Margin Watch: Octobter

November 2, 2013 by Chip Whalen

Margins soared over the second half of October, particularly in deferred periods where summer hogs picked up significant strength. Profitability was also boosted by a continued weakening in feed costs, with both corn and soybean meal retreating over the past two weeks. Profit margins for hog finishers are now at 10-year highs, resting at the strongest levels since 2004 and offering tremendous opportunities for producers to secure favorable returns throughout 2014. USDA returned to work following the passage of a continuing resolution to extend the budget and debt limit impasse into early next year. Hog slaughter data continues to show totals well below … Get the Complete Report »

Dairy margins advanced further over the second half of October, particularly in nearby periods as milk prices strengthened while feed costs declined. Margins are around the 90th percentile of the past 10 years in spot Q4 as well as the first quarter of 2014, while deferred margins are just over the 80th percentile in Q2 and Q3. Milk prices are obviously responding to strong demand signals, with August export figures reflecting significant year-over-year growth. Nonfat dry milk exports totaled 50,542 metric tons, up 19% from August 2012, while U.S. cheese exports hit a monthly record of 28,133 metric tons which was up 40% from last year. At the same time, the monthly Cold Storage report showed a sharp … Get the Complete Report »

Beef margins were mixed over the last half of October, steady to higher in nearby marketing periods, weaker in the April marketing period, and stronger in summer marketing periods where negative profitability is still indicated for cattle placed on feed during winter months. The focus continues to be on the nearby autumn placement period, where profitability can still be secured above the 90th percentile of the previous 10 years against fat cattle to be marketed against April futures. The past two weeks were marked by steady to declining cattle prices while corn was likewise weaker. With the government now open again, the market is anticipating the release of the … Get the Complete Report »

Corn margins have moved lower, continuing the perpetual slide that began at the end of June. The U.S. government is back online and back to reporting key data points for market participants. NASS recently reported domestic harvest progress at 59% complete, slightly below the 5-year average of 62% for this time of year. As farmers continue to harvest, new crop will likely find its way to the grain bin given the carrying charge built into forward prices. On the domestic demand side, FAS recently updated export sales data showing cumulative forward sales at 802 million bushels which represents 65% of the USDA export shipment expectation. The sales pace is … Get the Complete Report »

Soybean margins have weakened slightly since the middle of October as domestic harvest progress advances. NASS is back from furlough and recently reported harvest progress at 77% complete, on par with the 5-year average for this time of year. Reports from the fields have stated better-than-expected yields. Given the inverted profile of forward prices, the cash market is currently rewarding producers who sell immediately out of the field rather than store the oilseed as the market will pay more today than it will in deferred periods. On the demand front, FAS recently updated export sales data which revealed strong demand bringing cumulative sales to 1.184 billion bushels representing 86% of the USDA shipment expectation. The current pace of sales is … Get the Complete Report »

Wheat margins have set back since the middle of October as crop conditions have improved. NASS recently reported crop conditions for all winter wheat at 61% in good-to-excellent condition, near the highest level of the past decade and best since 2010. Export demand has been quite strong with exporters already committing to 753 million bushels for sale which represents 68% of the USDA shipment forecast compared to 57% on average for this period of the marketing year. On the global side, timely rains have fallen across Argentina which has helped to stabilize the deteriorating crop. Most private forecasters expect production to come in … 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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