September 28, 2010

 

US hog futures rise on possible tight supplies

 

 

Hog futures in Chicago rose today after government data underscored the prospect for tight pork supplies into next year.

 

The USDA, in its Quarterly Hogs and Pigs report released September 24, said the nation's breeding herd at the beginning of September stood at 5.77 million heads, down 1.8% from a year earlier.

 

That was a larger decline than the average drop of 1.4% projected by analysts, and left the breeding herd, an indicator of future pork supplies, at a record low for any September 1.

 

Earlier on Monday (Sep 27), CME Group December lean hogs, currently the most actively-traded contract, rose 0.325 cent to 76.775 cents a pound. December reached a life-of-contract high of 78 cents on September 21 and is up 14% this year.

 

October lean hogs rose 0.15 cent to 79.175 cents a pound, after hitting a contract high at 80.075 cents August 2. The CME contract is based on carcass values.

 

Analysts said the October contract may have limited downsides because of its discount to the cash market. Nationwide, hogs averaged 80.66 cents a pound at the end of last week on a carcass basis.

 

Barring a collapse in export markets or some other development that hurts demand, hog prices are expected to remain underpinned for the next several months, many traders and analysts say. By June, hogs are expected to command almost 87 cents a pound, based on CME futures.

 

Based on USDA figures, the breeding herd has shrunk for 10 consecutive quarters compared with year-earlier levels. The latest USDA report implies producers "have not rebuilt the breeding herd this summer," analysts said.

 

While pork industry profit returned earlier this year after almost three years of losses, producers show few signs of expansion amid concern over the sluggish economy and surging corn prices.

 

In the report, the USDA estimated about 2.886 million sows would farrow, or give birth, between December and February, up 0.5% from the same period a year earlier.

 

But feed costs have climbed "dramatically" since the USDA surveyed producers for the report, analysts said.

 

As of September 1, the total US hog herd was 64.99 million head, down 2.6% from a year earlier and the lowest for that date since 2006, according to the USDA.