Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for February 6th, 2006

Hog Markets
Regional cash markets steadied this week but national cash prices continued the decline due the lag in reporting. Regional cash prices were actually slightly higher with the ISM up U$0.64/cwt but the national price (NBC) was down by approximately the same amount. Cutout went down approximately U$2.50/cwt and is now at its lowest levels since Jan 2004. The fact that cash seems to have bottomed and cutout remains bearish is a signal that the hog market may be grinding in a bottom and should work its way higher in the near future. Slaughter was 2.5% higher and pork production was 4.4% higher than the same week one year ago. The higher slaughter numbers are expected to subside in the near future and weights seem to be on their way lower which will also decrease the level of pork production going forward.
Lean hog futures experience some significant volatility with a large down day on Thursday. Despite the volatility, nearby and summer contracts settled only slightly lower, while deferred contracts settled flat to slightly higher. Nearby Feb ended the week U$0.44/cwt lower and expires on Tuesday, Feb 14. The Apr, Jun, Jul, and Aug contracts also settled slightly lower but the May, Oct, and Dec contacts ended the volatile week slightly higher. With a low in cash and cutout expected relatively soon the hog market looks a little more optimistic than it has for the past month.


Feed Markets
Soymeal futures over the past week saw a mixed range of trade to finally end lower from the previous week. Changing weather patterns in South America early in the week resulted in improved growing conditions in South America which in turn resulted in lower soymeal prices through mid week. However an increase in soymeal futures late in the week triggered by increasing corn prices and above average technical buying took back nearly half of the early week’s losses. Soymeal futures fell during Monday’s trade due to reports of improving growing conditions in South America over the weekend, along with a correction from overbought conditions in last week’s trade. There are also expectations that the USDA will further decrease exports in Thursday’s USDA report, resulting in even larger ending stocks.
Corn futures began the week on choppy ground as technical buying early in the week resulted in small gains. Spillover from the soy complex during mid week however triggered some downward potential only to be offset by an upward trend late in the week driven by technical buying to fill a chart gap during Friday’s trade. March corn closed Friday’s trading session at its highest level since early September 2005. Much like the soy complex, Monday’s session was driven downward by improving weather conditions over the weekend in South America, combined with a technical correction from overbought conditions during Fridays trade.