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 Sept. 24, said the nation’s breeding herd at the beginning of September stood at 5.77 million head, down 1.8 percent from a year earlier.
That was a larger decline than the average drop of 1.4 percent projected by analysts, and left the breeding herd, an indicator of future pork supplies, at a record low for any Sept. 1.
But the report otherwise carried few surprises, traders said, leading to a muted reaction in the futures market today. The ongoing shrinkage of the U.S. herd has been widely-known for some time, meaning it will be tough for hog prices to rally back toward summer highs without additional impetus, independent CME trader Jim Burns said.
“We’re priced for that,” Burns said, referring to tight supplies. “We’re probably fairly priced for now.”
At today’s close, 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 Sept. 21 and is up 14 percent this year.
October lean hogs rose 0.15 cent to 79.175 cents a pound, after hitting a contract high at 80.075 cents Aug. 2. The CME contract is based on carcass values.
Burns said he’s “very lightly short” in December futures, though he added the October contract probably has limited downside 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,” livestock analysts Steve Meyer and Len Steiner said in a report today.
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 between December and February, up 0.5 percent from the same period a year earlier.
But feed costs have climbed “dramatically” since the USDA surveyed producers for the report, BB&T Capital Markets analyst Heather Jones said.
“We would not be surprised if producers’ farrowing intentions are more restrained for future periods,” Jones, who follows meat processors such as Smithfield Foods, Inc., said in a report today.
“The bottom line is that this report confirms what hog and pork pricing has been telling us for most of the year: There is limited domestic supply available,” Jones said.
As of Sept. 1, the total U.S. hog herd was 64.99 million head, down 2.6 percent from a year earlier and the lowest for that date since 2006, according to the USDA.