Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for August 29th, 2006

Hog Markets
Cash hog bids were weak in the regional markets but the delayed national averages where firm not fully accounting for the recent weakness experienced in cash trade. The regional Iowa / Southern Minnesota price was quoted as $3.50 US/cwt lower for the week as the seasonal decline before the September long weekend began this Monday. The national base cost was quoted as $2.50 US/cwt higher. The cash decline can be considered a seasonal depreciation as supplies become abundant and packers do not need to bid for deliveries. On a more positive note, cutout was quoted as $0.41 US/cwt higher, which coupled with the cash weakness, increased packer margins significantly. The cutout strength at this time of year indicates that pork is in high demand, both domestically and on the international market.
Lean hog futures were lower this week as the ideas that cash has topped dominated the newswires. After hitting new contract highs this week, contracts turned lower, which results in a negative weekly change. Oct 06 through Aug 07 weekly changes were as follows: Oct: -1.65, Dec: -1.22, Feb: -0.97, Apr: -0.90, May: -0.65, Jun: -1.10, Jul: -1.15, and Aug -1.20 all prices US/cwt.

Feed Markets
Soybean crop conditions continue to appreciate increasing yield potential and holding the bean and meal markets from making any significant advances to the upside. The continual weakness has allowed hog producers the opportunity to purchase nearby requirements at 10-year lows, due in part by the value of the Canadian dollar. During 1999 nearby soymeal futures dropped another $20 US below current levels but due to the high exchange rate (low Can $) at the time, producers did not see cash prices down to the current levels. Markets have priced in current conditions which have been favorable but will likely hold steady until the new crop start to come off the fields.
Nearby corn futures were steady to start the week but traded 3-4 cents bushel above last Monday. Talk of a seasonal bottom surfaced as traders referenced private crop tours which indicated conditions below the reported levels from the USDA. As of Monday afternoon corn acres were estimated 57% good/excellent, 5% above 2005 but 4% below the long term average. Trade has been slow during the start of this week with little activity. Prices are not expected to make major moves until closer to harvest or if growing conditions change drastically from now until then. The market has prices in a near 11.00 billion bushel crop, any surprises this year will likely be to the downside with the potential for higher prices.