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US Hog Margins in May 2011

by 5m Editor
13 May 2011, at 9:16am

US - Margins deteriorated sharply since the middle of April as a combination of lower hog prices and higher feed costs have put pressure on producers from both sides of the equation, writes Doug Lenhart, Genesus General Manager, USA.

From the revenue side, a recent slide in cutout values has pressured CME Lean Hog futures as weakness in belly prices which had been carrying the cutout along with a lack of strength from the other primals has dampened hopes of optimism built into forward hog futures prices this summer.

Monthly Cold Storage data from the USDA indicated pork inventories even with the prior month but up 12.5 per cent from last year. Much of the reason for the increase was ham stocks up 73 per cent from a year ago, accounting for two-thirds of the increase in total pork stocks year-over-year. While much of this is probably explained by the late Easter holiday, the stocks figure was nonetheless considered negative for the market.

Meanwhile, the Eastern Corn Belt is experiencing the wettest spring on record in many areas which is significantly delaying corn plantings. Although there remains time to plant the crop without potential yield losses, the uncertainty in an already tight market environment has added risk premium to corn futures.

Profit margins are now back to near breakeven levels in Q4 and Q1 after being above the 90th percentile recently. As such, margin protection strategies should now incorporate more flexibility to allow for improvement over time.

2nd Qtr’11 has experienced a High of $15.61 Margin Opportunity with a Low of $1.56 and the month of April ending with $5.34. The 5 yr Percentile is 47.6 per cent.

3rd Qtr’11 has experienced a High of $13.38 with a Low of $1.30 and the month of April ending with $4.88. The 5 yr Percentile is 73.4 per cent.

4th Qtr’11 has experienced a High of $6.39 with a Low of ($1.53) and the month of April ending with $0.25. The 5 yr Percentile is 72.1 per cent.

1st Qtr’12 has experienced a High of $5.80 with a Low of $0.34 and the month of April ending with $0.34. The 5 yr Percentile is 59.5 per cent.