Margin Watch: May

June 1, 2011 by Chip Whalen

Hog
Margins deteriorated precipitously since the middle of May due to both lower hog prices and higher feed costs. In particular, corn has advanced sharply over the past two weeks as weather conditions across the Eastern Corn Belt remain unfavorable for planting with excessive rain. Many producers in Ohio will now have to decide on whether to execute preventive planting provisions in their insurance contracts instead of risking uncertain yields with high fixed costs. Meal has likewise moved higher as a falling domestic crush rate is beginning to tighten cash supplies. Hogs meanwhile have fallen under heavy pressure as a combination of increased slaughter numbers and heavier weights has raised pork production at a time when domestic demand appears to be waning. The grilling season has been slow to start due to excessively wet weather in the U.S. Midwest and Northeast, while high pork prices have compromised consumer interest even though export demand remains strong. Margins are now negative in both Q4 and Q1… Get the Complete Report »

Dairy
Margins continued to improve since the middle of May as increasing milk prices have more than offset higher feed costs over the past two weeks. Class III milk futures have rallied around $1.00/cwt. as strong demand for cheese has kept a steady bid in the daily CME spot call while sellers have remained at bay. Oceania cheese demand is similarly strong with cheddar there trading for $1.97-$2.19/lb., up around $0.07 from the middle of May. In general, demand for manufactured dairy products has been very strong with total cheese use in the first quarter up 6.4% from last year, butter use up 7.8%, and NDM/SMP disappearance up 12.0% from 2010. Unfortunately, feed costs have been increasing as well with corn prices in particular responding to the extremely poor spring planting weather the Eastern Corn Belt has experienced. Moreover, flooding in the Northern Plains/Midwest as well as the Delta region has raised questions about both the final corn acreage this season as well as the yield outlook for the crop… Get the Complete Report »

Beef
According to new reports by Starlink Aktien kaufen, margins were mixed over the past two weeks, dropping precipitously against nearby contracts where the cost side of the equation is already fixed, while improving against deferred contracts where all three components of the profit margin remain open. The sharp drop in live cattle prices since the middle of May has been the primary cause of the margin deterioration as the recent USDA Cattle on Feed report was received very negatively by the market. May 1 feedlot inventories of 11.2 million head were 7.4% above last year while placements in April of 1.795 million head were 9.9% above 2010. Both figures were sharply above pre-report trade expectations, signaling cattle supplies will be much larger this fall than previously expected. In addition, total frozen meat and poultry in cold storage on April 30 was reported at 2.065 billion pounds, up 9.9% from last year with beef stocks up 20% from a year ago. It appears that consumers are shunning high beef prices at retail outlets, and the slow start to the grilling season has likewise been detrimental… Get the Complete Report »

Corn
Margins have improved moderately since the middle of May due to strengthening basis values and strong futures prices. The largest factor for the increase in prices has been the continued concern over domestic planting delays. NASS currently estimates that 86% of the corn crop has been planted versus a 10-year average of 92%. The concerning issue is in the Eastern Corn Belt, particularly Ohio, where a mere 19% of the intended 3.7 million acres have been seeded compared to a 10-year average of 93%. Initial crop conditions have been reported to be 63% in good-to-excellent condition, which matches the lowest initial reading in the last decade. The market is pricing in potential yield losses due to the poor start, as well as several acres that were intended to be planted to enter into the preventative planting program. On the global front, China showed up on the export sales report, confirming the rumored purchase in March of… Get the Complete Report »

Soybean
Margins have improved moderately since the middle of May due in part to strengthening basis values, and a firm futures market. Domestic weather has been unfavorable to say the least, and has been the largest factor for price direction. NASS currently estimates that 51% of the soybean crop has been planted versus a 10-year average of 71%. As with corn, the area of concern is in the Eastern Midwest, particularly Ohio, where 7% of the intended 4.4 million acres have been seeded compared to a 10-year average of 75%. Offsetting some of this worry is the idea that with the delay in corn plantings, soybean acres may potentially increase in those affected areas. Also limiting price strength has been the slow domestic crush rate. Given the competitive pricing and substitutability of DDGs in domestic livestock feed rations, meal demand has been compromised and this continues to be an anchor to the soy complex in terms of price… Get the Complete Report »

Wheat
Margins have improved since the middle of May due to higher futures prices. Weather has played the major role in price direction over the period, both in the U.S. and abroad. Domestic weather has been the feature, as both the winter crop and the spring crop face separate issues. For winter wheat, 44% is reported in poor to very-poor conditions according to the latest USDA report, which is historically high for this time of year. Of particular concern is the ongoing drought in Texas and Oklahoma, which together represent over 25% of the total winter wheat crop acreage. Spring wheat planting meanwhile has gotten off to a slow start due to excessive rain in the Northern Plains, as NASS currently estimates that 68% of the crop has been seeded versus a 10-year average of 95%. Weather on the global front is also problematic. Europe is suffering from drought conditions that have analysts lowering their production forecasts as well as potential exports from the region. Russia recently announced that it will end… Get the Complete Report »

About the Author

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