Pork Signals: Domestic pork demand is strong

Pork demand is increasing. Domestic pork demand has been above the year-earlier level each month since December 2012. The demand index for March was the highest thus far this century. The strength in pork demand has several causes. One factor is an improving economy. As a general rule, the more money people have to spend, the stronger the demand for meat. Recessions are hard on meat demand. High prices for competing meats and the popularity of bacon as a condiment are also contributing factors.

The average price of pork in grocery stores has declined for six consecutive months. Prices are declining because the pork supply is rapidly growing. Pork production was up 7.1 percent during the first third of 2015. It may sound inconsistent to say that pork demand is increasing when pork prices are falling; but, keep in mind that demand reflects both price and quantity. Compared to August, retail pork prices in March were down 7 percent; but per capita purchases were up 16 percent. For a product like pork with inelastic demand, as long as sales are growing faster than price is declining, demand is increasing.

Retail pork prices set seven new record highs in 2014. Monthly retail beef prices set 16 records in the last 18 months. The average retail price for fresh beef was a record $6.079 per pound in March. That was a record $2.186 higher than for a pound of pork at retail. The spread between pork and chicken was $1.906 per pound, the smallest since March 2014. The wider beef-pork price gap and the narrower pork-chicken price gap are both positive for pork demand. Compared to beef, pork prices should continue to look attractive as we move through 2015.

Although domestic pork demand is strong, export demand is not. Export demand for pork was down a huge 23 percent in the first quarter of 2015. U.S. pork exports during the first quarter of 2015 were down 13 percent, even though wholesale pork prices were down 18 percent. Foreign demand for U.S. pork has been below the year-ago level each month since last July. The drop in pork exports has been greatest for shipments to China and Japan. The decline in foreign demand is due to a strong dollar, labor problems at west-coast docks, and increased competition from other exporting countries. The dollar’s exchange rate against major foreign currencies increased 20 percent from July to March. For foreign buyers, the stronger dollar has offset much of the benefits from the decline in wholesale pork prices. USDA expects pork exports to pick up as we move through 2015.

Strong demand is important, since the supply of pork is expected to remain high for the rest of 2015. Hog slaughter this year is expected to be the second highest ever. USDA’s March hog inventory survey said the inventory of market hogs was up 7.7 percent with the number of pigs weighing less than 50 pounds up 8.9 percent. The increase in inventory is due in part to more sows farrowing but mostly to more pigs per litter. The decline in death loss from porcine epidemic diarrhea virus (PEDv) caused last winter’s pigs-per-litter average to be up 6.7 percent. Good profits in 2014 are likely to keep sow numbers high. The biggest unknown is the future path of PEDv. The pigs-per-litter average is likely to remain high if PEDv doesn’t make a comeback. But, another surge in PEDv cases could cause a big dip in 2016 hog slaughter.

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