Hog price run-up surprises analysts, may be driven by domestic demand

By Janie Gabbett on 4/30/2008 for Meatingplace.com

A nearly 20 percent run-up in live hog prices over the past two weeks has well surpassed even the normal seasonal April/May price climb, leaving analysts interviewed by Meatingplace.com to only guess that strong domestic demand is the driver.

Purdue Extension Economist Chris Hurt said Western corn belt live hog prices over the past five years have averaged $56.86 per hundredweight during the first week of April and have climbed to an average of $71.72 by the third week in May — about a $15 climb.

This year, hog prices in the third week of March dipped to $49.72, but by April 28 had already hit $73.20 — a $23.50 climb still weeks ahead of the typical mid-May price peak.

Analysts are at a loss to explain precisely what has precipitated the recent run-up.

"I'm as confused as you are by the dramatic rate of increase," said Brumm Swine Consultancy founder Michael Brumm, noting that even strong exports and strong domestic demand don't fully explain how suddenly prices rose.

Supply/demand

"It's sure not because of smaller supplies," said Hurt, noting that although supplies typically decline at this time of year as smaller pig crops from cold weather farrowings hit the market, slaughter rates for the past four weeks have remained as much as 14 percent higher than a year ago. "There are a phenomenal amount of hogs in the marketplace."

While pork exports have been a big story this year, a current container shortage has tempered them of late.

"It's got to be domestic demand," said Paragon Economics President Steve Meyer, pointing to a price point advantage against beef and the fact that chicken prices have remained steady.

"April is a mixed bag in that summer price trends may start in April or they may not," said Iowa State University Extension Economics Shane Ellis. "Retail prices of pork remained above year-previous prices, even during the time when hog prices were at their lowest, so demand was strong enough to absorb some of the added supply."

Worst fears

The analysts expressed concern that the recent price run-up could derail much-needed sow herd reductions.

"It's a little dangerous to be telling the pork industry to just keep going; it looks like everything is going to be fine. I don't think that's the case at all," said Hurt. He said a 6 percent to 8 percent sow herd reduction is needed at current feed prices, and if corn were to reach, say, $7 a bushel, producers would need to cut sow herds by 16 percent to 18 percent to keep prices ahead of costs.

But everything that goes up must come down, and Meyer said that could happen to hog prices soon. "I think there will be a slam on the brakes this week as packer margins fall out of bed," he predicted.