June 19 (Bloomberg) -- Hog futures surged to a two-year high on speculation that U.S. consumers bought more pork instead of beef for grilling during the Independence Day holiday on July 4 as supermarkets increased promotions.
About 1.19 million hogs have been slaughtered in the first three days of this week, up 0.6 percent from a year earlier, U.S. Department of Agriculture data show. Per-capita pork consumption in the U.S. this year is expected to increase by 1.3 percent, the USDA forecasts. The Fourth of July is the most popular day of the year for outdoor grilling, according to the Hearth, Patio and Barbecue Association.
Rising hog prices will increase costs for companies that slaughter animals including Smithfield Foods Inc., the leading U.S. processor, and boost pork prices for consumers who traditionally increase meat consumption as temperatures rise in the U.S. Wholesale pork is 92.81 cents a pound less expensive than beef, according to the government. Beef stockpiles in 2013 are expected to fall 9.5 percent to 550 million pounds while pork inventories may rise 4 percent, USDA data show.
“Demand is stronger because the retailer and the wholesaler did a very good job of spooking people on tight beef supplies and switched over their promotions to a cheaper product, pork,” Don Roose, the president of U.S. Commodities Inc. in West Des Moines, Iowa, said by telephone. “There is also a little bit of demand for the Fourth of July, but the push toward cheaper products is a bigger part.”
Hog futures for August settlement surged 1.1 percent to close at 98.375 cents a pound at 1 p.m. on the Chicago Mercantile Exchange, after reaching 99.5 cents, the highest for a most-active contract since April 25, 2011. Prices are up 4.8 percent in June and 15 percent this year.
Wholesale pork rallied 39 percent since the end of March, reaching a 22-month high yesterday of $1.0743 a pound, government data show. Rising prices are an indicator of improving demand. U.S. Midwest temperatures will top 80 degrees Fahrenheit (27 Celsius) this week and climb into the 90s next week, according to forecaster MDA Weather Services in Gaithersburg, Maryland.
“The very strong gain” in pork prices “is the primary driver” for hog futures, Rich Nelson, the director of research at Allendale Inc., said in a telephone interview from McHenry, Illinois. “We also have ideal grilling conditions right now, and there’s still a little bit of demand for Fourth of July.”
Pork exports to Mexico in April rose 19 percent to 52,958 metric tons, according to the U.S. Meat Export Federation. Shipments to Canada and Colombia also climbed, the federation said in an e-mailed report on June 5. In the four months through April, total exports were still down 10 percent from a year earlier, the agency said.
Futures also advanced amid mounting concern that the spread of a hog disease called porcine epidemic diarrhea virus will limit supplies, Nelson said.
The U.S. Department of Agriculture reported on May 17 that the disease had infected some animals in Iowa, the largest hog-producing state. The disease has spread to 13 states, slowing weight gain and causing death in piglets, according to James Collins, director of the Veterinary Diagnostic Lab at the University of Minnesota. PEDV doesn’t affect humans and is not a food-safety concern.
Cattle futures for August delivery rose 1.2 percent to settle at $1.204 a pound in Chicago. Prices are down 9 percent this year.
Feeder-cattle futures for August settlement gained 0.6 percent to $1.4465 a pound.
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