CIH Consulting

Dairy
Margins generally improved since the middle of October as milk prices recovered while feed costs have held relatively steady. 2012 margins remain about average from a historical perspective, though still projecting profitability for dairymen as of right now. As harvest wraps up across the Midwest, most producers are putting corn and soybeans into storage with the exception of those supplies pre-contracted earlier in the season to deliver at harvest time. Consequently, basis levels have been strengthening with minimal new-crop supply moving. Milk prices meanwhile although strengthening of late may be vulnerable to pressure. July milk deliveries in the EU were up 3% from a year ago, while shipments through the first seven months of the year are up 3.9 billion pounds or 2.2% from last year. Most of this production has gone to skim milk powder. Production also remains heavy out of both Argentina and New Zealand, with output up 14.7% and 12.7% respectively through the first seven months of the year. At the same time, demand from China has dropped significantly with WMP imports in the June-September period down 43% from a year ago. Our… Get the Complete Report »

Beef
Finishing margins deteriorated since the middle of October as cattle prices declined while feed costs held steady. This was especially true in nearby periods where live cattle remains the open variable in the margin equation, although in deferred periods where feeder cattle prices are open as well, weakness there helped to preserve margins. A main catalyst of the recent weakness was USDA’s October Cattle on Feed report, which showed cattle inventories much higher than market expectations. Cattle on feedlots with 1,000 head or more October 1 totaled 11.312 million head, up 4.9% from last year when the market was only expecting a 3.9% increase. Moreover, cattle placed on feed during September totaled 2.469 million head, essentially equal to September 2010 placements when the market was anticipating a 3.5% reduction from last year. While supplies are expected to tighten over next spring into summer, it appears beef production will continue to be close to last year as the market works through current supplies… Get the Complete Report »

Corn
Margins have gone sideways since the middle of October, as futures’ prices have traded in a choppy fashion. Price trends during the period have been quite volatile, as the market has gotten mixed inputs. Helping firm cash prices has been the slow pace of domestic harvest as compared to last year. Harvest was reported as 78% complete versus 90% last year, and 62% on a 10-year average. Also supporting price has been the pace of corn export sales. Currently, cumulative sales for the 2011-12 marketing year rest just above 50% of the current USDA forecast with 46 weeks remaining in the marketing year. This is the fastest the crop has reached the 50% sold mark in the last 20 years. However, export shipments for the marketing year are running approximately 25 million bushels behind the average pace. Shipments do, however, have a tendency to pick up in the next few weeks. Also keeping a lid on price has been the volatility and uncertainty with the currency markets. Late last week, the U.S. dollar was approximately 6.50% lower on the month, as it appeared as though the European sovereign crisis had been averted. Both nearby margins as well as deferred 2012 margins continue to maintain historically strong levels. Nearby margins… Get the Complete Report »

Soybean
Margins have declined moderately since the middle of October, as futures’ prices have fallen. Exports during the period have been substantial, as China has loaded out over 1.50 million metric tons for delivery. Some private forecasters are looking for China to import upwards of 58.50 to 60 million metric tons of soybeans this year. That compares to the current USDA estimate of 56.50 million tons. However, business sourced from the U.S. is projected to be slightly lower for this marketing year at 24.50 million tons versus 24.98 million tons last year. The increased import pace is understandable, as China’s crush industry is expected to reach 125 million metric tons by the end of 2012, up 12.50 million tons from last year. Domestically, harvest is nearly complete, with the latest reports showing 87% of the soybean crop harvested compared to 83% last year and 95% on a 10-year average. Currently, domestic crushers are having trouble producing hi-protein meal causing some Midwest basis values to rise, as the late summer heat stressed the crop and reduced protein content in the soybeans while increasing oil content to a historic high. Both nearby and deferred 2012 margins have lost ground recently, with nearby margins at the… Get the Complete Report »

Wheat
Margins have improved slightly since the middle of October, as firmer basis levels have accounted for most of the increase in margins. The domestic winter crop was reported to be 89% planted and 68% emerged, both around average for the last 10 years. Planting delays, however, are noted for the Eastern Belt, specifically for Ohio which is reported to be 67% planted versus 91% on a 10-year average. Initial crop conditions for the winter crop are near the lowest levels on record. Continued drought in the Southern Plains is harming the newly seeded winter crop. The entire crop is rated at 46% in good-to-excellent condition, matching last year’s record low reading, as the states of Kansas and Oklahoma have gotten off to a terrible start. Global wheat prices remain more competitively priced than U.S. offers, with Ukraine receiving the majority of the export business of late. Continued competition from the Black Sea region is expected, as prices remain below U.S. offers. Nearby margins continue to tread in negative territory, while deferred 2012 margins still present the opportunity to secure a slightly positive margin. Nearby… Get the Complete Report »

