Pork Prices Increase Despite Surplus Supplies

Three main factors behind higher prices.

The seasonal pork price has been $23 per live hundredweight so far this year compared to an $11 increase from early April to early June over the past five years.

"That's more than double the normal," says Chris Hurt, a Purdue University Extension agricultural economist. "With pork production up about 10%, this almost defies basic economics."

Hog prices have gone from $35 on a live weight basis in mid-March to $58, and producers have to be happy about that, Hurt said. The huge financial losses have slowed as hog prices have recovered much closer to the cost of production.

Hurt said the dramatic turnaround in such a short time can be attributed to a combination of three factors: a 40% increase in exports and 10% reduction in imports; consumer caution when buying food; and an underlying expectation that pork and beef prices are going to see a fairly major increase at some point.

Hurt says despite a high supply, it's less pork in the U.S. because we are shipping more out and bringing less in from other countries.

"Also when consumers are shopping for food, they are very cautious right now," Hurt says. "We know that pressure on the family budget with the costs of food and fuel going up is causing consumers to do more comparative shopping. With April beef prices averaging $4.17 a pound at retail and pork at $2.86 a pound, it's $1.31 per pound cheaper to buy pork. Just the cost savings for picking up pork rather than beef for a 10-pound purchase would be $13. We are all thinking about gas costs now, and that $13 would move the family vehicle down the road about 60 or 70 miles."

As for the thought that an increase in pork prices is coming, Hurt says futures markets and other traders that hold onto pork stocks are holding more tightly and buying more aggressively because they recognize that many commodity prices have gone up sharply, and though that hasn't seen yet in pork and beef, it will probably come in the later part of 2008 and 2009 for pork.

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