Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for December 9rd, 2004

Hog Markets
Cash prices climbed late last week to their highest price of the year (the highest price of the last 7-years actually.) The strong market for hogs in early December is supported by fewer hogs than are necessary to meet packers needs and continued strong demand for pork. Cutout values moved over $80 again last week for the fist time since early August. The last time prices approached current levels in the month of December was in 1996. Strong cash prices pushed lean hog futures to contract highs across the board last week. The highs were short-lived, as a falling cash market last Friday, and Monday of this week, dropped the board limit down on Monday. The Dec contract is now at a $5.00 discount to the cash, pricing in $1/day drop in the cash from now until expiry next Tuesday
Expectations are for the cash to trade lower this week as packers are finally able to find enough hogs. The impact, however should be minimal as prices are incredibly high and will still be in good shape after one week of lower cash prices. The futures market after Monday¹s drop will likely continue trading lower in the short term as technical indicators had the market overbought at the end of last week. The long term outlook still remains strong, with demand continuing to support strong prices well into 2005.

Feed Markets
Cash corn prices had an interesting week dropping to new lows before climbing off the short-term bottom supported by the recent collapse in the market in the Canadian dollar. Futures were pressured to new lows of $1.91 US per bushel in the nearby December contract. March also reached new lows of $2.02 1/2 per bushel on Thursday of last week. Short covering provided a small bounce in the market early this week, however ideas of increased corn acres in 2005 continued to limit major gains. Increasing production costs for soybeans with Asian rust now present in the US is thought to encourage more corn acres for the next crop season.
Soymeal prices were higher this week in Canada due to a drop in the exchange rate while US prices continued to trade near contract lows. Futures were pressured during last week¹s trade but found support from commercial hedging. Basis changes from US crushers were the main contributor to increased soymeal costs. A narrowing basis supported the cash by $8.00 Can as crushers report high levels of forward priced meal for this month. Forward contracting, which occurred on the price slide of the past 3 months has accounted for a large portion of soymeal capacity in the Midwest. Spot meal may be hard to come by resulting in the higher cash prices.