Margin Watch: Mid-November

November 15, 2010 by Chip Whalen

Hog
Margins improved since the end of October, as corn prices experienced a sharp correction at the same time that hog prices began to recover–particularly in deferred contracts. USDA’s November WASDE report confirmed a further reduction in corn yield to 154.3 bushels per acre, down 1.5 bushels from last month with production dropping 124 million bushels as a result. Ending stocks only declined 75 million bushels though as demand was also reduced from the October forecast. Despite the historically tight stocks/use ratio at 6.2%, the figures were expected by the market. Soybean meal prices though are up over the past two weeks as USDA data revealed a much tighter soy balance sheet than what the market was expecting. Hogs meanwhile are moving higher… Get the Complete Report »

Dairy
Margins were mixed over the past two weeks, as spot Q4 continued to deteriorate since the end of October, Q1 was basically unchanged, and there was a slight improvement in both Q2 and Q3 2011 margins. Despite the improvement though, dairymen are still projected to lose money throughout next year given the combination of feed costs against milk values. Nearby milk prices dropped sharply over the past two weeks, as the cheese market has plunged to a four-month low with both blocks and barrels in a downward spiral. Deferred milk prices however may be holding up on expectations for contraction in the industry during 2011 with the latest USDA November WASDE revealing tighter supply/demand balances for both corn and soybeans. Corn ending stocks declined 75 million bushels from October, while soybean ending stocks dropped 80 million bushels… Get the Complete Report »

Beef
Production margins were generally stronger over the past two weeks, as a sharp decline in corn prices more than offset higher feeder cattle costs in deferred periods while live cattle prices were mostly steady. The much anticipated USDA November WASDE revealed a smaller corn crop, in line with expectations, as national yields are now forecast down 1.5 bushels from October to 154.3 bushels per acre. While production declined 124 million bushels from last month, net demand also declined by 50 million bushels, so that ending stocks were only down 75 million bushels from October. While the stocks/use ratio at 6.2% is very tight historically, it appears the market was braced for this report and profit taking has set in. Feeder cattle prices predictably spiked following the corn selloff, although fat cattle prices have held relatively steady. Beef export demand… Get the Complete Report »

Corn
Margins deteriorated appreciably during the period, as profit taking late last week accounted for all of the loss. NASS reported an average corn yield of 154.3 bushels per acre, down 1.5 bushels from the October WASDE. This lowered the production estimate by 125 million bushels. USDA adjusted the demand side to reflect some rationing at these price levels. USDA lowered feed usage by 100 million bushels to 5.30 billion bushels. USDA raised ethanol usage by 100 million bushels to 4.80 billion bushels due to increased profit margins resulting from record production and record demand. USDA lowered its export forecast by 50 million bushels to reflect a slowing in export sales over the last few weeks. Overall, the corn ending stocks were reduced… Get the Complete Report »

Soybean
Margins have improved during the period, as a result of a higher futures market. NASS lowered its projection of average yield to 43.9 bushels per acre, down 0.5 bushels from the October report. This was a bit of a shock to the market, as analysts had expected the yield estimate to increase rather than decrease. As a result, production was lowered 30 million bushels to 3.536 billion bushels. USDA tweaked the demand side by raising exports 50 million bushels, reflecting the rapid export pace, and China’s seemingly insatiable appetite for soybeans. China’s crushing margins remain at profitable levels, even while that country faces record high domestic prices. China’s appetite for soybeans will likely continue until crushing… Get the Complete Report »

Wheat
Margins deteriorated during the period, as a result of a lower futures market. NASS began reporting winter wheat crop conditions, and its latest reading of 45% good-to-excellent is one of the lowest on record for this time of year. Historically, conditions that are rated this poorly as the crop enters dormancy do not bode well for yields, and typically results in a final yield below trend. Global demand for higher protein wheat remains stout. The U.S. will have the job of being the breadbasket to the world, as export quotas, export restrictions, and further global supply reductions are sending buyers to the U.S. for wheat. The largest balance sheet adjustment from the latest USDA report was a 3.38 million metric ton reduction in China’s ending… Get the Complete Report »

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