The announcement of H5N2 highly pathogenic avian influenza by the USDA’s Animal Plant & Health Inspection Service in a Wisconsin commercial layer flock caused heartburn for hog future traders, yesterday.

This is the first time that the HPAI has been confirmed in a flock of chicken this year.  Until now, outbreaks have been found in U.S. turkey flocks, wild flocks and backyard poultry.

Still, it is important to note that the HPAI outbreak confirmed by the USDA on Apr. 13 was in an egg-laying facility but the highly contagious flu strain can spread further into larger chicken operations.  

As result of the HPAI confirmation, the U.S. main export countries have placed restriction on U.S. poultry, eggs and products.

Consequently, more chicken will be released into the domestic market, making the competitive animal protein a cheaper option. Market hog traders foresee the lower chicken prices as negative for pork prices.

On the bright side, the cash hog market has been strengthened by the upsurge in exports.

Read More: Hog price rebound factor supplies

The higher cash hog prices have resulted in diminishing processing margins. At this point, the packers’ profit margins are fast approaching break even point. The Wall Street Journal estimated Monday’s packer margin index at plus 58 cents per head compared to plus $3.03 per head last Friday.

A break even to negative packer margin typically happen when pork supplies are tight, which is not the current situation for U.S. pork.

Last week, hog slaughter totaled 2.188 million head, up 8.6% from the same week last year. Hog slaughter every week has been running above last year’s level since mid-January.