Investors' optimism for the hog market revival may have gone too far, allowing the industry to delay the shake-out it needs to ensure it can leave crisis behind, a leading academic has said.

Chris Hurt, economist at Purdue University, has advised investors to consider selling hog futures, stating that the strength of the market is damaging efforts to get the industry back into sustainable profit.

The price of Chicago's spot hog contract has rebounded by 33% in three months.

The jump in animal prices has offered farmers a way to sidestep the impact of corn's rally, which has lifted pig production costs from farrow to finish to $50 per hundredweight.

Futures levels, adjusted for the average spread over farm-gate prices, implied that the traders were factoring in a return to farmers of a little over $50 per hundredweight for 2010, "suggesting a breakeven price", Chris Hurt, economist at Purdue University, said.

This may dissaude rearers from the making the cuts of 3-5% needed to the US herd to make the industry viable on a sustainable basis.

'New era' 

"Old timers use to say that you don't want to be short lean hog futures when the price cycle is ready to turn up, and that has been true in the past," Mr Hurt said, noting the historical trend for rebounds in pig prices to outrun forecasts.

"But, this is a new era and old maxims may not hold. If there is an unfortunate side to these higher prices, it is that it may increase producer optimism, resulting in a smaller-than-needed reduction of the breeding herd.

"If so, selling lean futures now will be positive."

'Too inflexible'

Getting actual farmgate prices to an average of $50 per hundredweight next year seemed an "insurmountable climb", Mr Hurt added, suggesting a figure of $46-47 per hundredweight.

"Given the assumption of $50 costs, that would still leave [a] loss per head, the third year in a row of losses," he said.

America's hog sector was hit first by the jump in feed prices, then by recession and fears over so-called swine flu, which sapped demand.

"There were just too many major demand and cost shocks in the past two years for an industry that had become too inflexible to downsize," Mr Hurt said.