Hog Prices Fall as Herds Rebound From Virus
Investors Bet Futures Will Drop Further
U.S. hogs are trading at the lowest prices in nearly two years as herds recover from a deadly virus.
The price slide is benefiting consumers, who are paying less for ham, bacon and other pork products, while investors are betting that futures will fall even further as more hogs grow to slaughter weight in the months ahead.
The porcine epidemic diarrhea virus, or PEDv, has killed millions of pigs in the U.S. since the spring of 2013, setting off a monthslong rally in hog prices last year. But new vaccines and herd immunity have slowed the spread of the virus, and producers are rapidly replenishing their herds.
Producers began breeding more females last summer and fall, when hog prices hit near-record highs and feed costs fell to their lowest in about four years.
“Most hog producers made money every month of 2014, creating a situation where they would want to breed about as many females as they could because the outlook was positive” for profits, said Ron Plain, agricultural economist at the University of Missouri.
The results of the breeding efforts are starting to appear in the market. In the week through Jan. 10, an estimated 2.16 million hogs will have been processed for pork, according to the U.S. Department of Agriculture, up 3.5% from the same week last year, representing a dramatic turnaround for the industry, and for meatpackers such as Tyson Foods Inc. and Cargill Inc.
Farmers also have continued to feed hogs to record heavy weights, as they are typically paid on a per-pound basis.
The Agriculture Department forecasts U.S. pork production to climb around 4% in 2015, compared with last year.
“Hog numbers are continuing to creep up, which is expected to remain negative for prices as we see production increase,” said Dax Wedemeyer, a broker at U.S. Commodities Inc. in West Des Moines, Iowa. “I think prices could fall another two or three dollars [per hundred pounds] before settling out. There’s going to be a lot of pork this year.”
February hog futures fell 2.8% last week to 79.025 cents a pound on the Chicago Mercantile Exchange, ending near the lowest close for a front-month contract since March 2013.
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Money managers, who had previously piled into the market when supplies were tight, have fled. Managers betting on higher prices still outnumber those betting against, according to the U.S. Commodity Futures Trading Commission, but the gap is the smallest since early June 2013, when industry experts, regulators, and investors were just beginning to learn about the spread of the virus.
To be sure, some industry analysts predict consumer demand for the cheaper pork products will climb, and that could buoy hog prices.
The value of most pork cuts remains significantly lower than the cost of steaks, ribs, and other beef products.
But in the meantime, “hog prices are headed lower, with many people selling the summer contracts reflecting the idea that there’s going to be more supplies come June,” said Mike Seery, president at brokerage Seery Futures in Plainfield, Ill.
