Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for October 7th, 2004

Hog Markets
The cash price for hogs has been stronger since the long weekend. Prices hit a bottom on Wednesday after the long weekend and have been moving higher since that time. This follows the trend that we expected ­ cash prices would drop into the long weekend and recover thereafter. The increase in price last week is remarkable, not just because if the short week, but because packers killed 400,000 hogs on consecutive days for the first time ever. Slaughter is expected to continue in the 2.050 to 2.100 million head per week range for the next few weeks. At this pace, born cash prices and cutout values can be expected to post small but steady gains.
The October lean hog contract continues to trade at a discount to the cash price. Should the cash price of hogs remain steady to higher, the Oct contract will have to add $5-6.00 between now and it¹s October 14th expiration. If that happens, the Oct contract would trade at a new contract high, and join the Dec, Feb, May, Jun, Jul and Aug contract, all of whom hit contract highs in the month of expiry. It is likely that the Dec contract is $0.50 from its high of early August, and will have to put in new highs if it is to maintain its spread to the Oct contract.

Feed Markets
Cash corn prices continued to drop for new crop delivery periods following the release of USDA Supply/Demand numbers late last week. Corn production for the 2004/05 crop season was estimated at 10.961 billion bushels up from 10.923 in the Aug report. Ending stocks were also increased to a projected 1.209 billion versus 1.132 reported in Aug. Spot corn supplies continue to diminish as late harvest across most of the Midwest and northern plains delay delivery of new products. An extended growing season aided by improving weather conditions over the past two weeks has increased expectations for final yields with every frost free day contributing to further gains in supply and losses in the futures. End users of corn should anticipate further downside in the weeks ahead, however as more corn acres are harvested, yields will dictate the direction of price.
Soymeal prices were lower again this week as new crop futures pull spot prices downward. Frost in the major bean producing regions of the US was avoided over the past week allowing further filling of soybean crops and predications of higher yields later this year. Bearish production numbers released by the USDA were unable to support the market late last week after they reported final production at 2.836 billion bushels. This is below last months estimate of 2.877 billion. Basis levels remain firm from most crushers, as supplied are tight ahead of new crop deliveries. The late harvest of soybeans will likely cause an unfavorable basis through the first half of October. However, once supplies have been
replenished hog producers should look for increased competition to lower spot delivered prices.