Pork Prices Increase as Herd Numbers Decline

US - Prices for pork are already up by about 10 per cent from last year's holiday period and are likely to go up another 10 to 15 per cent after hog futures markets rose their allowable daily limits of $3 per hundredweight Monday.
calendar icon 31 March 2010
clock icon 4 minute read

The market surge Monday on the Chicago Mercantile Exchange was in response to a US Department of Agriculture report late Friday showing a 3 per cent decline in hog herds in the United States and Iowa.

Hogs for June and July delivery closed Monday above $81 per hundredweight, up from about $50 last September.

Cash hogs for daily delivery have been north of $50 per hundredweight for several weeks now, finally giving Iowa's 8,300 hog producers hope for their first profits since 2007.

"We'll be seeing higher prices going into the summer because that's the big demand period," said Jason Golly of Lynch's Livestock of Waucoma, a hog producer and trader.

While shoppers may pay a little more, the extra money will be a shot in the arm for Iowa's economy, according to DesMoinesRegister.com.

The state is the nation's largest hog producer, birthing and feeding about 33 million animals for the slaughter market each year. Hogs are the largest single consumer of Iowa corn.

Hog sales contribute about $4 billion to Iowa's economy each year, and pork processing accounts for another $18 billion to $20 billion in sales, salaries and benefits.

Traders noted the USDA report showed a 4 per cent reduction in sows and farrowings (births), which means tighter supplies this summer during the backyard grilling season.

The report was a surprise to traders who had worried that despite a 7 per cent reduction in hog slaughter during January and February, hog producers might begin increasing their herds again, as prices have increased since the year's start.

That concern had pushed prices for hogs down by about $4 last week before the USDA report was released.

"That report was really bullish for prices," said Don Roose of US Commodities in West Des Moines, a commodity broker.

"The key question now is demand. Supplies are getting tighter. The question is how strong will be demand," he said.

Canada, a strong supplier of hogs into the US market for feedlots and slaughter, has reduced its herds by 12 per cent, thanks to a government program that pays farmers to cease hog production for three years.

The surge in prices won't affect prices for hams sold this week for Easter, but it does foretell higher prices for pork chops and ribs going into the summer grilling season.

Pork bellies, from which bacon is made, also traded strongly Monday. Belly futures also were up the maximum $3 per hundredweight to $96.70.

Hog prices fell as low as $45 per hundredweight on the futures board and below $40 in cash markets through last fall, when demand had fallen because of soft export markets and the H1N1 scare.

Those low prices gave pork-loving consumers double-digit decreases in prices through last summer's outdoor grilling season and again through the November-December holiday period, when many supermarkets used hams as discount leaders.

But hog and pork markets have improved in recent months as consumer fears about H1N1, combined with low prices, have strengthened demand.

"The pork is moving through the warehouse quickly," said Joe Miller, executive vice president of Des Moines Cold Storage, which warehouses pork for shipments to processors.

Steve Meyer of Paragon Economics said he thinks retail pork prices might rise some more by summer.

"You'll see pork prices above $3 per pound by summer," Professor Meyer said.

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