Hogs Will Rally Even as Analysts Expect Bigger Herd

March 27, 2015 07:09 AM
 
Hogs Will Rally Even as Analysts Expect Bigger Herd

Hog futures are poised to rally in the second quarter as gains in demand mute the impact on prices of an expanding herd, which analysts predict will be the biggest since 2008, according to Societe Generale SA.

U.S. consumers will buy more pork during the upcoming grilling season, spurred by beef prices holding near record highs, said Christopher Narayanan, the firm’s head of agricultural research. Futures will average 85.07 cents a pound in the three months that begin April 1, about 13 percent above current prices, according to a SocGen report e-mailed March 18.

The U.S. Department of Agriculture will issue its quarterly hogs and pigs inventory report on Friday at 3 p.m. in Washington. Analysts surveyed by Bloomberg expect the agency to say the March 1 inventory grew 6.6 percent from a year earlier to 65.58 million head, the most for the date since 2008. The breeding-herd inventory will grow 3.2 percent, they said.

Expectations for herd expansion were “factored in” to price estimates, Narayanan said in a March 26 interview from New York. Growing demand will compensate for bigger supplies, he said.

“When it comes to the spring and summer, we do expect a good amount of substitution from beef to pork,” Narayanan said “Consumers are showing a propensity to save rather than spend. We expect a rebound in the second quarter just based on the increased demand.”

Wholesale pork prices plunged 50 percent since the end of June, while beef has gained 1.4 percent, according to USDA data. Retail ground beef prices climbed to a record $4.238 a pound average in February, the Bureau of Labor Statistics said on Tuesday. Pork chop prices fell for a fourth month and bacon costs dropped to the cheapest in a year.

‘Much Different Market’

Survey estimates for total inventory on March 1 ranged from gains of 5 percent to 8.5 percent.

 

The rise in pig numbers is a reversal from a year ago, when the porcine epidemic diarrhea virus killed millions of piglets in the U.S. Fewer deaths have helped boost pork output in recent months, according to the SocGen report.

“We’re back essentially to record-high 2008 levels in our production system,” said Jim Robb, director of the Livestock Marketing Information Center in Lakewood, Colorado. “This is a much different market.”

About 5.46 billion pounds of pork has been produced this year through March 21, up from 5.23 billion a year earlier, according to USDA estimates. Beef output dropped 4.9 percent to 4.97 billion pounds.

If the hogs and pigs report comes in ahead of expectations, “that could shave a few percent off our prices,” Narayanan said. “It doesn’t change the fact that we expect prices to rebound.”

 

 

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