Margin Watch: December

January 3, 2011 by Chip Whalen

Hog
Margins improved since the middle of December, as hog values increased more than feed costs during the period. All three markets were higher heading to year-end with general strength in commodities to close out 2010, but strength in the hog market was a standout feature. The quarterly hogs and pigs report from the USDA highlighted a much smaller inventory of lighter-weight hogs than what the market was anticipating. The total hogs and pigs inventory was pegged at 64.325 million head, 0.9% lower than a year ago, but in the individual weight classes, hogs weighing 50-119 pounds were reported down 3.2% from a year ago while the lightest weight category of hogs weighing under 50 pounds was reported down 2.7% from a year ago. Both figures were well below pre-report expectations, reflecting lower Sep-Nov farrowings. Both Dec-Feb and March-May farrowing intentions were similarly below trade expectations, leading… Get the Complete Report »

Dairy
Margins continued to weaken closing out the month of December, as increased feed costs more than offset higher milk values. Conditions remain very dry in Argentina, with forecasts continuing to suggest a hot, dry pattern through the first half of January in principal crop-producing regions. Local agronomists are now beginning to lower production forecasts for both the corn and soybean crops, which has helped to support the corn and soybean meal markets in Chicago. Risk premium is also being dialed in ahead of the important January crop report from the USDA. Meanwhile, milk prices are being supported on a number of fronts. Dairy herd culling remains heavy. Last month dairymen sent 241,200 cows to slaughter, up 15.5% from a year ago, and the most for November since 1997, according to the USDA. In the first half of December, the slaughter rate was running about 14% higher than last year. Adverse weather… Get the Complete Report »

Beef
Production margins improved since the middle of December, particularly for nearby Q1 live cattle marketings where input costs have largely been secured. Cattle prices have been increasing over the past two weeks, but it would appear that feeder cattle prices may be increasing at a fast rate than fat cattle prices given the dearth of available feeder supplies in the cash market. While this is putting pressure on producer margins, cattle prices generally have been rising at a faster rate than corn costs whereby overall production margins are improving. Corn continued moving higher to close out 2010 as drought concerns are increasing in Argentina. Local agronomists are now lowering production estimates as corn moves through pollination under hot and dry conditions, with risk premium being added to the futures… Get the Complete Report »

Corn
Margins have improved in both the nearby as well as the deferred 2011 contracts, as futures have continued to push to new highs. The severe La Nina weather pattern continues to plague the South American crop. Soil moisture levels are hovering at critical deficits, as Argentina’s corn crop has entered pollination. There have been recent reports of light rainfall forecast to hit parched areas of South America, but this has yet to be realized. Meanwhile, ethanol production and usage continue to operate at record levels. In the closing weeks of 2010, Congress passed a one-year extension of the blender credit of $0.45/gal and an import tariff of $0.54/gal which should support the industry throughout 2011. The final crop production… Get the Complete Report »

Soybean
Margins have improved significantly during the period, as a strong futures market led values higher. Dry conditions in South America, continued Chinese demand, and a weaker U.S. dollar were the driving forces behind the strength. South American soil moisture levels for the majority of Argentina are severely depleted, and the market is now pricing in production declines. China’s purchases of U.S. soybeans continue on a record pace. However, China’s crushing margins are now at breakeven-to-negative 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 domestic crushers. The final U.S. crop production numbers will be revealed in the January 12th report from USDA along with the quarterly… Get the Complete Report »

Wheat
Margins improved moderately since mid-December, as the futures market strengthened as well as the basis to nearly par with futures prices. Global demand for higher protein wheat remains strong. Weather in Eastern Australia continues to threaten the wheat crop. Excessive rains have impacted the region and quality concerns are beginning to surface. Weather in Western Australia is exactly the opposite, as that region is parched and in need for some rainfall. U.S. weather has moderated a bit; however, snow cover is needed to avoid the potential for winter kill. Given the current absence of quality wheat supplies from other global origins, the U.S. will have the job of being the breadbasket to the world through the spring… Get the Complete Report »

About the Author

There is a risk of loss in futures and options trading. Past performance is not indicative of future results. The information contained in this publication is taken from sources believed to be reliable, but is not guaranteed by Commodity & Ingredient Hedging, LLC, nor any affiliates, as to accuracy or completeness, and is intended for purposes of information and education only. Nothing therein should be considered as a trading recommendation by Commodity & Ingredient Hedging, LLC. The rules and regulations of the individual exchanges should be consulted as the authoritative source on all contract specifications and regulations.