Margin Watch: January

February 1, 2013 by Chip Whalen

Hog
Margins continued their mixed trend to start off 2013, deteriorating sharply in the first 2 quarters but strengthening in the second half of the year. Hogs have been weak recently which has contributed to the lower margins while USDA’s January crop report was surprisingly bullish for old-crop corn, compounding the impact. The main feature was the December 1 corn stocks figure of 8.03 billion bushels which was below the range of estimates between 8.05 and 8.45 billion bushels. With both exports and ethanol use largely known, the stocks imply higher feed demand in the Sep-Nov quarter than was previously expected. As a result, USDA raised their feed and residual estimate by 300 million bushels in the monthly WASDE – more than offsetting a 200 million bushel cut to exports and a 55 million bushel increase to the crop production estimate. Although the soybean figures were not exactly … Get the Complete Report »

Dairy
Dairy margins were mixed over the first two weeks of 2013, weakening in nearby production periods but strengthening in the second half of the year. A recent selloff in milk compounded the impact of a bullish USDA report for corn which combined to pressure dairy profit margins. The corn stocks figure in particular was quite bullish relative to pre-report trade expectations. USDA pegged Dec 1 stocks at 8.03 billion bushels, 180 million bushels below the average trade guess and below the range of estimates between 8.05-8.45 billion. The figure suggests much stronger feed demand during the first quarter of the marketing year, and USDA raised their feed and residual estimate as a result by 300 million bushels. The adjustment more than offset a 200 million bushel cut to exports as well as a 55 million bushel increase to the production forecast, lowering ending stocks 44 million bushels and tightening … Get the Complete Report »

Beef
Beef margins were mixed to start off the New Year, deteriorating sharply in nearby marketing periods but strengthening further out in 2013. The December 2013 marketing period looks particularly strong, having gained appreciably over the past two weeks and now at the 95th percentile of the past five years. The change in margins has been a function of both increased feed costs and lower cattle prices. On the feed side, USDA’s January crop report was particularly bullish for corn with regard to the quarterly stocks figure. Corn stocks on Dec 1 were pegged at 8.03 billion bushels, 180 million below the average trade guess and outside of the range of pre-report estimates between 8.05-8.45 billion. The number suggests stronger Sep-Nov disappearance than had been anticipated, and caused USDA to increase their feed and residual forecast in the WASDE by 300 million bushels. The adjustment more than offset a 55 million bushel … Get the Complete Report »

Corn
Corn margins have improved slightly since the middle of October as futures prices have strengthened while basis levels remain elevated. Harvest progress continues to advance at a rapid, near-record pace this year, with 91% of the crop harvested to date. Debates surrounding total production remain, as some market participants argue the USDA is still too high on the harvested acres estimate. USDA announced it would not make any changes to abandonment until the January crop report when production for the crop year is finalized. Demand prospects therefore will be the main focus for price direction in the near-term. Weekly ethanol production remains below last year’s level and is currently running 7.8% behind last year’s pace while the USDA estimates a slowing of 10% for the crop year. Export demand has been quite poor for some time, with roughly 403 million bushels sold – 35% of the total projected exports for the marketing year. Although the quantity sold represents … Get the Complete Report »

Soybean
Nearby soybean margins have improved since the middle of October while deferred 2013 soybean margins have likewise strengthened during the period. Soybean harvest has advanced at a near-record pace this year as plant maturation occurred much earlier than normal due to the extreme heat this summer and early spring planting. The latest reports show that 87% of the crop has been harvested. With harvest advanced, the market will begin determining whether demand forecasts are achievable. NOPA recently released its crush figure for September, reporting 119.7 million bushels crushed for the month, up from 110.3 last year. NOPA members represent roughly 95% of all domestic crushing plants which would translate to approximately 126 million bushels crushed for the month including non-members of NOPA. The current USDA projection is for a crush rate of 1.54 billion bushels, translating to just over 128 million bushels per month. Export sales and shipments have been quite … Get the Complete Report »

Wheat
Wheat margins have strengthened a bit since the middle of October as futures prices have moved higher. Winter wheat plantings are now 88% complete with 63% of the crop emerged. Weather forecasts are slightly wetter past November 1 which should help early crop development prior to dormancy. Initial crop conditions were reported to be 40% good-to-excellent versus 46% at this time last year. On the global front, Ukraine recently announced a ban on exports after November 15 due to the poor harvest this past year and a lack of exportable surpluses. Russia also has produced a smaller crop and has seen domestic prices for wheat, flour, and barley increase of late causing the market to worry whether they will likewise place restrictions on exports as they did in 2010. With Egypt and China sourcing large quantities of wheat recently, the E.U. will be relied upon fulfill demand. There is concern however that the E.U. will not be able to meet all this … Get the Complete Report »

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