Futures in lean hogs tumbled, falling limit down for some
contracts, as the announcement by Zoetis of a licence to sell a vaccine against
a virus which has depleted the US herd lifted production hopes.
Lean hog futures for delivery from February 2015 onwards accelerated
losses of the last session, when Zoetis revealed it would later this month
beginning selling a vaccine against porcine epidemic diarrhea virus (PEDv).
Contracts for February and April 2015, and June 2016, fell the
maximum 3.00-cents-a-pound allowed by the Chicago exchange.
The decline has left hog producers - many of which, such as
Smithfield Foods, have been enjoying record margins as hog prices soared while
corn prices tumbled - looking at losses from November 2015 onwards, according
to calculations by US broker US Commodities.
Is this a game
In fact, there is some scepticism over exactly how
significant the Zoetis vaccine - which is given to pregnant sows with the idea
of them passing on antibodies to their piglets - will prove.
PEDv is particularly dangerous to young piglets, in which it
causes a high mortality rate.
The company, whose shares on Wednesday hit a record high, said
that to earn its conditional license, its vaccine "was shown to be safe in a
field safety study, and a reasonable expectation of efficacy was demonstrated".
Livestock exports Paragon Economics and Steiner Consulting
said in a report: "Is this a game changer for PEDv? Probably not.
"It will help, but what we judge as pretty broad-based consensus among veterinarians and producers is
that these vaccines are not likely to solve this problem."
Risk premium removed
Nonetheless, the news has spurred investors to "take risk
premium out of further away contracts", Don Roose, president at US Commodities,
"The vaccine is having an impact on prices."
In fact, lean hog futures, which in July hit a record high
of 133.80 cents a pound, on a front contract basis, had probably risen further
than was warranted.
"Slaughter numbers have not gone down nearly as much as
people thought," and with animal weights higher, "pork production is only down
1% on last year, which is not a big deal," Mr Roose told Agrimoney.com.
'Cure for high prices…'
Meanwhile, a decline in sow slaughter rates in recent weeks
of some 8% had already raised expectations that hog producers are planning to
"Normally, that kind of figure would equate to some
expansion," Mr Roose said.
"The cure for high prices is high prices," through encouraging
a rise in production.
The Zoetis vaccine, which has been granted a conditional licence
by the US Department of Agriculture, is administered to sows through two injections
of inactivated virus given three weeks apart, with the last one administered
two weeks before farrowing.
The company, which was spun off from Pfizer last year said
that "to achieve the best possible results, farmers should work closely with
their veterinarians and Zoetis technical services team to implement the new
vaccine into their biosecurity programs".
Zoetis shares stood 0.5% down at $35.59 in afternoon deals in
New York on Thursday.
Chicago lean hog futures for February 2015 were 2.35 cents lower at 88.625 cents a pound, and for April 2015 limit down at 88.10 cents a pound.
The best-traded December contract was 1.10 cents lower at 92.00 cents a pound.