Margin Watch: Mid-July

July 16, 2012 by Chip Whalen

Hog
Margins plummeted over the past two weeks, continuing the downward move from mid-June, as feed prices have soared and hog prices have slumped. All margins are deeply negative now with the exception of 2Q 2013. The extreme weather conditions have extended into the first part of July, as a continuation of high temperatures and a lack of rainfall continues. Crop conditions have now dropped sharply to near-record low levels putting upward pressure on prices as memories of the 1988 drought continue to worry the marketplace. As a result of the poor growing conditions, USDA lowered its yield forecast for the domestic corn crop to 146 bushels per acre, down 20 bushels per acre from the June estimate. Likewise, soybean yields were reduced to 40.5 bushels per acre from 43.9 in June. Interestingly,… Get the Complete Report »

Dairy
Margins were mixed over the past two weeks, as nearby Q3 weakened slightly while deferred periods strengthened modestly. Deferred milk prices have done well to keep pace and exceed the sharp increases in feed prices with many of the contracts now up over $3.50/cwt since the lowest seen in May. The domestic crop situation continues to deteriorate, with crop condition ratings for both corn and soybeans at multi-decade lows, second worst only to the drought of 1988. Soil moisture levels are at near record lows while temperatures have set records throughout the month of June. The USDA recently adjusted its estimate for the domestic corn and soybean crops lower from June, as yield prospects were cut sharply. Corn yields are now projected to be… Get the Complete Report »

Beef
Beef margins were mixed over the past two weeks, weakening decisively for all 2012 periods while strengthening in all 2013 periods. Margins for 2012 are severely depressed with periods through December now all below the 2nd percentile of the last five years. Rising corn prices have been the driving force in margin deterioration as the drought conditions have worsened. Crop and pasture conditions are in fast retreat with only 40% of the corn crop being reported in good-to-excellent condition while pasture conditions as of July 1 were said to be 43% in poor-to-very poor condition. USDA recently adjusted the corn yield estimate lower to 146 bushels per acre, down 20 bushels from the June estimate. Interestingly, USDA also lowered feed usage by a substantial 650 million bushels citing that higher prices would likely curb demand. With total animal inventories steady to slightly higher year-over-year, the reduction in feed usage will be … Get the Complete Report »

Corn
Nearby corn margins have increased substantially since the beginning of July, as both futures’ prices and basis levels have risen. USDA recently slashed ending stocks for the 2012/13 crop by 698 million bushels to 1.183 billion bushels. The estimated reduction in supplies came mainly from a sharp reduction in supplies. Crop condition ratings have been in free fall since the beginning of the growing season, with the current conditions reporting that 40% of the domestic crop is in good-to-excellent condition due to the record heat and drought conditions during development. As a result, USDA lowered yield forecasts from 166 bushels per acre to 146 which resulted in the production side of the balance sheet being reduced 1.82 billion bushels. USDA dropped demand estimates as well citing that record high prices would curb demand. Feed and residual usage was… Get the Complete Report »

Soybean
Both nearby and deferred soybean margins have rebounded sharply since the beginning of July, as both futures’ prices and basis levels have risen. USDA recently reported ending stocks for the 2012/13 crop to be 10 million bushels lower than June’s estimate at 130 million bushels. The reduction in ending stocks came from adjustments on both sides of the balance sheet. Crop condition ratings have been poor for the entire growing season, with the current conditions reporting that 40% of the domestic crop is in good-to-excellent condition due to the record heat and extreme drought conditions. As a result, USDA lowered yield forecasts from 43.9 bushels per acre to 40.5 which lowered production 155 million bushels. USDA cut demand estimates to address the sharp reduction in supply forecasts. The crush was lowered 35 million bushels reflecting the impact of higher soybean meal prices on meal exports and domestic disappearance. Exports were… Get the Complete Report »

Wheat
Nearby as well as deferred 2012 wheat margins have moved sharply higher since the beginning of July, as futures’ prices have more than offset weaker basis levels. USDA recently reported ending stocks for the 2012/13 crop to be 664 million bushels, at the lower end of market expectations. USDA lowered harvested acres 400,000 from last month, which affected the production figure with yield slightly higher versus June. Exports were raised 50 million bushels from last month, as USDA noted sharp production losses out of the FSU, with exports from the region reduced 5.5 million metric tons. China’s production was also lowered by 2 million metric tons. Recent news also reported a developing El Nino pattern in the second half of this year will focus attention on the Australian crop as that event has historically led to drought there. Finally, USDA lowered … Get the Complete Report »

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