Margin Watch: Mid-February

February 16, 2010 by Chip Whalen

Hog
Margins held steady in nearby Q1 and Q2 over the past two weeks, but improved further in both Q3 and Q4. Historically, margins now sit above the 80th percentile in both the second and third quarters, meaning they have only been more profitable less than 20% of the time over the past 5 years. In addition, both periods are offering strong profits to hog producers willing and able to secure these levels using futures, options or forward contracting. The recent USDA Supply/Demand report reduced ending stocks for both corn and soybeans, resulting in stronger trade for each of those markets–particularly soybean meal. Deferred hogs have been supported by spread corrections relative to nearby months as well as increased … Get the Complete Report »

Dairy
Margins were relatively steady since the end of January, although there has been quite a bit of volatility in nearby milk futures over the past two weeks. The milk market spiked following higher trade in cheddar block prices last week when the market was looking for a drop, although cheese prices have since been declining. Meanwhile, the USDA released their February Supply/Demand report last week with ending stocks declining for both corn and soybeans. Corn ethanol demand was increased while both soybean exports and crush were increased, leading to the lower stocks. Soybean meal prices in particular have been quite strong since the report came out as meal demand remains very firm ahead of the South American harvest… Get the Complete Report »

Beef
Cattle production margins generally improved over the past two weeks, as a strong rally in cattle more than offset a similar increase in feed costs. Live cattle futures moved to new highs since the end of January, as beef demand has been very strong. The USDA released their December meat export figures last week, showing beef shipments up 23.1% from a year ago with strong demand from both South Korea and Japan. Meanwhile, the February Supply/Demand report showed a 45 million bushel decline in corn ending stocks due primarily to higher forecasted ethanol demand. In addition, the USDA’s preliminary corn acreage figure of 88 million was below the recent forecast from Informa at 89.6 million acres, even though it still would be 2% above last year. While corn prices have firmed, the move in cattle has generally been stronger. While only slightly… Get the Complete Report »

Corn
Crop margins improved slightly since the end of January as the futures market has firmed following the release of the USDA’s February supply/demand report last week. Ending stocks declined 45 million bushels as ethanol demand is projected higher due to favorable production margins. In addition, the USDA also indicated slightly lower corn acreage than the market was anticipating in their baseline projections. At 88 million acres, corn area will be up 2% from last year, although the figure is below the recent estimate from Informa of 89.6 million corn acres this spring. New-crop futures gains over the past two weeks more than offset a slightly weaker basis, improving the overall margin. While the profit margin… Get the Complete Report »

Soybean
Crop margins improved slightly since the end of January following a futures rally tied to recent USDA data. The government’s February supply/demand report showed a 35-million bushel decline in ending stocks due to a higher export and crush projection. While Brazil’s crop was increased 1 million tons from January, the USDA noted tight South American supplies behind increased export business for both soybeans and meal which is continuing to support the market. Despite the recent strength in futures, profit margins remain negative for both old-crop and new-crop. As a result, flexible price strategies … Get the Complete Report »

Wheat
Crop margins improved since the end of January following a futures rally and narrowing basis over the past two weeks. While the fundamental picture hasn’t changed much, the USDA did increase ending stocks 5 million bushels from last month due to an increased import projection. World ending stocks were also little changed from January although the USDA raised their estimate for Argentina’s crop by 1 million tons to 9 million tons. Basis has narrowed as producer selling slowed significantly with the recent drop in futures prices. At 65 cents under futures, the basis has strengthened 25 cents in St. Louis since the end of January. With margins remaining very negative in both old-crop and new-crop, the best strategy in the current environment would appear… Get the Complete Report »

About the Author

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