Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for February 9th, 2005

Hog Markets
Both cash and futures prices for hogs were lower last week as packers cut back on kill. Slaughter last week was 20K head smaller than the week prior. The smaller kill is the result of packers managing tight margins. After seeing a low at the beginning of this week, prices are expected to recover by the end of the week. Prices have fallen far enough for packers to be in the black, and for cutout to start moving higher.
The lower prices in the futures market were mainly contained to the nearby contracts. The Oct and Dec contracts are both trading at contract highs to start the week, and the contracts for the summer months are within $1.00 to $1.50 of contract highs. The strong prices in these months show the market’s view that the weakness over the past week is not a fundamental change, but rather a bump along the road. Hog prices in the month of January were the best for the month since January of 1997.

Feed Markets
Corn futures have rebounded off last weeks contract lows but continue to show weakness. Argentina continues to experience favorable weather conditions and a bumper crop is still expected. After a Friday report of a record net short position in the market, we saw a small short covering rally Monday to close slightly higher. Attention now is turned towards the USDA ending stock numbers to be reported Wednesday. It is expected that they will come in at about 2.3 billion bushels as compared to the 1.96 billion bushels reported in January. We have not seen levels above 2 billion since the 1992/93 crop season.
Soymeal prices have come off of recent contract lows due to the highly oversold condition in the market. With this in mind don’t expect to see more than a slight bounce in the futures as fundamentals haven’t changed. The USDA report Wednesday will show very little change in ending stocks and weather conditions in South America continue to be positive. As the South American harvest starts rolling in the coming weeks, world stocks will be trending higher, and should put further downward pressure on the market.