Dairy
With the exception of nearby Q4, dairy margins deteriorated over the past two weeks as feed costs have risen faster than milk prices. Forward margins remain only average at best, but are nonetheless positive throughout 2012. USDA released the October WASDE this week, reflecting increased corn ending stocks in the 2011/12 marketing year. All of that increase was due to higher beginning stocks carried in from the previous crop year, which was already known in the September 30 report. Yield was left unchanged to the surprise of analysts expecting an increase, and harvested area was revised lower in line with FSA data. Soybean ending stocks were trimmed as lower yield, production and beginning stocks more than offset a reduced export forecast. China meanwhile has been a big buyer this week of both corn and soybeans, signaling to the market they perceive value at current price levels. After beginning the month on a firm note, milk prices have come under pressure recently as softness has been noted in the international market. Fonterra reported that… Get the Complete Report »

Beef
Margins held pretty steady since the end of September, as increases to feed costs and feeders were larger in line with increased fat cattle prices. Beef finishing margins remain exceptionally strong from a historical standpoint in nearby periods through marketings against the April contract, and steadily deteriorate in forward periods. USDA released the October WASDE which increased corn ending stocks from the September report, although all of this increase was already reflected in the September 30 stocks data. To the surprise of analysts expecting an increase, USDA left the corn yield unchanged at 148.1 bushels per acre, and lowered both planted and harvested acres in line with FSA data. Cattle prices meanwhile remain very firm, and have advanced to new contract highs in deferred months. The October WASDE cited stronger than expected demand for beef in supporting higher forecasted cattle prices in the remainder of 2011 and through 2012. Meanwhile, the bullish tone for the cattle complex was strengthened by this week’s announcement that a free trade agreement has been reached with South Korea that could significantly boost U.S. beef exports to that country next year. Many of our clients have made or considered tactical adjustments to their margin strategies recently to take advantage of sharply lower corn prices to convert… Get the Complete Report »

Corn
Margins improved moderately since the beginning of October, as both basis and futures have rebounded. USDA recently reported an increase in ending stocks to 866 million bushels, putting the stocks to usage ratio at 6.8% versus 5.3% last month. The increase was due to larger beginning stocks based off of the September 30 grain stocks reported by NASS, as slower usage during the fourth quarter boosted carryover. NASS reported harvested area to be down 452,000 acres to 83.9 million acres, reducing production by 64 million bushels. On the demand side, USDA reduced exports by 50 million bushels citing higher expected Black Sea production and exports increasing competition. As of Sunday, October 9, U.S. farmers harvested 33% of the corn crop, well behind last year’s swift pace of 50% complete; however, in-line with the 10-year average of 32%. On the global front, production for China, Ukraine and the Former Soviet Union was each raised significantly, with China now expecting a record 182 million metric ton crop. Both nearby margins and deferred… Get the Complete Report »

Soybean
Margins improved moderately since the beginning of October, as both futures and basis have rebounded. USDA recently reported a reduction in ending stocks to 160 million bushels, lowering the stocks to usage ratio to 5.1% from 5.2% last month. NASS reduced harvested area by 147,000 acres, and also lowered yield by 0.3 bushels per acre to 41.5 for the national average. The smaller crop was slightly offset by a decrease in export expectations of 40 million bushels, as the USDA cited the current slow pace of exports sales and strong early season export competition from South America. As of Sunday, October 9, U.S. farmers harvested 51% of the soybean crop, compared to 63% completed last year and 48% on a 10-year average. Weather conditions in South America have normalized some over the last week; however, some dry conditions persist in Argentina. Both nearby and deferred… Get the Complete Report »

Wheat
Margins improved slightly since the beginning of October, as both futures prices and basis have strengthened. USDA recently reported an increase in ending stocks of 76 million bushels to 837 million, with major adjustments to the balance sheet. On the supply side, NASS reduced planted and harvested area by 800,000 and 200,000 acres respectively. NASS also lowered the national yield estimate by 1.3 bushels per acre to 43.9, ultimately reducing overall production by 69 million bushels. USDA cut total demand however by 134 million bushels, as feed use and exports were both lowered. USDA cited that despite competitive wheat prices relative to corn for livestock, feed and residual usage during the final quarter was well below last year and feed demand was cut by 80 million bushels. Exports were reduced 50 million bushels, as tighter spring wheat supplies domestically will limit the exportable surplus, while at the same time increased competition is noted from Canada, Australia and Russia. Nearby margins continue to tread in negative territory, while deferred 2012 margins still present the opportunity to secure a slightly positive margin. Nearby margins are at the 45th percentile, and deferred… Get the Complete Report »

Dairy
Margins generally improved since the middle of September, with the exception of nearby Q4 where a slight deterioration was noted. The main driver of improved profitability over the past two weeks was sharply lower feed costs led by a significant decline in corn futures. USDA released their quarterly grain stocks report that reflected September 1 corn stocks at 1.128 billion bushels, 166 million higher than the average trade forecast and outside of the range or pre-report expectations. The figure suggests significant demand rationing during the final quarter of the marketing year–particularly in feed and residual use–although this is somewhat dubious given livestock numbers. All the same, the corn market has declined about 27% in little over a month to the lowest levels since mid-March. Unfortunately, milk prices have likewise declined due to indications of slower demand in both… Get the Complete Report »

