Margin Watch: September

October 1, 2010 by Chip Whalen

Hog
Margins deteriorated over the last half of September, as corn has rallied significantly and increased feed costs at the same time that the hog market is experiencing a sharp correction. Fortunately, this morning’s small grains report from the USDA brought a bearish surprise for corn with September 1 stocks about 300 million bushels above the average trade forecast. This provides a bit of a cushion for an expected drop in yield to be reported next week in the October WASDE, with the domestic supply/demand balance already precariously tight. Meanwhile, the quarterly hogs and pigs report released last week was considered neutral with inventory levels right in line with trade expectations. Hog weights and pork production are expected to increase over the next several weeks, with the onset of cooler weather… Get the Complete Report »

Dairy
Margins were relatively flat over the past two weeks, as a drop in feed costs was offset by lower milk prices since mid September. Milk futures sold off sharply during the second half of the month, as the USDA’s monthly report showed that milk production remained significantly above year-ago levels in August. Last month’s production for the 50 states was estimated at 16.16 billion lbs., up 2.7% from a year ago, according to the report released September 17. There is also concern about demand, as fluid milk sales continue to slump. In the May-July period, fluid milk sales were off 1.9% from last year, according to Federal Order and California data. This is the biggest drop-off since January-March 2008. In the first seven months… Get the Complete Report »

Beef
Production margins were mixed over the past two weeks, as nearby periods weakened while deferred margins in 2011 generally strengthened. Live cattle futures have been trending lower since the middle of September, which has hurt nearby margins against fixed feed costs although deferred margins have reaped the benefit of lower feed costs as corn has likewise moved down since the middle of the month. The USDA’s small grains report indicated corn stocks as of September 1 were 1.708 billion bushels, 300 million bushels over the average trade guess and 322 million over the current estimate for 2009/10 ending stocks. As a result, the October WASDE will reflect the larger estimate… Get the Complete Report »

Corn
New-crop margins improved slightly over the last two weeks, resulting primarily from a strengthening basis. NASS reported September 1 corn stocks at 1.708 billion bushels, up 2 percent from 2009 and 322 million bushels higher than the current estimate based on the September WASDE. The figure had a bearish influence on market prices, as the trade had estimated stocks of around 1.407 billion bushels. USDA will release its October supply and demand estimates October 8. The trade will continue to price in further reductions in domestic corn yields; however, potential lower production will now be offset by the increase in ending stocks carried over from the previous crop year. The market will remain focused on U.S. yields… Get the Complete Report »

Soybean
Margins have improved significantly over the last two weeks primarily due to a higher futures market. NASS reported September 1 soybean stocks in all positions at 151 million bushels, up 9 percent from 2009 and right in line with pre-report estimates. Export sales have been the driving force of higher soybean prices, with sales commitments currently running 52.6% of the USDA’s annual forecast only 1 month into the marketing year. A similar situation exists for soybean oil, where sales are currently running at 52.5% of the annual forecast. China has ramped up purchases of late, accounting for nearly 75% of all soybean sales over the past two weeks. If this trend continues, USDA would likely… Get the Complete Report »

Wheat
Margins have deteriorated significantly over the last two weeks, as the futures market has retreated to the lowest level in two months. NASS report wheat stocks at 2.459 billion bushels, slightly above the average trade estimate of 2.440 billion bushels. NASS also reported all wheat production at 2.224 billion bushels, down 2 percent from August and up slightly from last year. The figure was at the very low end of pre-report estimates. Global weather issues continue to influence market direction, as recent rains in Russia have been favorable for winter wheat planting which may increase acreage. The Russian ban on exports will continue into 2011 and lifting that ban will not be considered until the government has a better idea on the crop size. However, the U.S. export pace… Get the Complete Report »

About the Author

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