Suit filed on behalf of cattle-feeding ranchers

Scott+Scott Attorneys at Law LLP (“Scott+Scott”), a national antitrust and securities litigation firm, along with Cafferty Clobes Meriwether & Sprengel LLP (“Cafferty Clobes”), have filed a class action lawsuit in federal district court in Chicago on behalf of R-CALF USA and four cattle-feeding ranchers from Iowa, Nebraska, Kansas, and Wyoming.

The suit alleges the nation’s four largest beef packers violated U.S. antitrust laws, the Packers and Stockyards Act, and the Commodity Exchange Act by unlawfully depressing the prices paid to American ranchers. The complaint was filed against Tyson Foods, Inc., JBS S.A., Cargill, Inc., and National Beef Packing Company, LLC, and certain of their affiliates (the “Big 4”), who collectively purchase and process over 80 percent of the U.S.’s fed cattle-that is, cattle raised specifically for beef production-annually.

It alleges that from at least January 1, 2015 through the present, the Big 4 packers conspired to depress the price of fed cattle they purchased from American ranchers, thereby inflating their own margins and profits.

Increase seen in non-real estate ag loans

According to the new Federal Reserve Bank of Kansas City report on agricultural finances, the volume of non-real estate loans increased nine percent from a year ago. The volume of farm operating loans remained relatively steady, but there was more financing for livestock and machinery. The Fed report says smaller banks have increased loan participation and Farm Service Agency loan guarantees. Delinquency rates on all types of farm loans at commercial banks increased slightly from one year ago, but remain low from a historical perspective. Farmland values remain relatively stable.

Corn analysis

Corn closed the week $.05 1/2 lower. Last week, private exporters did not announce any export sales.

U.S. corn exports, for the week ended 4/18/19, were very strong at 53.3 million bushels, rising from the previous week’s 46.6 million bushels and were the highest in 28 weeks going back to the first week of October.

Weekly exports will need to average nearly 38 million bushels/week through the end of August to reach the recently lowered USDA forecast of 2.300 bb for the 2018/19 marketing year.

Nationally, U.S. corn planting progress reached 6 percent complete versus 7 percent expected, 3 percent last week, 5 percent last year and 12 percent average.

Key states of Iowa and Illinois are only 4 percent and 1 percent complete respectively.

In the month of May, U.S. producers should finish planting the 2019 corn crop by the middle of the month and weather will then be 95 percent of the pricing influence. If weather is warm with ample moisture, prices will retreat into the end of the month. However, if weather becomes hot and dry, prices will have no choice but to trade higher in an attempt to ration U.S. ending stocks this spring.

The other wildcard is if China becomes a buyer of U.S. corn. If the Chinese persistently buy U.S. corn, the short funds will no doubt be aggressively covering their positions. The month of May is too early to make annual highs if weather conditions are adverse as prices should peak during the June through August growing season. With the uncertainty of the upcoming growing season, funds and commercials should look to buy weakness ahead of the key pollination timeframe in late June, just in case weather conditions become adverse.

Strategy and outlook

Producers should use options to re-own and manage risk. Weather related rallies are selling opportunities.

Soybeans analysis

Soybeans closed the week $.27 1/2 lower. Last week, private exporters did not announce any export sales.

U.S. soybean exports last week were just 14.0 million bushels, declining from the previous week’s 17.5 million bushels, falling below last year’s same-week exports of 17.4 million bushels. Additionally, last week’s exports were a 2018/19 marketing year low and were sharply below the roughly 33-34 million bushels/week estimated they will need to average through the end of August to reach the USDA’s 1.875 billion bushel export projection.

U.S. soybean planting is only 1 percent complete nationwide versus 2 percent expected, 2 percentlast year and 2 percent nationwide average.

The month of May is when U.S. producers begin to aggressively seed the 2019 soybean crop. Weather will become the number one pricing influence once 30 percent to 50 percent of the crop has been planted. Prices will become very sensitive to weather issues during the summer as speculative shorts will look to cover aggressively if weather problems develop. As a result, the commodity funds and commercial entities will use weakness in prices during the planting season to buy September and November futures in anticipation of weather premiums being added as planting progress reaches the 50 percent pace.

Strategy and outlook

Producers should use options to re-own and manage risk. Weather related rallies are selling opportunities.

This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solution’s Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such.

Brian Hoops can be reached at (605) 660-1155.