Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for November 5th, 2004

Hog Markets
Lean hog priced recovered nicely after being dragged down by negative market information in October, US-Japan beef negotiations, more meat in cold storage and a negative cattle on feed report. The recovery of the market over the past 10 days has brought the Dec contract within $2.00 of its contract highs ($71.35) and resulted in a new contact high for the June. The recent rally has also pushed the Feb contract higher than the Dec, to which it had been trading at a discount.
The cash hog market has been steady during this time, ending a downward trend. The steady cash prices are the product of packers needing hogs, and finding supplies tight. Slaughter for this week is expected to be 2-3% smaller than the same week last year, and packers are still tight supplies. To sustain higher cash prices, the cutout will need to respond to the lower slaughter with higher values to maintain packer margins. Slaughter for the rest of the year is expected to average 1% below the same time last year. This should keep cash hog prices strong and prevent a large drop in price that is often associated with the fourth quarter of the year.

Feed Markets
The supply of cash corn remains low with cool wet weather delaying corn harvest in northern regions. Lightweight corn taken off prior to the good quality product is being sold in the market at a discount. Suppliers are saying that until harvest progresses to 50% through the northern states, good weight corn may be hard to come by. Ground moisture and damp crops are urgently waiting cool nights and frost filled days to allow for machinery to get back into the fields. Lower futures on Monday pressured the price of cash corn however basis levels remain firm with supplies still an issue.
Soymeal futures started the week with losses depressing cash prices for spot meal. Long-term bearish fundamentals continue to limit upside in the soy market. Soybean harvest has progressed to 86% complete as of the weekend in the US. With futures now at contract lows and the dollar near 12-year highs forward contract prices have not looked this good since early 1999. Extensive forward contracting over the past 2 months, has left meal providers with more than ideal levels of contracted product. End users of meal should be prepared for tightening basis levels for 2005, from those suppliers who sold enough meal in the forward months to cover a large portion of estimated sales.