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North Mountain Ag Services

WEEKLY UPDATE FEBRUARY 28, 2014

NORTH MOUNTAIN AG SERVICES WEEKLY UPDATE

February 28, 2014

Agricultural News:

  • Corn prices slightly stronger
  • Soybean pricing and protein values
  • Cattle supplies- what does the short term look like?
  • Pork pricing, cash vs. cutout

Market Updates:

  • Corn basis across much of the eastern US has been strong this past week as grain producers inventory product in the face of futures prices that have been essentially flat.  It is our expectation that this will continue into early March as producers continue to make marketing decisions based on forecasted returns that were much higher than what the corn market is currently offering.
  • While reports of large South American soybean supplies continue, transportation remains a significant concern for product reaching the US.  Sugar continues to draw upon the limited resources to move bulk product in a timely manner.  With high protein values in numerous markets, prices are being buoyed by strong consumer demand.
  • This week’s USDA numbers indicate that there are 10.76 million cattle on feedlots, which was 1.2% higher than early estimates.  The live cattle futures market barely even noticed the report.  With packers paying historically high prices for slaughter animals, retailers and consumers are willingly paying higher prices. In the near term, it appears that the average consumer will continue to pay higher prices at the retail level, but the foodservice sector is not as clear.  With a very cold winter and lower revenue numbers, it is likely that many restaurants will be unable to change their published pricing.  The next question- will foodservice portion sizes get even smaller?
  • Dairy producers are continuing to enjoy extremely bullish milk prices.  The March 2014 contract has traded as high as $22.29 this week.  We are working with our clients on locking in a portion of spring and summer sales and taking advantage of the current margin that is available.
  • What causes lean hog futures to trade limit up?  PED speculation, robust cattle prices, fears of slaughter shortages, and consumers cooking pork at home during snow storms go a long way to support the market.  With loins trading at $1.12, bellies over $1.47, and hams over $0.84, producers can expect packers to bid aggressively on live market hogs.  With the gap closing between cash and futures earlier this week, expect the gap to continue to close.  This is an EXCELLENT time for hog producers to continue to hedge their summer production and begin hedging the fall.

 

Key risk management points:   We are recommending that hog producers have 50% of their summer production hedged with the June and July 2014 contracts at this time.  We are targeting $94 in the October contract as a starting point for hedging the fourth quarter.  We DO NOT recommend that producers 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 25% of PA corn basis feed needs for the second quarter at $0.29 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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