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North Mountain Ag Services



April 2, 2014

Agricultural News:

  • Corn prospective plantings lower than expected
  • Soybean pricing and the global picture
  • Dairy prices and farm income
  • Pork prices, will they ever soften?

Market Updates:

  • This week’s USDA report was bullish for corn futures, with the prospect plantings forecast at 91.7 million acres, which would represent a 4% reduction from 2013.  With corn stocks running close to 30% higher than last year, grain farmers continue to hold on to last year’s crop.  Futures traders have been reluctant to enter into the market, and trading volume is much lighter than last year at this time.
  • Soybeans were a different story in the USDA Prospective Plantings Report.  The forecast is for plantings to increase over 6% from last year.  With soy and protein prices remaining firm this month, speculators in the market expect to see potentially higher planting numbers, which may temper some of the bullish trading the market has experienced over the past year.  From a global perspective, transportation remains a difficult issue.  Barge allocations continue to be very tight for product from South America.
  • With milk futures trading higher than $20 through the summer, dairy producers continue to recover from the losses realized in 2011 and 2012.  There is reason to be optimistic for dairy farm income with 2014 input costs being very manageable with current profitability available in the market.  This spring is an excellent time for producers to forward price their product and commit to purchasing feedstuffs prior to the seasonal volatility that could occur in the grain and hay markets this summer.
  • It is easy to wonder if lean hog prices will ever soften.  Cash hog bids over the past two weeks have consistently traded to meet and exceed futures values.  With packers continuing to remain profitable based on availability of product and the corresponding primal values, there is no reason to believe prices will fall apart in the near term.  However, it is important to observe the spreads in the market and note that April lean hogs and June lean hogs are trading together.  This is a historical sign that traders believe the market is over-bought and are hesitant to take larger long (purchase) positions.  In addition, volume in the deferred futures contracts is light relative to summer contracts.  This week’s Hog and Pigs Report did not reflect the reduction in hog availability that many expected with the widespread health issues in the industry.  While this week’s report should have encouraged selling in the market, the strength this week raises the question of whether or not traders have put much faith in USDA’s numbers.


Key risk management points:   We are recommending that hog producers have 75% of their summer production hedged with the June and July 2014 contracts at this time.  We are targeting $102-$105 in the October contract as a point for continuing to hedge the fourth quarter.  We continue to strongly recommend that producers do not stay open to the market with their hogs.  The margin available when current input costs are considered is very attractive from a historical perspective.  We have issued a recommendation for livestock producers to cover 35% of PA corn basis feed needs for the second quarter at $0.23 over the CBOT.  We do not recommend adding to soybean meal coverage this time.  As always, please call for specific targets and recommendations.

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