Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for September 8th 2004

Hog Markets
Cash hog prices surprised the market last week by gaining, instead of dropping, value going into the long weekend. The ISM market gained $1.00 over the week, This was mainly due to a few packers who were forced to increase bids to secure a Friday and Saturday slaughter. The higher cash narrowed packer margins, which are expected to contribute to a softer cash trade this week. For the week that just passed, the cash price was the highest for the week since 1997.
Lean hog futures gained in value last week, but will be challenged to do the same this week if the cash falls. Once this short week is behind us, prices are expected to rise in late September and early October. This is the trend that has occurred over the past two years. Demand during this period should be improving, while slaughter is expected to be relatively steady. If prices do rise, futures will have to rise as well. The futures are at a steep discount to the cash, resulting in a very wide basis. The wide basis will need to narrow so that the cash and futures markets can converge by mid-October. It would not be unreasonable for the Oct contract to rally into expiry to meet the cash, as most futures contracts have done so far this year.

Feed Markets
Spot corn prices traded lower Tuesday following a higher start to the market last week on maturity delays to the US corn crop and frost threats from American Weather Model. The disappearance of frost from the forecast re-instated ideas of a record crop and production for the 2004-05 crop. Supply/Demand numbers to be released this Friday will provide direction to the market with further weakness expected. Availability of spot corn has decreased over the weeks causing firming of nearby basis levels. End users should expect firm basis levels until new crop product enters the supply chain.
Cash soymeal prices dropped following the Labour Day, long weekend as the market dismissed frost threats for later this week. New forecasts predict seasonal temperatures for the next 6-10 days. Basis levels across the Midwest improved last week adding to the negativity in delivered product. Forward meal for the end of 2004 ad all 2005 has moved to the lowest price so fat this year. A sharply higher Canadian dollar trading near 78.00 cents US, low soymeal futures and aggressive basis levels from competing crushers are all contributing the lower prices. Hog producers should consider locking in 50% of requirements at current market levels ahead of the US soybean harvest.