Margin Watch: July

August 1, 2013 by Chip Whalen

Margins were generally steady over the second half of July, with the largest improvements noted in Q4 and Q1 which each strengthened about $1.00/cwt. from the middle of the month. Hog prices see-sawed over the past two weeks, rising initially and then dropping over the past week as fears grow over a buildup in pork supplies later this fall. Feed costs meanwhile continued to drop, with particular weakness noted in corn as the crop moves through its pollination phase with no weather threats to harm yield potential. Overall profitability for hog finishers remains very strong from a historical perspective, with forward margins at or above the 90th percentile of the previous 10 years through the first quarter of 2014, while Q2 is above the 80th percentile. Hog prices have … Get the Complete Report »

Dairy margins were mixed over the past two weeks, improving in nearby Q3 and Q4 while deteriorating slightly in Q1 and Q2 of 2014. I should mention that our model was recently adjusted to account for a higher percentage of corn equivalent usage in the feed ration, as well as incorporating some basis assumptions not previously included in the model. Furthermore, the percentiles are now based on 10 years of data which distorts comparisons to the levels in the middle of July. Dairy margins still remain strong from a historical perspective, above the 80th percentile through the last half of 2013 while between the 70th and 80th percentiles through the first half of 2014. While milk prices were … Get the Complete Report »

Beef margins were steady to higher over the second half of July, with the October, December and February marketing periods in particular looking quite strong right now on a historical basis. I should point out that our model was recently adjusted to account for a higher percentage of corn equivalent usage in the feed ration, and the percentiles are now based on 10 years of data which distorts comparisons to the levels in the middle of July. Despite these changes, historical margins still exist well above the 90th percentile in each of these periods, with the April marketing period very close to the 90th percentile of the previous 10 years. Much of the improvement in forward margins has come recently as a result of lower new-crop corn prices, with most contracts now trading under $5.00/bushel. USDA’s latest crop condition and progress report showed … Get the Complete Report »Read more with Spartagen XT on the official website.

New-crop margins have deteriorated slightly over the last two weeks, but generally have maintained gains seen earlier this month. The trade remains concerned over the June 30 stocks and acreage surprises USDA reported, forcing weather conditions to be the driver of price direction. Crop conditions remain favorable for the developing crop, with 72% of the crop rated in good-excellent condition. Favorable weather is currently forecast through the key pollination period. The European wheat situation remains another driver of price advances for corn, as the market is pricing in a switch in demand for feed wheat to corn. This has … Get the Complete Report »

Soybean margins have improved over the past two weeks, as spillover support from the wheat market has buoyed prices. Other than the wheat market, soybean prices have been trading mainly off of weather forecasts. Recently, excess rains have slowed interior movement on the Mississippi, causing Gulf basis to soar. With an already tight old-crop balance sheet, the new-crop production will be critical. Crop conditions remain favorable for the developing crop, with 67% of the crop in good-excellent condition. Crush margins have improved further over the period, with the July crush report indicating crushers have been operating at … Get the Complete Report »

Wheat margins have improved moderately, as the advances in the futures market has been partially offset by a weaker basis. Supply issues from Eastern Europe continue to be the talk of the trade, and ideas that Russia will cease exports due to domestic tightness have been circulating. Russian harvest is currently up to 21 MMT and the trade projects a total crop of 48-52 MMT, nearly a 20% reduction from last year’s crop of 61.8 MMT. The U.S. market continues to price in an increase in export demand and has finally started to show up in weekly sales. U.S. wheat prices are relatively highly priced as compared to other countries at present. Domestic stocks remain at ample levels historically, with current stocks-to-usage ratios near 50%. The domestic Spring Wheat crop conditions are at a … 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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We provide customized agricultural price management consulting services and educational programs to livestock and crop producers, food and feed companies, milling, crushing, and trading firms.

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