Fireworks In Hog Prices

US - In recent weeks, hog prices have done what pigs can't: fly. They rose 17% in June, one of the biggest gains in modern history, and reached 18-month highs. Although they've fallen a bit in the last week, the cost of pork is expected to remain elevated through the summer at least. One piece of good news for consumers: Grocers book their orders well in advance, so a rack of ribs for a July 4 barbecue shouldn't cost any more than it did in 2005.
calendar icon 2 July 2006
clock icon 3 minute read
The recent price jump has been powered by a surprising 3% drop in hog slaughter; analysts had expected a slight rise above year-ago levels. Among the many factors reducing the U.S. figure: Breeding problems last summer resulted in fewer births; an outbreak of disease drove the porcine mortality rate above typical levels last fall and winter; and a 16% rise in export sales, abetted by the weaker dollar, further tightened domestic supply. Some of the shortfall is a matter of timing. For instance, a new hog-processing plant added capacity earlier this year, causing other packers to fight for the remaining animals available on the open market.

Gains in lean-hog futures prices on the Chicago Mercantile Exchange have also put upward pressure on cash prices. Mike Zuzolo, an analyst with advisory firm Risk Management Commodities in Lafayette, Ind., says that commodity funds' long futures positions have been supporting higher cash prices since spring. The funds have increased their buying on the expectation of a long-term jump in demand from China and other emerging-market countries. Rising prices tend to attract added speculative interest as well.

This buying interest, further stimulated by the gains seen in the cash markets, helped futures rally in June to their highest point since May 2005. On Friday, the August lean-hog futures contract at the CME rose 1.3%, to settle at 70.375 cents a pound.

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