Hi Folks,

It’s no secret, for the past 3 months or so… feed costs have been quite high. When I look at what these by-product prices do for the bottom line of my cattle feeding business, it has forced me to consider better ways to do things, and think about how to manage price risk on feedstuffs in ways that I might not have considered in years past.

It has been uncomfortable to be in the situation of not being able to find truly cost-effective feed alternatives for such a long stretch of time. To that end, one thing that I would like to begin doing is offering a monthly commentary on what we are hearing out of grain processors and our livestock feeding customers. My hope is that we can offer better market information; to first identify potential price risks with feed. By talking through these issues, it will help us better position ourselves and reduce risk in terms of cattle and contracted feed.

A lot of our day to day contact with you revolves around logistics just as much as price. I feel like I can do a better job of passing along market thoughts in this format than I do on our typically short conversations throughout the month.

When I think about the factors driving feed costs so high for the past couple months, the few things that come to mind are 1. DDG exports have been exceptional. 2. The winter has been one of the coldest ones in recent history. 3. Larger numbers of cattle on feed in our region than we have had since the 2012 drought. 4. Dry period in late summer of 2017 left most with lower hay inventories than what we would prefer.

Summary of our local customer bases livestock activities:

The majority of our customer base, are cattle preconditioners who buy light cattle to sell in the 7-800lb range. We have seen a large drawdown in cattle on-feed during the first 2 months of the year. Many operators had loads to ship during this time frame. Unfortunately, the weather has been so uncooperative during this same period, it has been very difficult to reload with young stock.

Finally, now in the first week of March, it seems like things are beginning to get back to normal, with sale barn volume beginning to creep back up. Cattle of all classes seem to be more available. We expect cattle on feed will be increasing for the next 60 days in our region as most of our customers are looking to reload. We look for the calf market to be well supported by seasonal grazers, as well as grow yards who are watching the August and September feeder cattle futures for hedging opportunities, which have traded either side of 150/cwt.

Feed

If we have talked about the market lately, you know I am of the opinion feed ingredient prices over the coming month are headed down. Cattle on feed is currently low in our region, and even as we get filled back up, it takes time to get all the cattle worked back up on feed. Even though its spitting snow as I type this (unbelievable) green grass is coming and that will reduce the number of breeding stock being supplemented with feedstuffs.

At the same time, corn processors are entering the best seasons of the year for their margins, which will make them want to run at high rates. Most the plants we are talking to have more feed on hand than they’ve had all winter, but they are resistant to marking down the price. We are going hand to mouth on distillers needs.

The DDG market has been affected by flooding on the Ohio River. Many facilities haven’t been able to load a barge for several weeks. And although that is soon to get back to normal, dry product has been pushed into the truck market which will help to soften up domestic prices. At this time, I see no reason to contract DDG or look to get extended coverage on wet feed.

My expectations are that we will see wet feed costs 20$/ton lower on average for the next 3 months than it was for the last 3 months. We don’t hear of any major changes taking place regarding the quality of distillers, or capacity of processing plants in our region in the near future. I think it’s going to be back to business as usual.

Soybean processors are currently enjoying improving margins. Soybeans are in good supply, and soybean meal and oil have been experiencing great demand. Soybean processors want to run at capacity. There is some positioning taking place as many market participants are watching a developing drought situation in Argentina, which is a major exporter of soy products. I would expect soybean meal to be steady to increasing in price for the coming 3 months until more is known about the coming US soybean crop. It is possible for a 10-15% increase in price if the US farmers face planting delays this spring.

On the soyhull pellets, they’re already getting cheaper. Prompt shipment tons still has some value but the summer months are being offered at attractive levels. Availability is good, and getting better. We have options to contract soyhull pellets through the end of 2018 at values that I think make sense on a cost of gain basis as well as a % of corn price basis. The only reason I’m hesitant to cover more of my personal needs is it always seems like there is a window in may/june where they can get awful cheap. Currently, I have about 25% of my expected needs covered through year-end. I want to leave myself some room to buy any further dips.

I think the thing that needs to be watched right now, a factor that could support the soyhull market is rising corn costs. Even though the US has ample corn stocks right now, global supplies are actually being drawn down. There will be a lot of attention paid to this year’s corn crop in the US, as global demand continues to ramp up. May Corn futures on the CME have already increased nearly 12% in the past 90 days, I look for that to continue and expect to see 4.00/bu spot corn futures. 4.00 corn = 143/ton. The degree to which soyhulls will follow corn prices through the summer will depend on pasture conditions and animals on feed regionally. I expect the on feed number to be relatively large.

1 note, the CGB plant in Mount Vernon, Indiana is nearly complete on an expansion project that will increase their capacity by 25%. This will mean more soyhulls, however, I’m unsure on exactly how this will impact our local market when you consider they can load both rail and barges of all their products. I will push my coverage on soyhulls to 50% if they drop 10$/ton or if it looks like we are facing any weather delays during the spring planting period.

On a different note, I wanted to also just pass along a few things regarding our small feed business. As some of you may have seen, in addition to Uncle Mitch and his dump trailer, we have brought on Boomer with the black WW truck. They have both a dump trailer and a brand new belt trailer. We hope this allows us to serve you better and cover more points of origination to get the best prices on feed, in a timely manner.

Also, you may have noticed some changes in the way the invoices look. I have brought my sister, Molly Maloney, in on a part-time basis to help support this business. We are hoping for her to have a growing role in our crop and cattle farm, so please don’t be surprised if you hear from her from time to time. She will continue to work full time at her “real job” in Paducah, Kentucky. She currently works at a digital marketing agency (websites, graphic design, commercials, advertising, etc) as a project manager. She is making great improvements in the way we are doing the paperwork associated with this feed business, and we are glad to have her.

I don’t want to get too carried away with these write-ups. But I do want to pass along my thoughts. I want to sincerely thank you for sticking with us during this time of high feed costs. I want you to know that we are working really hard to improve and provide the best service and price we can on all feedstuffs. If there is anything you would like us to be working on, please don’t hesitate to call.

Thanks again,

Luke Maloney
618-599-6546