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US Hog Margins

26 January 2012, at 8:42am

US - Margins started 2012 off on a strong note, improving noticeably since the end of the year, writes Doug Lenhart.

Both nearby and deferred periods saw improvement from late December, with margins above the 90th percentile of the past five years through Q3 and back above the 80th percentile in both Q4 as well as into early 2013.

Hog prices appear to have stabilized after a steep drop during December, while feed prices have plunged following the USDA’s January crop report. USDA reported Dec. 1 corn stocks well above market expectations, reflecting the lowest Sep-Nov feed and residual usage since 1996.

Production was also revised up on a higher yield forecast, leaving projected ending stocks virtually unchanged from December. Soybean ending stocks increased 45 million bushels due to lower projected demand, with both crush and export estimates reduced from last month.

Deferred hog prices have recently moved higher, perhaps stemming from uncertainties over potential expansion plans this spring and summer. As a result, projected finishing margins in late 2012 through early 2013 have improved back above the 80th percentile, and many producers are now considering either establishing or adding to protection in these forward periods.

First Qtr ’12 Most Recent Offering of $5.88, the low was ($4.22), the high has recently been $13.87 and the five year percentile of 93.5 per cent.

Second Qtr ’12 Most Recent Offering of $13.28, the low was $2.42, the high has recently been $19.39 and the five year percentile of 92.0 per cent.

Third Qtr ’12 Most Recent Offering of $10.93, the low was $1.20, the high has been $14.07 and the five year percentile of 87.1 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.