Released May 27, 2008
WEST LAFAYETTE, Ind. - The seasonal pork 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.
"That's more than double the normal," said Chris Hurt, a Purdue University Extension agricultural economist. "With pork production up about 10 percent, this almost defies basic economics."
Hog prices have gone from $35 on a liveweight 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.
Hurt said the dramatic turnaround in such a short time 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," he said. "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 contributing factor is consumers comparing costs 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 - is causing consumers to do 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 savings 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 is what Hurt thinks is an underlying 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 2008 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. Hurt said the strong export demand, however, may indicate that other producers around the world, like the Canadians, may have already started cutting herds.
"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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http://news.uns.purdue.edu/x/2008a/080527HurtPorkprices.html
Contacts: Chris Hurt, (765) 494-4273, hurtc@purdue.edu
Julie Douglas, (765) 496-1050, douglajk@purdue.edu
Beth Forbes, forbes@purdue.edu
