Margin Watch: Mid-February

February 19, 2013 by Chip Whalen

Hog
Margins deteriorated since the end of January, as hog prices have declined more than feed costs over the past 2 weeks. The markets generally have taken on a weaker tone recently with prices in retreat. USDA’s latest February WASDE report raised ending stocks for corn and cut soybean stocks from last month. While the changes were largely in line with analyst expectations, the world balance sheets were definitely more bearish. In particular, South American crop production was not reduced as much as anticipated, with losses in Argentina made up for by increases in Brazil. As a result, world corn ending stocks at 118.04 million tons were above the range of pre-report estimates while world soybean ending stocks at 60.12 million were on the high end of the range. Hog prices meanwhile have been under … Get the Complete Report »

Dairy
Dairy margins improved since the end of January, as feed costs have been declining while milk prices have largely held steady over the past two weeks. Deferred margins in the second half of 2013 remain exceptionally strong, at the 90th percentile of the previous 10 years. USDA released their February WASDE report which raised ending stocks for corn while soybean ending stocks were reduced. Both figures were largely in line with pre-report estimates, as the market was expecting lower corn exports as well as higher domestic soybean processing. World corn ending stocks however increased over 2 million tons from last month which was above the range of estimates as South American crop production was not reduced as much as anticipated. A similar trend was noted for soybeans as losses in Argentina were largely made up for by increases in Brazil’s estimated production. Meanwhile, milk prices appear to be … Get the Complete Report »

Beef
Beef margins were mixed since the end of January, declining in nearby marketing periods but improving in deferred slots. Both corn and cattle markets have generally been weaker over the past two weeks, so the main point of difference is whether or not feeder contracts have already been priced. Poor feedlot margins have all but removed any demand interest for cash feeders, and that market has been in a virtual freefall to start the month of February. Meanwhile, wholesale beef prices have been exceptionally weak, and this is weighing on fat cattle prices as packer margins are quite poor. The choice beef cutout is down around 2.5% from last year which is a surprise for many industry observers who have been expecting higher beef prices in 2013. Both the loin and round primals are down noticeably from 2012 as consumers appear to be turned off from high priced steaks at the meat counter. The loin primal alone is responsible for … Get the Complete Report »

Corn
Corn margins have lost value since the beginning of February as futures’ prices have fallen while basis levels have remained elevated. The USDA recently updated its forecast for 2012/13 ending stocks, raising ending stocks 30 million bushels to 632 million bushels due primarily to a reduced expectation for exports as the U.S. continues to find increased global competition. The demand outlook has been neutral over the past few months. Demand for exports has continued to fall short of prior expectations, while feed demand is projected to remain firm given the strength of forward livestock margins. The USDA left ethanol demand unchanged, although weekly output has fallen below the 10% expected reduction from last year’s usage level. On the global front, USDA projects … Get the Complete Report »

Soybean
Both nearby and deferred soybean margins deteriorated sharply since the beginning of February as both futures’ prices and basis levels have weakened. The USDA updated its projection for 2012/13 ending stocks recently, dropping final stocks 10 million bushels to 125 million bushels. The reduction in stocks came as a result of increased expectations for the crush of the like amount. Soy product demand has remained quite strong throughout the winter months, with domestic disappearance as well as exports showing no signs of slowing. As a result, domestic basis levels continue to hover as near-record highs for this time of year which has continued to incentivize crushers to produce more. On the global side, the USDA estimated global supplies slightly higher from January. The major adjustments to the global balance sheet were seen in … Get the Complete Report »

Wheat
Wheat margins have deteriorated since the beginning of February as greatly improved basis levels could not make up for largely lower futures’ prices. The USDA recently updated its estimate for ending stocks, lowering the projection 25 million bushels to 691 million bushels. The reduced stocks figure was a result of increased demand expectations for feed use. Historically, adjustments to feed use occur after quarterly stocks reports, and this update was a positive surprise. Currently, wheat is priced competitively to enter into feed rations as a substitute for corn after basis considerations are calculated, particularly in the Southeast. Crop conditions will regai … Get the Complete Report »

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