Cool weather puts dampener on lean hog rally

The rally in hog futures, driven by record-high pork prices, showed signs of fraying on Wednesday, as forecasts for cooler weather raised hopes for breeding rates and supplies later in the year.

Chicago’s August lot achieved a fresh all-time high, for a near-term contract, of 104.30 cents a pound, boosted by a rise in wholesale pork prices to a record top of $106.23 a hundredweight.

The so-called cutout value, which set a record for a sixth successive day, was up 3.6% over the past week and 16.9% year on year, lifted by expectations of strong export orders, notably from China and South Korea.

"The China factor is still in play," Mike Mawdsley at Market 1 said.

Raised mortality rates

However, Chicago’s October contract fell 1.0% to 84.25 cents a pound, with later lots also lower, as cooler Midwest weather lifted hopes for America’s ability to meeting Asian demand.

"The fear with hot weather is that it makes it more difficult to get animals to put on weight and can increase mortality rates in litters too," a trader told Agrimoney.com.

"Cooler weather isn’t going to do much for short-term [pork] supplies. But it could make suppplies easier going forward."

Data from meat packers shows that the average weight of slaughtered animals, while in line with the average at the start of last month, had fallen by Monday to 198.0 pounds, down 2.5 pounds on the figure for the start of August last year.

China strategy

South Korea, whose own livestock industry has been devastated by an outbreak of foot and mouth disease, on Tuesday announced zero-rate tariffs until the end of next months on all imports of chilled pork.

The move, also accompanied by the ditching of tariffs on imports of bananas, cabbages, pineapples and radishes, was aimed at boosting supplies and curbing annual food inflation which reached 9.0% in July.

Meanwhile, China, the top pork producer and consumer, has boosted imports to take the pressure off its domestic hog industry, which it is attempting to rebuild herds even while growing prosperity is whetting demand for meat. Pork price inflation hit 57% in June.

"China is trying to add 2m-3m sows to the herd," US Commodities said, noting that, with hog slaughter down 4.8% in the first half of 2011 "it appears they are getting this done".

"This helps to explain China’s aggressive interest in pork imports."

Paragon Consulting and Steiner Economics said in a report that while "we have no way of knowing the pace of sales, anecdotal evidence from industry contacts indicates that pork shipments to China remain very strong and could be sustained at least through the end of August".

http://www.agrimoney.com/news/cool-weather-puts-dampener-on-lean-hog-rally–3435.html