June 12, 2013

US hog prices rise to nearly two-year high

Bolstered by strong consumer demand for pork and tight near-term supplies of slaughter-ready hogs, US hog prices jumped to a nearly two-year high.

Hog futures also continued to draw support from sentiment that US pork exports will increase if China's largest pork processor completes its planned US$4.7 billion takeover of Smithfield Foods Inc.

June lean-hog futures rose US$0.01075, or 1.1%, to US$0.992/pound at the Chicago Mercantile Exchange, the highest closing price for the front-month contract since August 2011.

Hog prices have been climbing steadily for two months as domestic pork demand has exceeded some analysts' expectations. Monday's rally was especially strong, as trading volumes reached their highest level of the year, according to Ken Morrison, a trader and publisher of Morrison on the Markets newsletter in St. Louis.

Rising prices for hogs in cash markets also have fuelled the rally, highlighting pork processors' difficulty in securing the animals they need to meet retail demand.

The tight hog supplies are in part a symptom of last summer's scorching heat in the Midwest, which curbed swine reproduction, said Rich Nelson, director of research for Allendale Inc., a brokerage in McHenry, Ill.

Hog futures often climb in the spring as supplies tighten due to the animals' breeding patterns, and as warmer weather drives consumers to buy more meat products for barbecues and picnics. But the gains this spring are being accentuated by near-record beef prices at grocery stores and comparatively low pork prices, analysts say. Retail pork prices fell 1.6% in April from a year earlier, according to the USDA, as weaker pork exports helped keep prices in check.

Consumers are bypassing beef for more affordable pork, said Don Roose, president of brokerage US Commodities Inc. in West Des Moines, Iowa. "The consumer is price-conscious right now," he said.

The rally in hog futures picked up when China's Shuanghui International Holdings Ltd. said May 29 it would acquire Smithfield Foods, the world's biggest pork processor and hog farmer.

The agreement has fuelled optimism about pork exports to China, although Roose and some traders note that any effect on pork demand is still months away. China is the world's biggest pork market.