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Dykhuis Farms

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Hog
Margins continued to weaken over the second half of July as feed costs moved steadily higher while hog prices failed to keep pace. One exception to that trend though has been in far deferred periods of 2013, where traders may be anticipating a more significant herd reduction due to the likelihood that sharply higher feed costs will stick in the new crop year. Forward margins remain at or below the 10th percentile through Q1 2013, and only about average from a historical perspective beyond that. Crop conditions have been declining all summer, and now both corn and soybean condition rating indices are below 1988 for this point in the season. Analysts expect USDA to make another significant cut to their yield and production forecasts in the August WASDE report, with corn below 130 bushels per acre and soybeans under 40. Rainfall may still help to preserve soybean yield potential, and the next two weeks are seen as critical with the crop now moving through its pod-setting stage of development. The hog market has been weak… Get the Complete Report »

Dairy
With the exception of Q2 2013, margins deteriorated since the middle of July mainly due to soaring feed costs, although weakness in milk has also contributed to lower margins in nearby Q3 which are now negative and near the 10th percentile on a historical basis. Nearby margins remain under pressure as soaring feed costs due to the worsening drought are juxtaposed against softening milk and dairy product prices. USDA’s latest Cold Storage report showed American Cheese stocks at the end of June totaled 629.9 million pounds, up 9.9 million from May and 10.7 million above last year. The June stocks figure also represented a new 10-year high. At the same time U.S. stocks are growing, world dairy product prices remain soft and are weighing on U.S. values. This pressure can be seen in recent softness of August Class III futures, although strength in deferred contracts has also been noted recently. Through the middle of July, dairy cow slaughter is running 9.8% ahead of the same period last year while weekly… Get the Complete Report »

Beef
Beef margins improved slightly since the middle of July, but remain extremely depressed in nearby marketing periods through the end of the year. By contrast, margins are now quite strong in early 2013 marketing periods, existing at the 80th to 90th percentile from a historical basis in February and April. A sharp drop in feeder cattle prices since the middle of June in response to soaring feed costs has gone a long way to restore forward beef cattle finishing margins where all three variables remain open. Feed costs remain the biggest concern for cattle finishers as this summer’s historic drought continues. Crop condition indices for both corn and soybeans are now below 1988 for this point in the season, and the market expects a sharp drop in yield and production forecasts to be revealed by USDA’s August WASDE. USDA released their semi-annual cattle inventory data along with the monthly Cattle on Feed report, which portend future reductions in beef production. Total cattle inventory on July 1 was pegged at 97.8 million head, down 2.2% from last year and 0.8% lower than the average trade guess. Of that total, 12.3 million head represented cattle on feed, only 0.8% higher than last year but almost 2% below… Get the Complete Report »

Corn
Nearby corn margins have increased sharply, particularly for nearby margins as both futures’ prices and basis levels have risen. Crop conditions continued to deteriorate throughout the remainder of July as hot and dry conditions continued to plague the crop. Rainfall was near-zero during pollination with many areas receiving only spotty coverage. Crop conditions were recently reported to be 24% in good to excellent condition, down from 77% to begin the growing season. Worse yet, 48% of the crop is in poor to very poor condition, matching the drought stricken 1988 crop conditions for that category. With deteriorating conditions, private forecasters have lowered yield and total production forecasts dramatically. Yield forecasts range from 122 bushels per acre to 130.8, well below the current USDA forecast of 146 bushels per acre. Total production forecasts range from 11.2 billion bushels to 11.8 billion bushels, also well below the current USDA forecast of 12.97 billion bushels. The drought has no doubt… Get the Complete Report »

Soybean
Nearby soybean margins have moved higher while deferred 2013 margins lost value from the middle of July as the drought-stricken crop has supported nearby prices, while the prospects for record large South American supplies in 2013 have kept those prices somewhat at bay. Crop conditions continued to deteriorate throughout July as the lack of rainfall and record temperatures has stressed the crop. As a result, crop condition ratings recently show that 29% of the crop is in good to excellent condition, down from 65% to begin the growing season. As conditions continued to deteriorate, private forecasters have lowered yield projections and total production. Currently, forecasters estimate yields ranging from 35.7 bushels per acre to 39.5 bushels per acre compared to USDA’s current estimate of 40.5 bushels per acre. Total production estimates have also been lowered, ranging from 2.7 billion bushels to 2.9 billion bushels versus the USDA’s estimate of 3.05 billion bushels. Aiding margins further has been the record pace of export sales for delivery in the new crop year. Exporters have sold… Get the Complete Report »

