Hedge funds are loading up with pork.
With Americans expected to eat the most pork since 2007, money managers are now the most-bullish since 2014 on hog futures, which already are at a nine-month high. Fast-food restaurant owners like McDonald’s Corp. are selling more bacon, and the price of pork bellies used to make the rashers has surged 30 percent this year.
Demand at home and abroad is rising faster than U.S. farmers are boosting output. Pork remains a cheaper alternative to beef cuts that last year surged to records as supply shrank, government data show. Hog futures for settlement in June are up 18 percent since mid-November, more than almost every other commodity, including gold.
“You have to be bullish in the near term,” said Donald Selkin, chief market strategist at National Securities Corp. in New York, who helps manage about $3 billion. “Exports have been strong, that’s what’s driving this.”
The net-long position in hog futures and options jumped 20 percent to 51,505 contracts in the week ended March 15, the biggest gain in more than a month, according to Commodity Futures and Trading Commission data released three days later. Holdings have surged sixfold since mid-December and expanded in 13 of the past 14 weeks.
Futures for June settlement, the most-actively traded hog contract, rose 1 percent last week to 83.9 cents a pound on the Chicago Mercantile Exchange, the fourth straight gain. Prices are 12 percent higher than a year earlier. April futures, which had been the most-active until March 8, closed at 71.45 cents, up 20 percent since mid-November.
In a March 16 report, Societe Generale SA raised its second-quarter forecast by 16 percent, predicting the front-month contract would average 78.9 cents, compared with 69.4 cents so far this year for the April contract.
U.S. hog producers have been expanding after futures surged to a record in 2014, when a piglet-killing virus reduced the domestic herd. Pork production last year was the highest ever and is forecast to increase 2.1 percent in 2016, U.S. Department of Agriculture data show.
But people are eating more pork. On average, Americans will consume 50.4 pounds this year, the USDA said on March 9. And more meat is getting shipped overseas. U.S. exports in January were 10 percent higher than a year earlier, and shipments have averaged 13 percent above year-ago levels every month since September, government data show. That’s exceeding the full-year increase forecast by the USDA of 3.2 percent.
Even with the recent rally in prices, beef’s premium to pork is more than 50 percent above the 10-year average, and wholesale pork is well below its five-year average.
More fast-food restaurants are promoting breakfast items all day that feature pork products, said Dennis Smith, Chicago-based senior account executive at Archer Financial Services Inc. As the cost of ground beef slips from recent records, burgers are making a comeback and restaurants are adding bacon as a topping, said David Maloni, principal at American Restaurant Association Inc. in Sarasota, Florida. Wholesale pork-bellies are up 88 percent from a year earlier at $1.3428 a pound, USDA data show.
Not all pork items are rallying. Easter hams are priced to sell, dropping 11 percent since the end of January to 52.05 cents a pound, USDA data show. Bacon fetches a premium to ham that is more than 60 percent above the five-year average.
Rising pork supplies could end the rally, with the increase in hogs overwhelming processing plants later this year. Farmers tend to boost output in the second half of the year.
“There’s definitely a good cause to be bullish through the third quarter, but be very careful in the fourth quarter,” said Will Sawyer, an Atlanta-based vice president for Rabobank International. Processing all the hogs “could come at a price that’s less than what futures are showing today,” he said.