Margin Watch: Mid-May

May 16, 2012 by Chip Whalen

Hog
Margins recovered a bit since the end of April, although they remain only about average from a long-term historical perspective. Hog profit margins improved primarily as a function of lower feed costs, with a correction noted in both the corn and soybean meal markets. USDA released their May WASDE report, which provided the first look at the new-crop balance sheet for the 2012-13 marketing year. As expected, corn ending stocks are forecast to increase significantly year-over-year, although the report was a bit more bearish than traders expected. USDA raised old-crop ending stocks by 50 million bushels due to a lower feed projection, and failed to … Get the Complete Report »

Dairy
Margins improved slightly since the end of April, primarily due to lower feed costs as both corn and soybean meal prices have begun to correct. Projected forward profit margins remain well below average though, and are still negative through Q3 while only barely above breakeven in Q4 and Q1 of 2013. USDA released their first new-crop balance sheet for the 2012-13 marketing year in the May WASDE, and corn ending stocks are projected to be over 1 billion bushels higher than the current season – significantly easing the stocks/use ratio. Moreover, old-crop stocks were increased by 50 million bushels due to lower projected feed use – counter to pre-report trade expectations. The new-crop soybean meal outlook appears much more … Get the Complete Report »

Beef
Beef margins improved slightly since the end of April, due primarily to lower feed costs. USDA released their first balance sheet for the 2012-13 marketing year in the May WASDE, revealing a significant easing in the projected supply/demand balance for corn. Ending stocks were raised for both old and new-crop, with the stocks/use ratio expected to widen out to 13.7% from 6.7% in the current season. New-crop ending stocks are projected over 1 billion bushels higher than the current season following expectations of a record crop this year which should significantly ease price pressure on cattle feeders this coming fall and winter. As expected, corn prices have begun to correct although… Get the Complete Report »

Corn
Nearby corn margins have deteriorated since the beginning of April while deferred 2012 margins are relatively flat for the period. USDA recently estimated ending stocks to be unchanged from February at 801 million bushels. Based off the accelerated pace of disappearance revealed in the NASS Quarterly Stocks report, the market had expected the USDA to reduce the ending stocks in the latest WASDE report. A few things were offered as reasons behind the status quo estimate. Firstly, wheat feeding had been picking up displacing corn in livestock rations both domestically as well as globally. Secondly, it was noted that due to the early planting pace this year, the USDA expects new crop corn to be harvested prior to September 1 and thus be counted as old crop corn. Currently it is estimated that 7% of the intended… Get the Complete Report »

Soybean
Both nearby as well as deferred soybean margins have continued to gain since the beginning of April, as cash and futures’ prices have moved higher. USDA recently estimated ending stocks down 25 million bushels from March to 250 million bushels, reducing the stocks/usage ratio to 8.2%. The U.S. export forecast was raised 15 million bushels to 1.29 billion bushels based off of lower expected production out of South America. The crush rate was also raised due to the exceptional pace of domestic soybean meal usage. These demand increases were partially offset by a combined reduction of seed and residual usage of 5 million bushels. The USDA also reduced the estimated size of both Argentina and Brazil’s production to 45 million metric tons and 66 million metric tons respectively—in line with private forecasts. With increased demand prospects, domestic weather this spring and summer will be vital for the soybean market going forward, particularly because of the reduced expectation for planted acreage. Nearby margins are now at the… Get the Complete Report »

Wheat
Wheat margins have deteriorated marginally since the beginning of April, as the slight increase in basis values have done little to offset the lower futures’ prices. USDA recently reported ending stocks lower by 32 million bushels from March to 793 million bushels, reducing the stocks/usage ratio to 36.2%. Based off the Quarterly Grain Stocks report, Q3 disappearance was faster than usual and implied greater feeding during the period. As such, USDA raised feed usage by 35 million bushels but lowered seed usage by 3 million bushels addressing the smaller planted acreage estimate. Throughout the verbatim text, USDA refers to slower corn use due to increased wheat feeding, not only in the U.S. but also on a global scale—particularly in China. U.S. ending stocks are considered to be ample at present, but have steadily decreased over the last three years. By class, SRW saw the largest drop in its stocks/usage ratio now at 46.8% compared to 58.4% last month, but are still… Get the Complete Report »

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