Hi Folks,

Another month is in the books. Overall, our interpretation of the local market this month is fewer cattle on feed, improving pasture conditions, and slightly lower feed demand. After some early month softness in the feeder cattle market, we have seen prices mostly recover… though demand for 7-8 weight cattle does continue to be mixed, as larger feed yards struggle to make sense of the expected fat cattle market for the 3rd and 4th quarter of this year. Light calf prices continue to be mostly steady for the month, on seemingly higher volume than what we saw in March.

Corn and Corn By-products

Despite a trading range of 10 cents above, and 10 cents below; spot corn futures closed the month nearly exactly the same place where we were the beginning of April. Planting progress, across the USA, is catching up with a more normal pace after lagging behind for several weeks. The most recent crop conditions report, put the nations corn crop at 39% planted vs a 5 year average of 44%. With the past week’s weather mostly being favorable for planting, it is mostly assumed that we will catch up with the 5-year planting pace. At this point, production estimates are for less corn supply this year on fewer acres planted. Given the strong demand around the world, and globally shrinking corn stocks… we hold onto our expectations that there is risk that corn price goes up 5-10% throughout the growing season until the size of the American crop is more certain.

In our region, the market for dried distillers grains and corn gluten feed pellets is very firm for a variety of reasons. Strong export demand, coupled with some regional plant malfunctions have kept a strong bid under the market for dried products. We see ddg trading 180-205 fob eastern corn belt plants. We see corn gluten feed pellets trading as high as 160 for prompt ship fob plant, and 145-150 for clock contracts through September.

You will most likely not be seeing much decline in wet feed prices on this months bill, but lower prices are coming. We traded wet distillers grains down 5$ per ton near month end, and as we have come into May, we have seen the market trade down another 5$/ton. Overall, quality is improving. Dry matter contents are mostly going up as warmer temperatures cause evaporation on outdoor stored feeds. We have attempted to negotiate longer-term wet feed contracts, but so far have been unsuccessful at values we think could work into our feedlot budgets. We will keep working on that, as we believe locking in prices on a portion of our yearly feed needs is warranted.

Soybean Products

Soy crushers are enjoying favorable margins and a strong incentive to run at max capacity. In fact, as I write this, one of our regional soybean processing plants is completing a 20% expansion, that should come online the 3rd week of May. Soybean meal demand is very good, and product is moving very well into the export and domestic markets. Logistics are no issue, and soybeans are plentiful to crush. We have seen the market for soybean hull pellets seemingly find a near term bottom… with contracted loads, at times, difficult to get. Our regional soybean processors have loaded a few barges of soyhull pellets, which has taken a lot of pressure off the domestic market. Currently, spot soyhulls are trading in the neighborhood of 120/ton fob plant for prompt ship. Some jun-sep was traded early in the month at 115, but mostly offers have gone up to the 120/ton area as processors have found themselves with a good amount of sales already on the books. I continue to compare this with 4.00 July corn (143/ton) and 4.20 Dec corn (150/ton), which means soyhulls are trading at around 80% of corn value fob plant. The cheapest I have ever purchased soyhulls is 65% of corn price, which would be 95$/ton given today’s corn market. With the barge demand for soyhulls to be exported as well as transferred to western domestic markets, I do not anticipate soyhull pellets trading that low % of corn price this year. We have secured around 75% of our feedlots soyhull needs for the remainder of 2018. This leaves us a little room to buy some quick ship pellets if a good opportunity presents itself.

Outlook

Prices of wet feeds this time of year can get very volatile, depending on how well the ethanol plants run. Given the seasonally soft local demand, and shorter shelf life due to summer temperatures… it would be easy to make the case for lower prices given any sort of drier malfunctions. Please do note though, the ethanol plants have a huge incentive to sell all their product as dry feed, as it is commanding a large premium to wet distillers. We do not want to find ourselves in the situation of having to get the ethanol plants to make wet feed for us, as they will compare the value to ddg and ask 60-70$/ton. My strategy has been to extend wet distillers coverage 2-3 weeks at a time as opportunities present themselves.

We think the feeder cattle market is currently trading on the low end of its range, with August futures at 144. Given current cost of gain forecasts, these cattle mostly breakeven at 110-115cwt going out as fats in the sep/oct/nov time frame. I think many commercial feedlot managers see value in owning a breakeven in that range, given expectations for declining cattle on feed as we move through the summer. It may take a while, but I look for improving feeder cattle prices as we go through 2018. We are holding onto our summer production and will wait until closer to time of delivery to establish prices.

