Hog futures shot higher Tuesday. University of Missouri-Columbia Agricultural Economist Ron Plain says that there are several reasons for the increase.
"There are big picture factors: the fact that per capita meat supplies this year are expected the smallest since 1997," Plain said. "And there are more specific factors. South Korea looks like they're going to remove their tariff on pork imports this spring. That should be positive news for exports, so all in all a lot of things looking encouraging for hog prices."
Plain says a major reason South Korea's Ministry of Strategy and Finance has decided to temporarily remove the 25% tariff on U.S. pork through June is the of foot-and-mouth disease that they are battling. To contain its spread they have been liquidating herds.
"That reduces the supply of meat on the market in South Korea," Plain said. "As a result they're removing the pork tariff to try to bring in more pork and keep food prices from getting out of hand."
The futures market is very optimistic and the summer contracts, May through August, are trading above 90 cents per pound of carcass weight, which implies cash bids during that time in the 90 cent or higher level.
"That's a bit more optimistic than I am," Plain said. "I agree with USDA and the futures market that the supply of meat is going to be tight this year. I'm still a little bit concerned about how strong domestic demand will be and whether consumers are going to be willing to pay such high meat prices given the general weakness of the economy."
Plain says the year could be a challenging one for producers as feed costs are going up in lockstep with hog prices. However he says it could turn out to be a very good year for the entire meat industry if demand turns out to be as strong as the futures market is expecting.