(Bloomberg) -- Earlier this year, the prospect of a gaping global protein hole caused by swine fever in China pushed hog futures to the highest in five years. Now, prices are sliding back abit.
Futures on Tuesday dropped below where they were at the start of 2019. There’s concern that there are just too many American hogs. Swine fever in China is spreading, but traders haven’t been impressed with its purchase of U.S. pork lately. No. 1 ham customer Mexico hasn’t been buying as much either, according to the latest government data, because of the trade war.
Meanwhile, U.S. farmers are building new barns and slaughter capacity is expanding, according to The Commstock Report. Feed costs are also a headwind for hogs, as persistent Midwest flooding signals tighter corn and soybean supplies, Jeremy Scott, Mizuho proteins analyst, said in a report.
Mexico bought less American pork for the first time in seven years in 2018. That trend continued through the first four months of 2019, with pork exports of 232,392 metric tons down 18% from the comparable time in 2018, according to the U.S. Department of Agriculture. Ham prices are starting to ease off of highs.
“You’re talking about a 20% gratuity to the Mexico treasury every time you ship hams to Mexico,” Joe Schuele, vice president of communications at the U.S. Meat Export Federation, said by phone. “That’s a pretty big factor.”
Hog futures for August settlement fell 0.7% Tuesday to close at 81.7 cents a pound. That’s 1% below the price at the start of the year. The contract touched a record high of $1.02975 on March 22, when peak swine fever fears were aroused. That price was the highest of any most-active contract in five years.
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