Porcine epidemic diarrhea | Hog numbers and prices unstable
Hog prices continue to groan with uncertainty as the wrenches thrown by porcine epidemic diarrhea continue to clatter around inside the market’s gears.
- Will pig numbers and weights suddenly shrink, after holding up against expectations for months?
- Will PED come back, or is that problem fixed?
- Has the sky-high prices of spring and summer affected demand?
On all these points, Hams Marketing’s Tyler Fulton says it’s hard to tell.
“It’s a big question. It’s hard to say whether we’ve dealt with this one,” he said of the manifold impacts of PED.
Hog prices recently had a massive sell-off, with futures prices dropping 25 to 30 percent from the beginning of July until mid-August. For the October Chicago contract, the selloff saw futures go from $118 per hundredweight to $92.
However, hog futures have stabilized in recent days and recovered some of the lost ground, gaining back more than $6 to reach $98.23 by Aug. 29.
The $98 level is interesting because that’s where the October contract settled back to in mid-April before beginning its ascent to $118. Traders will keenly watch to see if prices can convincingly rise above that level.
PED had a massive impact on North America’s hog industry and markets. Eight million piglets have been lost to the virus, which has caused analysts to project many differing implications.
Most expected a big drop in pig numbers and only a slight increase in pig weights.
However, the actual reduction was smaller than expected in spring and weights were substantially higher, which caused little supply shortness to actually develop.
The fear of suddenly tight pork supplies caused hog futures to shoot up, and the failure of the tightness to materialize has been mainly responsible for the following selloff.
Fulton said pork buyers couldn’t talk themselves into acting like there was a shortage when there wasn’t one.
“You just couldn’t rationalize the premiums that were built into the market,” said Fulton.
“Buyers began to push back.”
Analysts are still debating why the pig numbers didn’t drop as much as expected and how they could stay as high as they have for so long.
Fulton said some important analysts still expect pig numbers to drop to 13 percent below last year levels, even though declines have been less than 10 percent.
As well, some think weights will still drop, regardless of their continuing heftiness to this point.
Fulton said weights probably can’t increase much from where they are now, even though it’s the time of the year when market hogs normally get heavier. That by itself could create a counter-seasonal rally.
Prices usually slump in the weeks after Labour Day and in the fourth quarter, partly because of bigger hog weights. Perhaps people expecting weakness will be surprised if weights don’t now increase.
“Increasingly, the hog weight issue will decrease as an issue,” said Fulton.
Questions remain about PED’s impact on the industry:
- Will the virus spread through thousands of barns again as cold weather returns and it becomes more virulent?
- Will farmers find they have not implemented tough enough biosecurity to eliminate most of the threat and new infections?
- Will the industry leave PED behind like it did with circovirus a few years ago?
Fulton said the market seems to be assuming PED won’t be a major problem by next spring, which is an assumption he finds puzzling because vaccine control is weak, much is still unknown about the disease and the danger season is just about to begin.
It means prices for next spring could easily rise from current futures prices if significant infections occur.
“They’re fairly priced, assuming we deal with PED, that it’s a non-issue at that point,” said Fulton.
“There is really not any measurable premium in the market.” –