Margin Watch: November

December 2, 2012 by Chip Whalen

Margins slipped since the middle of November as feed costs rose faster than hog prices during the past couple weeks. Hog finishing margins remain negative through the first quarter of 2013, but turn positive through the remainder of the year and are still at relatively strong historical percentiles in the second half of 2013. While hog prices have been holding up well so far in Q4, there is some concern about sustained price strength. USDA monthly Cold Storage data for October showed pork stocks at 606.2 million pounds, down 3.8% from September but up 24% from 2011 and the 7th consecutive monthly 10-year high. The October stocks figure also represented about 29.3% of estimated production for the month, about 5% higher than the average stocks/production figure. Meanwhile, recent sow slaughter data showing that gilts represented only … Get the Complete Report »

Dairy margins were mixed since the middle of November, improving slightly in Q1 but generally weaker in other periods. Milk prices held relatively steady over the past couple weeks while feed costs increased, putting pressure on forward profitability. Renewed concerns have developed over South American crop prospects, with excessive rainfall in Argentina limiting corn planting progress while a lack of rainfall in southern Brazil is causing concern over soy crops there. Demand remains quite strong for soybean meal, and a recent surge in soybean oil exports will likely increase the domestic crush and demand for soybeans in the process. While corn demand remains lackluster, old-crop prices appear well supported in the low-$7.00 range. Concern is also building for … Get the Complete Report »

Beef margins were mixed since the middle of November, strengthening in nearby marketing periods and weakening in far deferred periods. From a historical basis, beef finishing margins remain relatively strong for spring marketing periods as well as for those in late 2013 to early 2014. Feed costs have increased over the past couple of weeks with corn prices moving higher in response to South American weather concerns and renewed interest in wheat. Excessive precipitation in Argentina’s Corn Belt has limited planting progress there, and local crop watchers are beginning to lower expectations on this season’s production. Meanwhile, recent export demand for wheat appears to signal that U.S. prices are competitive on the global market which is offering spillover support for corn. Cattle prices have increased over the past couple weeks, although they have come under pressure recently. It appears that the beef … Get the Complete Report »

Corn margins have improved slightly since the middle of October as futures prices have strengthened while basis levels remain elevated. Harvest progress continues to advance at a rapid, near-record pace this year, with 91% of the crop harvested to date. Debates surrounding total production remain, as some market participants argue the USDA is still too high on the harvested acres estimate. USDA announced it would not make any changes to abandonment until the January crop report when production for the crop year is finalized. Demand prospects therefore will be the main focus for price direction in the near-term. Weekly ethanol production remains below last year’s level and is currently running 7.8% behind last year’s pace while the USDA estimates … Get the Complete Report »

Nearby soybean margins have improved since the middle of October while deferred 2013 soybean margins have likewise strengthened during the period. Soybean harvest has advanced at a near-record pace this year as plant maturation occurred much earlier than normal due to the extreme heat this summer and early spring planting. The latest reports show that 87% of the crop has been harvested. With harvest advanced, the market will begin determining whether demand forecasts are achievable. NOPA recently released its crush figure for September, reporting 119.7 million bushels crushed for the month, up from 110.3 last year. NOPA members represent roughly 95% of all domestic crushing plants which would translate to approximately 126 million bushels crushed for the month including non-members of NOPA. The current USDA projection is for a crush rate of 1.54 billion bushels, translating to just over 128 million bushels per month. Export sales and shipments have been quite strong this year. Cumulative sales stand at 921 million bushels, 73% of the USDA projection. The shipment pace is likewise … Get the Complete Report »

Wheat margins have strengthened a bit since the middle of October as futures prices have moved higher. Winter wheat plantings are now 88% complete with 63% of the crop emerged. Weather forecasts are slightly wetter past November 1 which should help early crop development prior to dormancy. Initial crop conditions were reported to be 40% good-to-excellent versus 46% at this time last year. On the global front, Ukraine recently announced a ban on exports after November 15 due to the poor harvest this past year and a lack of exportable surpluses. Russia also has produced a smaller crop and has seen domestic prices for wheat, flour, and barley increase of late causing the market to worry whether they will likewise place restrictions on exports as they did in 2010. With Egypt and China sourcing large quantities of wheat recently, the E.U. will be relied upon fulfill demand. There is concern however that the E.U. will not be able to meet all this demand given their own supply situation and a record lowl … Get the Complete Report »

About the Author

Chip Whalen, CIH

Chip Whalen

Chip is one of our resident educators with over fifteen years of teaching, trading, and senior risk management experience.

There is a risk of loss in futures and options trading. Past performance is not indicative of future results. The information contained in this publication is taken from sources believed to be reliable, but is not guaranteed by Commodity & Ingredient Hedging, LLC, nor any affiliates, as to accuracy or completeness, and is intended for purposes of information and education only. Nothing therein should be considered as a trading recommendation by Commodity & Ingredient Hedging, LLC. The rules and regulations of the individual exchanges should be consulted as the authoritative source on all contract specifications and regulations.

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