{"id":10720,"date":"2015-03-13T16:38:38","date_gmt":"2015-03-13T21:38:38","guid":{"rendered":"http:\/\/news.medill.northwestern.edu\/chicago\/?p=10720"},"modified":"2015-03-13T16:38:38","modified_gmt":"2015-03-13T21:38:38","slug":"pork-prices-plunge-threatening-the-greatest-collapse","status":"publish","type":"post","link":"https:\/\/news.medill.northwestern.edu\/chicago\/pork-prices-plunge-threatening-the-greatest-collapse\/","title":{"rendered":"Pork prices plunge, threatening \u201cthe greatest collapse\u201d"},"content":{"rendered":"

By Yasufumi Saito<\/p>\n

The price of lean hogs\u2014the name of butchered pork in commodity markets\u2014has plummeted\u00a0drastically from its peak last summer, reaching a record low due to\u00a0a loss of\u00a0equilibrium in\u00a0\u00a0supply and demand. Experts warn\u00a0of \u201cthe greatest collapse\u201d in pork prices if the trend continues.<\/p>\n

\"LHJ5<\/a>
The April lean hogs (LHJ5) price has been declining since summer (Bloomberg)<\/figcaption><\/figure>\n

As of March 13, the April lean hogs price\u00a0was down\u00a0more than 35 percent to $62.10 per hundredweight\u00a0from its peak of $97.65 in July 2014 on the Chicago Mercantile Exchange, while live cattle and feeder cattle prices have been trending upward.<\/p>\n

Why is the drop occurring? \u201cWell, there is a lot of reasons for it,\u201d said Steve Meyer<\/a>, president of Paragon Economics in Iowa. But it\u2019s basically because significant changes are happening in both supply and demand.<\/p>\n

Supply side<\/strong><\/p>\n

Last year the spread of Porcine Epidemic Diarrhea virus<\/a> hit pork producers nationwide, hoisting lean hogs prices to record highs with an estimate that the virus\u2019s high fatality rate for piglets might bring a shortage of pork.<\/p>\n

As a result of higher hog prices and relatively low feed prices, pork farmers enjoyed a windfall profit that motivated them to raise more pigs.<\/p>\n

\u201cWe were very profitable a year ago,\u201d Meyer looked back. But success can become a double-edged sword. \u201cNow, supply is significantly larger than we expected.\u201d<\/p>\n

Consequently, despite the headwind of PEDv, pork production in 2014 was\u00a0an estimated 22.8 billion pounds, down just 1.5 percent from 2013, according to the U.S. Department of Agriculture<\/a>.<\/p>\n

\u201cThe reality that pork production was only down two percent in 2014 and is now moving up rapidly in 2015 helped create what may be the greatest collapse of hog prices ever,\u201d wrote Chris Hurt, professor of agribusiness economics at Purdue University, in his latest report<\/a>.<\/p>\n

Supply is still growing at a rapid pace. This week U.S hog slaughter rose 10 percent to 2.02 million from a\u00a0year earlier, according to the USDA<\/a>.<\/p>\n

\u201cWhen the price started to fall, producers have a\u00a0strong incentive to sell pigs,\u201d Meyer added.<\/p>\n

International demand side<\/strong><\/p>\n

International trade, a crucial price determinant\u00a0because the U.S. is the world\u2019s third-largest producer and consumer, and the largest exporter of pork, is in a headwind.<\/p>\n

\"(The<\/a>
(The U.S. Meat Export Federation, Yasufumi Saito\/Medill)<\/figcaption><\/figure>\n

U.S pork exports in January fell 20 percent in quantity and 18 percent in value from a year ago, according to the U.S. Meat Export Federation<\/a>.<\/p>\n

The recent labor dispute\u00a0on the\u00a0West Coast<\/a>, where the ports are keystones to trade with Asia, is a major cause of the decline, several experts pointed out.<\/p>\n

A strong dollar making U.S. pork relatively more expensive on the world market is also blamed, especially when the European Central Bank is trying to make the euro cheaper\u00a0through monetary policy<\/a>\u2014massive quantitative easing.<\/p>\n

