Hogs Extend ‘Rally of Ages’ on Rising Supply Concerns

Hog futures climbed to an all-time high for the third straight session amid mounting concern that a spreading virus will shrink U.S. supplies, raising pork costs.

After spreading to 25 U.S. states, porcine epidemic diarrhea virus has killed more than 4 million pigs the National Pork Producers Council estimates, and the National Animal Health Laboratory Network has confirmed 3,253 cases as of Feb. 16. The virus, which can be 100 percent fatal for piglets, is helping to constrain supplies. Retail-pork prices will jump 3 percent this year, the government has projected, increasing costs for retailers including Hormel Foods Corp., the maker of Spam meat spreads.

Pork output in the U.S., the world’s top exporter, will be 0.7 percent lower in 2014 than forecast in January, the Department of Agriculture said on Feb. 10. Futures are up 31 percent this year, the biggest gain after coffee among the 24 commodities in the Standard & Poor’s GSCI Spot Index.

“Everyone is expecting lower and lower supplies,” Chad Henderson, a market analyst at Prime Agricultural Consultants Inc. in Brookfield, Wisconsin, said in a telephone interview. It’s the “rally of the ages,” he said.

Hog futures for April settlement climbed 2.8 percent to close at an all-time high of $1.11675 a pound at 1 p.m. on the Chicago Mercantile Exchange. Prices rose by the exchange limit of 3 cents for the fourth straight session. Trading more than doubled compared with the 100-day average for this time, according to data compiled by Bloomberg.

Falling Slaughter

Last week, wholesale pork prices climbed 7 percent, marking the eighth straight increase and the longest rally since at least 1997, government data show. Consumers paid $3.731 on average for pork chops in December, the most since at least 1998, according to data from the Bureau of Labor Statistics. Prices in January were 7.4 percent higher than a year earlier.

About 806,000 hogs were slaughtered in the first two days of this week, down 4.4 percent from a week earlier and 5.8 percent lower than a year earlier, USDA data show. Meatpackers processed 1.7 percent fewer hogs in January compared with 2013, the USDA said in a Feb. 20 report.

Hedge funds and other large speculators increased their net-long holdings of hogs to 65,506 contracts as of Feb. 25, the highest since November, government data show. Bullish wagers have climbed 60 percent in 2014.

Hormel, the Austin, Minnesota-based maker of deli meats, expects its pork supplies will probably shrink in the summer because of the outbreak, Jeffrey Ettinger, the chief executive officer, said on a Feb. 20 conference call. The company’s independent suppliers of the animals and own farm operations have been affected by the virus.

Cattle futures for April delivery rose 1 percent to settle at $1.45625 a pound, after reaching a record $1.463. Feeder-cattle futures for May settlement jumped 0.8 percent to $1.7515, after touching an all-time high of $1.75625.

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