Margin Watch: November

December 2, 2013 by Chip Whalen

Hog
With the exception of spot Q4 which is quickly winding down, margins improved slightly since the middle of the month, due mainly to increasing hog prices while steady to lower corn and higher soybean meal provided little benefit from feed costs. Continued concern about how the ongoing PEDv outbreak will impact U.S. swine herds and pork output into 2014 has supported the deferred hog market with ideas that it may take up to a year from now for most systems to develop immunity through exposure to the disease. Meanwhile, larger hog runs at heavier weights the past few weeks have put pressure on the cutout and nearby futures in kind. At the same time, crop producers have held tight to newly harvested corn supplies due to the decline in prices which is supporting record … Get the Complete Report »

Dairy
Dairy margins strengthened since the middle of the month due primarily to higher milk prices with feed costs holding steady. Forward dairy margins remain historically strong through the first half of 2014, above the 90th percentile of the previous 10 years, while margins in the second half of the year although not as strong are still above the 80th percentile of the past decade. Milk prices continue drawing support from the strength in powder and butter, with recent Cold Storage data showing a sharp 25.5% drawdown in butter stocks during the month of October. The reduction represented the largest monthly … Get the Complete Report »

Beef
Beef margins improved slightly since the middle of the month, with movements in feeder and fat cattle contracts largely offsetting while corn was steady to slightly weaker. As has been the case for some time, margins remain negative beyond the spring marketing period, although opportunities continue to exist on fall and winter placements for cattle to be marketed in the spring against the April contract. Feed costs continue to stabilize as corn producers have been tight-fisted with newly harvested supplies. With ample on-farm storage space and depressed price levels, many farmers have been discouraged from selling any grain beyond what had previously been contracted for delivery. This has supported basis at record levels for this time of year in some areas. While recent news of the EPA’s proposal for … Get the Complete Report »

Corn
Corn margins are again slightly lower since the middle of November as fresh news is generally absent. Demand has been the feature as depressed prices have allowed end users to extend coverage. Corn use for ethanol continues to rise relative to last year as ethanol production margins have soared of late. With record low ethanol stocks and depressed corn prices, the trend of greater ethanol production remains on firm ground for the time being despite a potential reduction of EPA standards for renewable fuels. Usage of corn for ethanol is up 9% year-over-year versus the USDA expectation of a 5.4% increase by the end of the crop year. Livestock operators, too, continue to show significant … Get the Complete Report »

Soybean
Nearby soybean margins have continued to increase since the middle of November while deferred soybean margins have been flat-to-lower. The soybean market continues to be a tale of two crop years, as nearby needs remain quite strong while the potential for record new-crop supplies next year has capped deferred prices. Export sales have been the main feature, as exporters have committed 1.355 billion bushels for future delivery representing 93% of the USDA expectation. The elevated sales pace could warrant upward revisions to the USDA export forecast in coming months. Soybean meal export sales have also been quite strong. Forward sales for soybean meal currently … Get the Complete Report »

Wheat
Wheat margins have been flat since the middle of November as futures’ prices have gained while basis values have weakened. The pace of export sales has cooled a bit from October but remains on track to meet the USDA’s expectation. On paper, soft red wheat out of the Gulf is the cheapest supply on the global market which should lead to increased sales in the coming weeks. Temperatures have dropped sharply over the past two weeks creating a real threat to winter wheat as deep freezes could damage any uncovered crops. Snow cover is needed as the crop enters dormancy. U.S. crop conditions are quite … Get the Complete Report »

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