Margin Watch: January

February 3, 2014 by Chip Whalen

Hog
margins improved further through the last half of January due to continued strength in hog prices as feed costs held relatively steady over the past 2 weeks. Hog profitability remains off the charts, literally, with Q2 margins in particular posting new all-time highs for our data series. Both Q2 and Q3 are essentially at the 100th percentile of the previous 10 years while Q4 likewise remains very strong from a historical perspective at the 94th percentile. A recent feature has been sharp depreciation in emerging market currencies relative to the U.S. dollar. There is concern that the stronger dollar will begin to impact import/export flows, with negative implications for U.S. meat exports while Argentina and Brazil become more competitive exporters of grain and oilseeds relative to the U.S. Deferred hog futures prices moved to … Get the Complete Report »

Dairy
Dairy margins continued to strengthen in the last half of January, led by an ongoing surge in nearby milk prices. Q1 represents a new all-time high for profitability in that period, while Q2 margins have not been this strong since 2004. Deferred margins in the second half of 2014 are comparatively not as strong, but remain above or near the 90th percentile of the past 10 years. The strength in milk futures continues to be paced by record high cheese prices, with spot block cheddar at the CME and results from the latest Global Dairy Trade auction for cheddar each posting all-time highs at $2.295/lb. and $2.33/lb, respectively. One potential headwind moving forward though is that U.S. prices have now caught up to world values for cheese powder and butter, and our exports may start looking … Get the Complete Report »

Beef
Beef margins were mixed since the middle of January, improving in nearby marketing periods where input costs are increasingly fixed while deferred periods reflected deterioration from rising feeder cattle prices and steady to higher corn costs. Finishing margins remain negative from the June marketing period forward, with feedlots needing to be very selective about particular margin opportunities on various classes of animals. Cattle prices moved to new highs in the second half of January before retreating over the past week. The latest USDA Cold Storage report showed total beef inventories on December 31 at 438.1 million pounds, down 2.8% from November and 5.9% lower than a year ago. The sharp reduction of beef supplies in cold storage definitely helps to explain a lot of the recent strength in prices. Meanwhile, the monthly Cattle on Feed report reflected on feed supplies at … Get the Complete Report »

Corn
Nearby corn margins were slightly higher since the middle of January while deferred corn margins were marginally lower. New information during the period has been limited as cash movement has been slow. Export sales have remained strong with exporters having committed 86% of the USDA sales forecast with seven months remaining in the crop year. Ethanol production has also kept pace with the current USDA estimate. Private forecasters have begun estimating potential seedings for the coming crop year and are expecting roughly 2 million acres less to be seeded this year due to already-depressed new crop prices. On the global front, South American weather remains … Get the Complete Report »

Soybean
Soybean margins have deteriorated slightly over the last two weeks of January as both price and basis values have fallen. NOPA recently released its member crush figures for December reporting a record crush for the month at 165.3 million bushels. Soybean meal demand remains stout both domestically as well as through the export market which has continued to support the crush pace. Exporters have currently committed 70% of the USDA forecast for sale with eight months remaining in the crop year. There has been talk in the cash market of potential Chinese cancellations of previously purchased soybeans which has proven to cap recent price recovery efforts. Further, recent sales have been made with optional origin attached which gives the buyer the right to choose where to source the product. On the surface these developments would be … Get the Complete Report »

Wheat
Wheat margins have continued to fall and have put in new lows for the year. Harsh winter weather has done little to boost prices as fears of winter kill have eased for now. Damages will only be measurable after the crop exits dormancy this spring. While U.S. wheat stocks are expected to be tighter than last year, demand prospects face headwinds. Wheat prices relative to corn still remain unattractive for the most part to switch into livestock rations. Further, exporters are facing competition from nearly every country around the globe. Record exports continue to be reported out of the Black Sea region as sales are currently up 24% from last year. The region has even more to sell the world as supplies remain ample. A record crop from India is also expected which will add pricing pressure to the region. All told, U.S. wheat remains … Get the Complete Report »

About the Author

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