Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for December 19th, 2005

Hog Markets
Regional and National cash hog markets continued their seasonal declines as they gave up significant value during the week. Iowa S. Minn prices were U$4.27/cwt lower as hog flows seem plentiful and packers are not forced to bid higher for hogs. Cutout came under pressure this week as hams lost significant value as buyers have filled their holiday schedule. Despite the weakness in hams, cutout has remained relatively steady in comparison to previous years. As a result, packers have been able to maintain healthy margins and once the seasonal weakness subsides should not hesitate to bid up for hogs to keep the chains full. Weights have remained high and slaughter last week was 4.6% below 2004 levels, which is the first time slaughter has been lower since the week ending Oct 15.
The Dec lean hog contract expired on Dec 14th with the official settle coming in at 63.03. The nearby is now the Feb06 contract which came under some short-term pressure once becoming the lead month. All contracts suffered losses during the week with Feb, Apr, and Jun contracts down the most losing 130, 125, and 125 basis points respectively. The weakness has been due to bearish short-term fundamentals, a technical sell off, and the Japan border opening to NA beef. The recent weakness is expected to be short-term as fundamentals remain favorable for the 1st quarter of 2006.

Feed Markets
Major gains in soymeal prices were made over the past week as fund and speculative buying sent futures and cash to the highest level in over 4 months. Index funds investing in low priced commodity futures relative to high priced oil and gas futures have provided the support to the recent surge in most 2006 contracts. The technical support in the soy complex is expected to carry through into the New Year however negative fundamentals are likely to provide some pressure to the recent U$30 rally in meal. Reduced bird flu demand fears are contributing to the strength as some traders expect China to increase exports going forward versus earlier thoughts of lost export opportunity for the US. End users should price spot soymeal hand to mouth and look to extend protection for the year ahead on any break in the market.
Corn futures followed the soybean market higher over the past week while cash prices remain steady to slightly lower across the Midwest. The Canada Border Services Agency announced duties totaling U$1.65 per bushel on subject product slowing the flow of feed corn into Canada. Fund activity in low valued commodities has provided a floor to pricing recently but fundamentals remain quite weak going forward. China continues to export corn limiting major sales for the US to countries like South Korea who have seen large increases of corn overall but decreased levels from the US. Large stocks and slow exports are negative to US corn markets but with recent trade disputes Canadian corn values may no longer trade in line with prices south of the border.