Margin Watch: July

August 4, 2011 by Chip Whalen

Hog
Margins improved significantly since the middle of July, with a combination of slightly higher hog prices and lower feed costs driving stronger profitability for hog producers. Margins for nearby Q3 out through Q1 2012 are now all at or above the 90th percentile of the past five years, with Q2 2012 profit margins over the 80th percentile. Hog prices remain at contract highs as hog weights have suffered due to the extremely hot weather experienced in the Plains and Midwest this month. USDA reported last week’s average weight in Iowa/Southern Minnesota at 263.7 lbs., down 2.9 pounds from the previous week and 4.7 pounds from a year ago. The latest figure is down 12.1 pounds from this year’s peak weight and the lowest since early July 2009. The hot weather has also raised concerns over crop conditions and yield prospects for both corn and soybeans. The August WASDE will incorporate updated acreage figures from a resurvey of the Dakotas, Minnesota and Montana currently underway, while the yield forecast for both crops will be the first… Get the Complete Report »

Dairy
Margins improved since the middle of July, particularly in the first half of 2012, where milk prices increased significantly over the past two weeks. While deferred margins remain only average from a historical perspective, they are nonetheless positive now even into Q2 2012. It appears optimism is growing that strong milk prices evident nearby will maintain at high levels as we move into next year. Manufacturers are reporting lower milk intake following the intense heat that has scorched the Central U.S. recently, while dairy product demand remains strong as back to school buying programs pick up. Feed costs remain high, and there is concern over hay availability for dairymen across the Plains due to ongoing drought in the region. There are also worries over corn and soybean crop conditions and yields due to the intense heat in the Midwest. USDA is currently gathering data for updated acreage and yield forecasts in the August crop report. With little margin for error on crop production this season, risk premium will likely stay in the market through the remainder of the summer until prospects are better known for both… Get the Complete Report »

Beef
Margins were mixed over the past two weeks—improving against the August and October marketing periods, but deteriorating against the December, February and April marketing periods because the new . The June 2012 period witnessed a slight improvement also, with the projected loss narrowing from what was evident mid-July. Higher fat cattle prices were the reason for nearby margin improvement, with the cost side of the margin equation already determined. As feeder cattle prices have also begun to appreciate since the middle of July, deferred margins came under pressure as higher fat cattle prices did not compensate enough to cover the projected increase in costs. USDA reported July 1 Cattle on Feed up 3.8% from last year when the industry expected only a 2.7% increase. Producers placed 4.1% more cattle in feedlots compared to pre-report estimates anticipating a 6.6% decline in placements. In addition, the July 1 All Cattle Inventory report showed heifers held back for beef cow herd rebuilding declined 4.5% compared to a year ago, when the industry was expecting a 3.3% decline. USDA is currently resurveying acreage in the Dakotas, Minnesota… Get the Complete Report »

Corn
Margins have deteriorated slightly since the middle of July, as stronger basis values have been offset by weaker futures prices. The market has remained choppy over the last two weeks, as extreme weather concerns of hot and dry conditions have abated for now. This timeframe is associated with silking and pollination of the corn crop, the time of the year where yields are made. Adequate moisture is required during this period. Weather forecasts will continue to drive market prices, until better certainty of potential yields is known. On the global front, China has been dealing with food inflation for the entirety of 2011, and pork prices there continue to rise. At present, China is trying to establish long-term incentives for their pork producers to try and ramp up production. This in turn has increased China’s demand for corn, and they have turned to the export market, partly from the U.S., to replenish their reserves. Nearby margins are now back down to the 95th percentile, and deferred 2012 margins are at the 90th percentile. Our clients that… Get the Complete Report »

Soybean
Margins have have deteriorated moderately since the middle of July for treadmill, as lower basis values and lower futures prices both contributed to the decline. Prices have tested the $14 area basis the November contract for the fourth time this year, and resistance continues to be found at that level. Domestic weather has played its yearly role of adding volatility to soybean prices. Soybeans will be entering the pod-filling phase shortly; the phase that will determine yields for the most part. Weekly crop conditions have continued to deteriorate as they do historically, and are now reported to be 62% in good-to-excellent condition versus 60% on a 10-year average. On the global front, China remains largely absent from the U.S. export market, as this tends to be a slower time for exports. China’s domestic pork prices are on the rise, and the People’s Republic is establishing long-term incentives to increase pork production. This in turn has helped turn the soybean crush margin back to a positive, as meal demand has been rising. Nearby margins are now back to the 87th percentile, and deferred 2012 margins are now at the 88th… Get the Complete Report »

Wheat
Margins have deteriorated slightly since the middle of July, as both the basis values and futures prices headed lower. Domestic U.S. wheat futures have seen significant liquidation since February, as world weather concerns have vanished. Weather in the U.S. growing regions has also turned for the better, as welcome precipitation has fallen across the Southern Plains. Russian wheat prices have increased but are still valued at a discount to all other origins. Ukraine will begin to harvest shortly which will continue to fill the world pipeline. An annual wheat crop quality tour which surveys the U.S. Northern Plains spring crop estimates yields at 39.5 bushels per acre, well below last year’s estimate of 43.1 bushels per acre. The trade will focus on the August WASDE report to see where NASS pegs domestic wheat yields. Nearby margins are now down to the 60th percentile and deferred 2012 margins are now near the 72nd percentile… Get the Complete Report »

About the Author

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