Margin Watch: August

September 1, 2010 by Chip Whalen

Hog
Margins deteriorated a little further since the middle of the month, as feed costs have continued to rise based upon higher corn and soybean meal prices. Hog values have held relatively steady, moving higher initially since the middle of August, but dropping over the past week. Despite the deteriorating margins from earlier in the summer, profitability still remains historically high from a long-term perspective, with deferred margins existing at the 70th to 80th percentile of the past 5 years. Both corn and soybean meal futures have been moving higher as the market has become concerned with the lack of rainfall in August to finish out the growing season. While crop condition ratings have generally held steady over the past few weeks, early harvest results have been disappointing and there are growing expectations for the USDA to trim yield estimates for both corn and soybeans in the upcoming September WASDE report… Get the Complete Report »

Dairy
Margins were mixed since the middle of August – improving in Q3 and Q4 while deteriorating in Q1 and Q2 2011. Milk prices in each of these respective periods have moved in different directions, with nearby futures trading higher while deferred futures declined. Spot prices have been firm as milk volumes remain at seasonally low levels and manufacturing milk supplies remain tight approaching the Labor Day holiday. Current cheese and butter are scarce, and manufacturers are drawing from inventory. At the same time, the 2010-11 production season is getting under way in New Zealand and Australia, and farmers there are optimistic for a strong start to the year. Expectations… Get the Complete Report »

Beef
Production margins were mixed over the past two weeks—improving in nearby Q3 and Q4 while deteriorating in Q1 and Q2 2011. Live cattle prices have rose sharply, benefiting nearby margins where input costs are already fixed on feed expenses and feeder cattle. Q4 margins likewise have firmed as the gains in live cattle have more than offset the rising cost of feed which is still a variable. The corn market is moving higher due to concerns that yields will suffer from the dry finish to the growing season. Early harvest results have been disappointing, although it is too early to draw any firm conclusions. Out in 2011 where all components of the profit margin remain variable, feeder cattle prices have gained on live cattle prices at the same time that feed costs are rising. This explains the deteriorating forward… Get the Complete Report »

Corn
New-crop margins have improved over the last two weeks, as advances in the futures market have offset a slight decline in basis. The market is getting its first taste of yields from Southern and Delta states, and thus far, output has been disappointing regarding yields. The market has begun to build premium into the market, believing that NASS’ yield estimate of 165.0 bushels per acre will be the highest estimate for this crop year. Further bullish sentiment is in the market, amid profitable livestock and ethanol prices. Cattle prices are pushing record highs, and the hog sector has maintained higher prices since the spring. The ethanol sector also has potential long-term bullish factors, as there is debate on switching from a 10% blend to a 12% or 15% blend. With tensions high in Washington… Get the Complete Report »

Soybean
Margins have improved for the nearby crop over the past two weeks as slightly lower futures prices have been offset by a large jump in basis bids. Soybean conditions typically deteriorate from August into the end of September. The current soybean crop is rated at 64% good-to-excellent, lower than last year’s crop rating, but well above the 10-year average of 56%. Current weather forecasts have improved the chances of rain, as the crop finishes its most important stage of yield development. The market remains on edge that conditions during August have been very dry across a large area of the Midwest, which may lead to a lower yield forecast from NASS in upcoming reports. Foreign demand for soybeans remains robust, as China continues to import record amounts of soybeans from the U.S…. Get the Complete Report »

Wheat
Margins have improved as the market has found support at higher levels. The recent sharp rally has given way to consolidation, as weather concerns in Eastern Europe have abated a bit. There remains concern however in Northern and Western Europe, as excess rain is threatening the quality of the wheat crop. Dry conditions in Australia likewise need to be monitored in key growing regions. Still, the focus remains in Eastern Europe which is in the midst of the worst drought in 100 years and soil moisture is badly needed in order to sow the winter crop. U.S. wheat had been uncompetitive against Canadian and French wheat until recently. The market is now pricing in incremental… Get the Complete Report »

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