Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for June 20th, 2006

Hog Markets
Regional cash prices were quoted above $80 US/cwt for the 20th time since 1997 which equates to approximately 0.5% of the time. The ISM was quoted as $6.71 US/cwt higher for the week and the lagged national prices were approximately $3.00 higher. Tight supplies, strong wholesale / retail demand and declining weights have all support cash hog prices for the past month. Slaughter was reported 5.2% lower than a year ago which hit the market by surprise as no one predicted hog supplies to become this tight. The heat of last summer / fall and circo-virus provide some explanation for the sudden lack of hogs. Cutout was also higher this past week, with gains of $4.26 US/cwt. The gains in cutout however, were less than cash which has caused packer margins to push into the red and may limit this surge up.
Lean hog futures set new contract highs again this past week as the upward momentum continues. Jun expired this past week with the value of $74.67 US/cwt and near contract high set a couple days prior to expiry. The nearby now becomes the Jul contract which was the strongest contract on the board this week. The Jul contract ended the week up $6.05, Aug ended up $4.17, Oct up $4.52, Dec up $3.02, and Feb up $2.32, all prices US/cwt.

Feed Markets
Cash soymeal prices have softened over the past week alongside futures however downside has been limited to only a few dollars as the market prepares for acre estimates later this month. Fewer soybeans acres are expected in the market than initially forecasted early in 2006 but ending stocks are still projected above last years level due to high expectations for yields. The threat of old crop soybeans being sold in the cash market over the coming weeks has commercial buyers holding on the sidelines for buying long term. Hog producers should look for breaks in the soybean cash and futures market as a buying opportunity for meal stocks. Overall the trend remains steady to lower however weather and final acres could alter the current expectations going forward.
Corn prices dropped to their lowest level in over 3 months as timely rains and favorable weather improve growing conditions across many regions within the corn-belt. Nearby July futures traded through significant support reaching $2.29 per bushel down from $2.63 in mid May. Talk of increased acres due to excellent planting weather and a fast pace earlier this spring has the market in a short-term downward trend. The USDA will report acre estimates and grain stocks on June 30th providing direction to the market. The recent 30 cent drop in the market is providing hedging opportunities for end users as the long term trend is projected higher later in 2006 and 2007. Hog producers should consider locking in a portion of grain requirements going forward as demand from the livestock and energy sectors are expected to continue growing.