Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for May 16th, 2006

Hog Markets
Live hog supplies have been steady in most regions reflecting the flat cash market seen over the past week. Packer margins were also reported unchanged from a week earlier as cut-out posted gains of just over $1.00 US/cwt keeping pace with cash. Seasonal demand for pork domestically and record pork exports are holding strong providing underlying support to the overall market. Slaughter levels for the week ending May 12th were reported well above the previous week due to hogs being held back to compensate for reduced slaughter corresponding with US packer labor issues.
May lean hog futures expired last Friday at $66.96 US leaving June as the lead month holding no premium to the cash (basis is zero). Summer contracts were mostly flat this week in line with cash while Oct and Dec were the gainers posting upside of nearly $1.00 US in both contracts. News of empty finishing spaces in the Midwest is supporting the deferred contracts as fewer animals appear to moving south out of Canada. Hogs for finishing for the week ending May 5th seen a sharp reduction from the 16-week average for 2006.

Feed Markets
Soymeal futures were unchanged this week similar to cash as market participants digested the most recent Supply/Demand estimates released by the USDA. Soybean acres are still projected 4.8 million above last year however lower yields are implying a production steady to 2005/06. Ending stock projections for soybeans have reached a burdensome 650 million bushels for next year up from 256 in 2004 and 565 projected for this year. The recent crush numbers imply good stocks of meal for the summer months unlike previous years where stocks depleted well ahead of the harvest season. Midwest crushers look willing to provide reasonable basis levels for soymeal as bean avaiablility remains constant. Buying on the breaks and taking advantage of the 90 cents Canadian dollar is good protection against a potential weather premium that usual enters the market during pod filling at the start of August. The corn market experienced a major price adjustment over the past week rallying 20 cents per bushel in anticipation and confirmation of lower stocks expected by the end of the 2006/07 marketing year. Ending stock projections for this year (2005/06) were down slightly to 2.226 billion bushels from 2.301 billion last month but including production estimates for the current crop year the stock numbers for next year have been pegged at 1.141 billion. Exceptional demand from the livestock sector, ethanol industry and export markets have been attributed to the lower projections by the end of next year. Futures have responded accordingly reaching $2.85 per bushel in the Dec 06 contract. Hog producers should take action to protect against higher feed prices later this year and into 2007.