Glenn Grimes thought he had seen it all in his long and storied career as an agricultural economist at the University of Missouri and as a pork industry consultant.
I've never seen anything like this hog market this year,” says the 53-year industry veteran, speaking at the World Pork Expo in Des Moines, IA.
“We had 5% more pork on the market in the first quarter of 2004, and we sold live hogs for 25% higher prices in the marketplace. That just doesn't happen. Or I should say, it has only happened once every 53 years,” he says.
At the mid-$50/cwt. level through this spring, hog prices are the highest they've been in three years in my experience, says Grimes.
Consumption Patterns
His colleague at the University of Missouri, agricultural economist Ron Plain, says the Agriculture Department forecasts that per capita meat consumption will reach an all-time record high in '04 at 238 lb./person.
Figure 1 indicates that record is being built around the fact that virtually all of the meat and poultry commodities are enjoying stability or modest growth, simultaneously.
Pork consumption this year, for example, is projected to remain the same as last year, at 51.8 lb. per person. That's 0.3 lb. more than in '02, 1.6 lb. more than in '01 and 0.6 lb. more than in 2000.
Plain observes: “One of the reasons that pork consumption is not higher this year is because exports are doing so fabulously well. We are exporting about 30% more pork than a year ago. That is soaking up a lot of that record pork supply. And the population has grown some, so you end up with a per capita consumption that is basically the same as last year.”
For each of the past 12 years, the U.S. has set new records for volume of U.S. pork exported, says Craig Christensen, Ogden, IA, pork producer and president of the National Pork Board.
“Currently, pork products representing about one of every 12 hogs raised in the U.S. are exported,” adds Dallas Hockman, vice president of Demand Enhancement at the Pork Board. “That's up from less than one in 100 hogs just 15 years ago. The U.S. is one of the world's top pork exporters, shipping more than 700,000 metric tons (770,000 tons) of pork and pork variety meats to more than 90 countries.”
For the first four months of the year, pork exports are up a whopping 30% over a year ago.
Dynamic Demand
Stable pork consumption, however, does not mean that pork demand is also stable (Figure 2). In fact, meat demand has grown incredibly across all species, says Plain.
The demand index (January to April 2004) is up 3.7% for pork, 5.7% for beef and 5.7% for chicken.
Grimes says the only other period in which this strong, across-the-board growth in meat demand has occurred was back in 1973.
Basically, changing attitudes about meat consumption have been fueled by the low-carbohydrate diet craze, says Plain. About 10% of American consumers are said to be on high-protein diets.
Grimes says part of the switch to pork can be attributed to the bovine spongiform encephalopathy (BSE or mad cow disease) scare. But actually, consumers began a shift to consuming more pork before the single U.S. case of mad cow disease was found last December.
“Diets come and go. But I think that people's attitude about eating meat has been fundamentally changed, and this is something that will last for quite a while,” Plain says.
The demand index looks at two things: per capita consumption and the deflated price that consumers are willing to pay for a product.
“So in the case of pork, we are going to eat the same amount as last year, but we are going to pay considerably more for it. When you are willing to pay more to get the same amount of product, that is an increase in demand,” he says.
Sow Herd Size
In the past, the pork industry has stressed that the U.S. sow herd must be downsized to reduce production to be profitable.
“Now we are looking at a situation where if this level of meat demand continues, we don't really need to do that,” Plain points out. “Demand can lead us to prosperity rather than sow herd reductions.”
The silver lining is that producers have shaved sows at a rapid rate in 2004, he says. For the first 20 weeks of the year, producers have sold off 21% of the sows in the U.S.
Plain attributes that escalation to two factors. When feed costs are high as they are now, some corn-hog producers would rather sell high-dollar feed than feed it to hogs. Secondly, profitability is encouraging some producers to exit hog farming after being buffeted by two tough years in 2002 and 2003.
Other producers may be accelerating replacement rates by dispatching older parity sows to take advantage of the very profitable market for heavy sows, he notes.
Grimes says the University of Missouri's soon-to-be-released annual survey of the structure of the pork industry will show that very few of the largest U.S. pork producers are expanding sow numbers now. Most future growth will come by acquisition.
Price Predictions
Plain admits that the fundamental shift in demand has changed his long-term views on hog prices. He was projecting live hog prices at 38-39¢/lb. prior to the demand spurt. “Right now, it looks like live hog prices should average somewhere around 42-43¢/lb. for the next five years to a decade or so.”
For 2004, prices (southern Minnesota-northern Iowa markets) should average 51¢/lb. for live hogs in the third quarter and 42¢/lb. in the fourth quarter.
