Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for March 20th, 2006

Hog Markets
Cash prices were lower this week but regional bids were relatively steady for most of the week. Regional cash prices declined over a dollar US on Tuesday and were steady from that point forward. National cash prices experienced a slight decline for each day in the reporting period. Similar to the national cash prices, cutout also declined in each of the days in the reporting period. All cuts experienced some weakness which indicates that the weakness is a domestic issue. The high slaughter levels of the past 2 weeks coupled with an abundance of poultry and beef on the market will cause some short-term weakness in product movement. Medium term projections are for improving meat values as hog slaughter is projected to fall into April.
Lean hog futures continue to struggle as traders seem reluctant to put any value into the market due to the conditions outlined above. The nearby April was one of the stronger contracts traded last week, down slightly at $59.00 US/cwt. Lower trading was noticed in the summer contracts with the May, Jun, and Jul contracts down $1.52, $1.79, $2.29 US/cwt respectively. The board will continue to trade short term data and be reluctant to put value into the market until meat values rally into the spring and poultry stocks begin to reside with a drop in production.

Feed Markets
Progressing South American soybean harvest estimated at 30% complete is providing weakness to the US soy complex along with large domestic stocks and talk of decreasing demand due to falling poultry production. The Brazilian Ag Ministry has pegged this year’s crop at a record 57.2 million mt and with limited storage facilities in the country plenty of cash grain is likely to hit the world market in the weeks ahead. Heavy snow fall and rains across the Midwest has improved soil conditions for the upcoming crop year adding to the recent sell off in beans and meal prices. Although plenty of market information points to lower prices into 2006, funds appear willing to buy this market at current market levels limiting the downside to only a few more dollars. Hog producers need to control input costs this year and locking in 10 year lows for soymeal is one way to keep production cost down.
Nearby corn futures dropped 10 cents per bushel over the past week as analysts report improved soil conditions for planting across the Midwest. Early estimates are for reduced corn acres this year however as conditions improve and input costs including fertilizer take a breather growers may choose to plant more corn the initially thought. Fundamentally the market remains strong with exports well above the pace set out by the USDA and ethanol production steadily increasing. Recent weakness in energy markets is providing some of the pressure seen in prices and is a good opportunity for end users to cover some of the needs for 2006. A spring rally is likely once some of the crop is in the ground, between now and then hog producers should look for opportunity to secure a portion of feed grain requirements.