Wheat
Nearby wheat margins have risen over the last two weeks while deferred 2013 margins have lost some ground. Weather has been the main fundamental concern for the marketplace. The Southern Plains continue to see searing temperatures and drought conditions, stressing the crop. Harvest in the Northern Plains has come along as the lack of rain has allowed progress to continue. Currently, 28% of the crop has been harvested, with initial yield results showing up near trend. Domestically, wheat has moved higher with corn prices, as substitution as a feed ingredient is still somewhat viable. On the global front, weather too remains the major concern particularly in Russia. The Russian government recently estimated the wheat crop to be 45 million metric tons, 4 million tons lower than the current USDA estimate. Yields have been reported to be down 28% year over year as severe drought damaged the crop. The slack in supply has shown up in Russian flour prices which are up nearly 30% just in the… Get the Complete Report »

Hog
Margins deteriorated sharply over the past two weeks primarily due to soaring feed costs. Margins would actually have been even worse if not for a late month recovery in hog prices, particularly in nearby contracts. Projected hog finishing margins are now well below average as well as negative in both Q4 and Q1 following readings near or above the 90th percentile earlier this year. A searing heat wave accompanied by drought has dimmed what earlier were bright hopes for this season’s corn and soybean crops especially in the Eastern Corn Belt. Crop conditions have declined steadily over the past few weeks and are now record low for this point in the growing season. USDA released their June acreage and quarterly stocks reports this morning, which pegged June 1 corn stocks at 3.15 billion bushels and final acreage at 96.405 million, up 541,000 from the March Planting Intentions. Soybean acreage was revised up 2.178 million from March to 76.08 million acres, with June 1 soybean stocks at 667 million bushels. All eyes are on weather though, and rainfall over the next two weeks will be critically important to stem a further decline in corn yield prospects. USDA’s… Get the Complete Report »

Dairy
Margins were mixed over the past two weeks, holding steady in Q3 but weakening in deferred periods as strength in milk was more focused on nearby contracts and only partially helped to offset surging feed costs. The second half of June featured a blistering corn rally brought on by sharply deteriorating crop conditions due to expanding drought across the Midwest. The situation is particularly acute in the Eastern Corn Belt States of Illinois and Indiana where a third of the nation’s crop is produced. Without a widespread, soaking rain over the next week or two, many crops may be completely lost as the pollination period gets underway and determines yield. USDA did increase corn area slightly by 541,000 acres in this morning’s report to 96.405 million, although harvested area was revised down to 88.9 million acres from the June WASDE estimate of 89.1 million. Soybean acreage increased 2.178 million from the March Planting Intentions to 76.080 million acres, although lower yields may ultimately negate the impact of the larger acreage base. USDA’s Cold Storage report showed… Get the Complete Report »

Beef
Beef margins were mixed over the past two weeks, weakening in some marketing periods while strengthening in others. The last half of June was marked by a sharp advance in corn due to expanding drought conditions across the Midwest which crushed the feeder cattle market. Live cattle prices moved higher during the second half of the month. Margins remain severely depressed through the December marketing period, with February 2013 the only period even above average from a historical perspective. USDA revised their acreage figures this morning, pegging corn at 96.405 million – up 541,000 from the March Planting Intentions. June 1 stocks were pegged at 3.15 billion bushels, just slightly under the average of pre-report estimates. The focus of the market though is clearly on weather, and it is critically important that the Eastern Midwest receive soaking… Get the Complete Report »

Corn
Nearby corn margins have deteriorated since the beginning of April while deferred 2012 margins are relatively flat for the period. USDA recently estimated ending stocks to be unchanged from February at 801 million bushels. Based off the accelerated pace of disappearance revealed in the NASS Quarterly Stocks report, the market had expected the USDA to reduce the ending stocks in the latest WASDE report. A few things were offered as reasons behind the status quo estimate. Firstly, wheat feeding had been picking up displacing corn in livestock rations both domestically as well as globally. Secondly, it was noted that due to the early planting pace this year, the USDA expects new crop corn to be harvested prior to September 1 and thus be counted as old crop corn. Currently it is estimated that 7% of the intended corn crop has been planted versus 3% last year and 2% on average. USDA also adjusted Argentine and Mexican production lower, in line with market expectations. China’s beginning… Get the Complete Report »

