Margin Watch: Mid-March

March 18, 2013 by Chip Whalen

Hog
Margins deteriorated further through the first half of March, following continued weakness in hogs and strength in corn. The recent USDA WASDE report left corn ending stocks unchanged from February, although the balance sheet reflected a 100 million bushel increase in the projection for domestic feed and residual use. It is historically rare for USDA to make any adjustment to domestic demand in front of a quarterly stocks report which is due out March 28, and the change would seem to confirm conviction in the strength of livestock feed demand. Argentina’s crop was also reduced in the report by 500,000 tons which is not expected to lower their export forecast although it does tighten up the global balance sheet. Hog prices meanwhile remain under pressure over ongoing demand concerns. The Russian market is now completely … Get the Complete Report »

Dairy
Dairy margins improved slightly since the end of February due to an uptick in milk prices, particularly in deferred months. Forward margins remain at very high historical levels at or near the 90th percentile over the previous 10 years. This is offering dairy producers the opportunity to lock in or protect strong profitability through the first half of 2014, despite the fact that the spot period continues to be so weak. Corn prices were slightly higher as well over the past week as USDA’s March WASDE report was considered somewhat bullish. While ending stocks were left unchanged for corn, USDA did raise feed and residual usage 100 million bushels which historically is very … Get the Complete Report »

Beef
Beef margins deteriorated further since the end of February and remain extremely depressed through the summer marketing periods although deferred margins against the October, December and February marketing periods where feeder cattle has yet to be placed are quite strong. In fact, deferred margins for the fall and winter marketing periods are all at or above the 90th percentile of the previous 10 years. As a result, there are good opportunities available for feedlots to protect their profitability ahead of buying and placing feeder cattle this spring. One factor in the weaker margins has been recent strength in corn. USDA’s March WASDE report was considered slightly bullish as USDA noted a 100 million bushel increase to their feed and residual estimate, although a similar cut to exports and a slight increase in the import projection left ending stocks unchanged. As adjustments to domestic demand estimates are historically rare in front of a quarterly stocks report, the move signifies conviction of the strength in domestic livestock demand and is a reminder of how … Get the Complete Report »

Corn
Nearby corn margins have improved since the beginning of March as both futures’ prices and basis have moved higher. The USDA recently updated its balance sheets for the 2012/13 crop year, reporting an unchanged outlook for ending stocks at 632 million bushels. Some shuffling between categories did occur, as feed demand was increased by 100 million bushels due to the expanding poultry sector. Demand for exports was lowered by 75 million bushels to 825 million bushels, the lowest since the 1971/72 crop year, due to the slow pace of sales and shipments to date. Imports were increased 25 million bushels. Domestic crop insurance levels have been set at $5.65/bushel and will play an important role in marketings this year given the disastrous drought witnessed last year. On the global front, the USDA reduced expected … Get the Complete Report »

Soybean
Soybean margins improved since the beginning of March due to tremendous strength in basis values, increasing nearly 35 cents per bushel over the period while prices moved lower. The USDA reported ending stocks unchanged from February at 125 million bushels. The soybean meal balance sheet was adjusted slightly, as exports were raised by 100,000 short tons due to the fast pace of sales and shipments to date. Offsetting the increased sales was a like amount of increases of imports. Domestic crop insurance levels have been set at $12.87 per bushel, slightly higher than last year and will play an important role in marketing this year. NOPA also reported the member crush for February to be 136.3 million bushels, on par with last year, but below expectations. On the global front, Brazilian export logistics are … Get the Complete Report »

Wheat
Wheat margins have been flat since the beginning of March as basis values are slightly lower while futures’ prices are slightly higher. U.S. wheat continues to be priced roughly $25-30/MT lower than all other origins and importers are beginning to take note. Export sales and shipments have picked up over the last two weeks and are now on pace to meet the USDA’s estimate. Wheat prices are at parity with corn prices and this continues to beg the question whether wheat will enter into feed rations as a substitute? Some of this may be occurring now, with the recent news of wheat being railed to Southern feedlots due to lower rail costs. The Quarterly Stocks report at the end of March will help confirm whether further substitution is occurring. Crop conditions continue to improve throughout the Plains, but drought conditions remain. Spring rains will be needed to help the crop as it comes out of dormancy. On the global front, the USDA recently increased … Get the Complete Report »

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