CI April 7, 2017

HELLO WORLD

Welcome to the first edition of Commodity Insider. We are committed to keeping you informed on things that are important to agriculture on both the supply and demand side. If you're a farmer, our hat is off to you - it's a tough business, full of risk and uncertainty. We'd like to help you make better decisions on how you manage and sell your crops and livestock. If you're one of the millions that service the ag industry or make money trading in it, welcome also. Our goal is to give you perspectives and insights which you may not get elsewhere. If you like what you see here, please subscribe and tell others about it. We also welcome feedback. Please email us if you have some local insight which others may benefit from.

crop outlook

Compared to 2016, US producers are planning to plant:

  • 4% less corn 
  • 7% more soybeans - now almost equal to total corn acres
  • 8% less wheat - lowest acreage since records 

US Acres Planted

Total planted (in ,000 acres) 2015, 2016; est. 2017 . Source: USDA/NASS

KEY FACTORS IMPACTING FORWARD PRICING

  • Delayed planting - excess moisture (see chart below) could delay access to fields, particularly in areas which get large shots of rain over the coming weeks.
  • Weather events elsewhere - excessive rain in

 

Livestock outlook

Not looking pretty for either cattle or hogs heading into the fall, taking current projected crush margins (futures market price less cost of animal, corn, and - for hogs - soybean meal). 

US Feeder Cattle

Forward 12 months profit/losses for cattle marketed ($/head). Source: Iowa State Univ.

US Wean-Finish Pigs

Forward 12 months profits/losses for pigs marketed ($/head) Source: Iowa State Univ.

KEY FACTORS IMPACTING FORWARD LIVESTOCK PROFITABILITY

  • Hog packing capacity is set to increase substantially over coming months with new plants coming on line in Sioux City, IA (Seaboard); Coldwater, MI (Clemens); and Eagle Grove, IA (Prestage). Each plant represents around $250MM investment and will be built with latest processing efficiencies. At this point owners of existing older, less-efficient plants are not planning to go away. Apparently they've crunched the numbers and figure there's enough pigs and enough margin to stay in the fray. One thing's certain: packer margins will get a lot slimmer and producer margins will only improve as packers chase pigs.  
  • Trade policy is wild card with uncertainty around how much the Trump administration will come down on the side of ag in negotiations with China, Canada, Mexico, and other big trading partners. This will be a significant test for the ag lobbyists. 

broiler weights

Broiler integrators are dealing with the woody breast issue by lowering slaughter weights. Average slaughter weights in the US this year are down from 6.38 lbs in January to 6.04 lbs in March - over 5% lower. That adds up to a lot of extra chicken meat that the big integrators haven't been able to sell to offset their overhead. The US Poultry & Egg Assn. has funded research to understand the root cause of woody breast, but it may take a while to get results. Meantime, a Norwegian outfit TOMRA has come up with a way to detect woody breast on a processing line using its QVision meat analyzing technology. But that only tackles the problem on the downstream side. The industry really needs to figure out how to prevent it occurring in the first place. Until then, expect chicken weights to stay down.

international deals

  • Ethiopia's Verde Beef Processing has secured $7.5MM in funding to help it build an export-focused beef operation. The plan is to export up to 130,000 carcasses/year from their 1,300 Ha feedlot. Says a lot about the continued high value of beef globally.
  • According to Bloomberg, US private equity giant KKR is making a bet on protein in SE Asia by investing $250MM in Vietnam's Masan Group, which includes a 7.5% stake in the Masan Nutri-Science meat production division. Masan paid $45MM for a 230,000-head pig operation last year and owns around a quarter of the state-owned Vietnam Meat Industries, the country’s largest meat packer. It plans to represent half of Vietnam’s animal feed market and 5 percent of the country’s meat market by 2020 with revenue of $4 billion and net profit of $650 million. 

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