Soybean
Both nearby as well as deferred soybean margins have continued to gain since the beginning of April, as cash and futures’ prices have moved higher. USDA recently estimated ending stocks down 25 million bushels from March to 250 million bushels, reducing the stocks/usage ratio to 8.2%. The U.S. export forecast was raised 15 million bushels to 1.29 billion bushels based off of lower expected production out of South America. The crush rate was also raised due to the exceptional pace of domestic soybean meal usage. These demand increases were partially offset by a combined reduction of seed and residual usage of 5 million bushels. The USDA also reduced the estimated size of both Argentina and Brazil’s production to 45 million metric tons and 66 million metric tons respectively—in line with private forecasts. With increased demand prospects, domestic weather this spring and summer will be vital for the soybean market going forward, particularly because of the reduced expectation for planted acreage. Nearby margins are now at the 95th percentile, and deferred 2012 margins are at… Get the Complete Report »

Wheat
Wheat margins have deteriorated marginally since the beginning of April, as the slight increase in basis values have done little to offset the lower futures’ prices. USDA recently reported ending stocks lower by 32 million bushels from March to 793 million bushels, reducing the stocks/usage ratio to 36.2%. Based off the Quarterly Grain Stocks report, Q3 disappearance was faster than usual and implied greater feeding during the period. As such, USDA raised feed usage by 35 million bushels but lowered seed usage by 3 million bushels addressing the smaller planted acreage estimate. Throughout the verbatim text, USDA refers to slower corn use due to increased wheat feeding, not only in the U.S. but also on a global scale—particularly in China. U.S. ending stocks are considered to be ample at present, but have steadily decreased over the last three years. By class, SRW saw the largest drop in its stocks/usage ratio now at 46.8% compared to 58.4% last month, but are still the most ample supply of wheat on a relative basis with HRW stocks/usage projected at 43.0% and HRS stocks/usage projected at 30.0%. Current conditions of winter wheat show that 61% of the crop is in good-excellent condition and has put added pressure on prices. Spring plantings are also well ahead of schedule due… Get the Complete Report »

Hog
Margins deteriorated sharply over the past two weeks due primarily to a continued slide in hog futures. The feed side of the equation was mixed with soymeal futures still moving higher while corn experienced a significant correction ahead of the USDA’s Prospective Plantings and quarterly stocks reports. Those reports painted sharply contrasting pictures for both corn and soybeans, as well as for old-crop and new-crop. March 1 corn stocks came in 150 million bushels below the average of pre-report expectations, suggesting much higher Q2 MY corn usage and by extension, a much tighter old-crop balance sheet. Meanwhile, 2012 corn plantings are expected to be the highest in 75 years at 95.9 million acres, which was outside of the range of forecasts. Soybean plantings by contrast were below the range of expectations at only 73.9 million acres, portending a tighter new-crop balance sheet against a backdrop of tightening global stocks due to production losses in South America. Hog prices remain under pressure with weakness in cutout values contributing to losses in the market… Get the Complete Report »

Dairy
Margins were relatively flat over the past two weeks, deteriorating slightly in nearby Q2 and Q3 while improving slightly in Q4 and Q1 2013. Milk trade was steady since the middle of March, while feed trends were mixed with corn experiencing a sharp selloff while soybean meal prices continued moving higher. Projected forward margins continue to be below average from a historical perspective, and negative in nearby Q2. While the milk market appears to have stabilized, it is sending mixed signals. From a demand perspective, recent data has been supportive with USDA monthly Cold Storage figures showing February American Cheese stocks down from both January and February 2011. Also, USDA’s ERS indicated January 2012 commercial disappearance of American Cheese above that of the previous year. From supply perspective however, the USDA’s latest Livestock … Get the Complete Report »

