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