Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for January 31st, 2006

Hog Markets
After regional cash markets made a come back from the big losses of the previous 2 weeks bids once again declined for live hogs. Cash was down U$3.81/cwt in the ISM, while national prices were steady for the week. Cutout went down slightly with loins, hams and picnics all showing some weakness. The recent losses in the pork product market can be attributed to a large amount of chicken available in the US market. US chicken stocks have soared recently as the global demand has decreased due to the Avian Flu situation in Asia and Europe. This is to be viewed as a short-term product issue as the decreased chicken consumption will need to be replaced and the US pork industry has made significant headway in the international market. Slaughter was 1.7% higher than 2005, however pork production for the week was 3.3% higher as weights continue to add pork to the market.
As expected with all the above short-term negativity, lean hog futures experienced weakness throughout most of the week. The Feb contract lost U$3.03/cwt, which is less than the cash decline for the week and thus still holds a premium. Despite the premium, basis levels are relatively normal for this time of the year. The lean hog futures market has experienced a lot of downside in 2006 and the consensus is that cash and cutout will carve a low soon and the market will turn as the remaining of 2006 looks more positive than what is currently priced into the lean hog futures market.

Feed Markets
Upside in the soy complex stemmed from weather concerns in Argentina where high temps are being seen as a threat to final yields and production potential. Rains forecast for the end of this week and beginning of next are expected to ease the current stress but until moisture is seen the premium is likely to remain in the futures. Negative near-term fundamentals and projections for increased US production are being overshadowed by the current weather conditions and speculative buying from investors dropping money into food based index funds looking for low valued commodities. Volatility will continue with planting uncertainty and weather premiums providing pricing opportunities below current levels. Hog producers who were unable to acquire protection for soymeal on the last move lower in the futures should hold for a break in the futures before extending protection into 2006.
Corn futures posted strong gains during the past week trading to the highest level since Oct 3rd, 2005 reaching $2.22 US per bushel in the Mar contract. Strength from technical buying, index fund investments and a lower production outlook for 2006 lifted old and new crop contracts to the 4-month high. Although supplies remain at record levels for the coming crop year demand from the livestock and ethanol sectors are forecast to increase year over year helping deplete the massive ending stocks from 05/06. The near-term situation for cash corn looks to trade range bound given increased deliveries on market strength but long term will depend on acres planted in the US which remains 2-3 months away.