Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for November 8th, 2005

Hog Markets
Cash hog bids were higher in most markets and weights have decreased slightly from the week prior, which indicate hog marketings are current. Cutout was quoted lower from the previous week with loins showing some weakness on Monday. This decrease may indicate that export demand has softened slightly but is expected to be a short term phenomenon. Slaughter has been running between 3% and 4% higher than 2004 levels for the last 3 weeks but is expected to be steady and fall slightly below 2004 going into the end of the year.
Lean hog futures gained this week after some volatile two sided trade the week prior. Dec and Feb contracts were up approximately U$2.00/cwt for the week, while all other 2006 contracts registered new contract highs. The strength in the deferred contracts can be attributed to disease issues and the lack of reported sow herd expansion. Considering 2006 is the 4th year of the current hog cycle, the values that are present in all contracts for the upcoming year look profitable given current feed costs.

Feed Markets
Soymeal futures traded range bound over the past week but reached 2 month highs last Thursday before running into technical resistance and trading lower for the past 3 sessions. The market is preparing to absorb big production numbers expected in the next USDA report to be released Thursday morning. Private industry estimates have soybean yields and production above the last reported numbers from the USDA, with ending stocks also projected to increase due to decrease world demand levels. The spread of bird flu is taking it toll on the market with reports this morning of soymeal cancellations due to decreasing bird numbers. A move to the bottom of the 2 month range is likely in the weeks ahead which would provide end users a good opportunity to hedge meal requirements for the next year.
Cash corn prices have increased from a week early driven by firming basis numbers rather than an increase to futures. Nearby Dec has traded 6 consecutive days of contract lows indicating the markets anticipation of large ending stocks and production numbers in Thursday’s report. Cash prices have experienced upside due to slow producer selling, however storage issues in the Midwest are expected to continue, resulting in a general weakness in the value of feed grains. Harvest progress is rapping up reaching 90% as of Nov 6th versus the 15-year average of 80%. Buying feed corn and other grains hand to mouth looks to be the best option for the weeks ahead with little upside expected.