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