CME update: lean hog futures set contract high on strong demand and lighter weights

US lean hog futures reached a contract high for the second consecutive day on 3 February.

4 February 2021, at 7:38am

Reuters reports that strong demand and a decline in farm animal weights pushed contracts higher.

Average hog weights have declined as processors have cleared a backlog of hogs on farms that began last spring when COVID-19 outbreaks temporarily shut slaughterhouses.

The average weight on a carcass basis dropped to 216.2 pounds in the week ended 31 January from 217.4 pounds a week earlier, according to US Department of Agriculture data.

Lower weights reduce the amount of meat produced from each pig.

"We've seen a notable drop in carcass weights over the last few weeks, which suggests we're finally getting current with our hog industry," said Arlan Suderman, chief commodities economist for broker StoneX.

Chicago Mercantile Exchange (CME) April lean hog futures closed 1.125 cents higher at 79.200 cents per pound. The contract traded up to 79.950 cents, topping a previous life-of-contract high of 78.225 cents from Tuesday 2 February.

Exports and domestic demand have been solid recently, due to Chinese buying and the reopening of some US restaurants after COVID-19 restrictions.

Traders on Thursday will review weekly US export sales data for pork and beef.

China, the world's top pork producer and consumer, has grappled with a deadly hog disease, African swine fever, since August 2018, raising its need for meat imports. A surge in disease outbreaks this winter will slow China's rapid recovery from the African swine fever contagion, according to industry participants and analysts.

"African swine fever is rearing its head in China again," Suderman said. "At this point it's probably more hype than it is reality, but it is a risk."

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