Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for February 14th, 2006

Hog Markets
Midwest cash markets gained significantly this week while national averages also gained but to a lesser degree. Regional cash markets are now at their highest level of 2006 and since pre-holiday rallies of Dec 14, 2005. The ISM ended the week U$7.01/cwt higher and the NBC was U$3.12/cwt higher. Cutout also gained value but to a much lesser degree than cash. Cutout went up U$3.30/cwt but will need to find more support as certain cash prices have now surpassed the cutout value. Thus, packers now have negative margins, something they have not experienced since July, 2005 and cutout will need to increase to continue the current higher trend in cash. Slaughter was 0.6% less then the same week a year ago marking the first time that we have had a lower slaughter level since Dec 17, 2005. Due to heavy hog weights (which have been on the decline), pork production remained 0.7% above year ago levels.
Lean hog futures experienced some strength from firm fundamentals and its oversold condition after the sell off in the month of January and beginning of February. The nearby Feb contract, which expires on Tuesday, Feb 14 ended the week U$3.25/cwt higher and was the strongest contract on the board. Apr which becomes the front month at noon on Tuesday ended the week up U$1.28/cwt at a value of U$62.60/cwt. The market tone has changed substantially from the volatility it had occurred in the past month and a half but fundamentals will have to remain favorable to keep the trend up. Currently, all fundamentals other than the sluggish cutout indicate a stronger market in the short term.


Feed Markets
Supply and demand numbers released by the USDA late last week influenced the soy market as trader’s anticipated reduced demand for soybeans. Confirmation of weak exports were reported Thursday with the increasing of US soybean ending stocks to 550 million up 50 from the previous report. Cumulative exports currently sitting at 53.6% of the USDA projections are behind the 66.1% average for this time of year. Although the fundamentals within the industry are negative at this point, the inability of the market to trade significantly lower after the report indicates downside may be limited ahead. Coverage of soymeal usage for the summer months should continue on price breaks as weather could lead to a quick change to the steady to lower trend.
A move to the highest price in over 4 months for nearby corn futures brought about profit taking and speculative selling pressuring the market 10 cents per bushel from the high last Tuesday. The USDA reported a strong export pace and excellent domestic demand from the livestock and ethanol sectors lowering ending stocks to 2,401 million bushels down 25 from a month earlier. Stocks to use ratios dropped slightly but remain near the highest level on record for US corn production. Talk of supplies tightening as far out as next fall and into 2007 have end users considering protection 12-18 months ahead. Weather in South America has added volatility as the crops move into the reproductive stages and become more susceptible to heat.