Russian crisis hits US pig business

By Joanna Levin

US hog and pork belly prices continue to plummet with little end in sight. The entire hog market is suffering from concerns over the global economy which could cripple US pork exports, especially to Russia.

Fears of commodity deflation come in addition to an existing structural oversupply situation in the US hog industry. Decline in grain prices, which lowers the cost of animal feed for pig producers, has failed to stimulate the livestock market. The collapse in the cattle market is also having a knock-on effect on pig prices.

The cash hog price at the terminals has slumped dramatically in just a few days from 32.00-32.50¢/lb to 27.00¢/lb between the end of August and the beginning of September. Desperate producers are slaughtering their breeding herds which is adding to the near-term oversupply.

Weakness in cash values has helped drag down futures prices. The Chicago lean hog October futures contract settled on Tuesday 1 September at 36.72¢/lb, down 0.55 ¢ from the previous day and down a further 41¢/lb on the week before. This compared with almost 60¢/lb at the start of the year.

The longer-term futures contracts are also dropping sharply, a sign that traders expect further declines in cash prices. The February 1999 pork bellies futures contract lost 1.55 ¢/lb on Tuesday 1 September to close at 45.40¢/lb, a loss of over 25% from mid-July.