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Fears for pork supplies reboot rally in lean hogs

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Hog futures enjoyed strong gains amid ideas that a correction in near-term contracts, in line with decreasing concerns over the knock-on effects of porcine epidemic diahorrea virus, had been overplayed.

Lean hogs for June, the best-traded contract, stood 1.7% higher at 121.625 cents a pound in late deals in Chicago.

The August contract was up more than 2%, while October futures touched a contract high of 107.00 cents a pound earlier.

The gains follow a more mixed period for prices, with near-term futures being undermined by observations that a decline in slaughter numbers - blamed on the US outbreak of porcine epidemic diahorrea virus (PEDv), which has high mortality among infected piglets - was being more than offset in terms of pork production by larger animal weights.

Average weights have been of late running nearly 5% higher than a year ago, compared with a drop of 2-3% in slaughter numbers.

Supply vs demand

However, pork production may be poised for a slide, with slaughter rates typically falling during the summer.

And the seasonal decline may be exacerbated this year by the knock-on effects of PEDv, which is viewed as a more severe threat during winter months.

With animals taking some 5.5-6 months between birth and bringing to market, "the impact of the virus should be felt right through the summer, starting from around the middle of May," Don Roose, president of US broker US Commodities, told Agrimoney.com.

Meanwhile, demand is proving strong, as attested to both by domestic and export data, with US shipments in March soaring 23% to 161,858 tonnes, led by a 43% jump to 40,075 tonnes in volumes heading to Mexico, official statistics last week showed.

"Demand is strong, supply is down, factors which should support the market," Mr Roose said.

'Will keep hog prices elevated'

Separately, Societe Generale said that it was ditching expectations of a drop in lean hog futures in the July-to-September quarter, instead forecasting a rise, seeing higher slaughter weights as likely to offset only "partially" the dent to animal numbers from PEDv

The number of pigs per litter on US hog farms had fallen to give years lows in January and February.

Furthermore, the spread of porcine delta coronavirus( PDCov), a disease similar to PEDv, now found in 142 farms in 14 states adds "another leg of supply risk to the future supply of pork", SocGen analyst Christopher Narayanan said.

"Additional supply shocks caused by any new cases of disease, as well as the normal biological lag inherent in raising livestock, will likely keep hog prices elevated for the foreseeable future."

The bank, which will on June 4 unveil fresh crop price forecasts, said it saw "significant upside risk" to current forecasts for Chicago hog futures, which it three months ago forecast averaging 86.69 cents a pound in the July-to-September quarter and 82.99 cents a pound in the last quarter of 2014, on a front contract basis.

By Agrimoney.com

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