers responded to the question "Have you altered your 
planting from your early spring plans?" between June 5 and June 17. The most 
popular response, at 62%, was "No, I stuck with my typical rotation."

   Spring weather forced 15% of respondents to switch to soybeans. Some farmers 
said they stuck to their plan, but that plan included increased soybean (10%) 
or corn (6%) acres this year. Three percent of respondents said planting 
weather was great for corn, so they planted more of it.

   Clarks Grove, Minn., farmer Jerry Demmer watched the economics swing toward 
soybeans throughout the winter, but he stuck with his rotation because he put 
down fertilizer in the fall. 

   "I don't think there was a lot switched from corn to beans because in our 
area 80 miles south of the Twin Cities, farmers like to put their N on in the 
fall," Demmer said. 

   The grain markets are focused on USDA's upcoming Acreage report, which will 
be released on Monday, June 30, at 11 a.m. CDT. Private analytical firm Informa 
Economics said earlier this month that it sees USDA increasing soybean acreage 
by 285,000 acres to 81.78 million acres. Informa trimmed corn acres projections 
slightly to 91.58 ma. 

   The second most popular response to DTN's poll was "Yes, rain delays made 
corn planting tough, switched some acres to beans," with 15% of all responses. 

   Broken down by state, 50% of the responses from North Dakota indicated a 
switch to soybeans. North Dakota was followed by Michigan (38%), Ohio (23%), 
Minnesota (19%), Wisconsin (15%) and South Dakota (14%). 

   Adam Spelhaug, agronomy manager at Peterson Farm Seed in Kindred, N.D., said 
just about everyone switched some of their acres to soybeans or another crop or 
took prevented planting. 

   The snow melted off pretty well this spring, "but it was such a cold winter 
the soil was really frozen. We were waiting for it warm up before it could dry 
down," Spelhaug said.

   Some corn acres were planted around April 21, but that was pushing it on 
soil temperature. "Then it rained for three weeks." 

   Many farmers pushed planting all the way to the May 25 deadline for crop 
insurance, and then started switching to beans. If it was still too wet in 
early June, they took prevented planting. On Spelhaug's family farm, 120 acres 
didn't get planted this year.

   "A majority of people didn't get everything planted they were planning on 
back in March," Spelhaug said. 

   In Harbor Beach, Mich., farmer Brian Roggenbuck was glad most of his tiling 
is spaced 25 feet apart instead of the more typical 60 feet. He'd already 
planned to grow more acres of edible beans because the prices for corn and 
sugarbeets were so low. 

   He struggled to get his sugarbeets in the ground in late April because it 
was wet, and ended up planting corn, sugarbeets, soybeans and navy beans all in 
the same week. 

   "When we had to go, we went around the clock. And then we'd get rained out," 
he said. "It wasn't terribly wet, but just before we were ready to get back in, 
it'd rain again." 

   Rain wasn't an issue on Demmer's south-central Minnesota farm until this 
past week. The crop was off to one of the best starts he's seen, and even 
though it was planted a little later than ideal, good conditions and the right 
amount of heat helped the corn crop catch up.

   Then it started raining. His farm got 2 inches last weekend, which was 
followed by a 2-inch-per-hour storm last Monday night, putting his total for 
this past week above 6 inches. 

   He estimates about 10% of his fields have been drowned out.

   "It's tough to look out our window and say the market has to go up because 
of our loss, but it doesn't have to do anything," he said, noting that so many 
economists are calling for a record crop and he keeps reading about great crop 
conditions in the "I" states. "We have to stop sometimes and say it could be 
worse. All in all, we have a good crop coming, the remainder of what's out 
there, anyways."

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

   Follow Katie Micik on Twitter @KatieMDTN

******************************************************************************
Meal Did What???

   Friday afternoon, I was preparing my presentation for the closing market 
video. I would finish, I thought, with a collection of yield anecdotes from 
this week's 2014 Kansas Wheat Harvest Reports and decided to highlight the 
soybean meal market in the first chart slide. In the 1:00 p.m. Quick Take, I 
wrote: "July soybean meal is on track to post its lowest close in nearly 13 
weeks, raising larger concerns that China's demand for old-crop feed needs has 
pulled back." Friday had been a very quiet day and prices in the soybean 
complex had barely moved since 10 o'clock. It looked like traders had already 
scrammed for the weekend. 

   After some last-minute scouring for news, I looked up to see July meal 
quoted up $14.50 on the day. What??? No, that can't be right! It was just down 
$6 a couple of minutes ago. I brought up my one-minute chart in ProphetX and 
saw all I needed to see -- a late surge of high-volume buying in the final 
minutes of trading had caught the market off guard on a sleepy Friday 
afternoon. One-third of the day's total trading volume took place in the final 
five minutes. This was an option-expiration day ambush.

   For those not familiar with the unique risks of option expiration day, let 
me try to explain. Put and call options are valuable market tools, used by both 
hedgers and speculators and they derive their value from the futures contracts 
that they are based on. Options also have time value based on their remaining 
contract life. However, on the day of expiration, time value dwindles to zero 
and the option's value becomes completely dependent on the price of the futures 
contract. A small change either way in the price of the futures contract can 
make a big difference in the value of the option at expiration.

   A good example of this Friday was the July $450 meal call. The owner of this 
call option has the right to buy one futures contract of July soybean meal at a 
cost of $450 a ton. Since the July futures contract was trading at $445 earlier 
on Friday, this call option looked like it was going to expire worthless and 
could have been purchased for 35 cents a ton or a total cost of $35 or less on 
Friday around mid-morning. In fact, someone did buy 60 call options shortly 
before 1:05 p.m. for a total cost of $10 each. Why would someone just throw 
away $600 on a bunch of call options that were about to expire worthless? 

   Hmmm.... 

   What if they knew someone with a lot of clout in the market that would be 
willing to go in at the end of a sleepy, low-volume Friday and hit the market 
with a big rush of buy orders? The result was that the $600 throw-a-way 
finished minutes later as 60 call options worth a total of $55,500 -- not a bad 
day of work, if you can get it. Of course, many more of those options could 
have been purchased earlier with a little planning.

   If you feel your blood pressure rising at the unfairness of this 
manipulation and see this as another abuse by the One Percent sticking it to 
the little guy, you are not alone. But the reality is that the unique risk of 
option expiration day in grains and other markets is not likely to change 
anytime soon. The important thing for those who use the futures and option 
markets is to be aware of the risk that this special day carries so that they 
can protect themselves accordingly. It is common for producers to be short call 
options as a way of enhancing the price that they receive for their grain. As a 
DTN Grain Market Analyst, I no longer trade in the futures and option markets 
so that you can trust my neutral bias. When I did trade, however, I would 
always take profits on any short option positions that were close to their 
strike price before expiration day to stay clear of the kind of ending that we 
saw Friday. I would much rather buy back a call for 30 bucks than let it sit 
there and hope that nothing bad happens. 

   Friday's higher close in meal was crazy and this week will show if meal's 
higher prices can be sustained. I suspect prices will correct back from 
Friday's aberration. The four-month uptrend in July meal ended on June 12 and 
prices have fallen since then with concerns that China's demand is pulling 
back. It is understandable to get upset when we see obvious cases of market 
manipulation, but the larger lesson should not be lost. Markets are not for the 
faint of heart and the risks are often well-disguised. At times, low-volatile 
market behavior can lull us into a false sense of security, but do not succumb 
to the temptation of complacency - these are shark-infested waters.

   Todd Hultman can be reached at todd.hultman@dtn.com

   Follow Todd Hultman on Twitter @ToddHultman1

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


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