Why are hog futures skyrocketing?

U.S. Department of Agriculture export sales numbers for hogs released early Thursday were “massive,” said John Payne, senior broker at Daniels Trading in Chicago. The USDA pegged net U.S. pork sales at 90,700 metric tons for the March 29 to April 4 period, with China buying 77,700 metric tons.

Demand from China is surging as African swine fever, a contagious disease that is nearly 100% fatal for domestic and wild pigs, has decimated that country’s hog herds.

This the largest number we have seen in a long while, almost four [times] larger than where they opened the week prior,” he said in emailed comments. “News out of China continues to be supportive for pork prices as it was reported last night through CPI numbers that prices are higher by 5% in the last month.”

In Thursday dealings, lean hogs for June delivery LHM9, +0.57% the most-active contract, rose 2.2 cents, or 2.3%, to 98.68 cents a pound in Chicago after trading as high as 99.45 cents. A settlement above the 98.975-cent settlement from April 5 would be the highest since Sept. 18, 2014, based on the most-active contracts, according to Dow Jones Market Data. Prices have climbed by more than 11% month to date and soared by more than 60% for the year so far.

“Lean hog prices have been very volatile over the last month or so as [African Swine Fever] decimates hog herds in China and other Asian nations,” Will Rhind, chief executive officer of ETF issuer GraniteShares, told MarketWatch. “The lean hogs futures contract has been limit up or down seven times since March 15, with five of those seven times limit up.”

“China is the largest global consumer of pork, producing and consuming about half of all pork in the world,” he said. “As a result of the swine fever epidemic, it has culled a very large number of hogs, depleting its supply and necessitating imports. Lean hog prices have reacted accordingly.”

Rhind said he believes the latest weekly pork purchase by China is a record. The purchase comes despite China’s hefty tariffs on imports of the commodity from the U.S.

So far this year, the U.S. has shipped 46,400 metric tons of pork to China versus 15,600 this time last year, said Ned Schmidt, editor of the Agri-Food Value View, an investment newsletter for agriculturally produced commercial food. China has orders for another for another 96,500 metric tons versus 4,900 last year, he added.

“What is important is the hog population cannot expand immediately to meet that demand,” he said. It “takes 114 days, or almost four months, for sow to give birth to a piglet–and then the piglet has to be fattened.”

With African Swine Fever in China “a major problem, Chinese demand is pushing U.S. prices up,” he said. “From 52-week lows, both pork and hogs have doubled in price.”

“With no cure available for ASF, Chinese demand for U.S. pork could be huge,” Schmidt said. And “to raise a hog one has to be fed grains. So, demand for grains is going to expand.”

The iPath Series B Bloomberg Livestock Subindex Total Return ETN (COW) was unchanged in after-hours trading Thursday. Year-to-date, COW has gained 126.00%, versus a 8.43% rise in the benchmark S&P 500 index during the same period.

This article is brought to you courtesy of MarketWatch.