Thank you for doing business with us! If there is anything we can work on for you, please reach out to us, now that we are done with corn and soybean planting, we can redirect our focus back to feed origination.

Luke Maloney
618-599-6546

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

Corn and Corn By-Products

This month, distillers and gluten products have continued to be well supported by the slow arrival of spring. Strong exports are keeping stout bids under the markets for dry products… which is spilling over into the trade for wet products. Overall, when I compare our wet purchases for the month of March, to the month of Feb, wet prices have come down 20+%/ton. However, when you consider the overall mediocre quality of all wet products this rainy month, the cost on a dry matter basis has probably not improved as significantly. We are entering the time of year, where corn processors enjoy seasonally improving margins. Plentiful Corn supplies are keeping processors looking to run at capacity. We look for another 10-20% decline in the wet market over the coming month of April, hopefully, with the better spring-like weather we will see quality improve as well.

I continue to be bullish corn price as we move deeper into spring. World corn stocks are being drawn down by healthy demand. The USDA has put its first forecast on expected US corn acres for the 2018 crop at 89 million acres… which is 2 million acres less than last year. Crop producers, on average, are liking their prospects with soybeans better this year than corn. If we face any sort of planting delays, when seasonally strong corn exports kick in, the market could take a very firm tone. The corn market has a job to do, in order to secure enough corn acres. I think that means a new crop bid 20+ cents higher than it is now. More volatility is coming in corn. The US is sitting on a good supply of exportable corn, and the world will be looking to us to meet expanding demand.

Soy

Last month, we talked about how US soybean crushers were enjoying excellent margins. This continues to be the case and has even improved. Initially, US crush margins were improved by drought situation in Argentina (a major crusher and exporter of soymeal in the world). This drought pushed world soymeal demand to the US.

Now, with recent announcements regarding trade negotiations with China (the worlds major importer of hi protein oilseed meals) margins have improved even more. It appears the Chinese have proposed to place an import tariff on American soybeans. The Chinese excluded the tariff on soymeal, however. This means Chinese soy crushers, are now faced with increased bean cost but enjoy no price supporting measures on the products they produce. This sent forward crushing margins soaring for US soy processors. Look for our local crushers to run as strong as ever for the remainder of this year.
With the given motivations for the crushing industry to run at such a high grind, I would normally be inclined to expect the soyhull pellets to drop in price coming into mid-spring. In fact, we have seen prices drop a significant amount already… at least a 25% off the top of the spot market. The soyhull market is finding support by a more active barge and rail market that is attempting to relocate fiber to drought-affected regions of the US. There has been some chatter of possible export demand kicking around as well. I continue to add to ownership of soyhull pellets for the Jul-Dec 18 time frame. I believe the values make sense on a cost of gain basis as well as a % of corn comparison. When I look forward to the next 30 days, I believe we see spot soyhull loads trading down another 10%… when I look at the multiple month clock type soyhull offers being shown for may-dec I think at most we could see another 10$/ton to come off the market. I think we are near a bottom. Hay supplies are also shrinking nationwide, which will lend to stronger than normal soyhull pricing.

Cattle

It has been a tough month to be a seller of yearling type cattle. The live cattle market has come under significant pressure as we approach increasing seasonal supplies from fall placed calf fed beef. Managed money, has a tendency to pile in and out of livestock markets and this month they were piling in on the short side pushing prices down 10% on fed cattle, 8.5% of feeder cattle, and a massive 23.5% on hogs. Price declines were possibly exaggerated by ongoing negotiations between US and China regarding trading terms.

Relief is around the corner it would seem. Strong domestic beef demand will come to the market as spring does finally break. The Japanese (one of the worlds most significant importers of beef) have significantly reduced an import tariff they had placed on US beef last year. This import tariff was a countermeasure, driven by the expectation for the US to play a growing role in their beef supply chain as Australia struggled to recover from a herd reducing drought. Many feedlot managers see value in owning the breakevens associated with where feeder cattle are currently priced. Especially 7 and 8 wt cattle for July and Aug. We are in the same camp and are actively adding to our cattle ownership.

Comments

We would like to make note of a few changes. 1. We are improving our accounting system, so if you would like a recap of what you have on contract or estimate monthly feed costs we can help you with that now at a much quicker pace than before. 2. We have added an additional semi and livestock trailer to our fleet to be able to transport cattle. We are about midway through the licensing process so I expect us to be up and running inside of a month. If we can be a help to you in that part of this business, please reach out to us.

Thank you so much for your business. We look forward to serving you into the future.

Luke Maloney
618-599-6546