Beef
Finishing margins deteriorated sharply since the middle of March due to a free fall in cattle futures. Ongoing controversy over the LFTB issue has raised serious concerns over the impact on beef demand heading into the summer grilling season. The price of beef fat trimmings has been under pressure, and this is contributing to weakness in the cutout as beef trim accounts for some 15% of the overall beef carcass. While the weakness in beef fat trim prices is something tangible that can be measured, less tangible is how consumers will respond to the current controversy with changes in their eating habits. Ground beef makes up around 40% of total beef product share in the meat case, and the possibility of less demand for grilling burgers this summer will likely keep pressure on cattle futures. Meanwhile, the feed side of the ledger does not appear favorable either over the near term following a significant rally in old-crop corn futures in response to a bullish stocks report from the USDA. March 1 corn stocks were pegged at 6.01 billion bushels, 150 million below the average trade estimate which suggests much stronger Q2 demand through the Dec-Feb period. On a more positive note… Get the Complete Report »

Corn
Margins have deteriorated back to the levels of early October, as futures prices have fallen. Domestic news during the period has been slim, as harvest is now complete and demand prospects are all that is left for the market to follow. Export sales over the last few weeks have been relatively disappointing as compared to historical standards for this time of year; however, cumulative sales stand at 53% of the USDA estimate compared to 42% on average for this week of the marketing year. Export shipments have picked up in recent weeks, but are still slightly behind the weekly pace needed to meet the USDA forecast of 1.6 billion bushels. Regarding ethanol production, weekly data shows a consistent usage of corn over the last 7 weeks ranging from 95 to 97 million bushels. Production of ethanol is on pace to meet the current USDA projection of 5 billion bushels of usage. On the global front, South American weather continues to be non-threatening and generally ideal for the remaining fields left to be planted. U.S. corn continues to find further competition in the export market, particularly out of the Black Sea region, where values for feed grains are more competitive. Both… Get the Complete Report »

Soybean
Margins deteriorated moderately since the middle of November, as futures prices have continued to decline. Domestic news during the period has been slim, as harvest wraps up in the Midwest. Export sales currently stand at 57% of the USDA estimate compared to 54% on average for this week of the marketing year. The sales pace has slowed considerably over the last 6 weeks, reflecting increased competition – particularly out of South America. Export shipments have been waning as well of late and are currently 30 million bushels below the pace needed to meet the USDA forecast of 1.325 billion bushels. On the global front, Chinese crush margins remain weak, creating a slight disincentive to import soybeans. However, the Chinese government is starting to stockpile reserves once again to replace what they sold out a few months ago. The Chinese government is also offering farmers the equivalent of $17 per bushel for domestic soybeans, slightly below current levels, which is acting as a price support for the near term. Both nearby and deferred 2012 margins have lost ground recently, with nearby margins now at the 61st percentile and deferred 2012 margins at the 64th percentile. Our consultants are working with clients discussing protection of these forward values, and reviewing various flexible strategy alternatives. Many of our clients… Get the Complete Report »

Wheat
Nearby wheat margins have deteriorated since the middle of November, as strengthening basis levels did little to offset the decline in futures prices. The latest crop progress report shows winter wheat in relatively good condition overall. The crop was rated 52% in good to excellent condition, up 2 points from last week; while the poor to very poor came in at 12%, down 4 points from last week. The winter wheat crop was also estimated to be 92% emerged. This has certain implications going forward, namely the fact that there is very little snow cover at present. Snow cover protects the winter crop from hard killing freezes through the winter. The unusually warm weather thus far has kept the crop from damage. Snow cover is needed however, as the cold weather will inevitably arrive. Global wheat prices continue to remain competitively priced, and mostly better than U.S. offers. Continued competition from the Black Sea region is expected, as prices there 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 margins are at the… Get the Complete Report »

Hog
Margins continued to deteriorate since the end of February as hog prices dropped while meal moved higher and corn stayed relatively flat over the past two weeks. From a historical perspective, profit margins remain strong–at or above the 80th percentile of the past five years with the exception of nearby Q2. Despite this, forward margins are now $2.00-$4.00/cwt. lower than where they were a couple weeks ago. On the feed side of the equation, USDA’s March WASDE report held few surprises for the market which now appears to be in a waiting mode for the acreage figures due at the end of the month. USDA did confirm lower estimates for South American soybean production, supporting soybean meal. Corn’s balance sheet was left unchanged from February, keeping a neutral tone in that market. Hog prices meanwhile have been under pressure lately as concerns mount about deteriorating packer margins and what this portends for hog demand moving into spring. With hog weights rising counter-seasonally and cutout values falling, hog prices may have to follow suit. Many of our clients who have added coverage recently given the very strong historical margin opportunities are now assessing those strategies for adjustments ahead of the quarterly Hogs and Pigs and grain stocks reports at the end of the month, along with the Prospective Plantings from the USDA. Adding flexibility back into tactical strategies given the recent break in hog prices as well as t… Get the Complete Report »

