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Hog Futures Rise to Record on Supply Woes as Pig Virus Spreads

February 28, 2014
05 04 12 Hogs
  
 
 

Hog futures rose to a record, joining this month’s cattle rally to an all-time high, as supply concerns mounted amid a spreading virus that kills piglets and signs emerged that Russia may lift a ban on U.S. pork imports.

Porcine epidemic virus, or PED, has killed more than 4 million pigs in the U.S., according to the National Pork Producers Council. Itar-Tass reported yesterday that Russia will resume imports of U.S. pork without the livestock-feed additive ractopamine on March 10.

Through Thursday, hogs jumped 22 percent this year, the second-biggest gain among 24 raw materials in the Standard & Poor’s GSCI Spot Index. Demand for pork has increased as beef costs climbed. U.S. consumers will pay as much as 3.5 percent more for meat this year, compared with a 1.2 percent advance in 2013, the government has forecast.

The market "is looking at two issues: the seasonal decline in slaughter, which starts in April, and the trade has a very clear expectation that PED will be a March or April issue, not just a summer issue," Rich Nelson, the director of research at Allendale Inc. in McHenry, Illinois, said in a telephone interview.

Hog futures for April settlement climbed 0.7 percent to $1.0455 a pound at 7:54 p.m. Feb. 27 on the Chicago Mercantile Exchange. Earlier, the price reached a record $1.05075.

Global AgriTrends, a Denver-based research company, has said the PED virus may kill as many as 5 million pigs, or about 4.5 percent of the animals sent to processing plants last year in the U.S., the world’s biggest pork exporter.

 

‘Beef Deficit’

 

On Thursday, hogs jumped 2.8 percent, the most since March 7, after climbing by the exchange limit of 3 cents, partly on speculation that demand for pork will increase as a cheaper alternative to beef.

"We’re putting out 5 percent to 6 percent less beef than last year," Nelson said. "People are scrambling for pork to fill this beef deficit."

Cattle futures for April delivery rose 0.1 percent to $1.4465 a pound. During the trading day Thursday, the price reached a record $1.45975.

Ranchers are struggling to boost their cattle herd from a 63-year low following a drought and high livestock-feed costs.

Beef output in the U.S., the world’s top producer, will fall 5.3 percent this year to 24.35 billion pounds (11.04 million metric tons), the lowest since 1994, the USDA has forecast. At the start of this year, the cattle herd declined to 87.7 million head, the lowest since 1951.

This year, wholesale pork has climbed 22 percent to $1.029 a pound, and beef gained 10 percent to $2.2141 a pound.

 

Russian Ban

 

The USDA and industry groups said they haven’t received confirmation that Russia will lift a year-old ban on U.S. pork imports soon.

The Itar-Tass report cited Alexei Alexeyenko, an assistant to Russia’s agricultural watchdog.

Russia is maintaining a "zero tolerance" policy on hogs with ractopamine residues, and the USDA has asked the country to allow imports from three pork operations with animals that were never fed the additive, Gwen Sparks, an agency spokeswoman, said in an e-mail.

"We want to get back into this market," Nick Giordano, a vice president at the Washington-based National Pork Producers Council, said in a telephone interview "There’s absolutely no reason we should be on the outside looking in."

Russia was the fifth-largest importer of U.S. pork in the third quarter of 2012, purchasing 5 percent of the total behind Japan, Mexico, China and Hong Kong, and Canada.

 

‘Tight Supply’

 

An end to the Russian ban "is definitely one small piece of demand added into the very tight supply picture lined up" in the U.S., Nelson of Allendale said.

Russia banned pork imports from the European Union after African swine fever was found in wild boars in Lithuania.

A 62 percent surge in coffee futures this year leads prices in the GSCI index, which has climbed 2.3 percent. In the week ended Feb. 18, a measure of bullish positions held by hedge funds across 11 agricultural products including hogs and cattle rose 19 percent to 573,187 contracts, the highest since October 2012, government data showed on Feb. 21.

Sugar entered a bull market Thursday as a drought threatens crops in Brazil, the top producer and exporter of both the sweetener and coffee. The country is also the biggest shipper of soybeans, which have gained 8.4 percent this month.

 

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RELATED TOPICS: Hogs, Marketing, Livestock, Pork

 
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