Hogs Gone Wild!
First it was natural gas…
Then it was coffee….
Now lean hogs are joining the ranks of commodities surging to multi-year highs in 2014. This relatively thin market is experiencing an astonishing rally thanks to two factors, which I’ll cover in a minute.
But first let’s look at a chart…
As you can see from this DJ-UBS Lean Hogs Subindex chart, pig prices are going parabolic.
In fact, the commodity has surged 27.5% in the past month and is currently sitting at all-time record highs!
What’s behind this remarkable rally?
First of all, pork demand is surging. With cattle prices also jumping to record highs in 2014, consumers are looking for cheaper alternatives in the meat aisle. Not surprisingly, pork is one of the first things on their list.
But that’s just the start of it…
US hog farmers have been fighting a losing battle against the porcine epidemic diarrhea virus (PEDv). The nasty bug popped up in the Midwest over a year ago. PEDv kills nearly 100% of infected piglets less than 2 weeks old. What’s more, there’s no vaccination or treatment for the disease.
Analysts estimate at least 6% of the US hog population has already died from PEDv.
And the worst part is, the number of new cases continues to soar…
Last year there were only a handful of Midwestern states reporting issues with the virus. But now there are 27 states infected with PEDv.
From an investor’s standpoint, there’s an extreme amount of uncertainty surrounding the situation. Nobody knows just how much of the US hog population will ultimately be lost to the relentless scourge. And that’s precisely why lean hog prices are skyrocketing.
How do you capitalize off lean hog price movement?
Unfortunately, there isn’t an ETF dedicated to lean hogs. The closest thing we have here in the US is the iPath DJ-UBS Livestock (COW). But as you may know, COW is comprised of 62% live cattle futures and 38% lean hogs. As a result, it’s not a pure play on the lean hog market.
But that’s probably a good thing…
Lean hogs have likely run too far, too fast. In fact, many industry experts are suspicious of the recent market run up. They point out that slaughter numbers aren’t far below the USDA’s estimate released last December.
Investors will get more insight on the situation when the USDA releases their quarterly hog report on March 28th. The report will include PEDv impact along with supply forecasts into the middle of the year.
Until Next Time,
Justin Bennett
Category: Commodities