Beef
Margins were mixed since the middle of September, but generally showed improvement due to the ongoing sharp decline in corn costs. Profit margins for nearby marketing periods in particular improved significantly where feeder cattle costs are already fixed, but corn and live cattle prices remain variable. Corn has dropped precipitously while live cattle prices have increased over the past two weeks which has driven feeding margins well above the 90th percentile in the December, February and April marketing periods. USDA released their quarterly grain stocks report last Friday which pegged September 1 corn stocks at 1.128 billion bushels, 166 million above the average trade guess and outside the range of pre-report expectations. The bearish figure added momentum to what had already been a pattern of sharp liquidation driven by outside market factors. Meanwhile, USDA’s latest… Get the Complete Report »

Corn
Margins have deteriorated significantly since the middle of September, as futures’ prices have continued to decline. NASS recently reported final corn stocks for the 2010/2011 crop year to be 1.128 billion bushels, 166 million above the average estimate. This implies a much slower usage pace for the 4th quarter, as rising prices seem to have rationed demand. Domestically, harvest is underway, with the latest reports showing 15% of the crop has been harvested. Early harvest results show that early seeded crops have yielded better than crops planted in late-May and early June. South America has begun planting, and current weather forecasts are less-than-ideal, as dryness caused by the La Nina weather pattern continues to linger. Adding to the negative tone has been global economic uncertainty caused by the ongoing debt crisis. The U.S. dollar has appreciated by nearly 3.5% during the period, which has offset part of the advantage of lower prices to importers. Both nearby margins… Get the Complete Report »

Soybean
Margins have deteriorated significantly since the middle of September, as futures’ prices have continued to fall. NASS recently reported final soybean stocks for the 2010/2011 crop year to be 215 million bushels, 10 million bushels below the previous WASDE estimate but within the range of expectations. Domestically, harvest is underway, with the latest reports showing 5% of the crop has been harvested. As with other small grains, early seeded crops have shown better yield results; however, it is too early to know what the size of the crop will be. The trade will also continue to estimate any yield loss from the early frost in the Northern states. South America has begun planting, and current weather forecasts are less-than-ideal, as dryness caused by the La Nina weather pattern continues to linger. Adding to the negative tone has been global economic uncertainty… Get the Complete Report »

Wheat
Margins have fallen sharply since the beginning of September, as futures’ prices have continued to fall. NASS pegged the 2011 wheat crop at 2.008 billion bushels, down 68 million bushels from the August estimate. The largest decline came from the spring wheat crop which was reported to be 462.5 million bushels, down 59.5 million bushels from the August estimate. NASS also reduced total harvested acres by 200,000 due to adverse weather throughout the growing season. Winter wheat planting has gotten off to a slow start as well, with current progress at 26% planted versus a 10-year average of 37%. Adding to the negative tone has been global economic uncertainty caused by the ongoing debt crisis. The U.S. dollar has appreciated by nearly 3.5% during the period, which has offset part of the advantage of lower prices to importers. Both nearby as well as deferred 2012 margins… Get the Complete Report »

Dairy
Margins improved since the end of August, due mainly to a sharp decline in feed costs. Milk prices held relatively steady in nearby periods, although deferred milk futures in 2012 posted gains over the past two weeks, helping to support Q3 margins which we just began tracking in this report. 2012 margins are all at or below average levels from a historical basis, but are nonetheless positive. The sharp selloff in corn and soybean meal in particular seems to have accelerated since the release of USDA’s September WASDE report. To the surprise of analysts, soybean yields were increased when the market was expecting a decline. While the corn figures were in line with trade expectations, USDA noted a sharp reduction in demand and it does appear that higher prices may already be accomplishing this demand-rationing chore. Milk prices are holding steady, although further strength may be limited by signs of increased competition. Cheese exports slipped from peak levels earlier this year as U.S. cheese prices moved above Oceania prices for the first time since the fall of 2009. Many of our clients with current… Get the Complete Report »

Beef
Margins improved for all marketing periods over the past two weeks, due primarily to a sharp decline in corn costs. Feeder cattle prices actually gained on live cattle prices since the end of August, but this was more than made up by a significant drop in corn prices. USDA’s September WASDE reported corn yield in line with expectations at 148.1 bushels per acre, with production dropping 417 million bushels to 12.497 billion. As a result, demand was likewise cut sharply by 400 million bushels, with half of that coming from lower feed demand and the other half split between lower exports and ethanol usage. While there was nothing particularly bearish about the report, traders seem to be focusing on the demand side of the equation, and high prices already appear to be accomplishing this demand rationing chore. Beef prices remain supported by strong export demand, with July shipments recorded at 272.1 million pounds–up 33.3% from last year. Year-to-date beef exports are now 27% higher than 2010, with every major market showing increases with the exception of Mexico and… Get the Complete Report »

