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Hogs Head for Biggest Rally in 15 Years on Deadly Virus

March 28 (Bloomberg) -- Hog futures rose, heading for the biggest quarterly rally in 15 years, as a piglet-killing virus threatened U.S. meat production, signaling consumers will be forced to pay more for everything from bacon to pork chops.

More than 5,000 cases of porcine epidemic diarrhea have been reported as the deadly virus spread to at least 27 states in the U.S., the world’s biggest pork exporter, according to the National Animal Health Laboratory Network. American pork production may drop by the most in three decades this year as the number of hogs available for meat processors shrinks, Rabobank International estimates.

This year, hog have rallied 52 percent, poised for the best quarterly gain since 1999. Retail-bacon prices have surged 13 percent from a year earlier, and pork chops are up 2.5 percent, according to the Bureau of Labor Statistics. Tighter supplies may increase costs for Hillshire Brands Co. and Hormel Foods Corp., the maker of Spam meat spreads.

“The expectation in the industry is that we have lost a lot of pigs,” Ron Plain, a livestock economist at the University of Missouri who has studied the market for three decades, said in a telephone interview. “We’re expecting the year-over-year decline in hog slaughter this summer to be greater than anything we’ve ever seen in a very long time.”

Hog futures for June settlement rose 0.2 percent to close at $1.29575 a pound at 1 p.m. on the Chicago Mercantile Exchange. Prices reached a record $1.33425 on March 18.

The U.S. inventory of hogs farmers plan to sell for slaughter was 3.7 percent smaller on March 1 than a year earlier as the virus contributed to the smallest total herd in seven years, the government said in a report released after the close of regular trading.

Sustained Rally

This year’s rally has eroded profit margins for Hormel and Premium Brands Holding Corp., a sandwich maker in Canada. U.S. wholesale pork has jumped 55 percent this year, reaching a record $1.3191 a pound on March 26.

Prices may continue to rise as meat demand increases during the U.S. summer grilling season. Hedge funds and other large speculators are betting Chicago futures have yet to peak. Net-long positions on hogs were at 70,878 contracts as of March 18, up 84 percent since mid-January.

“This is very unusual to see this kind of price increase this early in the season,” Donnie King, the president of prepared foods at Springdale, Arkansas-based Tyson Foods Inc., a seller of bacon and pork roasts, said in a March 13 presentation to analysts.

Cattle futures for June delivery fell 0.1 percent to $1.3835 a pound.

Feeder-cattle futures for May settlement fell 0.2 percent to $1.795 a pound, after reaching a record $1.8035.

To contact the reporters on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net; Megan Durisin in Chicago at mdurisin1@bloomberg.net

To contact the editors responsible for this story: Millie Munshi at mmunshi@bloomberg.net Joe Richter, Patrick McKiernan

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