Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for September 16th 2004

Hog Markets
The cash price for hogs has been stronger since the long weekend. Prices hit a bottom on Wednesday after the long weekend and have been moving higher since that time. This follows the trend that we expect ­ cash prices would drop in to the long weekend and recover thereafter. The increase in price last week is remarkable, not just because of the short week, but because packers killed 400,000 hogs on consecutive days for the first time ever. Slaughter is expected to continue in t he 2.050 to 2.100 million head per week range for the next few weeks. At this pace, both cash prices and cutout values can be expected to post small but steady gains.
The Oct lean hog contract continues to trade at a discount to the cash price should the cash price of hogs remain steady to higher, the Oct contract will have to add $5-6.00 between now and its October 14th expiration. If that happens, the Oct contract would trade at a new contract high, and join the Dec, Feb, May, Jun, Jul, and Aug contracts, all of whom hit contract highs in the month of expiry. It is likely that the Dec Contract will also hit new contract higher at the same time as the Oct contract. The Dec contract is $0.50 from its high of early August, and will have to put in new highs if it is to maintain its spread to the Oct contract.

Feed Markets
Cash corn priced continued to drop for new crop delivery periods following the release of USDA Supply/Demand numbers late last week. Corn production for the 2004/05 crop season was estimated at 10.961 billion bushels up from 10.923 in the August report. Ending stocks were also increased to a projected 1.209 billion versus 1.132 reported in Aug. Spot corn supplies continue to diminish as late harvest across most of the Midwest and northern plains delay delivery of new product. An extended growing season aided by improving weather conditions over the past two weeks has increased expectations for final yields with every frost free day contributing to further gains in supply and losses in the futures. End users of corn should anticipate further downside in the weeks ahead, however as more corn acres are harvested, yields will dictate the direction of price.
Soymeal prices were lower again this week as new crop futures pull spot prices downward. Frost in the major bean producing regions of the US was avoided over the past week allowing further filling of soybean crops and predications of higher yields later this year. Bearish production numbers released by the USDA were unable to support the market late last week after they reported final production at 2.836 billion bushels. This is below last months estimate of 2.877 billion. Basis levels remain firm from most crushers, as supplies are tight ahead of new crop deliveries. The late harvest of soybeans will likely cause an unfavorable basis through the first half of October. However, once supplies have been replenished hog producers should look for increased competition to lower spot delivered prices.