\u201cIn Japan and several other Asian destinations, a huge influx of low-priced European pork has poured onto the market since the EU pork industry lost access to Russia,\u201d Meat Export Federation President and CEO Philip Seng noted in a report<\/a>.<\/p>\n

Last summer, Russia banned imports of a broad range of U.S and European food in response to Western sanctions over the territorial struggle in Ukraine.<\/p>\n

\u201cCombine this with the West Coast port impasse and the euro at an 11-year low versus the U.S. dollar, and January was something of a perfect storm for U.S. pork,\u201d Seng added.<\/p>\n

Domestic demand side\u00a0<\/strong><\/p>\n

On the other hand, \u201cDomestic demand has been extremely good the last two years,\u201d said Meyer. \u201cWe\u2019ve seen some of the best demand levels in many reports, mainly driven by an interest in protein diet.\u201d<\/p>\n

Real per capita consumer expenditure for pork grew 15.7 percent between 2009 and 2014, according to the latest report<\/a> from the National Pork Board.<\/p>\n

But the growth in domestic demand\u00a0is insufficient to\u00a0offset the loss in international demand and the negative factor on the\u00a0supply side.<\/p>\n

\u201cWe think it\u2019s still good, but it may not be growing as fast as it should be,\u201d said Meyer<\/p>\n

[field name=”porkcomparison”]<\/p>\n

That may be because consumers aren’t seeing much of a price decline.<\/p>\n

While the monthly average market price for hogs\u00a0decreased 43 percent to $54.05 per hundredweight in January from $95.17 in July 2014, the monthly average retail price of pork\u00a0dropped only 3.3 percent to $3.99 per pound from $4.13 in the same period, according to the USDA<\/a>. Relatively unchanged retail prices can be a minus factor for domestic demand, as people cannot realize the benefit of the hog\u00a0price slump.<\/p>\n

\u201cThere\u2019s always a pretty large gap. Retailers are not likely to change prices. It tends to be more stable,\u201d Meyer explained. \u201cYou can\u2019t reduce those retail prices unless you see long-term prospects of lower cost products.\u201d<\/p>\n

Forecast<\/strong><\/p>\n

At present there’s no expectation that the hog market will firm up. \u201cThe hog price forecast is reduced as greater production and lower exports imply greater supplies for the domestic market,\u201d the USDA wrote in its latest outlook report<\/a>.<\/p>\n

The USDA expects that hog prices will average $54 to $58 per hundredweight in 2015, more than 26 percent below prices last year.<\/p>\n

Meyer\u2019s view is even more severe. \u201cWe won\u2019t be surprised to see it\u00a0 get down\u201d even more,\u00a0he said, perhaps another 10 percent drop.<\/p>\n

Photo at top: A hog in a piggery(Steve Evans\/Creative Commons)<\/div>\n","protected":false},"excerpt":{"rendered":"

By Yasufumi Saito The price of lean hogs\u2014the name of butchered pork in commodity markets\u2014has plummeted\u00a0drastically from its peak last summer, reaching a record low due to\u00a0a loss of\u00a0equilibrium in\u00a0\u00a0supply and demand. Experts warn\u00a0of \u201cthe greatest collapse\u201d in pork prices if the trend continues.<\/p>\n","protected":false},"author":59,"featured_media":10735,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[27,243],"tags":[],"class_list":["post-10720","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-winter-2015"],"yoast_head":"\nPork prices plunge, threatening \u201cthe greatest collapse\u201d - Medill Reports Chicago<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/news.medill.northwestern.edu\/chicago\/pork-prices-plunge-threatening-the-greatest-collapse\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Pork prices plunge, threatening \u201cthe greatest collapse\u201d - Medill Reports Chicago\" \/>\n<meta property=\"og:description\" content=\"By Yasufumi Saito The price of lean hogs\u2014the name of butchered pork in commodity markets\u2014has plummeted\u00a0drastically from its peak last summer, reaching a record low due to\u00a0a loss of\u00a0equilibrium in\u00a0\u00a0supply and demand. 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