Corn
Margins deteriorated moderately since the beginning of September, as slightly stronger basis values did not keep pace with weakening futures prices. USDA reported ending stocks 42 million bushels below the August estimate at 672 million bushels–pipeline levels. NASS lowered the national yield estimate 4.9 bushels per acre to 148.1, as crop conditions continued to deteriorate into September. This resulted in a reduction in supply of 417 million bushels. USDA in turn reduced overall demand by 400 million bushels, cutting feed usage 200 million bushels, corn for ethanol usage by 100 million bushels and exports by 100 million bushels. As a result of the adjustments, the stocks-to-usage ratio continues to hover near all-time lows at 5.3%. On the global front, Argentina’s production was raised by 1 million metric tons, while Brazil’s production was raised by 4 million metric tons; making up for roughly half of what was lost domestically. U.S. corn faces competition from South… Get the Complete Report »

Soybean
Margins deteriorated significantly since the beginning of September, as futures prices have plunged nearly $1 from the recent highs. In the latest monthly WASDE, USDA raised ending stocks 10 million bushels to 165 million bushels. This resulted mainly from an increase in NASS’ national yield estimate by 0.4 bushels per acre to 41.8. USDA raised exports by 15 million bushels, making up for some of the production increase. As a result, the stocks-to-usage ratio rose to 5.2% from 4.9% in August. USDA adjusted soybean oil demand down this month. Usage for methyl ester production was raised by 100 million pounds due to the profitable margins; however, food usage was lowered a significant 400 million pounds. The soybean meal balance sheet was unchanged, as beginning stocks were raised and production was lowered, offsetting one another. On the global front, USDA made very few adjustments to the balance sheets. South America will continue to provide strong competition in the export market, as surpluses there continue to be priced competitively. Both nearby as well as deferred 2012 margins are at the 90th percentile, and continue… Get the Complete Report »

Wheat
Margins have fallen sharply since the beginning of September, as futures and basis values have both deteriorated precipitously. In the latest WASDE report, USDA raised ending stocks by 90 million bushels to 761 million bushels. This was a direct result of lower demand forecasts, particularly for exports. USDA reduced exports by 75 million bushels, citing larger supplies and exports for both Canada and the E.U. It was also reported that ending stocks of the higher quality wheat, Hard Red Winter and Hard Red Spring, rose from August which furthered the bearish momentum. By class, Hard Spring wheat continues to have the tightest balance sheet comparatively, although supplies remain adequate from a historical perspective. The global situation loosened a bit as well, as global production was estimated 6 million metric tons higher than last month, with only a modest increase in demand. The current global stocks-to-usage ratio is now 28.75%, on the higher end of the last 5 years. Nearby margins are now in the red at the 58th percentile. Deferred 2012 margins are slightly positive, at the 66th percentile. Some of our clients… Get the Complete Report »

Dairy
Margins deteriorated since the middle of August, as higher projected feed costs more than offset slightly higher milk prices in some periods. Generally speaking, forward margins remain favorable through year-end, but are below-average at breakeven or a slight loss through the first half of 2012. Following USDA’s August WASDE, weekly crop conditions have continued to deteriorate and many private analysts have reduced their yield and production estimates further for both the corn and soybean crops. The domestic livestock feed industry will be hit hard by lower feedgrain production, which will directly impact dairies already suffering from significantly reduced hay supplies and higher prices. Strong bids in the spot cheese market have helped to support Class III Milk futures recently, although softer international markets are weighing on the U.S. In addition, USDA’s Cold Storage report indicated a build in cheese stocks, with American Cheese supplies up 30.9 million pounds in July–the largest one-month increase in 7 years and… Get the Complete Report »

Beef
With the exception of far deferred periods against June and August marketings, beef production margins for feedlots deteriorated over the past two weeks primarily as a function of higher feed costs. While live cattle prices have declined since the middle of August, feeder cattle prices have also moved lower which helps to explain the slight margin improvement against the June and August marketing periods. Things remain pretty bleak however for the cattle industry as forward margins are projected to be negative against all but the April marketing period through the first half of 2012. Corn costs have crept higher due to expectations for lower production this season, with crop conditions continuing to decline since the beginning of August. Many private analysts have reduced their yield and production estimates below even the latest USDA forecast given the deterioration in both the Eastern and now Western Corn Belts. Beef prices have come under pressure with weaker consumer sentiment raising fears of a potential return to recession which would be particularly negative for demand heading into the holiday season. There is also… Get the Complete Report »

