Margin Watch: Mid-April 2010

April 16, 2010 by Chip Whalen

Hog
Margins continued to improve during the first half of April, and are now between the 95th and 100th percentile over both the last 5 and 10 years. This essentially means that for some periods, particularly the spot period of the second quarter, the profit margin has never been higher than it currently is right now. This is truly a Godsend for an industry that has been hobbled by a mismatch of high feed costs and low hog values for the past few years. The cash market continues to be firm supporting nearby hog prices while optimism grows that production will be down through the summer and fall due to a smaller breeding herd. Meanwhile, feed prices have retreated as the recent supply/demand… Get the Complete Report »

Dairy
Margins deteriorated since the end of March, particularly in nearby periods as the milk market has come under renewed pressure. Following a brief rally during the early part of the month, CME Class III milk futures dropped sharply over the past week. The run up in prices apparently chased away cheese buyers, despite export sales that have been steadily improving for milk powders, whey proteins, cheese, butterfat and lactose. The USDA’s monthly supply/demand report confirmed higher corn ending stocks due to lower feed demand, as well as larger soybean crops in South America. Despite this however, both corn and soybean meal prices are higher now compared to the… Get the Complete Report »

Beef
Margins deteriorated over the past two weeks by $1.25 to $2.00/cwt., although from a historical standpoint, profit margins are still quite high between the 80th and 90th percentile on a 5-year basis. This means that profitability has only been higher for these spot and forward periods less than 10-20% of the time looking back on history. Much of the recent setback in profit margin stems from the fact that corn prices have firmed since the end of March, while feeder cattle prices have gained at a faster rate than fat cattle prices. Despite the fact that the USDA recently raised corn ending stocks in their monthly supply/demand report and the weather looks very favorable for spring fieldwork and planting… Get the Complete Report »

Corn
Crop margins improved slightly over the past two weeks, primarily due to a recovery in futures prices as the market has been trading higher since the release of the planting intentions and quarterly stocks report at the end of March. Ironically, those two reports were somewhat bearish in that they indicated higher stocks and thus lower domestic demand than what the market had previously assumed as well as an acreage base up over 2 million from last year. On top of that, spring weather across the Corn Belt has been nearly ideal for fieldwork and early planting thus far, which historically has led to even higher corn acreage than the March planting intentions. Corn futures are up almost 20 cents since the end… Get the Complete Report »

Soybean
Crop margins improved nearly 30 cents since the end of March due to higher futures prices with basis unchanged over the past two weeks. From a fundamental standpoint, not much has changed as ending stocks were left at 190 million bushels in the April supply/demand report despite higher stocks indicated as of March 1 which lowered residual usage. This was offset however by a higher export forecast and there are indications that China’s imports will be even larger than what the USDA is currently carrying. Despite higher production estimates out of both Brazil and Argentina, it appears that China is ready to revalue the yuan which will increase their purchasing power of U.S. products… Get the Complete Report »

Wheat
Crop margins improved slightly since the end of March as futures prices have recovered somewhat from new contract lows scored early this month. While the USDA’s April supply/demand report was not exactly bullish, ending stocks were reduced 51 million bushels to 950 million due to a higher export forecast. World wheat stocks declined nearly 1 million tons from March as well, following lower production forecasts in Canada, Australia and Russia. Offsetting this somewhat, EU production was raised slightly, although the USDA did note… Get the Complete Report »

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