Margin Watch: April

May 2, 2011 by Chip Whalen

Hog
Margins deteriorated sharply since the middle of April as a combination of lower hog prices and higher feed costs have put pressure on producers from both sides of the equation. From the revenue side, a recent slide in cutout values has pressured CME Lean Hog futures as weakness in belly prices which had been carrying the cutout along with a lack of strength from the other primals has dampened hopes of optimism built into forward hog futures prices this summer. Monthly Cold Storage data from the USDA indicated pork inventories even with the prior month but up 12.5% from last year. Much of the reason for the increase was ham stocks up 73% from a year ago, accounting for two-thirds of the increase in total pork stocks year-over-year. While much of this is probably explained by the late Easter holiday, the stocks figure was nonetheless considered negative… Get the Complete Report »

Dairy
Margins were mixed over the past two weeks, deteriorating in nearby Q2 and Q1 of 2012 while unchanged to slightly stronger in Q3 and Q4. Milk prices have been relatively flat over the last two weeks in nearby contracts, although deferred contracts in Q4 months have moved to new highs. Generally speaking, milk futures have been able to maintain strength at higher price levels. USDA’s monthly Cold Storage report indicated that American cheese stocks on March 31 totaled 614.1 million pounds, down 23.8 million from January and the first time in 8 years when cheese stocks declined during the month of March–a period where manufacturers typically build supply for use later in the year. Butter stocks were also down 26% from a year ago according to the data. Meanwhile, volatility in the corn market has increased as April was the wettest on record in many parts of the Eastern Corn Belt where planting is now significantly delayed. While there appears to be an opportunity in the first week… Get the Complete Report »

Beef
Production margins generally deteriorated since the middle of April, with the exception of the December and February marketing periods, as live cattle prices weakened relative to price levels staying essentially flat for feeder cattle and corn over the past two weeks. USDA’s monthly Cattle on Feed report indicated March placements up 3.3% from last year, but 0.7% below the average of trade expectations. It was interesting to note that the number of heavy-weight cattle was higher than expected with 30.8% of cattle placements in March represented by animals weighing over 800 pounds compared to 24.6% in February and 26.1% a year ago. The figure would indicate that more market-ready cattle will be available this summer against those… Get the Complete Report »

Corn
Margins have improved slightly since the middle of April amid the sharp gyrations of the futures market. Weekly ethanol production the last few weeks has been reported at a slower than average pace, and initially pressured prices. However, the rebound in prices late last week was due to a realization that blending margins remain near breakeven, and the rationing chore of the market will continue. Domestic weather has also helped to support prices, as planting progress has been historically slow. Planting progress as of May 1 was reported at 13% complete versus 66% last year, and a 10-year average of 40%. The market has priced in some yield reduction based on the slow planting pace, and any further delays will likely add premium to new-crop prices. USDA will report its monthly world supply and demand estimates on May 11. The old-crop demand adjustments… Get the Complete Report »

Soybean
Margins have improved appreciably since the middle of April, as the futures market has priced in a pickup in Chinese demand. China had been virtually absent from the export market for weeks, as South American offers have been more competitive than U.S. soybeans, and kept a lid on prices. China was reported to have cancelled and delayed several cargoes from South America. However, China showed up on the U.S. export sales balance sheet last week and has the market wondering if crush margins are improving in their country. On a negative note though has been the belief that with the slow progress of corn seedings, several acres may be switched to soybeans. While this has the potential to occur, fields that have already been prepared for corn with fertilizers are unlikely to be shifted into soybeans. USDA will report on May 11 both old-crop as well as the initial new-crop balance sheet projections. Nearby margins have bounced back to the 92nd percentile… Get the Complete Report »

Wheat
Margins improved moderately, especially in the new-crop position since the middle of April. Winter wheat conditions have continued to deteriorate over the last few weeks. The winter crop incorporating all states is rated at 34 percent good-to-excellent versus 50 percent on a 10-year average. In looking at selected states, as of April 24, conditions in Oklahoma are a mere 5 percent good-to-excellent, a historically low level. On the other hand, conditions in Ohio are 75 percent good-to-excellent, slightly above the 10-year average. It’s this disparity between different growing regions that has the wheat market on edge. Adding to the uncertainty has been reports that export bans from eastern European countries will be lifted later this year. Stats Canada also reported the largest Canadian wheat seedings since 2008. Nearby margins… Get the Complete Report »

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