Margin Watch: January

February 1, 2010 by Chip Whalen

Hog
Margins deteriorated since the middle of January, as a sharp drop in hog prices more than offset a smaller decline in corn and soybean meal futures. Weather-related supply disruptions during the first half of the month seemed to have improved recently, although actual pig shipments are still down from a year ago and below the level implied by the USDA’s December Hogs and Pigs report. Meanwhile, a sharp appreciation in the value of the dollar since mid-January and Russia’s import ban of U.S. pork have been negative price influences for the hog market. Although corn continues to be under pressure, the rate of decline has slowed… Get the Complete Report »

Dairy
Dairy margins were mixed since the middle of January, holding steady in nearby Q1 but deteriorating sharply in Q2 while deferred margins in the second half of 2010 were also steady over the past two weeks. A sharp selloff in milk futures has been noted since the middle of the month, as commercial disappearance of American cheese is down from a year ago while powder prices have suffered sharp losses recently based on nonfat dairy milk trade. Meanwhile, corn prices continue to slip following the USDA’s January crop report although the rate of decline has slowed over the past week… Get the Complete Report »

Beef
Cattle production margins continued to appreciate since the middle of January, aided mainly by further weakness in corn prices. The market still appears to be adjusting from the USDA’s January crop report that revealed a corn crop much higher than traders were expecting. Moreover, recent strength in the value of the dollar has hurt U.S. competitiveness on the export market and has led to ideas that ending stocks may increase further. Meanwhile, the USDA’s semi-annual cattle inventory report was released Friday and showed the herd down 0.9% from a year ago at 93.701 million head – the smallest since 1959 but still slightly higher than the market was expecting. While this was seen… Get the Complete Report »

Corn
Crop margins continued to deteriorate since the middle of January as the futures market has remained under pressure following the release of the USDA’s latest supply/demand report. In addition to corn production coming in above market expectations, concerns are now building over demand. The U.S. dollar has been steadily appreciating over the past two weeks, which has blunted much of the impact of lower futures prices. Export sales and shipments are running below the pace needed to meet the current USDA forecast, and it is possible we can see even higher ending stocks revealed in subsequent reports. Meanwhile, private forecasts have suggested that corn planted area will be up around 3 million acres from last year. A slight appreciation in basis has offset some of the recent decline in futures prices, although… Get the Complete Report »

Soybean
Crop margins continued to deteriorate since the middle of the month, and are down sharply since the beginning of the year, losing $1.50 in old-crop and $1.00 in new-crop. Both old-crop and new-crop margins are now negative and are at their weakest values since last fall. While old-crop basis narrowed over the past two weeks, this basis appreciation has been more than offset by a 60-cent drop in futures prices. Private forecasts suggesting the South American soybean crop is even larger than the current USDA forecast have been weighing on prices, with indications that export demand is beginning to shift from the U.S. to Argentina and Brazil as well. A sharp appreciation in the value of the U.S. dollar recently… Get the Complete Report »

Wheat
Crop margins deteriorated further since the middle of January, and are now at their lowest levels since last fall. Futures prices continue to be under pressure following the USDA’s latest supply/demand report showing a further drop in export demand which is projected to be the lowest since the 1971/72 crop year. Since that report was released, the U.S. dollar has appreciated sharply which has also limited competitiveness on the world market. While acreage is forecast to be sharply down from last year, stocks are more than ample both in the U.S. and elsewhere in the world to support lower production in 2010. Given how extremely negative both old-crop and new-crop wheat margins currently are, the best strategy in the current environment… Get the Complete Report »

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