Margin Watch: Mid-May

May 17, 2013 by Chip Whalen

Hog
Margins deteriorated since the beginning of May as a loss in hog value more than offset a smaller decline in feed costs over the past two weeks. Forward margins are just above average from a historical perspective, but still positive through the first half of 2014. The hog market continues to be pressured by poor exports, with the March data reflecting an 18% drop from 2012 – the largest year-over-year decline since the summer of 2009. For the first quarter of 2013, pork exports are down about 15% from a year ago, and given year to date pork production very similar to last year, the net result is that 4% more pork must be consumed domestically should this pace continue through the rest of 2013. While pork belly prices have helped carry the pork cutout thus far, there will have to be more of a contribution from … Get the Complete Report »

Dairy
Dairy margins were marginally weaker over the past two weeks as lower milk prices more than offset a slight drop in feed costs since the end of April. The drop in milk was more pronounced in nearby months, particularly June and July which have declined more than $1.00 cwt. since the beginning of May. Despite this, Q2 margin has only declined around $0.25/cwt. since the end of April and margins remain at or above the 90th percentile from a historical perspective through Q1 2014. While there doesn’t appear to be a specific catalyst for the recent sharp decline in nearby milk prices, March exports were not as strong as what might have been expected given the recent production losses outside the U.S. while both block cheddar cheese and butter have been weaker in the recent spot call. There are also signs that dairy cull rates may be slowing as producers respond to … Get the Complete Report »

Beef
Beef margins were mixed since the end of April, deteriorating in nearby marketing periods where feeder cattle is already priced, while flat to firmer in deferred marketing periods where feeder cattle has yet to be priced. The past two weeks have generally featured weaker prices across the board, so lower corn and feeder cattle prices have helped to offset a similar trend in fed cattle prices during the period. Beef finishing margins remain historically strong in both the October and December marketing periods, at or above the 90th percentile of the previous 5 years. On a positive note for deferred margins, the outlook for feed prices is favorable given the first look at USDA’s new-crop balance sheet. The May WASDE projected 2013-14 corn ending stocks at 2.004 billion bushels, up 1.245 billion from the current crop year with the stocks/use ratio easing to 15.5% from 6.8% this season. While planting progress has been … Get the Complete Report »

Corn
Corn margins have weakened since the beginning of May as higher basis values weren’t enough to offset lower futures’ prices. The USDA recently estimated old-crop ending stocks to be 2 million bushels higher than last month at 759 million bushels due to reduced food use. Also reported were the initial expectations for the 2013/14 crop year, and as anticipated, stocks are projected to rebound substantially by September 2014. New-crop ending stocks are estimated to increase to 2.004 billion bushels with record-large production. The USDA kept the planted acres estimate at 97.3 million acres but did lower yield expectations to 158 bushels per acre citing the slow start to this year’s planting reduces the prospects for yields. NASS reported on Monday that U.S. farmers have planted 28% of the expected acreage to date. That compares to … Get the Complete Report »

Soybean
Nearby soybean margins have strengthened since the beginning of May while deferred 2013 margins have weakened. The USDA recently kept its projection for old-crop ending stocks unchanged at 125 million bushels as strong demand continues to be forecast. The soybean meal balance sheet was modified to include higher exports of 550,000 short tons as export commitments continue at a record pace and the second highest volume on record. Also reported were the initial expectations for the 2013/14 crop year. New-crop ending stocks are initially pegged at 265 million bushels, up 140 million bushels from the drought-reduced 2012/13 crop year. The USDA kept the planted acres estimate at 77.1 million acres but increased the yield expectation 0.1 bushel per acre to 44.5 bpa. Farmers have been busy trying to … Get the Complete Report »

Wheat
Wheat margins have weakened since the beginning of May. The USDA recently produced its first estimate for the 2013/14 crop year and initially sees ending stocks down 61 million bushels from last year at 670 million bushels. The USDA estimates planted area down 1.1 million acres from its baseline projections that were released in February. Yields are also projected lower by 2.2 bushels per acre to 44.1 due to survey-based results. The lower yields are in part being attributed to persistent drought and April freezes in the southern and central Plains. Reduced production is the main reason for lower ending stocks which leads to lower demand forecasts particularly for feed use. Feed is estimated 70 million bushels lower this year as lower prices for corn and other feed grains discourages wheat feeding. Current winter wheat crop conditions have … Get the Complete Report »

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