Margin Watch: June

July 1, 2011 by Chip Whalen

Hog
Margins continued to improve since the middle of June due to plummeting feed costs while hog prices have held up much better. In particular, corn has been in sharp retreat over the past two days following the release of the USDA quarterly stocks and acreage reports. In a shock to the market, USDA reported June 1 stocks at 3.67 billion bushels, down 15% from last year but 346 million bushels above the average trade guess and outside even the high end of the range of estimates. USDA also pegged corn acreage at 92.3 million, up 100,000 acres from the March planting intentions and likewise well above the average trade guess of 90.8 million acres as well as outside the range of estimates. The price response was equally shocking as corn set a record for a single day price change both in nominal and percentage terms. USDA also released their quarterly hog and pig report on June 24 which was relatively neutral with the exception of the 120-179 lb. weight class that came in up 3.3% from a year ago versus the average trade guess for a 1% increase… Get the Complete Report »

Dairy
Margins were relatively flat over the past 2 weeks, although they did improve in nearby Q3 which is now approaching the 90th percentile of the past five years. While margins themselves were flat during the second half of June, prices were anything but. USDA released their revised acreage and quarterly stocks data yesterday, and both reports shocked the market. June 1 stocks of 3.67 billion bushels while down 15% from a year ago were 346 million bushels above the average trade guess as well above the range of expectations. Similarly, corn acreage at 92.3 million was not only above the average trade estimate of 90.8 million, but also higher than the March planting intentions figure of 92.2 million and also outside of the range of estimates. Corn prices plummeted in response to the data, with the market off 20% at one point today from the high earlier in June. Meal prices have likewise dropped since the middle of June due to continued poor domestic feed demand. Milk prices have held up well in nearby contracts, although weakness has been noted in deferred months, explaining the lack of margin improvement from Q4 forward. Milk… Get the Complete Report »

Beef
Margins were mixed over the past two weeks: improving in nearby marketing periods, holding steady against the February marketing period, but deteriorating further out in 2012. Cattle prices have rebounded since the middle of June which has helped producers with feeders already priced; and in particular, those with corn costs open as well. The corn market dropped sharply since the USDA released their revised acreage and quarterly stocks reports yesterday. Corn stocks on June 1 at 3.67 billion bushels were up 346 million from the average trade guess, and outside the range of pre-report trade expectations. Acreage was also a shock for the market at 92.3 million which was up 1.5 million from the average trade guess as well as higher than the range of estimates. The figure even exceeded the March planting intentions, which confounded analysts given the late planting and flooding issues producers endured this spring. Corn has dropped 60 cents in the past two days and at one point was down 20% from the high earlier in June. USDA’s… Get the Complete Report »

Corn
Margins have deteriorated broadly since the middle of June, as the futures market has sunk over the past week. The largest factor for the decrease in prices was the release of the NASS reports for planted acres and quarterly stocks. NASS reported planted acres at 92.3 million, up 1.6 million acres from their estimate in the June WASDE report. Harvested acres were also increased to 84.9 million. Both figures were well above the high end of estimates. NASS also reported quarterly stocks in all positions to be 3.67 billion bushels, also above the high end of estimates. This figure measures Q3 disappearance and implies the lowest feed/residual usage for that period over the last 30 years. Given the known demand from exports and ethanol, feed/residual usage fell by 44% year over year for March/April/May. Going forward, the market will continue pricing in potential yield losses due to the poor start and flooded areas, as well as several intended acres that entered into the preventative planting program. On the global front, China continues to be rumored as buyers of U.S. corn on this most recent break in prices. Nearby… Get the Complete Report »

Soybean
Margins weakened considerably since the middle of June, as the futures market has fallen back to the lows seen in May. NASS reported planted acres at 75.2 million acres, down 1.4 million acres from the March planting intention report. Harvest acres were also revised lower to 74.3 million. Both figures were below the low end of estimates. NASS also reported quarterly stocks in all positions at 619 million bushels as of June 1. The figure represents a 3-year high level for soybean stocks heading into the 4th quarter of the marketing year, and is also nearly 50 million bushels larger than year-ago levels. Exports through the period have continued to be sluggish. Chinese officials have raised the price cap for edible oils, and crush margins are slowly turning positive. Domestic weather will have the most influence to price for the remainder of the growing season, as yields will be determined in August during the pod filling stage… Get the Complete Report »

Wheat
Margins have deteriorated virtually every day since the middle of June. Several factors contributed to the decline, namely the announcement that Russia was returning to the export market beginning in July. Domestic Russian wheat prices were at large discounts to international wheat values, and although very little business has been transacted, world prices have retraced to address the additional supply. Further adding to price pressure has been the easing of concerns over European weather issues. Timely rains have fallen and have improved crop conditions for now. NASS reported all wheat planted acres at 56.4 million, down 1.6 million acres from the March planting intentions report. The estimate was in-line with pre-report expectations. NASS will re-survey some states to confirm planted area and would report any discrepancy as early as the August WASDE report. Nearby margins are now at the 51st percentile, near the lowest… Get the Complete Report »

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