Lean hog prices set contract highs amid mounting concerns that a key report will reveal show a perplexing drop in slaughter rates is down to disease losses – although there are other suggestions for the cause of the fall.
Lean hogs for December, the best-traded lot, hit 89.00 cents a pound in early deals in Chicago, a contract high, and taking above 6% gains over the past month.
The rally has been buoyed by growing fears, spurred by a surprise drop in slaughter rates, that US hog numbers have been hit by disease, amid talk that an outbreak of the PEDv diahorrea virus, which Deutsche Bank on Wednesday termed "the biggest issue in the complex".
As of September 8, the number of US farms with confirmed cases of PEDv - which has a mortality rate of approaching 100% on young piglets, of less than a month old, though causing dehydration - had reached 612 farms in 17 states, according to the National Animal Health Laboratory Network.
The big question…
"We understand that the virus has spread from the Midwest and south west, and is now severely affecting South East operations," Deutsche Bank said, noting that slaughter rates for meat so far in the July-to-September quarter had fallen by 1.3%.
Data from the last, June, US Department of Agriculture Hogs and Pigs report detailing the domestic herd had suggested a 0.5% increase in slaughter rates, the bank said, recommending a "buy" rating on June 2014 lean hog futures among four bets in commodities.
Expectations for Friday's Hogs and Pigs report and (range of forecasts)
All hogs and pigs: 98.6, (96.4-100.3)
Kept for breeding: 101.5, (100.6-102.0)
Kept for marketing: 98.3, (95.9-100.2)
June-August pig crop: 99.6, (98.4-101.7)
September-November farrowing intentions: 101, (100.0-101.8)
December-February farrowing intentions: 101.1, (99.9-102.1)
Data expressed as percentage of year-ago figure
At US Commodities, Don Roose, the broker's president, told Agrimoney.com: "The big question is, 'where are all the hogs?'"
The downturn in slaughter rates, "appears to be disease related", adding PRRS, a respiratory and reproductive disease, looked another candidate, other than PEDv, behind potential animal losses.
"I want to see that comes out of the pig report," the latest edition of the USDA Hogs and Pigs report, due on Friday.
On the headline number, for the number of all hogs and pigs, the uncertainty has left analysts divided over whether the herd has grown or shrunk, with the range of estimates ranging from contraction of 3.6% to expansion of 0.3%.
However, one of the more telling statistics may be the pig crop between June and August, which is expected to come in down 0.4% year on year.
"If that is down 3 or 4%, we know there have been diseases losses," Mr Roose said.
However, further complicating the data is an idea that a 7.9% drop in sow slaughter in the June-to-August period may be down to PEDv encouraging farmers to keep animals on farm.
"PEDv disease also may have contributed to an increase in the breeding herd," a report from Paragon Economics and Steiner Consulting said.
Deutsche Bank forecasts for lean hog futures
Q4 2013: 86.60 cents a pound
Q1 2014: 86.00 cents a pound
Q2 2014: 95.50 cents a pound
Q3 2013: 91.90 cents a pound
Q4 2014: 83.70 cents a pound
Data: quarter average, Chicago spot contract
"Producers have been very cautious in how they market sows this summer for fear of bringing the disease into their farms."
Deutsche Bank - forecasting that lean hog prices will stand well above 90 cents a pound throughout the second half of next year, above the level suggested by the futures curve – also flagged strong demand from China as a support to prices, echoing an observation from Standard Chartered last week.
"Importantly, hog prices in China are well above last year's level and closing the gap with 2011 prices, when US exports to China began to surge," Deutsche bank said, noting resilient imports of US pork despite curbs on meat from animals finished with the ractopamine growth promoter.
"While exports to the country appeared to be limited earlier this year due to its ractopamine ban, demand from China/Hong Kong/Taiwan appears to have picked up."
More bearish view
However, Societe Generale restated a more downbeat view on price prospects, noting strong pork production margins, of some $0.08 a pound, up from a negative $0.08 a pound in June.
Rising margins "suggests expanding pork production, with possibly higher farrowing intentions, in the coming quarters as lower feed prices and higher beef prices continue to encourage consumers to shift from beef to pork".
Societe Generale forecasts for lean hog futures
Q4 2013: 79.73 cents a pound
Q1 2014: 77.47 cents a pound
Q2 2014: 78.48 cents a pound
Q3 2013: 74.29 cents a pound
Data: quarter average, Chicago spot contract
Dynamics would appear "to encourage an expansion of pork production, pressuring prices into the New Year", said the bank, which has forecast a far lower course for Chicago futures.
The December lot stood 0.6% higher at 88.60 cents a pound in late deals, with the spot October lot, which also set a contract high, up 1.2% at 93.625 cents a pound.