Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for March 7th, 2006

Hog Markets
Regional cash hog prices performed well beginning lower and then gaining value into the end of the week. National cash prices were slightly lower for the week due to the lag and lower spot prices early. The ISM region posted cash bids of $2.50 US per cwt over a week earlier with the national average losing $1.04 US per cwt. Impressive moves in the cutout (up $2.58/cwt) have not been closely followed by the cash market and packers have had the ability to widen their margins. Slaughter had been running slightly below last year levels but came in this week slightly higher at 1.971 million. Although slaughter was slightly higher, disease issues in major hog producing regions of Canada and the Midwest have been identified and packers are reporting some tightness in specific regions. Weights still remain high when compared to historical data but have fallen from 273.8lbs in the first week of January to 269.5lbs last week, which also marks the first time that they came in below 270lbs. Lean hog futures continue to struggle as traders seem reluctant to put any value into the market. Basis (LH-ISM) is currently -0.08, which is classified as inverted. Normal basis for this time of the year is +4.00, which provides evidence that the current lean hog future market is severely undervalued. For the week Apr was down 135 points, Jun was down 55 points but Jul, Aug, Oct, and Dec contracts ended the week 12, 40, 55, and 43 points higher respectively. The nearby contracts are being undervalued as traders feel that cheap domestic poultry at the retail level in the US will eventually pull down pork prices. Cheap poultry in the US market has been caused by the back up in poultry exports due to the spread of Avian Flu in Asia, Europe, the Middle East, and Africa.

Feed Markets
Numerous reports of bird flu spreading across Europe, Asia and Africa in the past week have lowered soymeal demand projections and pressured the nearby contract to its lowest level since late Nov 2005. Fundamentally the soy complex is weak given the poor demand outlook, large soybean ending stock projections and large production slated for South America and the upcoming crop in the US. Ending stocks in the US are currently pegged at 505 million bushels resulting in a stocks-to-use ratio of 17.8% and may see further adjustments higher in Friday’s USDA Supply/Demand report. Recent rains across the Midwest contributed to the weak tone as planting conditions improved substantially given a dry start to the year.
Aggressive long liquidation sent corn futures 5-6 cents lower on Monday accounting for all of the downside seen in the past week. Investment by commodity index funds over the past month appreciated the price of corn for 2006 however traders noted than a technical correction was needed given the steady climb higher since the middle of January. Bird flu related demand concerns and a drop off in weekly export numbers added to the negative tone to start this week. Hog producers who have been affected by the recent tariff placed on US origin feed corn will have to wait until the middle of April to get a more clear picture of the long-term effects on the market.