US hog prices surge to all-time high

 

 

Hog prices have surged to an all-time high this week after US producers slashed their herds in response to high feed costs and low pork prices in 2008-09.

 

Lean hogs futures represent just 1.3% of the S&P GSCI index while West Texas Intermediate oil accounts for 38.3%. The rally, which has seen prices doubling in nine months, comes just ahead of the start of the so-called barbecue season in the US.

 

High lean hogs futures prices have not yet trickled down to retail butchers, helping meat consumption creep higher. But analysts and food packers said that is set to change soon.

 

Smithfield Foods, the largest US pork seller, said: "Over time, higher raw material costs will translate into higher retail prices for pork products."

 

The record hogs futures prices in Chicago are the result of farmers slashing herds during the recession. The US pig population as of March was 2.8% less than a year ago, and the breeding herd – which gives birth to new supply – was at its lowest on record, according to the USDA.

 

This year's harsh winter, along with poor quality of corn for feed, has led to scrawnier pigs, magnifying the effect of the declining herd and pushing up prices.

 

On the CME, front-month May lean hogs touched an all-time high above 90 cents a pound this week. Lean hogs futures were launched in 1966. The contract earlier traded at 89.60 cents.

 

The surge is a dramatic turnround after swine flu fears triggered a massive sell-off in Chicago, with hogs futures touching a low of 43 cents in August 2009.

 

Analysts said that pork prices rise in the summer months as hot weather causes pigs to sweat and lose fat, while demand is boosted, but the rally may not last. CME July hogs prices were trading at 85.075 cents per pound, suggesting that some traders are betting on lower prices later this year.

 

Ronald Plain, an agricultural economist at the University of Missouri in the US, said the market appeared to be saying "consumers won't accept" high prices well. However, higher prices may not lead farmers to expand the hog population, keeping prices relatively high for months to come.

 

The sharp rise in pork prices is largely confined to the US market.

 

In China, which suffered from high pork prices in 2007-08 due to the blue-ear disease, which afflicts pigs, the government has been recently purchasing domestic pork meat to support falling prices.