Margin Watch: April

May 1, 2012 by Chip Whalen

Hog
Margins continued the deterioration we have seen since the middle of February on a combination of higher feed costs and lower hog prices. Forward margins are now projecting a loss in Q4, and are only about average on a historical basis through early next year. From the revenue side of the equation, hog prices remain under pressure from increased pork production while export demand has been questionable. The latest USDA Cold Storage report showed total pork in cold storage as of March 31 at 612.6 million pounds, 6.7% higher than a year ago and 8.1% above the 5-year average. A combination of a larger number of hogs coming to market at higher slaughter weights caused Q1 pork production to be 2.4% above a year ago. While this is fairly close to estimates from back in January, the pork cutout is down over 17% from a year ago which would tend to indicate weaker demand. On the feed side of the equation, China was confirmed this past Friday buying… Get the Complete Report »

Dairy
Margins continued to deteriorate over the past two weeks, and are now at or below breakeven through early 2013 – resting in the bottom quartile of the past 5 years. The worsening margins are coming as a result of both lower milk prices and higher feed costs. Milk prices continue to be pressured by indications that supply is exceeding demand in the current environment. USDA’s March Milk Production report showed 50-state milk production at 17.7 billion pounds, up 1.9% from February on a daily average basis and 4.2% above a year ago. The gains were a function of a 3.2% increase in milk per cow as well as a 1% increase in the dairy herd which expanded 12,000 head on the month to 9.266 million cows – the highest since May 2009. Meanwhile, Fonterra’s latest Global Dairy Auction confirmed a lower price trend with all dairy products showing a… Get the Complete Report »

Beef
Beef cattle finishing margins deteriorated sharply since the middle of April with losses now projected in every marketing period through April, 2013. Nearby margins are particularly weak, with severe losses projected on open cattle sales in the June, August and October marketing periods where feed costs are still open and fat cattle have yet to be priced. Recent news of China purchasing a large quantity of U.S. corn jolted the market and renewed concerns over supply tightness at the end of the current marketing year. The purchase of 1.56 million tons of corn last Friday was the largest single day purchase since 1991, and seems to suggest value at current price levels. Meanwhile, although March daily average cattle slaughter was down 2.8% from a year ago, Q1 beef production was actually up 85 million pounds or 1.4% from earlier forecasts… 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 corn crop has been planted versus 3% last year and 2% on average. USDA also adjusted Argentine and Mexican production lower, in line with market expectations. China’s beginning stocks were lowered by a tremendous… 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… 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… Get the Complete Report »

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