Dairy
Margins improved since the end of February, particularly in deferred periods where milk prices have experienced a rebound over the past two weeks. Feed costs remain very high, and soybean meal prices in particular have continued to appreciate following the USDA’s March WASDE report which confirmed lower soybean production in South America. Both Argentina’s and Brazil’s soybean crops were reduced by 1.5 million tons and 3.5 million tons, respectively, from last month. Class III Milk futures meanwhile have rebounded sharply off of recent lows as export data for January was quite strong. Cheddar cheese exports increased 27% or 2.4 million pounds year-over-year to 10.8 million pounds, with exports to Mexico up sharply and accounting for 21% of total exports during the month. The strong exports were confirmed by January stocks data showing American cheese stocks down by 4% from 2011 despite the fact that American cheese production during… Get the Complete Report »

Beef
Finishing margins generally deteriorated over the past two weeks, as fat cattle futures dropped sharply while feeder cattle futures fell more modestly and corn futures remained relatively flat since the end of February. USDA’s March WASDE report was relatively neutral for corn, with no changes to the domestic balance sheet other than a 10-cent narrowing in the average price forecast. Only minor changes were noted on the global balance sheet, leaving the market in a waiting mode until the much-anticipated Prospective Plantings report due out at the end of the month. While feeder cattle supplies remain tight, beef finishing margins are squeezing feedlots and affecting their ability to bid up for yearlings to place on feed. Moreover, beef packer margins have been under pressure with cutout values not allowing packers much incentive to pay up for fat cattle. While fewer cattle are coming to market, they are showing up… Get the Complete Report »

Corn
Margins have deteriorated back to the levels of early October, as futures prices have fallen. Domestic news during the period has been slim, as harvest is now complete and demand prospects are all that is left for the market to follow. Export sales over the last few weeks have been relatively disappointing as compared to historical standards for this time of year; however, cumulative sales stand at 53% of the USDA estimate compared to 42% on average for this week of the marketing year. Export shipments have picked up in recent weeks, but are still slightly behind the weekly pace needed to meet the USDA forecast of 1.6 billion bushels. Regarding ethanol production, weekly data shows a consistent usage of corn over the last 7 weeks ranging from 95 to 97 million bushels. Production of ethanol is on pace to meet the current USDA projection of 5 billion bushels of usage. On the global front, South American weather continues to be non-threatening and generally ideal for the remaining fields left to be planted. U.S. corn continues to find further competition in the export market, particularly out of the Black Sea region, where values for feed grains are more competitive. Both nearby margins as well as deferred 2012 margins continue to maintain at… Get the Complete Report »

Soybean
Margins deteriorated moderately since the middle of November, as futures prices have continued to decline. Domestic news during the period has been slim, as harvest wraps up in the Midwest. Export sales currently stand at 57% of the USDA estimate compared to 54% on average for this week of the marketing year. The sales pace has slowed considerably over the last 6 weeks, reflecting increased competition–particularly out of South America. Export shipments have been waning as well of late and are currently 30 million bushels below the pace needed to meet the USDA forecast of 1.325 billion bushels. On the global front, Chinese crush margins remain weak, creating a slight disincentive to import soybeans. However, the Chinese government is starting to stockpile reserves once again to replace what they sold out a few months ago. The Chinese government is also offering farmers the equivalent of $17 per bushel for domestic soybeans, slightly below current levels, which is acting as a price support for the near term. Both nearby and deferred 2012 margins have lost ground recently, with nearby margins now at the 61st… Get the Complete Report »

