May 4, 2009 / 9:49 PM / in 8 years

U.S., Canada suffer economic toll as flu hits hogs

CHICAGO (Reuters) - Canada threatened action against China and U.S. meat packing companies sliced pork production due to falling retail orders as import bans sparked by the H1N1 flu took an economic toll in the recession-hit United States and its northern neighbor.

After taking a beating last week, hog markets were pounded again on Monday amid fears the flu virus that has infected more than 1,000 people around the world would weaken consumer demand. About 20 nations have banned pork imports from the United States, Canada and Mexico.

In a sign of the flu’s impact on trade, government data showed that the number of hogs slaughtered by U.S. meat packers on Saturday tumbled 63 percent from a year ago, bringing into focus a buildup in supply that would further hurt business.

“Actually I am far more concerned about the building backlog of heavyweight slaughter hogs as a result of packer slaughter slowdowns. It is going to take a while for this to be cleared out,” said Don Norcini, an independent hog trader.

“As much as I want to see this situation go away, the damage has been done and it is not going to disappear in a week’s time,” he added.

Canada, meanwhile, threatened to take China to the World Trade Organization unless Beijing lifted its ban on Canadian pigs and pork from the province of Alberta, where the new flu strain was detected for the first time in a herd of swine.

The hogs were infected by a person who had been to Mexico.

MF Global Research analyst Rich Feltes wrote in a note to clients that ”our sources indicated that retailers slowed pork orders last week, taking a ‘wait and see’ posture on whether (U.S.) domestic pork demand was indeed damaged.

“There has still been no transmittal from pigs or pork to humans, so the battle is not lost, but a continuation of ‘wait and see’ ordering could put more pressure on markets.”

FLU STRAIN FOUND IN CANADIAN PIGS

Detection of the virus in the herd of Canadian pigs sparked Monday’s sell-off in hogs. The Canadian Food Inspection Agency stressed the incident posed no threat to the food supply.

But Canada Pork International, an export promotion group, said pork exports have dropped 10 to 15 percent since the virus was detected in a swine herd. Canada exported 1.1 million tonnes of pork last year, more than half of its production.

The U.S. Meat Export Federation said last week the bans had cut U.S. pork exports 8 to 12 percent. Pork sales to Mexico have slowed as people stayed indoors.

Dealers in U.S. cash hog markets said prices could take weeks to recover.

Before the outbreak, hog prices had started to trend seasonally higher as the onset of spring grilling season boosted demand. Also, the animals typically gain weight more slowly in warmer weather, which limits the potential pork supply and supports prices.

But the lighter demand for slaughter hogs will likely keep prices under pressure, hog dealers said.

Hog futures at the Chicago Mercantile Exchange fell on Monday amid concerns over demand.

On Monday, May hogs ended 2.5 cents, or 4 percent, lower at 55.975 cents per lb and actively traded June was down 1.800 cents, or 2.7 percent, at 63.775 cents.

The lightly traded May contract is down about 20 percent from April 23 in the sell-off which began in the last 10 minutes of trading on April 24. The active June is down 11 percent over the same period to Monday.

Additional reporting by Michael Hirtzer; Writing by K.T. Aras; editing by Jim Marshall

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