Sharply lower feed prices and surging hog prices have combined to make pork production very profitable.
“Pork production is up more than 4% in 2004, yet hog prices are up 28%,” says Purdue University Extension Economist Chris Hurt. “At an average of $47.50 so far for the year, the average price is more than $10/cwt. live above the average for the January through May period of 2003.”
Three reasons stand out, says the Purdue agricultural economist.
Pork exports have soared, rising by 27% in the first quarter of the year. Mexico increased pork imports by 88% from the U.S. in the first quarter as beef purchases from the U.S. dropped by 86%. Canadian pork purchases climbed by 31% as beef buys dropped by 95%.
The Japanese, on the other hand, only increased imports of U.S. pork by 7%. But pork export prospects appear positive as restrictions on beef exports are now expected to remain in place for much of the year, notes Hurt.
The second factor driving higher hog prices is the healthy U.S. economy and diet trends. “Disposable personal income rose by 6% in the first quarter of the year. Strong consumer demand, driven by purchasing power and high protein diets, has resulted in wholesale pork prices being sharply higher in the first five months of the year. Pork belly prices were 18% higher; loin prices were 22% higher and ham prices were 28% higher than in the same period in 2003,” says Hurt. Growth in the U.S. economy is expected to continue at a rate of 4.5% this year and 4% in 2005.
The third factor is producers have been grabbing a larger share of retail pork sales. “So far this year, producers have received 29% of the retail dollar spent on pork, compared to only 24% last year during the same period. Marketing gains have narrowed for both packers and retailers,” says Hurt.
The only negative is on the supply side. “Pork production will be at a record 20.6 billion lb., a 3% increase from production of a year ago. However, extraordinary demand has won the battle so far, and pork supplies should begin to moderate in September and move lower than year-earlier levels in the winter,” he says.