Margin Watch: Mid-July

July 16, 2013 by Chip Whalen

Hog
Margins deteriorated slightly since the end of June, as hog prices have started to slip while feed costs have held relatively steady. From a historical perspective, forward profit margins for finishing hogs remain at very attractive levels ranging from the 80th to 90th percentile of the past 10 years. Hog prices have started to come under some pressure as pork cutout values are retreating from their highs in late June. There remains concern that bellies have been carrying much of the increase in the overall pork cutout, and while bellies may seasonally increase into the end of the month, more pressure could build on hog prices if the cutout has in fact topped out. Meanwhile, although record high old-crop corn and soybean meal basis continues to weigh on nearby Q3 margins, the outlook for new-crop suggests significantly … Get the Complete Report »

Dairy
Dairy margins held largely steady since the end of June, with movements in milk and feed costs largely offsetting. Forward profit margins for dairy producers remain at historically strong levels, over the 90th percentile with the exception of spot Q3 where record high feed basis for old-crop corn and soybean meal is weighing on profitability in the nearby period. While milk prices are forecast lower from December forward based on Class III futures at the CME, lower projected corn and soybean meal prices more than make up for that to help preserve forward margins. USDA released their July WASDE report, which made minimal adjustments to the new-crop corn and soybean balance sheets. Corn ending stocks increased 10 million bushels from June, as USDA forecast higher … Get the Complete Report »

Beef
Beef margins continued to improve since the end of June, as continued strength in cattle prices was complimented by a weak corn profile. Forward margins are particularly strong against the December marketing period, with both the October and February marketing periods at high historical percentiles also. USDA’s July WASDE report reflected only minor changes to the corn balance sheet, with old-crop imports and feed usage increased due to the ongoing tight supply situation, although new-crop feed usage was cut 50 million bushels so that next year’s ending stocks were only projected up 10 million bushels from last month. Current crop conditions remain quite favorable although the crop is behind in development. There is no indication of weather stress in the forecast which would create a concern for pollination at this point, so trendline yields are still possible. The biggest threat to the crop is … Get the Complete Report » but it can be fought with STW so that is a good news.

Corn
Corn margins are flat but slightly lower since the end of June. The USDA recently updated its projections for both old crop and new crop corn ending stocks. As anticipated, the World Agricultural Outlook Board lowered the old crop ending stocks estimate due to the reduced stocks revealed in the June Quarterly Stocks report. Old crop ending stocks were lowered 40 million bushels to 729 million bushels as imports were raised 10 million and demand for feed was boosted by 50 million bushels. Old crop stocks will likely remain tight until harvest which will keep old crop basis values at historically high levels. The expectation for new crop ending stocks was raised 10 million bushels to 1.959 billion bushels. This initially had no impact toward new crop prices but since has left a negative feel toward forward pricing. Broadly, the USDA dropped supplies by 90 million bushels due to … Get the Complete Report »

Soybean
Deferred soybean margins have risen slightly since the end of June. The USDA recently updated its forecast for both old crop and new crop ending stocks. Old crop soybean ending stocks continue to be projected at 125 million bushels, unchanged since February’s WASDE expectations and likely represents pipeline supplies. Although not shown on the charts below, old crop margins have improved much more than new crop margins. NOPA recently reported June’s crush rate to be 119 million bushels, well above expectations and above what is needed to meet the USDA’s target. This demand, coupled with export demand, has kept old crop basis values at historically strong levels. The USDA also reported on new crop expectations, and increased its ending stocks estimate by 30 million bushels to 295 million bushels. The increase came directly as a result of … Get the Complete Report »

Wheat
Wheat margins have improved slightly since June. The USDA recently pegged 2012/13 ending stocks at 718 million bushels, down 28 million from the June estimate and becomes the official carry-in to the new crop balance sheet. For new crop, USDA estimated ending stock down 83 million bushels from June despite a 34 million bushel increase in expected production. New crop ending stocks are now projected to be 576 million bushels, similar to inventories last seen a decade ago. The USDA made some minor adjustments to the new crop balance sheet with the largest being an expected increase in exports of 100 million bushels, reflecting strong sales of late particularly to China. Winter wheat harvest continues on at a slower pace than previous years. Currently, farmers have harvested 67% of the winter crop compared to 81% last year and 71% on a 5-year average. Yields continue to come in much … Get the Complete Report »

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