Surprisingly, despite surplus supplies, pork prices increase

The seasonal price increase from early April to early June over the past five years was $11 per live hundredweight, and this year the seasonal increase has been $23 so far, said a Purdue University expert.

“That’s more than double the normal,” said Chris Hurt, Purdue Extension agricultural economist. “With pork production up about 10 percent this almost defies basic economics.”

Hog prices have gone from $35 on a live-weight basis in mid-March to $58 and producers have to be happy about that, Hurt said. The huge financial losses have slowed as hog prices have recovered much closer to the cost of production. This is an amazing turn around in such a short amount of time, he added.

Hurt said this can be attributed to a combination of three factors.

“With pork supply up 10 percent we know that it’s not supply, so we must look over to demand and check out exports,” Hurt explained. “Unfortunately the data does lag some, but we see about a 40 percent increase in pork exports from January through March and also a 10 percent reduction in imports.

“It’s less pork in the United States, shipping more out and bringing less in from other countries. So we think this is a very important factor.”

The United States is exporting about 18 percent of the pork that is produced, which is the meat product from about one out of every five hogs produced, Hurt said.

The second reason is due to consumers cost comparing items at the grocery.

“When consumers are shopping for food, they are very cautious right now,” Hurt said. “We know that pressure on the family budget with the costs of food and fuel going up that consumers are doing more comparative shopping.

“With April beef prices averaging $4.17 a pound at retail and pork at $2.86 a pound, it’s $1.31 per pound cheaper to buy pork. Just the cost saving for picking up pork rather than beef for a 10 pound purchase would be $13. We are all thinking about gas costs now and that $13 would move the family vehicle down the road about 60 or 70 miles.”

The third factor Hurt thinks is an underlying inflationary expectation that pork and beef prices are going to see a fairly major increase at some point.

“Futures markets and other traders that hold onto pork stocks are holding more tightly and buying more aggressively because they recognize that many commodity prices have gone up sharply, even doubled,” Hurt said. “But we haven’t seen that yet in pork and beef and that will probably come in the later part of 2009 and 2009 for pork.”

Earlier in the year, economists thought that the U.S. breeding herd would have to be cut by 6 percent to 8 percent; however, with extremely strong export demand Hurt said it’s beginning to unfold that maybe other producers around the world, like the Canadians, may have already started cutting the herd.

“We’re gaining some of that export market and perhaps we won’t have to cut the U.S. herd as much,” he said. “I think we can back that 6 percent to 8 percent herd reduction down to 3 percent to 5 percent.”

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