Margin Watch: Mid-January

January 18, 2011 by Chip Whalen

Hog
Margins continued to improve slightly since the end of the year, as hog values increased more than feed costs during the first half of January. While all three markets have generally been trending higher, the strength in the grain market and soybean complex paused ahead of the January USDA crop report. Unfortunately, this did not bring good news for hog producers. Corn ending stocks were revised down 87 million bushels to 745 million, with the stocks/use ratio now forecast at 5.5% – the second tightest in history behind the 1995/96 crop year at 5.0%. The global stocks/use ratio was also ratcheted down to 15.2% following a drop in Argentina’s crop forecast due to drought. Soybean ending stocks were likewise revised down 15 million… Get the Complete Report »

Dairy
Margins improved modestly since the end of the year, although projected forward margins still signal losses for milk production through the first half of 2011. Market prices have been very volatile of late. Milk futures have soared as butter prices are now over $2.00/lb., pacing a sharp advance in Class IV milk that has spilled over to the Class III contract as well. Both Class III and Class IV milk futures have advanced $2.00/cwt. over the past month following the strength in butter. Meanwhile, flooding in Australia has affected milk production in Oceania which is likewise supporting powder prices, as Class IV milk has paced the recent rally. At the same time though, feed costs are likewise increasing sharply as USDA highlighted lower crop production for both corn and soybeans in their January report. Ending stocks were reduced for both… Get the Complete Report »

Beef
Production margins continued to appreciate since the end of December, as cattle prices have generally exceeded the increase in feed costs. Both feeder and fat cattle prices have been rising since the end of the year, although the gains have largely been offsetting where the value of deferred live cattle futures has kept pace with the increased cost of securing them for placement nearby. Prior to the release of USDA’s January WASDE report, the corn market had consolidated its gains to start off 2011 with caution over what the numbers would reveal. Unfortunately for cattle feeders, the government revealed a very bullish outlook for corn prices with a smaller crop reducing the forecast for ending stocks this season. Corn yield was lowered 1.5 bushels per acre to 152.8 with production declining 93 million bushels as a result. Ending stocks were subsequently lowered 87 million bushels… Get the Complete Report »

Corn
Margins improved slightly from the end of 2010, as futures and basis values have remained firm. NASS recently revealed final 2010 corn production to be 12.447 billion bushels, resulting from a 1.5 bushel per acre decrease in yields to 152.8 bpa. USDA increased ethanol production by 100 million bushels to 4.90 billion bushels, which was offset by a decrease in feed and residual demand of 100 million bushels. Ending stocks were reported to be 745 million bushels, near pipeline levels. The stocks-to-usage ratio is now near an all-time low at 5.5%, the second lowest on record. NASS also revealed December 1 corn stocks at 10.04 billion bushels, the lowest in three years. The figure implies usage during the Sep-Nov period of 4.117 billion bushels, a record pace for the first quarter. Meanwhile, South American weather continues to be a concern–particularly in Argentina–as only light rains have occurred… Get the Complete Report »

Soybean
Margins have improved slightly from the end of 2010, as futures prices have offset slightly weaker basis values. NASS reduced planted acres by 300,000 and harvested acres by 200,000. The big surprise was a reduction in yields of 0.4 bushels per acre to 43.5, given the market had expected a slight increase. As a result, NASS reported final 2010 soybean production to be 3.329 billion bushels, down 46 million bushels from the December estimate. USDA cut the crush rate by 10 million bushels to 1.655 billion bushels and also reduced residual usage by 7 million bushels. The net result was a decrease in ending stocks of 25 million bushels to 140 million, the 4th lowest in over 30 years. The stocks-to-usage ratio is now at a new all-time low of 4.2% and represents a need for demand rationing going forward. NASS also reported December 1 soybean stocks at 2.277 billion bushels… Get the Complete Report »

Wheat
Margins deteriorated since the beginning of the year, as futures and basis levels weakened. USDA increased the projected exports by 50 million bushels to 1.30 billion bushels. If realized, that would be the largest total since 1992. This increase was partially offset by a reduction in feed and residual use of 10 million bushels. The result was a reduction in ending stocks of 40 million bushels to 818 million bushels. NASS reported December 1 wheat stocks at 1.928, the largest stocks on hand since the 1987-88 crop year. The stocks figure implies second quarter demand of 542 million bushels, up 20% from a year ago. High-protein quality wheat continues to be the most demanded of all the classes. The stocks-to-use ratio for HRW is projected at 28.7% compared to the SRW stocks-to-use ratio of 52.1%. NASS also reported winter wheat seedings to be 40.99 million acres, up 3.7% from a year ago… Get the Complete Report »

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