Margin Watch: Mid-June

June 16, 2011 by Chip Whalen

Margins finished relatively flat since the beginning of June as profitability was initially negatively impacted only to come back this last week. Feed prices have seen a whipsaw movement, as both corn and meal prices advanced sharply to begin June and have since come back to end-of-May levels. The rise in feed prices was attributed to continued concerns over domestic planting progress and worries over the potential of lost planted area. Class III milk prices had a similar price movement, although not nearly as volatile. The advance in CME cheese prices has put U.S. cheddar prices above Oceania prices for the first time since fall 2009. Oceania cheddar prices were roughly unchanged during the period trading at $1.93-$2.18. Also adding to the strength in prices were U.S. cheese exports. For the first four months of 2011, exports were up 68% from last year, equivalent to 5% of cheese production. Cheese imports are also higher year-over-year, up 25% for the first four months. Margins continue to look quite favorable through year-end… Get the Complete Report »

Margins continued to improve since the middle of May as increasing milk prices have more than offset higher feed costs over the past two weeks. Class III milk futures have rallied around $1.00/cwt. as strong demand for cheese has kept a steady bid in the daily CME spot call while sellers have remained at bay. Oceania cheese demand is similarly strong with cheddar there trading for $1.97-$2.19/lb., up around $0.07 from the middle of May. In general, demand for manufactured dairy products has been very strong with total cheese use in the first quarter up 6.4% from last year, butter use up 7.8%, and NDM/SMP disappearance up 12.0% from 2010. Unfortunately, feed costs have been increasing as well with corn prices in particular responding to the extremely poor spring planting weather the Eastern Corn Belt has experienced. Moreover, flooding in the Northern Plains/Midwest as well as the Delta region has raised questions about both the final corn acreage this season as well as the yield outlook for the crop… Get the Complete Report »

Margins steadily improved over the past two weeks in the deferred periods, as fat cattle prices are relatively higher and feed prices have been generally mixed. Feed costs have been mixed during the period, with corn initially trading to its highest spot price in history on planting fears, to this week’s move lower as those fears have subsided. Cattle prices have remained range-bound in nearby contracts, as retailer demand is tepid and choice prices have fallen from the $178 to roughly $172. Deferred prices have seen price appreciation, although only modestly. Beef exports, for April, were reported to be 223.2 million pounds, up 26% year-over-year, and has taken some selling pressure off the market. On Friday, June 17, USDA will issue its Cattle-on-Feed report. Estimates for cattle in feedlots are projected up 5.2% with placements down 6% to 8%. From a profitability standpoint, deferred marketing periods in early 2012, particularly April marketings… Get the Complete Report »

Margins have improved slightly since the beginning of June due to strengthening basis values and steady, yet volatile futures prices. The largest factor for the large swing in prices has been the continued concern over domestic planting delays and loss of planted acreage. NASS currently estimates that as of Sunday June 12, 99% of the corn crop had been planted, which leaves roughly 1.1 million acres left to plant. Initial crop conditions have been reported to be 69% in good-to-excellent condition, which is slightly above the average of the last decade. The market is pricing in potential yield losses due to the poor start; however, if weekly condition reports show consistently good crop readings, those fears will ease. On the global front, USDA reported a significant upward adjustment to China’s feed use for the 2010/11 and 2011/12 crop year, outpacing the anticipated increase in production. Ethanol margins have remained near breakeven throughout the period; however, weekly EIA data shows production of ethanol is on pace to meet the USDA forecast. Nearby margins remain are now at the 95th percentile, and deferred 2011 margins… Get the Complete Report »

Margins have been relatively unchanged since the beginning of June. USDA reported in its monthly outlook of world supply and demand estimates that domestic exports for the 2010/11 crop year would be 10 million bushels less than previously estimated. USDA also reduced its export projection for the 2011/12 crop year by 20 million bushels, citing lower demand and increased world competition particularly out of South America with Brazilian production estimated at a record 74.5 million tons. NASS reported in its weekly planting progress report that 87% of the intended soybean crop had been planted as of Sunday June 12. That compares to 89% over the last decade. NASS also reported early season crop conditions at 67% in good-toexcellent condition versus 65% on a 10-year average. Crush margins were near the lowest level in a year until recently, when flooding along the Missouri river threatened to shut down some crushing facilities causing meal prices to strengthen. Nearby margins are at the 86th percentile, and deferred 2011 margins… Get the Complete Report »

Margins have weakened since the beginning of June due to lower futures prices. USDA reported in its monthly outlook of world supply and demand estimates that domestic exports for the 2010/11 crop year would be 20 million bushels larger than previously estimated. USDA also raised yields for the entire wheat crop by 0.6 bushels per acre. The increase in yield was not expected, as current crop conditions for the winter crop and the slow seeding progress for the spring crop have historically meant lower final yields. Winter wheat good-to-excellent conditions have improved slightly the last few weeks, but remain at 35% versus the 10-year average of 46%. Meanwhile, planting delays in the Northern Plains has spring wheat planting progress at 88% planted versus 100% over the last decade. Weather will continue to foretell price direction for the coming months. On the global front, USDA reduced production forecasts for the E.U. wheat crop by 7.12 million metric tons (roughly 265 million bushels), due to the continued drought in the region. Nearby margins are now below the 70th percentile, while deferred 2012 margins remain above the 80th percentile… Get the Complete Report »

About the Author

Chip Whalen, CIH

Chip Whalen

Chip is one of our resident educators with over fifteen years of teaching, trading, and senior risk management experience.

There is a risk of loss in futures and options trading. Past performance is not indicative of future results. The information contained in this publication is taken from sources believed to be reliable, but is not guaranteed by Commodity & Ingredient Hedging, LLC, nor any affiliates, as to accuracy or completeness, and is intended for purposes of information and education only. Nothing therein should be considered as a trading recommendation by Commodity & Ingredient Hedging, LLC. The rules and regulations of the individual exchanges should be consulted as the authoritative source on all contract specifications and regulations.

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