Corn
Margins have improved during the last half of August, as the futures market continued to move higher. The corn crop is maturing at a faster pace this year than anticipated, as many believed the late planting pace would push back harvest. Although harvest may end up being on time, and risks for killing freezes will diminish, yields continue to be the market’s focus. In a recent survey, the Pro Farmer Crop Tour put the national corn yield at 147.9 bushels per acre, 5.1 bushels per acre below the NASS survey results issued in the last WASDE report. The tour cited the hot July weather that affected the Illinois and Indiana crops adversely, with yields well below average. Test weights for those states were also estimated to come in on the low side. Crop conditions during the period have deteriorated, with the national crop estimated at 54% in good-to-excellent condition against a 5-year average of 58%. On the global front… Get the Complete Report »

Soybean
Margins have improved significantly since the middle of August, as the futures market has priced in deteriorating yields. Since NASS lowered their yield forecast in the August WASDE, nearby soybeans have rallied $1.70. August represents the time of year where soybean pods fill and yields are determined. Precipitation is important during this period as well as adequate soil moisture. August was hotter and drier than normal in a majority of regions. This has negatively impacted the crop, as the national rating at 57% good-to-excellent condition is on par with the 10-year average, but down significantly from the middle of July. The domestic crush continues to be slow amid ample meal stocks. Export sales and shipments are subdued, as China has remained largely absent from the U.S. export market for old-crop soybeans. New-crop export commitments are continuing to show up, but at a slower pace than last year… Get the Complete Report »

Wheat
Production margins improved somewhat since the middle of August, as stronger futures have overcome weaker basis levels. Spring wheat conditions have continued to deteriorate over the past two weeks, down 5% in the good-to-excellent category to 61%. There have also been indications of increased wheat feeding displacing corn in livestock rations, particularly in the Southeast. On the global front, Russia has continued to win global tenders, as their wheat prices are offered some $15-20 per metric ton below competing U.S. prices. Further, most wheat out of the Black Sea is priced lower than U.S. corn, and that has also put a cap on rallies. The world has ample wheat stocks at present, with the stocks to usage ratio at comfortable levels. Global weather is also favorable particularly for South America as well as Australia, so no production threats are on the horizon in the Southern Hemisphere. Nearby margins… Get the Complete Report »

Dairy
Margins deteriorated since the end of July, as milk prices declined while feed costs increased. While nearby Q3 margins are still near the 90th percentile of the past five years, deferred margins in the first half of 2012 are below-average and barely above breakeven. Following a surge in price to all-time highs, Class III milk futures have dropped significantly through the first half of August. Aggressive offers on barrels last week caused the September contract to drop by the exchange limit of 75 cents, and growing indications of weakness in outside markets following the last few Fonterra auctions as well as higher production in both Australia and New Zealand has put pressure on prices. Although export demand remains strong, there is growing concern over the possibility of a renewed global recession following the U.S. debt downgrade and the ongoing debt issues in the EU. Feed costs continue to surge with corn making new contract highs following the release of USDA’s August crop report, which forecast a sharp drop in projected… Get the Complete Report »

Beef
Margins improved over the past two weeks as cattle prices generally increased more than corn costs since the end of July. To be sure, the feed outlook does not look promising for fall cattle placements as USDA sharply reduced their projected corn yield in the August WASDE report. At 153 bushels per acre, the yield is forecast down 5.7 bushels from last month due to abnormally hot weather across the Corn Belt through the month of July, accompanied by below-normal precipitation. Acreage was also reduced in the re-survey that was conducted such that total production is forecast down 556 million bushels from last month. The adjustment takes the corn stocks/use ratio back down to a historically tight 5.4% for the new marketing year. Cattle prices remain supported by strong beef exports, with weekly data showing exports of fresh/frozen beef cuts up 44% from a year ago during the four full weeks of July. For the year, USDA forecasts… Get the Complete Report »

Corn
Margins have improved significantly since the beginning of August, as the futures market has continued to show strength. The corn crop dealt with extreme heat during July, when silking and pollination occurred. As of August 7, 93% of the corn crop had been through the silking phase of development which is the primary yield determining stage. As a result of the extreme weather, NASS reported a reduction in projected yield to 153.0 bushels per acre, down from 158.7 last month. The reduction in yield coupled with a reduction of 500,000 harvested acres puts the estimated domestic crop at 12.914 billion bushels. If realized, production would be the third largest on record; however, demand for the new crop is projected at 13.160 billion bushels –85 million bushels less than last year–and the second highest on record which produces a stocksto- usage ratio of only 5.4%. China has continued its effort to stymie food inflation by incentivizing its pork producers. As a result, corn and other feed ingredients shipped to China have continued at a steady pace from all origins. Both nearby as well as deferred 2012 margins are now at the highest observed… Get the Complete Report »

