Margin Watch: April 2010

May 3, 2010 by Chip Whalen

Hog
Margins slipped slightly since the middle of April, although remain at or above the 95th percentile of the past 5 years. April was truly memorable in that margins for nearby Q2 and Q3 made all-time highs from a historical perspective, allowing hog producers to secure profitability never seen before in these periods. Looking further into Q4 as well as Q1 2011, forward profit margins have likewise posted some of the strongest readings ever for these periods during the month of April, which hopefully will allow the industry to rebuild lost equity over the past few years if producers have been proactive in locking in these forward margins. The strength in hog futures continues to be driven… Get the Complete Report »

Dairy
Margins improved slightly since the middle of the month as an increase in milk prices more than offset higher soybean meal costs while corn held steady. March dairy cattle slaughter was the highest based on year-over-year comparisons since 2000. It also was the largest monthly slaughter since June 2009 on a month-to-month comparison. The January-March slaughter pace has bucked the recent trend showing a gradual increase as opposed to a steady decline in the first quarter. Meanwhile, corn planting is off to its fastest start since 2004, with a near-record pace of 50% planted as of the third week of April. This bodes well for yields as well as the potential for higher… Get the Complete Report »

Beef
With the exception of the spot Q2 period, beef margins improved since the middle of April and remain at very high historical percentiles over the past 5 years. The outlook for new-crop corn appears very promising as planting progress is off to its fastest start since 2004, with nearly ideal spring weather boding well for the possibility of both higher corn acreage relative to the March planting intentions as well as above-average yields. Meanwhile, the latest USDA Cattle on Feed report showed that March placements were substantially smaller than expected, with sharply lower placement weights relative to both last year and the 5-year average reflecting… Get the Complete Report »

Corn
Crop margins were mixed since the middle of April, with old-crop margins improving slightly while new-crop margins deteriorated. Old-crop basis strengthened as producers have been busy in the fields planting corn with little cash movement in the country taking place. The USDA indicated that 50% of the nation’s corn crop had been seeded as of April 25th – double the 10-year average and the fastest progress since 2004. This bodes well for both above-trendline yields and higher corn acreage relative to the March planting intentions, as there is a historical precedent for each in years of quick seeding. The market also received confirmation this week of China buying U.S. corn which has helped to support prices, although large scale purchases… Get the Complete Report »

Soybean
Crop margins improved marginally since the middle of April, although futures prices haven’t changed much over the past two weeks. The rally seems to have paused as demand is slowing down while spring weather has been ideal for planting this season. Old-crop basis strengthened somewhat as producers have been busy in the field and not marketing their crops. China’s imports continue to suggest that the USDA is too low on their soybean export forecast for the year as well as their forecast for Chinese imports from all sources. There is also concern that cold weather in northeastern China may reduce soybean plantings there by 7.9%. New-crop margins are now slightly above breakeven, although old-crop margins remain negative… Get the Complete Report »

Wheat
Crop margins improved slightly since the middle of the month, with new-crop margins now back above breakeven. Wheat futures have generally been trending higher since the beginning of the month as prices have firmed in the Black Sea region while speculative short-covering has been a feature recently. From a fundamental standpoint, the outlook remains bearish as winter wheat conditions are about 20 points above normal for this time of year while both U.S. domestic and global stocks are historically large. Spring wheat planting is also well ahead of its normal progress for this time of year, as weather has been nearly ideal. Basis was essentially unchanged over the past two weeks, having minimal impact on either old-crop or new-crop margins. Given the new variable storage rates that have gone… Get the Complete Report »

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