U.S. pig virus supply woes drive U.S. hog markets up 6.5 percent

Fri Mar 7, 2014 6:11pm EST

* Packing plants "adjust" to PEDv impact

* More hog kill cuts seen in coming weeks

* Retail pork, hog prices likely to rise -analysts

By Theopolis Waters

CHICAGO, March 7 (Reuters) - Hog futures at the Chicago Mercantile Exchange surged 6.5 percent this week on tightening U.S. supplies as a deadly pig virus sweeps the country, traders and industry sources said on Friday.

CME lean hog futures finished the week at 113.750 cents per lb, down from a record high of 114.675 cents earlier this week as fears the Porcine Epidemic Diarrhea virus, known as PEDv, is spreading, making it difficult for packers to find hogs to slaughter. That compares with the low this year of 84.500 on Jan. 9.

There was widespread market talk on Friday that big packers, including the world's top pork processor, Smithfield Foods Inc , may reduce production from five days to four as early as next week at its North Carolina plants in Tar Heel and Clinton, and also at its Gwaltney facility in Virginia.

"It's happening throughout the industry. It's not just Smithfield. All pork processors are having this issue with the disease," said one industry source close to the situation who declined to be named because of market sensitivity.

Industry sources estimated the daily slaughter capacity at Smithfield's Tar Heel at 34,000 head and 10,600 at Clinton and Gwaltney.

There is no official data on how many hogs have died from PEDv, but analysts and economists put losses at at least 4 million head since the virus was detected in May 2013.

"Anybody who is in the swine industry is being affected by PEDv. It's affecting Tyson, JBS and everybody," the source said.

Smithfield, owned by Chinese company Shuanghui International, said in an email that it "has a policy of not commenting on daily operations, minor disruptions and openings and or closings of processing plants."

Tyson Foods Inc, one of the country's leading meat processors, so far has not experienced "significant" PEDv virus-related supply reductions, but is seeing signs of hog supplies tightening, company spokesman Gary Mickelson said.

"When our operations do see a reduction in supply, we'll adjust our production as needed," he said in an email.

The United Food and Commercial Workers Union, which represents workers at pork packing plants across the United States, has not been officially notified of any immediate changes in production, according to a spokeswoman.

"PEDv is an industry-wide problem that is affecting many pork companies," she said.

The decline in hog production is expected to elevate the cost for market-ready hogs and pork at the wholesale level. Prices for both hogs and pork are already at their highest levels ever for this time of year, according to analysts and traders.

For the week ending March 8, packers processed an estimated 2.072 million hogs, down 5.7 percent from a year ago, with pork production at 441.2 million lbs, down 3.3 percent for the same period, according to USDA data.

Waning hog numbers boosted CME hog futures in eight of the past nine sessions, which coincided with prices for market-ready hogs that gained 14 straight days and wholesale pork costs that were steady to higher 12 days in a row.

"You have to wonder if at some point packers will do something," said independent livestock futures trader Dan Norcini. Packers cannot consistently spend more for hogs the rest of year without raising pork prices, which will hurt demand, he said.

Rich Nelson, chief analyst at Allendale Inc in McHenry, Illinois, said packer cutbacks are expected as they scramble for available hogs, which is an indication of market conditions.

"It simply reflects the very short supply that we've been discussing the past three weeks tied to PEDv," he said.

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