Soybean
Margins have deteriorated slightly since the beginning of August, as lower basis values have represented the majority of the decline. August represents the time of year where pods fill and yields are determined. The extreme heat in July has abated thus far in August; however, precipitation is important during this period as well as adequate soil moisture. A shift to a hot/dry weather pattern could have a negative impact on yields. Due to the wet spring and unfavorable July weather, NASS reduced domestic yields to 41.4 bushels per acre, down from 43.4 last month. In the recent monthly WASDE report, USDA adjusted projected 2011-12 exports and crush lower. The exports were lowered addressing increased competition from South America, namely Brazil, with larger production available for export. The domestic crush is projected to be the slowest since the 2003-04 crop year, as increased DDG usage in feed rations has kept meal supplies at higher levels. On the global front, China has allowed edible oil prices to rise by 5%, and Chinese crushers are again profitable on imported soybeans. Nearby margins are now back to the 85th percentile, and deferred… Get the Complete Report »

Wheat
Nearby wheat margins have increased moderately, while the deferred 2012 wheat margins have increased only slightly since the beginning of August, as weaker basis values have been more than offset by higher futures prices. In the recent monthly WASDE report, NASS reduced planted and harvested acreage, likely addressing abandonment from the Northern Plains spring wheat production region. The world balance sheet was the main focus of the August crop report, as large increases in world production and exports were reported. The FSU nations of Russia and Ukraine are forecast to export 58.21 million metric tons, 11 million tons higher than the previous month’s estimate and these supplies will compete directly with U.S. soft red wheat. USDA also noted that wheat is competitively priced relative to corn for feed use in both the U.S. as well as in world markets. Nearby margins are now back to the 65th percentile and deferred 2012 margins are now near the 73rd percentile. Some of our clients continue to consider protection strategies that… Get the Complete Report »

Dairy
Margins improved since the middle of July, particularly in the first half of 2012, where milk prices increased significantly over the past two weeks. While deferred margins remain only average from a historical perspective, they are nonetheless positive now even into Q2 2012. It appears optimism is growing that strong milk prices evident nearby will maintain at high levels as we move into next year. Manufacturers are reporting lower milk intake following the intense heat that has scorched the Central U.S. recently, while dairy product demand remains strong as back to school buying programs pick up. Feed costs remain high, and there is concern over hay availability for dairymen across the Plains due to ongoing drought in the region. There are also worries over corn and soybean crop conditions and yields due to the intense heat in the Midwest. USDA is currently gathering data for updated acreage and yield forecasts in the August crop report. With little margin for error on crop production this season, risk premium will likely stay in the market through the remainder of the summer until prospects are better known for both… Get the Complete Report »

Beef
Margins were mixed over the past two weeks—improving against the August and October marketing periods, but deteriorating against the December, February and April marketing periods. The June 2012 period witnessed a slight improvement also, with the projected loss narrowing from what was evident mid-July. Higher fat cattle prices were the reason for nearby margin improvement, with the cost side of the margin equation already determined. As feeder cattle prices have also begun to appreciate since the middle of July, deferred margins came under pressure as higher fat cattle prices did not compensate enough to cover the projected increase in costs. USDA reported July 1 Cattle on Feed up 3.8% from last year when the industry expected only a 2.7% increase. Producers placed 4.1% more cattle in feedlots compared to pre-report estimates anticipating a 6.6% decline in placements. In addition, the July 1 All Cattle Inventory report showed heifers held back for beef cow herd rebuilding declined 4.5% compared to a year ago, when the industry was expecting a 3.3% decline. USDA is currently resurveying acreage in the Dakotas, Minnesota… Get the Complete Report »

Corn
Margins have deteriorated slightly since the middle of July, as stronger basis values have been offset by weaker futures prices. The market has remained choppy over the last two weeks, as extreme weather concerns of hot and dry conditions have abated for now. This timeframe is associated with silking and pollination of the corn crop, the time of the year where yields are made. Adequate moisture is required during this period. Weather forecasts will continue to drive market prices, until better certainty of potential yields is known. On the global front, China has been dealing with food inflation for the entirety of 2011, and pork prices there continue to rise. At present, China is trying to establish long-term incentives for their pork producers to try and ramp up production. This in turn has increased China’s demand for corn, and they have turned to the export market, partly from the U.S., to replenish their reserves. Nearby margins are now back down to the 95th percentile, and deferred 2012 margins are at the 90th percentile. Our clients that… Get the Complete Report »

Soybean
Margins have have deteriorated moderately since the middle of July, as lower basis values and lower futures prices both contributed to the decline. Prices have tested the $14 area basis the November contract for the fourth time this year, and resistance continues to be found at that level. Domestic weather has played its yearly role of adding volatility to soybean prices. Soybeans will be entering the pod-filling phase shortly; the phase that will determine yields for the most part. Weekly crop conditions have continued to deteriorate as they do historically, and are now reported to be 62% in good-to-excellent condition versus 60% on a 10-year average. On the global front, China remains largely absent from the U.S. export market, as this tends to be a slower time for exports. China’s domestic pork prices are on the rise, and the People’s Republic is establishing long-term incentives to increase pork production. This in turn has helped turn the soybean crush margin back to a positive, as meal demand has been rising. Nearby margins are now back to the 87th percentile, and deferred 2012 margins are now at the 88th… Get the Complete Report »

