Analysis: US pork prices slide as number of pigs swell
TWO years after a swine virus killed nearly 10 percent of US hogs, farmers who built up herds to compensate face a sober realisation: they have produced too much bacon.
The aggressive ramp-up in hog production after the Porcine Epidemic Diarrhea virus (PEDv) outbreak in 2013, which brought record profits for those whose pigs survived, has now created the greatest US pig price collapse since the late 1990s. That was when overproduction sent prices plunging 75 percent to 50-year lows.
Benchmark lean pig futures prices on the Chicago Board of Trade have dropped 42 percent from last year July’s record high of $133 per hundredweight (R37.79 per kilogram).
And as herds grow, and the strong dollar and competition from Europe and Canada blunts export demand, pig farmers probably face even lower prices in the months ahead, with December-delivery futures trading about 20 percent below current prices. The pig glut spells more trouble for a US farm economy already struggling with the lowest grain prices in five years.
Tentinger Farms, which sells pigs to Tyson Foods, grew its herd by about 20 percent to cash in on high pig prices and cheap feed costs, but record returns have eluded.
“Things are not real rosy out here. We’re spending a lot of money and touching a lot of bases, handling and feeding more pigs, and not really making any money,” owner Bill Tentinger said. “Once we get past 2016, I think things are going to perk up a little bit… but it’s not going to be gangbusters rolling ahead.”
Things are not real rosy out here. We’re spending a lot of money… and not really making any.
With retail prices now at three-year lows, pork is stealing market share from other proteins: US pork sales in June were up 12.5 percent over the previous month, while chicken rose 3 percent and beef fell 2.2 percent, according to the most recent industry data.
The number of piglets per litter hit a record high of about 10 in the spring, according to the US Department of Agriculture. These animals take about six months to make their way to the meat case.
Cheap feed
The boom started when farmers who had lost millions of pigs to PEDv took advantage of cheap feed. As vaccines and strict bio-security measures brought the virus under control, pig numbers exploded.
Some pig producers are still expanding as they reinvest last year’s record profits. Building permit applications for new and expanded swine buildings in Iowa, the top producing state, had nearly hit last year’s total by the middle of this year, according to state data.
Tyson Foods chief executive Donnie Smith said he expected the domestic expansion to continue into next year, resulting in 3 percent to 4 percent more pigs and pork in the US.
Managing such boom-bust cycles is a challenge for the farming economy, where unpredictable weather, a shift in diets or cooling export markets can mean the difference between fortune and failure.
In the late 1990s, farmers were being paid such low prices for their pigs that they lost money on each sold. Many farmers went out of business.
This time the stuffed supply chain has prompted some US grocers and fast food chains to promote pork. – Reuters