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In 3Q, pigs biggest loser in commodities - NWA Online

04 Oct 2016 3:01 PM | Anonymous member (Administrator)

NWAOnline

In 3Q, pigs biggest loser in commodities

By Lydia Mulvany and Jen Skerritt Bloomberg New

Posted: October 4, 2016 at 2:05 a.m.


Ham, bacon, ribs, pork loins -- if it has to do with pigs, prices are in the doldrums.

Hog futures were the worst investment in commodities recently ended third quarter and in the past year. That's because there are simply too many pigs. They're so numerous these days that slaughterhouses will have to add shifts and operate on Saturdays in November and December to process them all into food, according to Will Sawyer, an Atlanta-based vice president for Rabobank International.

The oversupply comes at a time of tepid export demand. China, which more than doubled U.S. pork purchases in the first half of the year, has now put the brakes on buying. Devaluation of the peso also threatens shipments to Mexico, the destination for 40 percent of U.S. hams. Wholesale prices for pork cuts such as ham and ribs are the lowest for this time of year since 2009. Hedge funds are signaling the meat will probably stay cheap, as speculators cut their bets on a hogs rally in four of the past five weeks.

"We have a black cloud over the market as a whole," Dustin Guy, a broker at PCI Advisory Services Inc. in Waucoma, Iowa, said by phone. "The slaughter numbers have scared people from going long in the market."

Hog futures for December settlement on Friday fell 6.4 percent to 43.98 cents a pound on the Chicago Mercantile Exchange. The contract fell 32 percent last quarter. It was the biggest decline in the Bloomberg Commodity Index of 22 raw materials, which lost 3.9 percent.

Futures could fall to as low as 40 cents, Guy said. Prices haven't been seen that low since 2002.

Pork output surged 10 percent in August to 2.15 billion pounds, according to U.S. Department of Agriculture data released Sept. 22. The trend is expected to continue as weekly figures show that the number of slaughtered animals has consistently climbed in September from a year earlier. Hog supplies typically peak in the fourth quarter, which means even more animals are coming. U.S. production of the meat this year is forecast to be the largest ever.

"We could have not just a record but an obscene record supply," Rich Nelson, chief strategist at Allendale Inc. in McHenry, Ill., said by telephone.

As of Sept. 1, the U.S. hog herd rose 2.4 percent from a year earlier to 70.85 million head, according to a USDA report released Friday. That's the highest ever for the month in data that goes back to 1866. Analysts in a Bloomberg survey expected a gain of 1.2 percent.

Producers expanded after cheap grain made it easier to fatten up pigs -- the average hog weight is almost 211 pounds, about 4 pounds more than the 10-year average. At the same time, there were expectations that demand would stay robust in China, the world's biggest pork-consuming nation, after the country's hog farmers culled herds. While exports in some weeks during April and May exceeded 5,500 tons, they sank below 1,100 tons in mid-September, USDA data show.

The supply glut is a boon for consumers. Wholesale prices for hams, pork bellies, ribs and loins are all at the lowest in seven years for this time of year, and costs in grocery stores are reflecting declines. Pork is leading the way in meat deflation, which is occurring as the cattle, hog and chicken industries expand simultaneously. The USDA cut its forecast for 2016 pork prices Sept. 23, forecasting a drop of as much as 5.5 percent from last year.

Even though pork is cheap, hogs are cheaper, meaning that packers are still making money -- margins have been profitable since July 2015. Earlier this month, margins were $52.20 a head, the highest in at least three years, according to HedgersEdge data.

Information for this article was contributed by Megan Durisin of Bloomberg News.

Business on 10/04/2016

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