Spend Matters welcomes a guest post from Jade Savage of Mintec.
Last week we wrote about beef, not long after the news broke that Smithfield Foods will be sold to a Chinese pork producer. So it’s fitting to take a look at pork prices this week.
US pork prices have been high for the past few years, averaging $1,870 per ton between 2010 and 2012. This compares to an average of $1,490 per ton between 2007 and 2009. Prices have remained firm so far this year, supported by high feed prices. However, could a good corn crop and weak demand for exports of US pork bring prices back down?
As with the beef markets, the price of corn, a key ingredient in pig feed, rose considerably in mid-2012 as the crop was affected by a severe drought in the Midwest last summer. Production is expected to recover in the coming season, with plantings up in response to the high prices.
US pork production is forecast to rise 1% year-on-year to 10.67 million tons in 2013. The number of pig births exceeded expectations in Q1 2013, rising 2% year-on-year to 29 million head, and carcass weights are expected to rise in response to the recently falling prices of feed grains.
This rise in pork production will be met with subdued demand from the export market. US pork exports are expected to decline 3% to 2.36 million tons this year as a stronger dollar has led to reduced demand from Japan, the US’s top export destination. Trade with China and Russia has also been affected by restrictions related to the use of the growth stimulant ractopamine by US producers. China and Russia are the US’s third and fifth largest export markets, respectively.
This increased production, coupled with weakening demand from overseas, is expected to lower US pork prices this year, and there are some additional seasonal factors which could spark considerable price drops towards the fall. If the corn harvest meets expectations this September, pork prices will be further weighed down by a subsequent drop in feed costs. Furthermore, US prices tend to dip towards October, in line with seasonal peaks in pig slaughtering.
So there is potential for pork prices to return to more historically “normal” levels this year, but this will require favorable weather conditions to gain a good corn crop. Let’s hope it’s just the pork chops that get a grilling this summer.