Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for July 25th, 2006

Hog Markets
Cash hog prices were reported as relatively steady for the week but cutout values were sharply lower. The ISM was quoted $0.82 US/cwt lower while the lagged national prices were approximately $0.41 higher. Cutout ended the week $6.07 US/cwt lower with declining loin and belly values contributing to most of the weakness. The result of steady cash and declining product values has caused a “squeeze effect” on packer margins. Despite this squeeze, packer margins remain in positive territory, however they have less incentive to bid higher for cash hogs.
Lean hog futures were slightly lower this week mirroring the movements in the cash market. Aug, which is the lead contract, was down $0.72 US/cwt for the week and further weakness in the upcoming week could occur due to the weakness in product values. The recent slide in product demand can be considered seasonal, which should prevent erratic, lower trading in the deferred contracts. The Oct 06 through Jun 07 contracts ended the week as follows: Oct: -1.00, Dec: -0.65, Feb: -0.55, Apr: -1.00, May: +0.07, Jun: -0.85, all prices US/cwt.

Feed Markets
Soymeal futures edged lower over the past week reaching a new bottom in both nearby and deferred contracts on Friday further suppressing cash prices. The recent heat in the Midwest has benefited soybean plant development however as the crop enters the more sensitive pollination phase of its growth dry conditions could be negative to the crop. Weather will become a greater influence to price during the month of Aug if conditions turn hot and dry. Current conditions of the 2006/07 soybean crop are within 1% of last year in both the g/e and poor/v. poor categories. Although the trend is lower downside appears limited in the short term due to weather uncertainty.
Favorable pollination weather across the Midwest prompted significant weakness in corn futures and cash prices as silking reached 78% as of July 23rd versus the 5-year average of 63%. Crop conditions were lowered by 3% from the previous week however with progress ahead of the historical pace production remains ahead of trend-line. The Midwest forecast is calling for a drier weekend ahead with higher temperatures which offered underlying support to corn futures at the start of this week. The trend is weak given crop conditions however exports are holding strong and domestic consumption continues to climb indicating the need for more grain. Long term forecasts are for increased usage and potentially higher grain prices making today’s values a possible low for the coming months.