Wheat
Nearby wheat margins have deteriorated since the middle of November, as strengthening basis levels did little to offset the decline in futures prices. The latest crop progress report shows winter wheat in relatively good condition overall. The crop was rated 52% in good to excellent condition, up 2 points from last week; while the poor to very poor came in at 12%, down 4 points from last week. The winter wheat crop was also estimated to be 92% emerged. This has certain implications going forward, namely the fact that there is very little snow cover at present. Snow cover protects the winter crop from hard killing freezes through the winter. The unusually warm weather thus far has kept the crop from damage. Snow cover is needed however, as the cold weather will inevitably arrive. Global wheat prices continue to remain competitively priced, and mostly better than U.S. offers. Continued competition from the Black Sea region is expected, as prices there 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 margins are at the 38th percentile, and deferred 2012 margins are at the 49th percentile. Some of our clients that considered protection strategies that provided for a range… Get the Complete Report »

Hog
Margins continued to improve since the end of January, particularly in the second half of 2012 with historically strong profitability being projected for Q3 and Q4 which are now around the 98th percentile of the past 5 years. The improvement stems mainly from an increase in deferred hog prices, with feed costs contained by an offsetting rise in meal and drop in corn over the past two weeks. December export data continue to show strong demand for pork, with the US Meat Export Federation reporting 2011 pork exports totaled 2.255 MMT valued at $6.11 billion, breaking the previous volume record of 2.052 MMT and shattering the value record of $4.88 billion—both established in 2008. Year-over-year, pork exports were up 18% in volume and 28% in value, and equated to 27.5% of total production when including both muscle cuts and variety meat. While this may be a tough act to follow in 2012, there is general optimism with improving economic indicators that demand will remain strong and pork competitively priced. February’s WASDE report tightened… Get the Complete Report »

Dairy
Margins continued to erode since the end of January, deteriorating to around breakeven through the first half of 2012, while the second half of the year still offers marginal profitability. From a historical standpoint, current profit margins are well below average throughout the year as milk prices plummeted over the past month. Block and barrel spot cheddar prices remain depressed below $1.50/lb. while spot butter prices are down sharply from January and are trading below $1.40/lb. for the first time in nearly two years. Spot whey prices have also been under pressure, which has likewise contributed to the decline of Class III futures at the CME. USDA revised down their 2012 all milk price forecast due to higher production estimates. Milk production is forecast to increase by 1.1% this year to 199 billion pounds. Feed costs remain in check, although there is concern over old-crop corn supplies. USDA revised down ending stocks 45 million bushels in the February WASDE due to an increased export forecast, and the world supply/demand… Get the Complete Report »

Beef
Finishing margins continued to strengthen since the end of January as feed costs declined slightly while cattle prices have held relatively steady. On a relative basis, margins remain the strongest in nearby marketing periods where feeder cattle and feed costs have already been realized. The strong rally in live cattle futures over the past two months has added significantly to profit margins for feedlots where the revenue side of the margin equation is still open. While the rally has paused, there remains optimism that beef demand will stay strong in 2012 despite higher prices. The US Meat Export Federation reported beef exports finished the year at 1.287 MMT valued at $5.42 billion. This broke the 2003 volume record of 1.274 MMT and easily surpassed the 2010 value record of $4.08 billion. Export volume was 21% larger than in 2010, with value up 33%. USDA released their February WASDE report, highlighting a further cut in corn ending stocks to 801 million bushels representing 6.3% of annual usage. A 50-million bushel increase to the export forecast was the primary reason for the decline, as USDA cut… Get the Complete Report »

Corn
Margins have remained relatively flat since the beginning of February as both futures’ prices and basis levels have stayed range bound. The USDA recently estimated domestic corn ending stocks 45 million bushels lower than the January estimate at 801 million bushels. This came as a result of an increase in the export forecast of 50 million bushels to 1.7 billion bushels, and an increase in imports of 5 million bushels. The export forecast has been raised by 100 million bushels over the last few months, as both the sales pace and the shipping pace have remained strong relative to historical measures. Each year at the end of February, USDA publishes baseline projections for the following decade which include a snapshot of economist’s view of current and future expectations to domestic supply and demand. Although the number will be updated on the 24th of February, current acreage expectations in the baseline report estimate the U.S. will plant 94 million acres of corn for the 2012/13 crop year. If realized, that would be the largest seeded acreage since 1944. That said the first official acreage estimate will come… Get the Complete Report »

