USA Hog Markets09 August 2012
US - Margins continued to weaken over the second half of July as feed costs moved steadily higher while hog prices failed to keep pace, writes Doug Lenhart.
One exception to that trend though has been in far deferred periods of 2013, where traders may be anticipating a more significant herd reduction due to the likelihood that sharply higher feed costs will stick in the new crop year. Forward margins remain at or below the 10th percentile through Q1 2013, and only about average from a historical perspective beyond that.
Crop conditions have been declining all summer, and now both corn and soybean condition rating indices are below 1988 for this point in the season. Analysts expect USDA to make another significant cut to their yield and production forecasts in the August WASDE report, with corn below 130 bushels per acre and soybeans under 40. Rainfall may still help to preserve soybean yield potential, and the next two weeks are seen as critical with the crop now moving through its pod-setting stage of development.
The hog market has been weak as the pork cutout is running about $10/cwt. or nine per cent below year-ago levels. Hot summer weather may be impacting grilling demand more than normal this season, and this in turn has limited strength in cash hog prices. Moreover, near to medium-term liquidation as producers cull herds in response to soaring feed costs may likewise pressure the market through the fall.
Producers continue to focus on the second half of 2013 as a combination of higher hog prices with a potential correction in the corn and soymeal markets may present the opportunity to protect margins at or above the 70th percentile.
3rd Qtr ’12 Most Recent Offering of $(12.81), the low was $(13.76), the high has been $14.07 and the 5 year percentile of 5.7 per cent.
4th Qtr ’12 Most Recent Offering of ($17.90), the low was ($19.23), the high has been $7.19 and the 5 year percentile of 2.3 per cent.
1st Qtr ’13 Most Recent Offering of ($9.94), the low was ($10.89), the high has been $6.04 and the 5 year percentile of 10.4 per cent.
2nd Qtr ’13 Most Recent Offering of $4.77, the low was $(0.45), the high has been $9.83 and the 5 year percentile of 41.2 per cent.
The Hog Margin calculation assumes that 73 lbs of soybean meal and 4.87 bushels of corn are required to produce 100 lean hog lbs. Additional assumed costs include $40 per cwt for other feed and non-feed expenses. Thank you to Commodity & Ingredient Hedging, LLC (CIH) for the margin data. Please visit www.cihmarginwatch.com to subscribe to the CIH Margin Watch report.
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