Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for December 5th, 2005

Hog Markets
Regional cash markets gained each day for the second week in a row and the gains realized were more abundant than the prior week. Regional prices (ISM) were up U$4.30/cwt and national prices (NBC) were U$3.19/cwt higher. Live weights, which seemed to have leveled off have climbed back to record levels and came in at 271.5lbs, 2.2lbs more than the week prior and 3.2lbs higher than a year ago. Cutout was higher then the previous week but packer margins, although very strong, have narrowed as cash increases for the week surpassed cutout increases. Slaughter remains above 2004 levels as it came in at 3.4% higher.
Lean hog futures ended the week flat to slightly lower after new contract highs for most 2006 contracts were set on Thursday. February through October 2006 contracts all reached new contract highs on Thursday as traders continued to factor in pork demand and avian flu concerns. However a sharp pull back on Friday occurred as fund liquidation pushed lean hog futures lower, with the Feb 06 contract taking the brunt of the sell off ending the week U$1.43/cwt lower. The premium that the Dec contract has over cash has narrowed considerably. The current basis is 2.07 versus 6.64 last week with 7 days to expiry.


Feed Markets
Nearby soymeal futures posted small gains for another week moving cash delivered prices about $10.00 Can off the lows on November 29th. The market ran into technical resistance at the start of last week and looks to trade at current levels until more in known from the USDA on Friday. Early forecasts are for a decrease to projected exports given that cumulative numbers have only reached 29.4% of the USDA yearly estimate compared to the 37.7% 5-year average. A decrease to exports would result in increased ending stocks and higher stocks to use ratios adding to market negativity. The spread of bird flu remains a concern in 2006 for soymeal usage but end users should look to price a portion of requirements for the coming year at current levels as most information is already priced into the market.
A technical bounce in the past week moved nearby corn futures to a 2-week high following months of lower trade and consecutive days of contract lows. The small bounce was viewed as short covering for the technically oversold position. Gains in the cash market were supported by slow deliveries during the first cold snap that passed through the Midwest. US corn exports have performed well considering the downtime lost during the toughest hurricane season in the US. Cumulative numbers reached 23% versus the 5-year average for this period at 21.6%. The USDA will report updated Supply and Demand numbers this Friday giving the market more information to trade on. The proposed corn tariff on US grown product remains to be determined now that Canadian parliament has been dissolved and an election called.