Maximum Swine
Marketing Ltd. Newsletter

Hog Commentary for August 15th, 2006

Hog Markets
Cash hog bids were higher in both the regional and national markets eroding most of the packer margin. The regional Iowa / Southern Minnesota price was quoted as $2.05 US/cwt higher for the week and the national base cost was quoted as $1.90 US/cwt higher. The strong cash gains were a direct result of less hogs entering the market as slaughter fell below 2005 levels for the first time in 5 weeks. Cutout was quoted as $1.16 US/cwt lower, which coupled with the cash appreciation, has eroded most of the packer margins. The lower meat values could cause some weakness in cash prices in the near term or it could be an indicator that packers see wholesale demand strengthening around the corner.
Lean hog futures were mixed this past week as the Aug 06 contract expired at 71.72 US/cwt on Monday. The Oct contract is now the front month and is valued at an average discount to cash prices and thus basis is currently at an average value. All contracts hit new contract highs during the past week which indicates that demand for pork is expected to remain favorable well into 2007. Oct 06 through Jul 07 weekly changes were as follows: Oct: +1.20, Dec: +0.92, Feb: -0.07, Apr: -0.20, May: +0.37, Jun: +0.82, Jul: -0.27 all prices US/cwt.

Feed Markets
The price of soymeal in the cash market was lower in most regions while futures were mixed, nearby contracts slightly lower and new crop prices flat. Soybean production numbers in the US were lowered from the July estimate and fell below average trade estimates providing a small degree of support throughout the soy complex. Yield estimates were down a bushel per acre from the July report as analysts suspect the heat during July affected crop pollination. Regardless of expectations, crop conditions improved by 3% from the previous week maintaining a negative bias in the market. Average annual delivered soymeal prices are nearing historical lows indicating an opportunity to fix at least one component of total feed costs.
Corn prices were sharply lower following the release of USDA Supply/Demand numbers reported last Friday. Production estimates were increased to 10.976 billion bushels due mainly to an increase in projected yields which reached 152.2 bushels per acre. Production exceeded average trade estimates by 181 million bushels with yields up over 2 bushels per acre. Weather over the past month contributed to the higher estimates as conditions were seen as near ideal for pollination and kernel fill. Heavy selling slowed Tuesday as crop conditions were reported unchanged from last week when traders were expecting a 1-3% increase to the good/excellent rating. The downward trend remains in tack with demand becoming more a concern versus supply now that the crop is nearly through the most sensitive growth periods.