July 20, 2010

US hog futures seen up 27%

US spot hog futures are expected to end the year at 70.62 cents per lb, up nearly 27% from the end of 2009 due to a smaller herd, but any hiccup in the economy could curtail gains, according to reports.

Analysts and economists said front-month lean hog futures at the CME would rise an even higher 46% at the end of the third quarter this year from the third quarter of 2009.

"On pork, we are going to be tighter (than beef). We had about a 6% smaller per-capita supply of pork this summer and it will be around 3% per capita smaller supplies in the fourth quarter," said Chris Hurt, agricultural economist at Purdue University.

Gains in hog futures in the fourth quarter, however, will be capped by competition from rising poultry meat supplies. US chicken exports have slowed as once-top-market Russia halted imports since January because of a chlorine rinse used in the US. Last month, Russia agreed to accept US chicken treated with monochloride and sales are set to resume.

Hurt said broiler production is going to come up fairly quickly, and thinks that there will be 3-4% more broilers in the third and fourth quarters so that will be the big competitive meat.

In 2009, hog prices were pressured by a weak economy and consumers avoiding pork amid unfounded worries that it transmitted AH1N1 swine flu. In 2010, pork sales improved and pushed hog prices back to or above 2008 levels.

Some analysts are bullish on third and fourth quarter hog futures prices based on the smaller herd, but they cautioned that demand could be hurt should the economy remain sluggish.

"If the economy goes into a double-dip recession, I expect both ends of the (price) range to drop by US$2 (per cwt) which will affect the average by US$2," said Dan Norcini, independent hog trader.

Although pork production is seen lower than last year due to fewer hogs, any price support for pork could be hurt if exports of chicken do not improve.

Meanwhile, analysts are expecting pork production to remain low at 3.8% smaller than last year. Dark meat chicken stocks are over 70% larger than last year. Leg quarter prices are 25% lower than last year; which competes directly against pork, analysts said.