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China pork demand has investors high on U.S. lean hogs

CHICAGO - Bets on U.S. lean hog futures hit a nearly two-year peak, CME Group data showed on Thursday, as investors gambled record-high pork prices in top consumer China will force the country to boost imports and as surging animal feed prices ra...

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CHICAGO - Bets on U.S. lean hog futures hit a nearly two-year peak, CME Group data showed on Thursday, as investors gambled record-high pork prices in top consumer China will force the country to boost imports and as surging animal feed prices raise costs for U.S. hog producers.

Prices for Chicago Mercantile Exchange lean hogs for July delivery reached life-of-contract highs of 87.750 cents per lb while deferred contracts for delivery in the summer of 2017 also climbed to their highest levels ever.

Hog prices typically rally at this time of year as U.S. animal production slows in hot summer temperatures, but the gains in recent weeks surprised some longtime market observers.

"There's a lot of hot money coming into the hog market. Whether there is anything to it yet, we don't know, but it smells like there's something there," said John Ginzel, analyst at brokerage the Linn Group.

Pork prices are up 40 percent this year in China, which has the world's largest hog herd and where pork is a staple of the national diet. To meet demand, the country has released pork from frozen stockpiles and increased imports from the United States, Canada, Germany and other countries.

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China was the top buyer of U.S. pork last week, purchasing 7,100 metric tons, weekly U.S. Department of Agriculture data showed.

Analysts and traders expect further pork sales to China, which has a hog herd more than five times the size of the United States'.

"(China) has seen record-high retail prices and that is an indication that demand is exceeding available supplies," said Chris Hurt, agriculture economist at Indiana's Purdue University, adding that China could unseat Japan this year as the top global pork importer for the first time since 1989.

Total CME lean hog futures reached 253,323 contracts as of Wednesday. That was the most since July 2014 and surpassed open interest in the live cattle market of 251,962 contracts for the first time since 2013.

Hotter-than-normal weather conditions in the United States were contributing to rising prices for the principal hog feeds of corn and soymeal. The weather and high prices could result in reduced animal weights and supplies in the coming months.

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