Margin Watch: February

March 1, 2013 by Chip Whalen

Hog
Margins continued to erode during the second half of February, due primarily to an ongoing decline in hog prices although old-crop feed prices moved higher as well – particularly for soybean meal. Deep losses continue to be reflected in spot Q1 for anyone who is open to the market while Q2 is well below average at just above breakeven levels. Even deferred margins in the last half of 2013 are only slightly above average now from a historical perspective. Hog prices have suffered severe weakness as renewed concerns have developed in the export market which consumes around 25% of domestic pork production. China is reportedly moving to require that all pork shipped to the country include … Get the Complete Report »

Dairy
Dairy margins declined over the past two weeks as the milk market has come under pressure at the same time that feed costs have been on the rise. Nearby margins in spot Q1 are now reflecting a loss and well below average at the 25th percentile, although deferred margins in the second half of 2013 remain quite strong over the 80th percentile from a historical basis. The difference between the two periods continues to stem from the fact that feed costs are projected to be sharply lower for new-crop supplies while milk prices are projected to be at a premium to nearby values. January’s monthly dairy slaughter was the highest in three decades at 296,000 head as producers react to high feed costs and negative margins, suggesting milk production will eventually … Get the Complete Report »

Beef
Beef margins continued the trend that has been in place since the beginning of the month where profitability for groups currently on feed deteriorated while deferred margins for animals yet to be purchased and placed improved. Profit margins against the October, December and February marketing periods all remain well above the 90th percentile of the past 10 years and offer excellent opportunities to secure a strong margin ahead of feeder cattle being placed this spring and summer. Cattle prices appear to have stabilized following extended weakness through the month as beef is starting to firm. The choice cutout is currently up $3.81 from a week ago and the select cutout is up $5.56 from last Thursday. The figures are encouraging given that recent … Get the Complete Report »

Corn
Nearby corn margins have remained relatively flat since the middle of February while deferred corn margins have fallen some. The USDA recently released its annual Baseline Projections for the next 10 years and sees corn stocks rising significantly after this year’s harvest and potentially ending the last few years of tight stocks. These forecasts are based on historical averages for plantings as well as moving back to a trendline yield which is far from being proven. The USDA will release its first official estimate for new crop ending stocks in the May WASDE report. Domestically, both exports and ethanol production have remained subdued due to persistently high … Get the Complete Report »

Soybean
Nearby soybean margins improved since the middle of February while deferred 2013 soybean margins improved purely from basis appreciation as futures’ prices were flat for the period. The USDA recently released its annual Baseline Projections for the next 10 years and sees soybean stocks rising only slightly for the coming crop year as increased production expectations are likely to be consumed by greater demand. The first official estimate for the new crop will be released with the May WASDE report. NOPA reported crush figures for January at 158.2 million bushels, slightly lower than December’s rate but up 15.8 million bushels from January 2012 and the second largest January crush on record. The crush pace has remained … Get the Complete Report »

Wheat
Wheat margins have deteriorated further since the middle of February as both basis levels and futures’ prices have weakened. Exports have picked up in recent weeks as the U.S. wheat market continues to be competitively priced on a global scale. Currently, U.S. wheat is priced at a discount of $25-30/MT to all other origins. Further export business is expected given the current pricing. As prices have come down throughout February, wheat is now priced roughly at parity with corn and begs the question; will wheat enter feed rations at these levels? While it makes sense on a price basis as well as a protein basis, confirmation is lacking but could be revealed at the end of March with the … Get the Complete Report »

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