Margin Watch: February

March 2, 2010 by Chip Whalen

Hog
Margins continued to improve since the middle of February, and now are sitting at the highest levels we have seen since we began tracking them for each of these forward periods. In particular, summer margins for Q2 and Q3 are very strong, above the 90th percentile of the past 5 years as well as above the 80th percentile of the past 10 years. Hog values have been very firm as year-to-date slaughter runs below the pace indicated by the most recent December USDA Hogs & Pigs report. The year-to-date total slaughter of 17.459 million head is 6.6% lower than last year and combined with lower weights, pork production is down 7.2% from last year. On the feed side of the margin equation, corn values have crept up slightly following ideas that the balance sheet… Get the Complete Report »

Dairy
Dairy margins deteriorated since the middle of February following a sharp drop in deferred milk prices. It appears that previous indications of improved profitability for 2010 slowed down the pace of herd liquidation. U.S. cow numbers in January showed the first month-over-month increase since December 2008. The improving outlook for milk prices at the beginning of the year resulted in farmers holding onto cows. Unfortunately, the continued decline in cheese prices suggests that the industry may still to liquidate additional herds to bring supply more in balance with existing demand. Meanwhile, corn prices have been firming on ideas that ethanol demand… Get the Complete Report »

Beef
Cattle margins held relatively steady over the past two weeks, as higher live cattle prices were generally matched by a similar increase in feeder cattle costs. Grinding beef markets have been very firm, and recently rose to the highest level since September 2008. The decline in cattle carcass weights appears to be supporting the price of beef fat trim, as cattle carcass weights are currently running about 19 pounds or 2.4% lower than a year ago. Meanwhile, corn values have started to creep higher following ideas that ethanol demand may be stronger this season than previously expected. A recent improvement in ethanol production margins caused the USDA to raise their… Get the Complete Report »

Corn
Crop margins improved since the middle of February following higher futures prices as well as a slightly firmer old-crop basis. The market appears to be responding to the tighter balance sheet somewhat after the release of the USDA’s February supply/demand report showing higher ethanol demand. In addition, there remains uncertainty over how much acreage is going to get seeded this spring as well as whether or not there will be any planting delays. A recent report suggested that because of record snowfall this winter in many areas of the Midwest following a very wet fall, spring flooding could be a real issue this season… Get the Complete Report »

Soybean
Crop margins improved slightly since the middle of the month due to a combination of higher futures and a firmer old-crop basis. While the world waits for South America’s record soybean crop, demand remains quite strong for nearby supplies and the U.S. has been the principal beneficiary of this demand. It does appear though that the window of opportunity to capitalize off of this demand is quickly closing as crop estimates for both Brazil and Argentina keep getting revised higher. While the market generally expects more producers to favor planting corn this season over soybeans, the possibility of spring planting delays due to near record snowfall this winter on top of already saturated soils from last fall may challenge those intentions… Get the Complete Report »

Wheat
Crop margins improved since the middle of the month as higher futures prices more than offset a slightly weaker basis over the period. New-crop margins have turned positive for the first time December, although old-crop margins remain deeply negative. It appears that short-covering has been the main factor behind the recent price strength, as non-commercial traders have accumulated a record short position according to Commitments of Traders data from the CFTC. There seems to have been a general desire to reduce some of this exposure since the beginning of February following a steep decline during the month of January… Get the Complete Report »

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