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North Mountain Ag Services

WEEKLY UPDATE JULY 28, 2014

NORTH MOUNTAIN AG SERVICES WEEKLY UPDATE

July 28, 2014

Agricultural News:

  • Corn crop looks promising
  • Soybean crop progress and supply
  • Dairy profitability
  • Pork prices and demand expectations

Market Updates:

  • USDA is rating 76% of the US corn crop as being “Good to Excellent”. At this time last year, only 67% of the crop was ranked at this level. For livestock producers, this is welcome news that offers optimism for continued profitability through the first quarter of 2015. With the potential for prices to further weaken at harvest, grain producers are wise to consider covering a portion of their crop.
  • As early concerns over US moisture have leveled off in the trading pit, the soy complex continues to show signs of softening. Barge availability has increased over the past two weeks for shipments of soybean meal from South America. Alternative protein supplies, while tight, have not proven to be as tight as some reports indicated. As a result, pressure from global demand has not been strong enough for speculative buyers to risk moving the futures market higher in the near term. The big question for soybean meal will be animal feed usage expectations for the fourth quarter of 2014. If broiler and hog production are both higher, history tells us that the December 2014 soybean meal contract may continue to trade in its current range. For new crop beans, we are recommending that producers cover their pricing risk with put options. Despite strong demand from China, world stocks will be higher in 2015 and the market will be impacted by supply.
  • For everyone who lost money milking cows in 2011 and 2012, the brighter days continue to brighten. With milk futures currently trading at $21.52, the opportunity to lock in profitable sales remains through December 2014. Cheese and butter demand is firm, despite increased US production over the past six months. Overall milk processing numbers are strong, with primary processors continuing to report strong seasonal volume.
  • This past week’s bearish movement across the lean hog contracts was a reaction to frozen stock inventory numbers being larger than what some analysts expected. While this was a report-specific movement, there a number of items to keep in mind when protecting nearby hog production. Lean hog futures trading volume points to traders’ expectations that fourth quarter 2014 values will level off. Upon trading in the area of $105, lean hog prices have continued to stall and trade in a “topping” pattern. While feed costs are softening with lower regional corn basis levels and new crop wheat, it will be critical for pay attention to market hog numbers in November and December. While higher carcass weights are currently keeping marketable pounds at levels above expectations, the real test for the market will be the number of live hogs being sold during the last two months of the year.

 

  • Key risk management points:   It is our recommendation that our grain clients have 25% of their corn and bean production covered by the end of this month. Hog production should now be 100% covered through September, with production during the months of October through December being at least 50% covered. We are continuing to recommend that our hog clients sell the December contract with a layered approach from $101 to $106. Profit margins are at historical highs right now in healthy herds, and now is the time to capitalize on available margin. We do not recommend adding to soybean meal coverage this time. As always, please call for specific targets and recommendations.

 

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