Margin Watch: Mid-September

September 17, 2012 by Chip Whalen

Hog
Margins fell further over the past two weeks and remain extremely depressed from a historical perspective. Hog prices have been under pressure following heavy slaughter runs recently with increasing pork production. This week’s hog slaughter is expected to be near 2.44 million head which would be the largest in almost 5 years and only around 30,000 short of the all-time high set in 2007 at 2.47 million head. Hog weights have also been running above year-ago levels with year-to-date pork production up 2.25% from 2011. High feed costs have led to notions that producers are in liquidation mode and culling herds, although gilt slaughter data from Ron Plain and Scott Brown at the University of Missouri call that into question. USDA’s September WASDE report raised corn ending stocks 83 million bushels due to … Get the Complete Report »

Dairy
Dairy margins were flat to slightly higher over the past two weeks, as feed costs have started to moderate while milk prices have improved. From a historical perspective, forward margins remain attractive at the 70th to 80th percentile of the past 10 years. Milk prices have firmed up recently due to evidence that the price gap between U.S. and world values is narrowing. The results of the latest Global Dairy Trade auction show the winning SMP bid for September 4th at $3,211 per metric ton, up 7.5% from the last event and the highest price since the February 15th auction. This combined with a recent weakening of the U.S. dollar following the Federal Reserve’s announcement that it will embark on QE3 should be supportive for U.S. exports. July NDM exports of 31,848 MT were down 21% on the month and 19% lower than last year, although … Get the Complete Report »

Beef
Beef margins strengthened since the end of August following higher cattle prices and continued weakness in the corn market. While nearby margins against both the October and December marketing periods remain historically weak below the 10th percentile, deferred margins are relatively strong – particularly against the February marketing period. USDA released their September WASDE report, which was bearish for corn and continued to pressure the market from the selloff that began in the middle of August. Ending stocks were raised 83 million bushels as a result of higher carryover stocks from 2011/12 as demand is already clearly being rationed. In addition, production did not drop as much as expected to offset the lower usage. USDA dropped the yield estimate 0.6 bushels per acre to 122.8, but harvested area was left unchanged at 87.4 million acres. As a result … 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 … 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 lowered by 115 million bushels as expected competition from South America will weigh on the U.S. market. However, current sales of 2012/13 soybeans are record high, with 525 million bushels already sold and further downward revisions seem … 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 Russian crop production 4 million tons due to … Get the Complete Report »

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