Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for August 22nd, 2006

Hog Markets
Cash hog bids were very firm in both the regional and national markets while cutout struggled to keep pace. The regional Iowa / Southern Minnesota price was quoted as $2.81 US/cwt higher for the week and the national base cost was quoted as $1.07 US/cwt higher. The cash gain can be considered a seasonal appreciation as packers scramble to fill orders before Sept long weekend. Despite strong packer demand slaughter was reported slightly lower than last year levels, which added to the upside momentum in the cash market. Cutout was quoted as $2.71 US/cwt higher following its losses last week. Other than 2004, cash and cutout are at their highest levels since 1997 for this time of year.
Lean hog futures were higher this week as Oct 06 became the lead month and also gained the most value. Despite the Oct contract gains, basis remains average as cash has also gained value during the same time period. All contracts hit new highs for the second week in a row, which indicates that demand is strong with expectations of that to continue. Oct 06 through Jul 07 weekly changes were as follows: Oct: +2.25, Dec: +2.12, Feb: +1.57, Apr: +1.25, May: +0.35, Jun: +0.33, Jul: +0.10 all prices US/cwt.

Feed Markets
Soymeal futures traded within a narrow band for the second consecutive week with little new market information released to alter the existing weak trend. Cash soymeal was slightly higher in Midwest regions but futures continued to drop with further improvements to the 2006 soybean crop. Conditions were reported 58% good-to-excellent versus 52% last year. Yields projections remain below 2005 final numbers as crop surveys indicate poor pod formation and filling in some major bean producing regions. If yield estimates increase to reach those seen in 2005 ending stocks would likely reach over 700 million bushels the highest level in history. Hog producers can take comfort in a high probability of low meal prices for the coming fall but may choose to extend coverage into 2007.
Contract lows in new crop corn futures initiated commercial buying which lead to higher futures at the start of this week bringing prices within a cent per bushel of last Monday. Exports continue to offer underlying support reported at 95% of the USDA forecasts versus the 5-year average of 77% for this time of year. Production estimates continue to be supported by steady crop condition reports which for the week ending Aug 20th were reported at 58% g/e up 1% from last week and 8% above 2005. Production numbers are negative for the near-term but demand projections for 2007/08 offer considerable support to the market. End users should look for buying opportunities during the coming harvest season.