Wheat
Margins have deteriorated slightly since the middle of July, as both the basis values and futures prices headed lower. Domestic U.S. wheat futures have seen significant liquidation since February, as world weather concerns have vanished. Weather in the U.S. growing regions has also turned for the better, as welcome precipitation has fallen across the Southern Plains. Russian wheat prices have increased but are still valued at a discount to all other origins. Ukraine will begin to harvest shortly which will continue to fill the world pipeline. An annual wheat crop quality tour which surveys the U.S. Northern Plains spring crop estimates yields at 39.5 bushels per acre, well below last year’s estimate of 43.1 bushels per acre. The trade will focus on the August WASDE report to see where NASS pegs domestic wheat yields. Nearby margins are now down to the 60th percentile and deferred 2012 margins are now near the 72nd percentile… Get the Complete Report »

Dairy
Margins were relatively flat over the past 2 weeks in nearby Q3 and Q4, as increasing milk prices and feed costs were largely offsetting. Margins deteriorated through the first half of 2012 however, as milk futures were steadier in deferred contracts against rising new-crop corn and meal futures. The strength in nearby milk futures continues to be supported by cheese prices which have traded above $2.00 in blocks for 29 straight days, the third longest stretch on record. Offers are beginning to pressure cash cheese however, and cheese production increased in May over April on a per-day basis for the first time since 2005. Also, prices softened in Fonterra’s recent Global Dairy Trade auction, with SMP prices averaging $3,704/ton, down 15% from the June 1 price and the lowest since January. Similar weakness was likewise noted in the WMP and AMF auctions. In addition, Rabobank is expecting a strong flush from Oceania this fall, which may further pressure dairy prices. Feed costs meanwhile continue to rise as risk premium has come back into both the corn and soybean meal markets. Recent heat moving through the Midwest is hitting the corn crop right at pollination while the July WASDE reduced soybean production due to lower acreage… Get the Complete Report »

Beef
Margins were mixed since the end of June — deteriorating against the August, October and December marketing periods, due to declining fat cattle values against rising corn costs, although strengthening in both the February and April marketing periods where declining feeder cattle prices on open positions there improved the overall crush margin. Cattle prices have begun to weaken after showing significant strength since the beginning of June. Beef cow slaughter has surged over the past two weeks due to the massive La Nina-inspired drought that has devastated the Southern Plains states of Oklahoma and Texas. The drought itself is affecting a broad area from Arizona in the West all the way through the Southeast and up the Mid-Atlantic to Maryland. Pasture conditions have declined significantly and the affected states represent almost half of the beef cow herd based on the January inventory report. Meanwhile, reduced hay availability and a recent increase in corn prices have spiked feed costs. USDA increased corn ending stocks in the July WASDE as expected, although the increase was much lower than analysts had forecast. In addition, very hot… Get the Complete Report »

Corn
Margins have improved since the beginning of July, as the futures market recovered nearly all of the price declines seen in June. The largest factor for the recovery was the monthly WASDE ending stocks figure. The USDA reported 2011/12 ending stocks up 175 million bushels to 870 million bushels, roughly 130 million below the pre-report estimate. Based off of the larger-than-expected June 1 corn stocks figure, the trade had expected feed/residual usage to be reported lower than the 5 billion bushel figure the USDA reported. It would appear as though the USDA is reluctant to reduce feed usage much below current figures given the profitability in the livestock sector. USDA raised total demand for the 2011/12 crop year to 13.5 billion bushels, 30 million bushels above projected production. This will continue to keep the focus on domestic weather, with trendline yields and large harvested acreage required to ensure adequate ending stocks. Extreme heat is forecasted for the coming week, which could put stress on pollinating plants with short soil moisture. On the global front, China has purchased large sums of U.S. corn and is rumored… Get the Complete Report »

Soybean
Margins have improved moderately since the beginning of July, as the futures market is now back to the May highs. Several factors contributed to the rise in price, namely the June 30 acreage report in which NASS reduced planted and harvested acres. USDA lowered its ending stock forecast for the 2011/12 crop year by 15 million bushels to 175 million bushels to account for the reduced acreage figure which lowered production 60 million bushels. Domestic usage continues to lag year-ago levels, and crush seasonally declines through the remainder of the crop year. Further aiding the price recovery was the reemergence of China on the U.S. export sales reports. Chinese pork producers are now seeing record profits, as the government has issued subsidies to producers. Meal prices there have rallied nearly $40 per metric ton since May. Chinese crush margins that were negative for the majority of this year, are now moderately positive. Nearby margins are back to the 92nd percentile, and deferred 2012 margins are now above… Get the Complete Report »

