Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for August 20th 2004

Hog Markets
Cash hog prices fell last week after trading within a narrow band since the beginning of May. The lower price was the result of slaughter coming in over 1,900 million head and cutout values declining. The fall in the cash was relatively small (especially given the strong cash values) but it was enough to drop the nearby, October future limit down on Monday. The market is concerned because in the middle of August over the past two years, the cash fell sharply, putting in a bottom for the cash in early September, before recovering in October. Last year the cash dropped $9.34 from the 15th of August to its low on September 3rd. The previous year the cash price fell $18.82 from the 15th of August to its bottom on September 4th.
Once the bottom occurred, the cash market made up 2/3 and 100% of what it had last in this period before the October contract went off the board. After yesterday¹s trade, the October contract was at a $12 discount to the cash. This seems like a reasonably large open interest in the October contract, and funds selling out of their long positions. This week¹s drop should be viewed as an opportunity to buy back short Oct contracts, since the cash will likely be higher than the current futures price come the middle of October.

Feed Markets
Corn futures traded both sides of the board over the past week but appear to have found a near-term bottom in both old and new crop contracts ahead of the 2004 harvest. December futures traded within one cent of contract lows ($2.25 US per bushel) on Monday before finding support in the market and trading 12 cents higher. Production numbers reported last week by the USDA indicate further long-term negativity as production was estimated at 10.923 billion bushels up from the previous months estimate of 10.635. Hog producers looking to cover 2004 requirements should look to hedge 30-40% at the current market lows while leaving the remainder of needs open to cash prices for later this fall.
Cash soymeal traded sharply higher this past week driven by tightening basis numbers and increasing old crop meal futures. Reports from US crushers that soybean availability is likely to decrease in the weeks ahead provided much of the upside in prices. Supply/Demand numbers released by the USDA on Thursday of last week provided a near-term floor to the market as production was estimated at 2.877 billion bushels compared to the previous months estimate of 2.940 billion. Yield estimates for the 2004/05 soybean crop were lowered to 39.1 bushels per acre down from 39.9 the month before. New crop futures remain at historically low levels and should be considered good value to end-users. Hog producers should look to cover nearby soymeal requirements extending to the middle of October as nearby prices are expected higher in the weeks ahead.