Hog futures, the second-worst commodity investment of 2009, may fall 33 per cent by yearend from 44.65 cents a pound on 14 August. US exports plunged 20 per cent in the first half and are heading for the first annual decline since 1990 after the H1N1 outbreak in April led to import restrictions in China and Russia. Tyson Foods Inc idled slaughterhouses, and US hog farmers haven't been profitable in a year.

H1N1 will contribute to an 11 per cent drop in global pork trade this year, even after scientists said the meat is safe to eat, United Nations data show. Slumping exports, the global recession and improvements in breeding methods left US inventories in June at a record high level for the month.

"What do we do with all these hogs?" said David Kruse, a commodity trading adviser at CommStock Investments Inc in Royal, Iowa.

"The industry is just not structured to modify production in response to reduced demand. The industry is basically structured to go broke. It will produce hogs until it runs out of money."

After falling last week to the lowest price since November 2002, hog futures may average 30 cents to 32 cents a pound on the Chicago Mercantile Exchange in November because of unwanted supply, said Glenn Grimes, a livestock economist at the University of Missouri in Columbia who's followed the industry for more than 50 years.

Farmers are losing $30 to $35 on every pig they sell this month and may not make money until May, Grimes said. Producers have been unprofitable for 20 of the 22 months through July, and more than 5,000 of them may need to exit the business, he said. Only then would the breeding herd shrink by the 10 per cent needed to spark a turnaround, he said.

"Some producers have basically told us that they are going to liquidate, in some cases parts of their herds and in other cases maybe their entire herds," said Gary Machan, the vice-president of pork procurement at Springdale, Arkansas-based Tyson, which buys pigs from about 6,000 farms. "We expect that will continue here in the near term as well, because of the economic conditions they are experiencing."

Falling demand is creating a downward spiral as meatpackers cut slaughter rates, leaving animals stuck on farms where they gain more weight and produce more meat. On Aug 8, pigs were more than 4.5 kilograms heavier on average than a year earlier, US Department of Agriculture data show.

The weight gains are the biggest year-over-year increase ever. Pork inventories were already 9.2 per cent larger in June than a year earlier at 578.8 million pounds, USDA data show.

Cheap meat

Consumers may lead a rebound by taking advantage of the lowest wholesale prices since January 2003 to switch from more expensive beef and chicken, said John Lawrence, a livestock economist at Iowa State University in Ames.

Retail ham prices are down 2.5 per cent this year to $2.37 a pound in July, while chicken breasts rose 1.1 per cent to $3.32 a pound and beef steak sold for $5.289 a pound, a decrease of 1.6 per cent, Labor Department data showed on 14 August.

Overseas sales may lift prices as import restrictions ease. Russia, the fourth-largest buyer of US pork in 2008, lifted H1N1-related bans on 12 of 13 states as of 19 July. South Korea resumed imports of live hogs from North America on 12 August.

Some export declines may be permanent. Russia and China, the world's largest consumer, are boosting domestic herds, Lawrence said. Imports from the US fell 38 per cent in Russia this year and 73 per cent in China, USDA data show.

China surplus

"China doesn't seem to have a lot of interest in pork imports," said Guo Huiyong, an analyst at Beijing Orient Agribusiness Consultant Ltd in Beijing. "The domestic market has a supply glut and the prices have slumped."

The government stockpiled meat to ease farmers' losses after prices dropped 34 per cent on average from a year earlier, Mr Guo said.

Imports by China fell to 66,000 tons in the first six months of 2009, down 70 per cent from a year earlier, according to Customs data. Exports jumped 18 per cent to 43,464 tons.

In Russia, farmers took advantage of the H1N1-related bans and a devaluation of the ruble to increase production, said Galina Kochubeeva, an official from the US Meat Export Federation in Moscow. Output rose 16 per cent in the first half to 611,300 tons, according to Rosstat, the Russian state statistics agency.

Total US shipments sank 20 per cent through June from a year earlier to 1.985 billion pounds, the government said on Aug 13. Wholesale pork plunged 44 per cent to 52.52 cents a pound since prices set a record of 94.41 cents in August 2008. Only natural gas performed worse than hogs this year on the Reuters/Jefferies CRB Index of 19 raw materials, dropping 42 per cent.

Exports grew 279 per cent in the past decade to a record 4.667 billion pounds in 2008, USDA data show. In contrast, chicken trade rose 60 per cent since 1998 and beef fell 13 per cent.

The US sold about 20 per cent of domestic pork overseas last year, the most ever. Much of that supply now has nowhere to go, said Steve Meyer, the president of Paragon Economics in Adel, Iowa.

Pig glut

US output has expanded through better breeding methods and vaccines to combat circovirus, a respiratory disease that attacks piglets. Gains are worsening the glut, Missouri's Grimes said.

Farmers were unprofitable in all but two months since September 2007, the result of record feed costs last year and falling demand this year.

The industry has lost almost $4.5 billion, according to the National Pork Producers Council. Grimes said the figure may top $5 billion by the end of 2009.

"I'm afraid it's going to take bankruptcy by quite a number of producers" to spur prices, Grimes said.

Thousands of jobs may disappear as banks cut lending, said Neil Dierks, the chief executive officer of the National Pork Producers Council.

In Iowa, the largest hog state, 63,000 people work in the industry, Governor Chet Culver said.

"The drain on equity is just phenomenal," Mr Dierks said in an interview.

"Some economists are estimating that we'll see a contraction of 5 to 10 million head of hogs. And for every million head we don't produce, that's about 1,000 jobs that rural America loses."