Margin Watch: Mid-April

April 17, 2013 by Chip Whalen

Hog
With the exception of the spot Q2 period, hog finishing margins deteriorated since the end of March as feed costs have started to stabilize following USDA’s quarterly stocks and Prospective Plantings reports while hog prices continued to erode. Following the latest quarterly Hogs and Pigs report which revised pig crop numbers higher, USDA updated its meat production forecasts and raised its guidance for 2013 pork production by 130 million pounds or 0.6% to 23.522 billion pounds. In addition, USDA also lowered its forecast for 2013 pork exports by 160 million pounds or 3% compared to the March forecast. Increased supply of pork available in the domestic market resulting from both higher production and lower exports is keeping pressure on prices as the grilling season has been delayed by an extended period of cold weather this spring. Meanwhile, USDA released their April WASDE last week which featured a smaller increase to corn ending stocks than the trade was expecting. Corn ending stocks were … Get the Complete Report »

Dairy
Dairy margins continued to improve since the end of March as milk prices remain very firm while feed costs appear to have stabilized following a significant selloff late last month. From a historical perspective, forward margins are still above the 90th percentile of the previous 10 years through the first quarter of 2014, offering great opportunities for dairies to protect strong levels of profitability. USDA released their April WASDE report last Wednesday, and corn ending stocks were estimated at 757 million bushels, up 125 million from March but 67 million below the average estimate as feed and residual use was not lowered as much as expected. Soybean ending stocks were left unchanged at 125 million bushels, and the monthly report noted a higher projection for … Get the Complete Report »

Beef
Beef margins deteriorated sharply since the end of March following a combination of lower cattle prices and firmer trade in corn. Deferred margins remain quite high from a historical perspective as fall and winter marketing periods are still above the 90th percentile of the previous 10 years, though down from a 10-year high. A drop in feeder cattle futures along with declining live cattle futures prevented a more severe drop in deferred forward margins relative to nearby marketing periods where feeders are already priced. USDA released their April WASDE report last Wednesday that increased corn ending stocks 125 million bushels from March to 757 million, although the figure was 67 million below the average pre-report estimate. Feed and residual use was not lowered as much as expected following the quarterly stocks report that showed March 1 corn stocks at 5.4 billion bushels, reflecting stronger demand assumptions for the second half of the crop year at lower price levels. Moreover, new-crop prices appear to be … Get the Complete Report »

Corn
Corn margins have weakened further since the beginning of April and are now back to levels last seen in June. USDA recently updated its estimate for 2012/13 endings stocks to 757 million bushels, up 125 million bushels from the March forecast. The increased stocks came primarily as a result of reduced feed and residual demand which was lowered 150 million bushels due to the larger-than-expected stocks reported in the Quarterly Stocks Report at the end of March. Exports were lowered by 25 million bushels to 800 million due to the continued slow pace of sales and shipments to date. Corn use for ethanol was increased 50 million bushels due to an expectation for greater production through the second half of the marketing year as production and blending margins have … Get the Complete Report »

Soybean
Nearby soybean margins have improved somewhat since the beginning of April due primarily to higher basis levels while deferred margins have weakened slightly. USDA recently updated its expectation for 2012/13 ending stocks reporting an unchanged view from March and ending stocks expected to be 125 million bushels. Although the stocks estimate remained unchanged, the USDA shifted stocks between categories and raised crush demand 20 million bushels due to the strong export pace of soybean meal as well as continued demand domestically. Exports were also raised by 5 million bushels addressing the strong pace of sales and shipments to date. Offsetting the increased demand was … Get the Complete Report »

Wheat
Wheat margins have improved since the beginning of April as both futures’ prices and basis values have increased. USDA recently increased its expectation for 2012/13 ending stocks 15 million bushels to 731 million bushels. The increase was a result of lower feed and residual expectations reflecting a lower-than-expected disappearance during the December-February quarter as indicated in the March Quarterly Stocks Report. By class, soft red wheat’s balance sheet continues to tighten, as domestic use was increased 11 million bushels this month. Offsetting the increase were decreases for hard winter and hard spring wheat, whose balance sheets have … Get the Complete Report »

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