The October lean hog contract was up 240 points ($2.4) Tuesday over the previous session while the December contract gained 210 points, according to Steve Meyer and Len Steiner, authors of the CME Daily Livestock Report. 2011 summer futures also posted healthy gains. The DLR authors cite several bullish factors propelling the pork sector higher including less pork available and declining sow numbers.

“The latest production data shows pork supplies are running about 7.6 percent lower than the 2003/2007 base,” the authors report. “Hog slaughter supplies are down by more than what the June 1 hogs and pigs report implied.” USDA will publish its quarterly Hogs and Pigs report on Sept. 24.

Sow numbers are dwindling, according to Meyer and Steiner. “There is really no surprise here given the relatively good profits futures are indicating into next year. There is little reason at this time to send sows to slaughter and the weekly sow slaughter data shows a 20 percent decline from year ago levels.”

Strength in pork items, especially bellies, has boosted the overall cutout value, adding more upward pressure on futures prices. Cash pork belly prices rose to a record high on Tuesday, according to a Reuters report. Market watchers predicted prices for bellies would stay high at least for another month. USDA reported 14-16 pound pork bellies traded at $154 to $156 per hundredweight, with $156 representing an all time high.

"Demand is still running ahead of production," said John Staren, Chicago-based livestock trader. "The thing that turned the corner is when Subway started doing breakfast a few months ago. That was just enough extra to push us over the brink," said Staren.

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Source: CME Daily Livestock Report, Reuters