Breaking News

Tweet TWEET

U.S. Hog Herd Shrinks for First Time in 3 Years as Virus Spread

The U.S. hog herd at the start of the month probably shrank for the first time since 2010 as a virus killed piglets, reducing supply and sparking a rebound in pork prices.

The herd declined to 67.463 million hogs as of Sept. 1, down 1 percent from the same date last year, a Bloomberg survey of 10 analysts showed. The U.S. Department of Agriculture will release its quarterly estimate of hog inventories at 3 p.m. in Washington. Porcine epidemic diarrhea virus was found in at least 17 states since April, killing piglets and slowing growth in hogs, the American Association of Swine Veterinarians said.

There have been about 644 confirmed cases of the virus since April, a National Animal Health Laboratory Network report showed Sept. 25. Infected suckling pigs, which are three weeks old or younger, have seen as high as 100 percent mortality. Wholesale-pork prices are up 8 percent from a three-month low on Sept. 5 and 29 percent higher than a year ago.

“There was enough of the disease in enough places that it’s going to impact pigs per litter and survivability,” Ron Plain, a livestock economist at the University of Missouri in Columbia, said in a telephone interview. “It’s a spreading disease, and the impact is growing.”

The Chicago Mercantile Exchange’s Lean-Hog Index, a measure of cash prices used to settle futures, is up 19 percent this year. The Standard & Poor’s GSCI Spot Index of 24 commodities has fallen 1.5 percent, and the MSCI All-Country World Index of equities has climbed 14 percent. The Bloomberg U.S. Treasury Bond Index is down 2.4 percent.

Older Pigs

Most of the animals affected by the virus were older pigs that stopped eating for two to three days and then typically recovered. The effect can be severe on an individual farm when the virus wipes out two to three weeks of newborn pigs. Mortality in suckling and early weaned pigs is 30 percent to 100 percent, according to the Iowa Pork Industry Center.

Tighter supplies are encouraging hedge funds and other large speculators to boost bets on higher prices. The net-long position in hog futures and options reached 95,076 contracts as of Sept. 17, the most bullish since the U.S. Commodity Futures Trading Commission began reporting the data in 2006.

Reduced supplies may not last long. The virus is helping to keep hog futures “very high,” up 18 percent from a year ago, which provides an “enormous incentive” for farmers to expand their herds, according to Plain, who has studied the industry for three decades.

Continued profitability

Hog farmers have been making on average $15 a head since mid-June, partly because of the drop in the cost of feed corn, said John Nalivka, president of commodity researcher Sterling Marketing Inc. in Vale, Oregon. Corn futures are down 35 percent this year as U.S. farmers prepare to harvest what the USDA estimates will be a record 13.843 billion bushels.

With feed costs declining, hog producers may earn $28 a head on average from December through next year, said Nalivka, a former USDA economist. The cost of corn for hogs that will be sold in 2014 is down about 35 percent from corn expenses for hogs marketed this year, Nalivka said. Continued profitability will spur expansion, he said.

As September began, 5.866 million hogs were being held back for breeding, up 1.4 percent from 5.788 million a year earlier, according to the Bloomberg survey. Sow slaughter declined 1.4 percent in the eight months through Aug. 31 compared with a year earlier, government data show.

Pork Opportunity

Another incentive for expansion is a pickup in demand for pork as an alternative for higher-priced beef, Nalivka said. Domestic beef production may drop 5.7 percent next year, while pork output may increase 3.2 percent, the USDA said in a report on Sept. 18.

“Beef prices are going higher, and that’s going to make pork very competitive,” Nalivka said. “They’re going to want to fill that demand. It creates a very good situation for the pork industry to grab some market share.”

While the breeding herd is expanding, which means more pigs, the number of animals per litter may be little changed. Sows averaged 10.14 pigs per litter during the three months ended Aug. 31, compared with 10.13 pigs a year earlier, according to the Bloomberg survey.

Plain projects that the number of pigs per litter will be down 1 percent because the porcine epidemic diarrhea virus is “extremely deadly” for young pigs. The tally reflects the number of pigs weaned, not the number born. Pigs are weaned at around three weeks, he said.

Fewer Slaughtered

Fewer animals per litter means fewer hogs go to slaughter. The inventory of hogs to be sold for slaughter probably dropped 1.3 percent in the three months ended Aug. 31 from a year earlier, according to the Bloomberg survey. It’s unknown how many pigs have died and how many farms have been affected, said Harry Snelson, a veterinarian and director of communications at the American Association of Swine Veterinarians.

“This is really going to show up from an economic standpoint four to five to six months down the road, when those pigs who died would have been going to market,” Snelson said in a telephone interview. “That’s where you’re potentially going to see a gap. We don’t know how significant it’s going to be at this point.”

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.