Livestock: Hogs

Much more than just pork chops...

Hogs are descendants of the wild boar. In around 5,000 BC in either the Near East or China, they were first domesticated. Back in those times, hogs had many functions. They were a food source; their hides produced shoes and shields. Their bones became weapons and tools once sharpened and brushes were made of their bristles. These animals had other roles as well; they churned the ground and fields as they fed making the soil easier to plow.

Pork is probably the most common and widely consumed animal protein in the world. It accounts for 38% of total meat consumption. The Chinese invented bacon back in the year 1500 BC by salting pork bellies. While eating pork is ubiquitous around the globe, certain religious groups shun the meat. Many Muslims, Jews, Seventh Day Adventists, Rastafarians and members of the Ethiopian Orthodox Church do not eat pork. Some Muslim countries have banned pork imports totally.

Hog or pig products have a variety of uses in modern society. Medicines, heart valves for transplantation into humans, insulin, chalk, weed killers, fertilizer, cosmetics, floor wax, crayons, antifreeze, glass, adhesives, china, paint, shoes, plastics and chewing gum all contain products from hogs or pigs. The difference between a hog and a pig is that hog is the generic term for all swine while a pig is simply a young hog.

China is the world's top hog producer, followed by the United States, the European Union, Brazil, Canada, Russia, and Poland.

The largest consumers of pork are China, the United States, Germany and Spain. Worldwide pork consumption exceeds 100 million tons each year with significant hog exporting countries being Denmark, Canada, and the United States.

In September 2013, a Hong Kong-based Chinese meat producing company, Shuanghui International Holdings, purchased the world's largest hog and pork producer in the world, US-based Smithfield Foods.

The transaction marked the biggest Chinese purchase of a US firm in history to that date.

The Chicago Mercantile Exchange (CME) for many years traded futures on pork bellies; a boneless cut of fatty meat from the belly of a hog -- bacon is a product of pork belly. Pork Belly futures began trading in 1961, however; the CME delisted them in 2011 due to low trading volumes. Today, the CME trades lean-hog futures as well as options contracts that are cash settled. Each lean hog futures contract represents 40,000 pounds of ​hog (barrow and gilt) carcasses. A barrow is a young castrated male hog while a gilt is a young female hog; both raised for the production of pork. There is no mechanism for physical delivery for the lean hog futures or options contracts.

Like many other animal protein prices, pork prices have moved higher, breaking above all-time highs of 92 cents per pound in 2011.

In 2014, a virus called Porcine Epidemic Diarrhea (PED) affected the US pig population. PED damages the villi in the gut reducing the absorptive surface causing loss of fluid and dehydration. It is particularly devastating to baby or sucking pigs and has a very high mortality rate. In 2014, PED caused the death of over 7 million piglets on 4,500 farms in 30 states across the United States.

The virus trimmed total hog headcount in the US and caused prices to move higher. Lean hog futures traded up to an all-time high of over $1.30 per pound during the late spring and early summer of 2014.

Hog prices can be extremely volatile. As perishable commodities, meat is susceptible to disease, the risks of wide-ranging feed prices and rising global demand due to increasing population. The price volatility of lean hogs attracts investors and speculators to the futures markets.

Update on Hog Futures

Lean hog futures traded to highs in July 2014 when the price traded up to $1.3380 per pound. Since then they have moved lower. The eradication of PED led to a huge hog population in 2015. A huge year-on-year increase in supplies caused the price of lean hog futures to plunge. During early November 2015, the price of active month December hog futures fell to almost 53 cents per pound.

This was the lowest level since October 2009. Technical support for this animal protein stands at the August 2009 lows of 43.05 cents per pound.

Aside from the large supplies, another issue could have pushed the price of pork down. Reported cases of E.coli food poisoning at a number of Chipotle restaurants in the Pacific Northwest of the United States is likely having a negative impact on the price of meats. The price of live cattle and feeder cattle futures fell sharply starting on October 29 along with lean hog futures. Between October 20, 2015, and November 9, the price of lean hogs plunged by almost 23%. Lean hog futures are a highly volatile commodity. While current fears associated with all animal proteins could take prices even lower, the ​historically cheap prices will likely spur demand because consumers always love a bargain.