Virus Killing 8 Million Pigs Means Pricey Barbecues: Commodities

June 6, 2014 05:47 AM
Virus Killing 8 Million Pigs Means Pricey Barbecues: Commodities

This summer, U.S. consumers can look forward to opening a cold beer, firing up the grill and throwing on the most expensive pork chop they have ever purchased.

A deadly disease has spread to more than 4,700 U.S. hog operations and that number is growing by as much as 200 every week, U.S. Agriculture Secretary Tom Vilsack said yesterday at the World Pork Expo in Des Moines, Iowa. The porcine epidemic diarrhea virus, or PED, has killed about 8 million pigs since the outbreak began in May 2013, according to Paragon Economics.

The spreading virus sent retail pork-chops to an all-time high of $4.044 a pound in April, the latest data from the Bureau of Labor Statistics show, and the American Farm Bureau Federation has said that meat expenses are going to keep climbing. Costs are rising before the start of the seasonal peak in U.S. meat demand, as a shrinking cattle herd sent ground beef to a record, while whole chickens are near the highest ever.

"People are going to have to pay up for this summer’s barbecues, because of the current supply issues," said Donald Selkin, who helps manage about $3 billion of assets as chief market strategist at National Securities Corp. in New York. "People are going to eat more meat during the summer grilling season, so it’s fair to say that they are going to pay higher prices."

Hog futures for July delivery gained 44 percent this year to $1.22675 a pound on the Chicago Mercantile Exchange. The Standard & Poor’s GSCI Spot Index of 24 commodities gained 2.4 percent. The MSCI All-Country World Index of equities rose 4 percent. The Bloomberg Treasury Bond Index gained 2.9 percent.

100% Fatal
The virus, which can be 100 percent fatal to young piglets, has trimmed the U.S. hog herd by about 10 percent, according to Vilsack. The speed of its spread is of "deep concern," and some farms are seeing incidences of reinfection, he said during a presentation at the expo, which draws about 20,000 pork producers and industry participants.

For Dale Norton, a hog producer in Branch County, Michigan, a PED outbreak on his farm in March caused him to lose about 1,500 pigs. To defend his herd, Norton, who also serves as the president of the National Pork Board, disinfected everything that touched the barn floor, including workers’ boots and feed- cart wheels. And while he considers himself "fortunate" that he was able to contain the disease within about three weeks, he’s "watching closely" for reinfection, he said in an interview at the expo in Des Moines.

$26.2 Million
This year’s rally for hog futures may just be a "temporary" reaction to the disease, and prices could fall from here, said Selkin of National Securities. The U.S. Department of Agriculture is pledging $26.2 million to help producers combat the disease.

The number of weekly cases of the virus peaked in mid- February at 315, according to data from the National Animal Health Laboratory Network, which tracks voluntary reports from veterinary diagnostic laboratories. New outbreaks have since dropped by more than 50 percent, with 142 cases reported in the week ended May 31.

Higher animal weights are also helping to buoy pork supplies. Hog carcasses averaged 219.95 pounds (99.8 kilograms) on June 4, more than 14 pounds heavier than a year earlier, government data show.

Falling Slaughter
The industry does not yet have the virus "under control," and cases of infection may start to climb at a faster pace later this year as temperatures cool, Steve Meyer, the president of Paragon Economics, said yesterday in Des Moines. The virus is believed to survive better in the winter. Hog slaughter may drop as much as 10 percent in the third quarter, he estimates.

Consumers will pay as much as 4 percent more for pork this year, and costs for beef and veal will rise as much as 6.5 percent, the most of any food group, the USDA forecasts. There’s "no relief" for protein eaters, and record prices for beef probably won’t let up for the next 18 months, Ricky Volpe, an economist with the USDA’s Economic Research Service in Washington, said May 23.

The USDA has yet to identify the cause of PED in the U.S., making it harder to eradicate, Karen Richter, who has been in the business for 28 years, said in Des Moines. On her farm in Montgomery, Minnesota, the hog barns are only about one-third full after her supplier of young pigs saw its animals struck by the disease.

"We’re looking at much lighter pig numbers," said Richter, 48. "It’s a challenging family of viruses. The question in my mind is still, how did it get here? That means so much more for dealing with these in the future."

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