Recently two wild boars were found within 15 miles of Barcelona dead and confirmed with African swine fever. This represents the first known case of ASF in Spain since 1994. The disease was officially eradicated from the Iberian Peninsula in 1995. It took 35 years to successfully eradicate ASF from Spain. That’s how dangerous and difficult to manage this disease is. Spain now has a real problem on their hands.
One third of pork exports overseas have been halted. If the disease continues to pop up across the country, the entire export market will shut down. Spain will continue to export to other EU countries. The virus has jumped from Italy to Spain, seemingly bypassing France. Authorities believe contaminated food was likely brought into Spain via humans. Additional cases in wild boar continue to be confirmed with eight confirmed cases as of this moment with 14 suspected cases pending confirmation. If the disease is confirmed within commercial hog herds, trouble awaits Spanish pork producers. Cash hog prices are sharply lower in Spain.
Spain is the largest pork producer in the EU and they’re also the largest pork exporter in the EU. Spain is a major pork exporter in the global pork trade. They provide China with 25% of their pork imports, 17% to Japan, 19% to the Philippines and 4% to S. Korea. If ASF proves to be a major problem for Spain, exports to these countries will fall to zero. This will open up a huge opportunity for U.S. pork producers.
Recently U.S. hog slaughter rates have been running up 1% to 2% from last year. Weights have been heavy, adding to the fall supply burden. However, according to the September Hogs and Pigs report, from here forward, butcher hog supplies are projected to start running about 2% below the previous year. If accurate, this means lower hog numbers from December into March. If this report proves to be accurate, given a possible bump in pork exports in tandem with what continues to be strong domestic demand, hog prices should grind higher in the months ahead.
The normal hog futures seasonal tendencies appear to be out of whack. Instead of forming a high around Thanksgiving, futures appear to have formed a low during this period. I’m expecting a seasonal high sometime in March. Key resistance levels are easily defined around $82.70 and again at the November high of $83.60 basis the February hog contract. A close well above the November high would confirm that a new uptrend has started. Based on the June contract, a close above $99.00 would be bullish and signal a test of the contract high at $104. I would rate the odds of a move higher in hog futures in the next few months as very high. Producers want to leave the upside to market prices open utilizing LRP insurance and/or put options designed to provide a price floor. As of this moment we still don’t know exactly where the funds are with their net long position (due to the government shutdown).
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