Hog futures up after USDA announces pork purchase

Oversupply, high feed prices creating challenges for industry

U.S. hog futures rose by $1.70 per hundredweight for the October contract and $1.37 per hundredweight for the December contract after the U.S. Department of Agriculture announced its intent to purchase $100 million in pork products to help support farmers suffering through the current drought. The purchases will go to national food nutrition assistance programs like food banks.

A combination of oversupply and high feed prices due to drought has plagued producers, according to the industry. Hog prices have dropped 15 percent since the end of 2011 due to record production of hogs threatening to oversupply the market. Iowa, the nation’s largest hog producing state, has reported inventories of hogs at a record 20 million since late 2011, largely because of improved sow productivity.

Increased feed prices have only made things more difficult. “This purchase will help pork producers who are struggling with the effects of this severe drought, which has adversely affected much of the nation’s corn crop,” said National Pork Producers Council President R.C. Hunt. “In fact, many producers still face the prospect of severe losses because of record-high feed prices, which have gone up because of the drought.” Some producers are choosing to send their sows to slaughter, rather than keeping them and paying the higher feed prices.

Pork prices have been bolstered since 2010 by strong exports, a trend that has continued through the first half of 2012, according to the U.S. Meat Export Federation, which reported pork exports up 13 percent in volume to 294,097 metric tons and 11 percent in value to $537.4 million through June.