Soybean
Both nearby as well as deferred soybean margins have increased moderately since the beginning of February, as both futures’ prices and basis values have risen. The USDA recently estimated domestic soybean ending stocks at 275 million bushels, unchanged from the January estimate. Spot crush margins improved over the period, as product values outpaced the gains in soybean prices. NOPA recently reported the January crush to be 142.8 million bushels which implies a total crush figure around 149 million bushels, as the NOPA figure includes roughly 95% of all crushing facilities. The cumulative crush stands at 710 million bushels for the crop year to date which is roughly 4% lower than last year’s level versus the USDA’s estimate of a slowing of 2%. Soybean oil stocks were reported to be 2.098 million pounds which came in higher than the trade estimate. This is the third consecutive month of higher soybean oil stocks. The increase has been attributed to a slowing in biodiesel demand. On the global front, USDA lowered both Argentina and Brazil’s soybean production estimates in the last WASDE… Get the Complete Report »

Wheat
Margins have fallen since the beginning of February, as futures’ prices weakened. The USDA recently estimated domestic wheat ending stocks to be 845 million bushels, 25 million bushels lower than the January estimate. The reduction came from an increase in projected exports of 25 million bushels to 975 million bushels with strong sales and increased demand out of Mexico and South Korea. Domestic weather continues to be above-normal in relation to temperatures and below-normal with respect to precipitation. This still leaves the dormant crop at risk of winter-kill if temperatures move lower. On the global front, the Black Sea region continues to be aggressive competitors with respect to the export market. Russia has yet to announce any restrictions or duty on exports, which has kept prices at bay. ABARES recently estimated Australian production at 29.5 million tons, up… Get the Complete Report »

Hog
Projected hog finishing margins posted strong gains since mid-January, with Q3 and Q4 in particular showing significant improvement from earlier in the month. Margins are now above the 90th percentile of the past 5 years throughout 2012, and are at or above the 80th percentile in the first half of 2013 as well. Prices generally have moved higher over the past two weeks, but hogs have advanced more than the cost of feed. The hog market continues to draw support from strong demand, with November export data from FAS reflecting pork muscle cut exports at a record 169,460 metric tons—up 23.2% from a year ago and the cumulative January-November total up 22% from 2010. On a value basis, the November total of $515.8 million was even more impressive—representing a 33.7% increase from a year ago with the year-to-date total at $4.822 billion up 30.1% from 2010. The corn and soybean meal markets continue to draw strength from lower crop forecasts in South America, although drought conditions have started to ease in both Argentina and Brazil with recent rainfall. This may help stabilize corn conditions and actually help to improve yield prospects for soybeans which are still going through their pod fill stage of development… Get the Complete Report »

Dairy
Margins deteriorated since the middle of January, due to a combination of lower milk values and higher feed costs. Recent reports have cast a shadow over the milk market. According to USDA’s Cold Storage report, American cheese stocks increased 16.7 million pounds in December, the most in six years and indicative of slowing demand. December 31 inventories of 600.7 million pounds were also 7.4% above the 5-year average. December milk production of 16.559 billion pounds was up 2.5% from 2010, and dairymen expanded during the month. Cow numbers totaled 9.221 million head, up 12,000 from November. In addition, production per cow of 57.9 lbs. per day was also up 0.9 lbs. or 1.6% from a year ago. Meanwhile, corn prices continue to advance on reduced crop forecasts out of South America, and basis values in the U.S. interior have been very strong with tight farmer holding. Also, the recent pace… Get the Complete Report »

Beef
Beef finishing margins improved over the past two weeks, particularly in nearby marketing periods where feeder cattle costs have already been realized. Cattle prices have been very strong since the middle of January, and the increased value has more than offset the higher cost of feed over the same period. Deferred margins also showed improvement though, where all three variables remain open to the profit margin equation. USDA’s January Cattle Inventory report reflected a reduced herd size, consistent with market expectations although the figures were a bit below pre-report estimates. In total, there were 90.769 million cattle and calves on U.S. farms as of January 1, down 2.1% from last year and 0.5% below the average of pre-report estimates. The beef cow herd though was 3.1% below last year when the market was anticipating only a 2.6% reduction on average. The year-over-year drop was the largest since 1986 when the herd declined 4.7%. The report continues to paint a bullish picture… Get the Complete Report »