Wheat
Margins have improved since the beginning of July, as the futures market has seen gains. The main factor contributing to the rise in price was the reaction to the June 30 acreage report stating that planted acreage would be lower than initially intended. NASS will re-survey some states to confirm planted area and would report any discrepancy as early as the August WASDE report. Weather has also played a central role to price movement, as the southern plains continue to see extreme drought conditions. USDA lowered its ending stock forecast for the 2011/12 crop year by 17 million bushels to 670 million bushels. The export estimate was increased 100 million bushels to 1.15 billion bushels to account for increased sales projections due to the poor Canadian wheat conditions. This increase in demand was offset by larger carry-in stocks and larger projected production. On the global front, the expiration of the Russian ban on exports has yet to drum up much business to that region. Nearby margins are now back to the 64th percentile and deferred 2012 margins are now near the 74th percentile. Some of our clients continue to consider… Get the Complete Report »

Dairy
Margins were relatively flat over the past 2 weeks, although they did improve in nearby Q3 which is now approaching the 90th percentile of the past five years. While margins themselves were flat during the second half of June, prices were anything but. USDA released their revised acreage and quarterly stocks data yesterday, and both reports shocked the market. June 1 stocks of 3.67 billion bushels while down 15% from a year ago were 346 million bushels above the average trade guess as well above the range of expectations. Similarly, corn acreage at 92.3 million was not only above the average trade estimate of 90.8 million, but also higher than the March planting intentions figure of 92.2 million and also outside of the range of estimates. Corn prices plummeted in response to the data, with the market off 20% at one point today from the high earlier in June. Meal prices have likewise dropped since the middle of June due to continued poor domestic feed demand. Milk prices have held up well in nearby contracts, although weakness has been noted in deferred months, explaining the lack of margin improvement from Q4 forward. Milk… Get the Complete Report »

Beef
Margins were mixed over the past two weeks: improving in nearby marketing periods, holding steady against the February marketing period, but deteriorating further out in 2012. Cattle prices have rebounded since the middle of June which has helped producers with feeders already priced; and in particular, those with corn costs open as well. The corn market dropped sharply since the USDA released their revised acreage and quarterly stocks reports yesterday. Corn stocks on June 1 at 3.67 billion bushels were up 346 million from the average trade guess, and outside the range of pre-report trade expectations. Acreage was also a shock for the market at 92.3 million which was up 1.5 million from the average trade guess as well as higher than the range of estimates. The figure even exceeded the March planting intentions, which confounded analysts given the late planting and flooding issues producers endured this spring. Corn has dropped 60 cents in the past two days and at one point was down 20% from the high earlier in June. USDA’s… Get the Complete Report »

Corn
Margins have deteriorated broadly since the middle of June, as the futures market has sunk over the past week. The largest factor for the decrease in prices was the release of the NASS reports for planted acres and quarterly stocks. NASS reported planted acres at 92.3 million, up 1.6 million acres from their estimate in the June WASDE report. Harvested acres were also increased to 84.9 million. Both figures were well above the high end of estimates. NASS also reported quarterly stocks in all positions to be 3.67 billion bushels, also above the high end of estimates. This figure measures Q3 disappearance and implies the lowest feed/residual usage for that period over the last 30 years. Given the known demand from exports and ethanol, feed/residual usage fell by 44% year over year for March/April/May. Going forward, the market will continue pricing in potential yield losses due to the poor start and flooded areas, as well as several intended acres that entered into the preventative planting program. On the global front, China continues to be rumored as buyers of U.S. corn on this most recent break in prices. Nearby… Get the Complete Report »

Soybean
Margins weakened considerably since the middle of June, as the futures market has fallen back to the lows seen in May. NASS reported planted acres at 75.2 million acres, down 1.4 million acres from the March planting intention report. Harvest acres were also revised lower to 74.3 million. Both figures were below the low end of estimates. NASS also reported quarterly stocks in all positions at 619 million bushels as of June 1. The figure represents a 3-year high level for soybean stocks heading into the 4th quarter of the marketing year, and is also nearly 50 million bushels larger than year-ago levels. Exports through the period have continued to be sluggish. Chinese officials have raised the price cap for edible oils, and crush margins are slowly turning positive. Domestic weather will have the most influence to price for the remainder of the growing season, as yields will be determined in August during the pod filling stage… Get the Complete Report »

Wheat
Margins have deteriorated virtually every day since the middle of June. Several factors contributed to the decline, namely the announcement that Russia was returning to the export market beginning in July. Domestic Russian wheat prices were at large discounts to international wheat values, and although very little business has been transacted, world prices have retraced to address the additional supply. Further adding to price pressure has been the easing of concerns over European weather issues. Timely rains have fallen and have improved crop conditions for now. NASS reported all wheat planted acres at 56.4 million, down 1.6 million acres from the March planting intentions report. The estimate was in-line with pre-report expectations. NASS will re-survey some states to confirm planted area and would report any discrepancy as early as the August WASDE report. Nearby margins are now at the 51st percentile, near the lowest… Get the Complete Report »