COVID-19 is set to leave the economies without enough pigs to meet the rising consumer demand for pork and other red meats. This increasing demand and supply gap may cause a sharp rise in lean hog’s prices over the coming weeks.
This year in January, lean hog’s prices closed at 0.57 USD per lb. As of 12th October, the figure has increased by 9.19 percent to USD 0.78 per lb. The graph below represents the change in lean hogs’ pricing over a year.
Source: Markets Insider
What’s Causing the Restricted Supply?
Pork’s demand has always remained on the rise, and its supply used to be enough to meet consumer demand. But the emergence of the coronavirus changed everything. The lockdown restrictions forced factory owners to shut or slow down their operations, causing a sharp decline in lean hogs’ production. The primary issue was the spread of coronavirus among workers in hog plants. A majority fell sick, and the remaining wouldn’t want to come because of the fear.
When processing plants slowed down their operations, they stopped purchasing pigs from the farmers. The demand from direct consumers who wanted to eat pork was rising, while the demand from companies responsible for processing the meat was in a deep dip. Ultimately, with significantly low demand from the plants, lean hog futures contracts prices also plunged. Farmers began to euthanize their herds or reduce their pigs’ feed to reduce their costs.
By April, the prices had plummeted to 0.432 USD per lb. from 0.57 USD per lb. in January. Although hog factories are slowly resuming their regular operation, there’s still likely to be a supply shortage for some time.
African Swine Flu
Coronavirus isn’t alone to be blamed for the decline in hogs supply. China is the world’s biggest producer and consumer of pork. But the swine flu has affected China’s hog production quite significantly. Last year, it caused a 21 percent drop in the production, and this year it’s estimated to decline by another 15 percent, according to the United States Department of Agriculture.
Is It a Good Time for Investing in Lean Hogs?
Because of the plummeting hog production, China is projected to import nearly 4.4 million metric tons of pork by the end of 2020 (last year, China imported 2.5 million tons of pork). On the other hand, USDA expects that the United States will export approximately 3.4 million tons of pork while suffering a domestic shortfall.
The continuous rise in demand for pork, the restrictive supply, and the positive change in prices over the first, second, and third quarters this year all indicate a positive outlook for the lean hog market. Investors looking to make profits from the expected price surge should consider buying this month’s (October-dated) futures contracts on the Chicago Mercantile Exchange (CME).
If you want to make the most out of the current supply and demand imbalance by betting on surging prices, you must have a sound understanding of the risk management marketing and lean hogs marketing.
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