Margin Watch: Mid-May

May 16, 2011 by Chip Whalen

Hog
Margins showed increases over the last two weeks as weakening feed prices outweighed recent pressure in the hog market. The latest USDA WASDE report was bearish to both corn and the soybean complex, having 2010/11 ending stocks higher than April estimates, and new-crop projections reflecting a continued tight supply/demand balance into the 2011/12 season. While soybean meal demand has picked up some recently, Chinese demand has remained absent. CME Lean Hog futures declined moderately over the last two weeks as cutout values continued to show weakness. However, Friday’s US Census Bureau report showed that pork exports during the month of March were 103 million lbs larger than February, 120 million lbs larger than a year ago… Get the Complete Report »

Dairy
Margins increased moderately over the past two weeks across all four quarters, as the weakening in feed prices more than offset weakness in the dairy markets. The latest USDA WASDE report was bearish to corn and the soybean complex, both having 2010/11 ending stocks higher than April estimates, and new-crop projections reflecting a continued tight supply/demand balance into the 2011/12 season. While soybean meal demand has picked up some recently, Chinese demand has remained absent. Milk prices have weakened modestly as the premium built up in Class III futures relative to cash declined. Although Bureau of Labor Statistics showed the April Butter Consumer Price Index (CPI) coming off March records, retail… Get the Complete Report »

Beef
Apart from considerable declining margins in the December 2011 and February 2012 marketing periods, beef profit margins were generally unchanged to slightly lower over the last two weeks. On the revenue side, demand is not what it was a month ago, as fed cattle prices were lower for the second straight week and boxed beef prices were lower for the fourth consecutive week. This helped to explain some pull back in feeder prices. The latest USDA WASDE report was bearish to corn, having 2010/11 ending stocks higher than April estimates, and new-crop projections reflecting a continued tight supply/demand balance… Get the Complete Report »

Corn
Margins have deteriorated since the beginning of May amid the continued liquidation of virtually all commodities. USDA reported 2010/11 ending stocks 55 million bushels higher than the estimate in April at 730 million bushels. Exports were decreased 50 million bushels, citing a slow down in that pace; and imports were adjusted higher by 5 million bushels. This puts the stocks-to-usage ratio at 5.4%, still the second lowest in recent history. USDA also reported 2011/12 projected ending stocks for the first time this year at 900 million bushels, and a stocks-to-usage ratio of 6.7%. The initial yield estimate was pegged at 158.7 bushels per acre, below trend line. This was likely done to address the slow planting progress… Get the Complete Report »

Soybean
Margins have weakened since the beginning of May as Chinese demand has remained absent. USDA reported 2010/11 ending stocks 30 million bushels higher than the estimate in April at 170 million bushels. Exports were decreased 30 million bushels due to the sluggish pace over the last few weeks. The stocks-to-usage ratio is now calculated at 5.1%, remaining historically tight. USDA also projected 2011/12 ending stocks to be 160 million bushels, with a stocks-to-usage ratio at 4.8%. Biodiesel production for the 11/12 crop year is projected to increase dramatically, up 1.0 billion pounds from this year. Soybean meal demand has picked up some recently, as DDG prices have reached levels that bring meal back into some rations. Weather and planting progress will be the market focus going forward. As of Sunday, May 8, 7% of the intended soybean crop had been planted versus 19% on a 10-year average. Nearby margins have fallen back to the 83rd percentile… Get the Complete Report »

Wheat
Margins have deteriorated moderately, especially in the old-crop position since the beginning of May. USDA reported 2010/11 ending stocks unchanged at 839 million bushels, while the trade had expected a slight increase. USDA also reported initial 2011/12 ending stocks to be 702 million bushels, resulting in a stocks-to-usage at 30.7% versus this year’s estimate of 34.2%. The bearish portion of the new-crop estimate was the sharp reduction in projected exports. USDA cited that increased world competition would pressure U.S. exports, with the Former Soviet Union’s exports projected to double next year. However, the market will continue to focus on Winter wheat conditions for the short-term. The trend of worsening crop conditions is concerning. The winter crop incorporating all states is rated at 33 percent good-to-excellent versus 48 percent on a 10-year average, and 42% poor-to-very poor versus 23% on a 10-year average. Nearby margins are now back to the 72nd percentile… Get the Complete Report »

About the Author

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