Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for February 21st, 2006

Hog Markets
Cash hog prices performed well over the week adding to recent gains in both regional and national markets. The ISM region posted cash bids of $2.00 US per cwt over a week earlier with the national average gaining $3.35 capturing some of the lag effect of the previous week. Impressive moves in the cutout have allowed for the gains in cash as US packers appear to have positive margins with the current spread between meat prices and live hog values. Also supportive to the cash has been the sharply reduced kill levels which totaled 1.978 M, 1.5% below last week and 4.7% below the equivalent marketing week last year. Disease issues in major hog producing regions of Canada and the Midwest have been marked as a reason for the reduced marketing of the last week.
Lean hog futures had a similar performance to cash this week posting gains in all 2006 contracts. Although prices were higher than a week earlier futures experienced a high level of volatility trading limit down during last Wednesday’s session due to a $4.00 US drop in cash reported that morning. A recovery Thursday and Friday allowed prices to settle higher with packers unsuccessful in trying to devalue the price of live hogs. Weights and slaughter levels continue to fall adding to the positive tone in the lean hog market which once again looks to begin a seasonal rally over the next 2-3 months.


Feed Markets
Cash soymeal prices were slightly higher this past week and carried a firm tone into the long weekend as forecasts in South America remain hot and dry. Although soybean crops in Brazil and Argentina are currently under heat stress the growing season in general has been slightly better than average. The spread of bird flu across Europe has been able to keep weather threats in check causing lower trade in overnight markets with France reporting their first case of the disease over the weekend. Consumption has continued to drop for poultry and as many market analysts suspect will cause a drop in soymeal demand with less production slated for many poultry producing countries. Weather will continue to battle demand concerns over the next couple of months but with 2 million more acres expected in the US for 2006 according to the latest USDA outlook conference a new trend will likely emerge once planting is complete.
A lower ending stock number reported from the USDA industry outlook conference for 2006/2007 helped corn trade higher at the end of last week closing new crop contracts at their highest level since Aug 2005. Although ending stocks for the current marketing year are still projected near record levels at 2.40 billion, analysts are focused on estimates for the end of the next marketing year pegged at 1.726 billion because of lower acres and increased demand expectations. Price volatility is likely going forward with the trend appearing to have turned up in the face of huge stocks. Without a weather threat for US corn priced into the market, upside could be considerably higher given the markets recent strength.