Margin Watch: July

July 30, 2010 by Chip Whalen

Hog
Margins improved dramatically since the middle of July, as feed costs have held relatively steady while hog prices have soared. Production margins would actually have improved more if not for a sharp rally in corn and soybean meal prices over the past week that reversed a previous decline since the middle of the month. Wheat prices have risen sharply due to production problems in Europe and the FSU, and this appears to be a rising tide lifting all ships in the grain and oilseed markets as weather and crop conditions remain quite favorable domestically for corn and soybean development. Hog values have found support from a firm cash market and cold storage data. According to the USDA’s monthly Cold Storage report, pork led all species in the size of both month-ago and year-ago inventory declines in June at -7.3% and -23.3% respectively. While it is normal for pork stocks to decline at this time of year… Get the Complete Report »

Dairy
Margins deteriorated since the middle of July, particularly in Q1 2011 where milk prices have been soft relative to a firming trend in feed costs. Despite beneficial growing conditions across the Midwest and historically high crop condition ratings, corn and soybean meal prices have been moving higher recently in sympathy with a sharp increase in wheat prices brought on by production problems overseas. Milk values have been supported in nearby contracts with strong export demand, although uncertainties over further herd reductions and the outlook for a recovery in Oceania production appear to be weighing on deferred contracts. According to the USDA’s Foreign Agricultural Service, U.S. dairy exports… Get the Complete Report »

Beef
Production margins continued to improve in all periods, with firm cattle prices against relatively stable corn prices supporting most of the improvement. In deferred periods, variable feeder cattle costs cut into the margin improvement somewhat, as feeder values have been rising along with fat cattle prices, although not to the same extent. Weather has been quite favorable for corn as the crop moves through pollination, and crop condition ratings remain at historically high levels, although prices have firmed recently after a sharp rally in wheat due to production problems in Europe and the FSU. USDA reported monthly Cattle-On-Feed at 10.07 million head, up 3.3% from last year, and the second straight month that inventories have been larger… Get the Complete Report »

Corn
New-crop margins have deteriorated slightly over the last two weeks, but generally have maintained gains seen earlier this month. The trade remains concerned over the June 30 stocks and acreage surprises USDA reported, forcing weather conditions to be the driver of price direction. Crop conditions remain favorable for the developing crop, with 72% of the crop rated in good-excellent condition. Favorable weather is currently forecast through the key pollination period. The European wheat situation remains another driver of price advances for corn, as the market is pricing in a switch in demand for feed wheat to corn. This has yet to occur. Exports have surpassed USDA’s estimate of 1.950 billion bushel… Get the Complete Report »

Soybean
Margins have improved over the past two weeks, as spillover support from the wheat market has buoyed prices. Other than the wheat market, soybean prices have been trading mainly off of weather forecasts. Recently, excess rains have slowed interior movement on the Mississippi, causing Gulf basis to soar. With an already tight old-crop balance sheet, the new-crop production will be critical. Crop conditions remain favorable for the developing crop, with 67% of the crop in good-excellent condition. Crush margins have improved further over the period, with the July crush report indicating crushers… Get the Complete Report »

Wheat
Margins have improved moderately, as the advances in the futures market has been partially offset by a weaker basis. Supply issues from Eastern Europe
continue to be the talk of the trade, and ideas that Russia will cease exports due to domestic tightness have been circulating. Russian harvest is currently up to 21 MMT and the trade projects a total crop of 48-52 MMT, nearly a 20% reduction from last year’s crop of 61.8 MMT. The U.S. market continues to price in an increase in export demand and has finally started to show up in weekly sales. U.S. wheat prices are relatively highly priced as compared to other countries at present. Domestic stocks remain at ample levels historically, with current… Get the Complete Report »

About the Author

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