Margin Watch: Mid-April

April 23, 2012 by Chip Whalen

Hog
Margins deteriorated sharply over the past two weeks due primarily to a continued slide in hog futures. The feed side of the equation was mixed with soymeal futures still moving higher while corn experienced a significant correction ahead of the USDA’s Prospective Plantings and quarterly stocks reports. Those reports painted sharply contrasting pictures for both corn and soybeans, as well as for old-crop and new-crop. March 1 corn stocks came in 150 million bushels below the average of pre-report expectations, suggesting much higher Q2 MY corn usage and by extension, a much tighter old-crop balance sheet. Meanwhile, 2012 corn plantings are expected to be the highest in 75 years at 95.9 million acres, which was outside of the range of forecasts. Soybean plantings by contrast were below the range of expectations at only 73.9 million acres, portending a tighter new-crop balance sheet against a backdrop of tightening global stocks due to production losses in South America… Get the Complete Report »

Dairy
Dairy margins were relatively flat over the past two weeks, deteriorating slightly in nearby Q2 and Q3 while improving slightly in Q4 and Q1 2013. Milk trade was steady since the middle of March, while feed trends were mixed with corn experiencing a sharp selloff while soybean meal prices continued moving higher. Projected forward margins continue to be below average from a historical perspective, and negative in nearby Q2. While the milk market appears to have stabilized, it is sending mixed signals. From a demand perspective, recent data has been supportive with USDA monthly Cold Storage figures showing February American Cheese stocks down from both January and February 2011. Also, USDA’s ERS indicated January 2012 commercial disappearance of American Cheese above that of the previous year. From supply perspective however, the USDA’s latest Livestock Slaughter report shows that year-to-date dairy cow slaughter through February is up 12,000 head from last year even though the overall dairy herd has expanded by 27,000 head during the same period… Get the Complete Report »

Beef
Beef cattle finishing margins deteriorated sharply since the middle of March due to a free fall in cattle futures. Ongoing controversy over the LFTB issue has raised serious concerns over the impact on beef demand heading into the summer grilling season. The price of beef fat trimmings has been under pressure, and this is contributing to weakness in the cutout as beef trim accounts for some 15% of the overall beef carcass. While the weakness in beef fat trim prices is something tangible that can be measured, less tangible is how consumers will respond to the current controversy with changes in their eating habits. Ground beef makes up around 40% of total beef product share in the meat case, and the possibility of less demand for grilling burgers this summer will likely keep pressure on cattle futures. Meanwhile, the feed side of the ledger does not appear favorable either over the near term following a significant rally in old-crop corn futures in response to a bullish stocks report from the USDA. March 1 corn stocks were pegged at 6.01 billion bushels, 150 million below the average trade estimate which suggests much stronger Q2 demand through the Dec-Feb period… Get the Complete Report »

Corn
Nearby corn margins have deteriorated back to the levels of early October, as futures prices have fallen. Domestic news during the period has been slim, as harvest is now complete and demand prospects are all that is left for the market to follow. Export sales over the last few weeks have been relatively disappointing as compared to historical standards for this time of year; however, cumulative sales stand at 53% of the USDA estimate compared to 42% on average for this week of the marketing year. Export shipments have picked up in recent weeks, but are still slightly behind the weekly pace needed to meet the USDA forecast of 1.6 billion bushels. Regarding ethanol production, weekly data shows a consistent usage of corn over the last 7 weeks ranging from 95 to 97 million bushels. Production of ethanol is on pace to meet the current USDA projection of 5 billion bushels of usage… Get the Complete Report »

Soybean
Soybean margins deteriorated moderately since the middle of November, as futures prices have continued to decline. Domestic news during the period has been slim, as harvest wraps up in the Midwest. Export sales currently stand at 57% of the USDA estimate compared to 54% on average for this week of the marketing year. The sales pace has slowed considerably over the last 6 weeks, reflecting increased competition – particularly out of South America. Export shipments have been waning as well of late and are currently 30 million bushels below the pace needed to meet the USDA forecast of 1.325 billion bushels. On the global front, Chinese crush margins remain weak, creating a slight disincentive to import soybeans. However, the Chinese government is starting to stockpile reserves once again to replace what they sold out a few months ago. The Chinese government is also offering farmers the equivalent of $17 per bushel… Get the Complete Report »

Wheat
Nearby wheat margins have deteriorated since the middle of November, as strengthening basis levels did little to offset the decline in futures prices. The latest crop progress report shows winter wheat in relatively good condition overall. The crop was rated 52% in good to excellent condition, up 2 points from last week; while the poor to very poor came in at 12%, down 4 points from last week. The winter wheat crop was also estimated to be 92% emerged. This has certain implications going forward, namely the fact that there is very little snow cover at present. Snow cover protects the winter crop from hard killing freezes through the winter. The unusually warm weather thus far has kept the crop from damage. Snow cover is needed however, as the cold weather will inevitably arrive. Global wheat prices continue to remain competitively priced, and mostly better than U.S. offers. Continued competition from… Get the Complete Report »

About the Author

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.