Margin Watch: May

June 6, 2012 by Chip Whalen

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 »

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 … Get the Complete Report »

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 it will be a long growing season before these new-crop forecasts come to fruition and much can change between now and then. While cattle prices have begun to recover, the market remains under pressure as… Get the Complete Report »

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,… Get the Complete Report »

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 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 »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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