Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for September 12th, 2006

Hog Markets
Regional cash markets were firm for the second half of the short week as packers bid up to fill a large Saturday kill of 235,000 head. The big weekend slaughter raised weekly totals to 1.890 million, 2.7% above the same short week last year. National averages reported minor losses accounting for downside experienced the week prior. Daily slaughter in the US reached a new record last Tuesday with 416,000 hogs killed. Additional capacity added to the industry over the year has allowed for the increase to daily kills removing this factor as a once potential threat to prices. Cut-out slipped with retailers noting ample pork supplies on the market. With continued daily kills above 410 K, further losses may be in store for meat values. Packer margins remain positive but are reduced from last week with the rise in cash and drop in primal values.
Lean hog futures were mixed and remain within a dollar of contract highs. Strong US pork exports have more than offset slight production increases implying continued strength for the market in the months ahead. Seasonal declines can not be ruled out but downside beyond this looks limited given current market fundamentals. Oct 06 through Aug 07 weekly changes in futures were as follows: Oct: 0.00, Dec: 0.42, Feb: 0.33, Apr: -0.48, May: -0.08, Jun: -0.57, Jul: -0.52, and Aug -0.40, all prices US/cwt.


Feed Markets
Prices continue to hold steady near contract lows for soybean and soymeal futures. The market awaited USDA Supply/Demand estimates released Tuesday morning resulting in a narrow trading range over the past week. Results from the USDA report indicated increased soybean production which had already been priced into the market as industry estimates were equal to numbers reported by the USDA. Ending stocks for the 2006/07 marketing year dropped to 530 million bushels down from 566 in the August report due to adjustments in usage. Cash soymeal prices are expected to trade with little effect from this report as a large crop had already been factored into current prices. Major price swings are not expected in the coming months given the current stock situation and steady crop conditions, but minor adjustments could arise with any delays to harvest or changes to crop quality going forward.
Corn futures were down 3-4 cents per bushel on Tuesday following the release of US corn production estimates which exceeded industry estimates. The USDA pegged this year’s corn crop at 11.114 billion bushels up from the trade estimate of 10.996 billion. Although production increased with higher than expected yield forecasts, ending stocks were lowered for both this year and next on higher demand and usage numbers. Dec corn futures remain above key support levels but appear vulnerable to further declines in the short term as harvest begins. With the latest report, volatility is expected to climb as any deviation from the current production (lower) will lead to market strength given the new demand forecasts.