Margin Watch: Mid-December

December 16, 2010 by Chip Whalen

Hog
Margins deteriorated since the end of November, as increased corn costs more than offset slightly higher hog prices while soybean meal held relatively steady over the past two weeks. As the calendar turns over to December, we have started tracking margins for the fourth quarter of 2011 which are showing up slightly negative at the moment but close to breakeven. The USDA’s December WASDE report was considered neutral for the corn market, with ending stocks increasing 5 million bushels as a result of higher imports from Canada. Soybean ending stocks were lowered 20 million bushels due to a similar increase in exports, but largely expected by traders. It appears that the corn market in particularly is starting to respond to dryness in Argentina as the country enters its pollination phase. Any yield loss will be particularly bullish… Get the Complete Report »

Dairy
Margins deteriorated since the end of November, particularly in nearby Q1 where milk and corn prices diverged over the past two weeks. With dryness becoming a growing problem in Argentina, the corn market has been building renewed risk premium while milk prices have succumbed to pressure on building milk production and cheese inventories. Block and barrel prices in the spot cheddar call have dropped sharply since the end of November, with increased cheese production. Output for October was 892.6 million lbs., up 3.5% from last year, according to USDA’s “Dairy Products” report released December 2. Meanwhile, USDA’s December WASDE report showed a tighter soybean balance sheet, as exports… Get the Complete Report »

Beef
Production margins deteriorated over the past two weeks, as cattle prices declined while corn increased since the end of November. With growing dryness in Argentina as the country enters the pollination phase of development, the corn market is building risk premium back as traders fear potential yield losses at a time when the global balance sheet is historically tight. The December WASDE report showed a slight increase in corn ending stocks of 5 million bushels, although concerns remain that the January report will reflect a further decline in U.S. yield and production figures. The feeder cattle market has held relatively steady over the past two weeks, but live cattle prices have declined as beef demand may seasonally be slowing… Get the Complete Report »

Corn
Margins have improved in the nearby, as futures have recovered off of the mid-November low. This year’s severe La Nina weather pattern has followed through thus far and has created below-normal precipitation for Argentina and parts of Brazil. Soil moisture levels for much of Argentina are depleted to critical levels. Argentina’s corn crop will enter pollination in the coming weeks, and without adequate moisture, yield potential will fall short of expectations. USDA reported ending stocks 5 million bushels higher in December from November as a result of increased imports. The final crop… Get the Complete Report »

Soybean
Margins have improved significantly during the period, as a stronger futures market, combined with a stronger basis led values higher. Deteriorating weather conditions in South America as well as continued large buying by the Chinese were the main drivers behind the rise in price. China continues to purchase U.S. soybeans in record quantities, accounting for over 65% of all export sales each week for this marketing year. However, China’s crushing margins are now at breakeven levels, as the cap on domestic Chinese soybean oil prices has decreased their crushing margin. An improvement in that margin is required to see continued record buying from that region. USDA reported ending stocks 20… Get the Complete Report »

Wheat
Margins surged since the beginning of the month, as the futures market strength offset a weakening basis. NASS winter wheat crop conditions reported the crop at 47% good-to-excellent in its latest reading. This is one of the lowest on record heading into dormancy and with a lack of snow cover, winter kill could be an issue this year. Historically, conditions that are rated this poorly as the crop enters dormancy do not bode well for yields, and typically results in below-trendline yields. Global demand for higher protein wheat remains strong. Egypt’s last two tenders were filled entirely by U.S. wheat reflecting how short the world is of quality wheat supplies. The U.S. will have the job of being the breadbasket to the world, as export quotas, export restrictions, and further global supply reductions are sending… Get the Complete Report »

About the Author

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