Corn
Margins have improved moderately since the middle of January, as futures’ prices as well as nearby basis values have risen. U.S. exports over the period have remained strong, and the USDA seems justified in raising their forecast in the recent WASDE report. Based on the current pace of sales and shipments, exports appear to be on target to meet the USDA target of 1.65 billion bushels, particularly if South American yields come in worse than already feared. Interior basis values have risen sharply of late, particularly in the Eastern Corn Belt. Part of that is due to the strong export market, but also due to the fact that ethanol production margins have picked up recently. Currently, the USDA is targeting the use of 5 billion bushels of corn for ethanol, virtually unchanged from the 2010/11 usage. Based on weekly data, the current pace of usage is running roughly 3% ahead of last year. South American weather has improved of late, and could help the soybean crop going forward, but will do little to improve the damage to the corn crop… Get the Complete Report »

Soybean
Both nearby as well as deferred soybean margins have gained since the middle of January, as futures’ prices as well as nearby basis values have risen. U.S. exports have picked up over the last two weeks, but are still running roughly 20 million bushels behind the pace needed to meet the USDA estimate, as increased global competition has put a downward pressure on both sales and shipments. The current sales pace stands at 74.9% of projected exports versus 74.8% on average. On the global front, China has banned imports of oilmeal from India, saying they have found traces of a hazardous chemical in some shipments, which could bring demand of both meal and whole beans to the Americas. South American weather has improved of late, particularly for some major growing regions in Brazil, whose beans are in the pod-filling stage of development. Barring extreme heat going forward, yields appear to be stabilizing and improving due to the timely rains. However, early field reports show that drought damage has… Get the Complete Report »

Wheat
Margins have improved significantly since the middle of January, as both futures’ prices and basis values have strengthened. Despite the weather, domestic news has been slim. The U.S. is experiencing a much warmer-than-normal winter, and could have potentially negative effects if the temperatures return to seasonal norms. Of the areas that have snow cover, the protection that cover provides is slowly diminishing with the warmer temps. Domestic export sales and shipments continue to keep pace with the current USDA estimate of 950 million bushels. On the global front, bitter cold across Europe as well as in Russia is creating support in the market, as the trade begins to estimate what, if any, damage has occurred due to the potential of winterkill in the region. Russia is also in the process of deciding whether to impose some sort of duty on exports from April onward, as stockpiles have dwindled. Russia tends to slow the export pace during that period, however. Global demand appears to be shifting out… Get the Complete Report »

Hog
Margins dropped slightly since the middle of the month as hog prices weakened while feed costs held relatively steady. Most of this weakness was evident in nearby periods, with deferred margins only down slightly from two weeks ago, and overall profitability through the first half of 2012 remains very strong above the 90th percentile of the past five years. Even the second half of 2012 is projecting margins above the 80th percentile of the past five years. Hog prices have begun to slip as it appears cutout values are coming under pressure. Cutout prices late last week were down around 2% from the week before, and are beginning to reflect back to cash hog prices which likewise have declined. As of Thursday, the Iowa/Southern Minnesota lean carcass price was quoted at $86.05/cwt., down $6.20/cwt. or 7.2% from the week before. Feed costs meanwhile have stabilized as crop producers are deciding to store rather than sell newly harvested bushels off the combine. Basis levels are firming as a result, although demand remains… Get the Complete Report »

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 »

Hog
Margins dropped slightly from extremely strong values seen at the end of September, but remain at historically high levels of profitability for producers through all of 2012. While hog prices remain well-supported and have increased in price over the past two weeks, feed costs have unfortunately been stronger after bottoming at the beginning of the month. USDA released the October WASDE report this week which incorporated the 2010/11 ending stocks noted in the September 30 data. While corn ending stocks increased as a function of that report, yields were not raised as analysts had expected. Harvested area was also lowered in line with FSA data such that production declined 64 million bushels. The soybean balance sheet tightened as a function of lower yield, production and beginning stocks not completely being offset by a reduced export forecast. Similar to corn, soybean meal prices have also moved higher in the past two weeks. Hog prices are firm as demand continues to be very strong. Despite the fact that hog slaughter… 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 »

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