For agricultural commodities, larger supplies generally result in lower prices. This year's hog market is going against that adage with both larger supplies and higher prices.
Before we conclude that something is wrong, remember that prices are determined by both supply and demand factors. A closer look at both factors explains why the hog market is being rational with larger supplies and higher prices.
More pork and higher prices has been a theme for 2017. The number of hogs coming to market in 2017 has been 2.7 percent higher and weights have been down 0.4 percent. This means that total pork production has been 2.3 percent higher in 2017 compared to the same period in 2016. Yet prices through May this year have averaged near $49 per live hundredweight, which is $1.65 per hundredweight higher (3.5 percent) than last year's average price.
The most important reason for higher prices involves favorable international trade for U.S. pork. Pork exports have been up 17 percent and pork imports have been down 10 percent. For trade data available so far this year, pork exports have accounted for 22 percent of production, which is the strongest export showing since 2012, the year of record exports. Who do we have to thank for these near record exports? Shipments to Japan, our largest customer, have been up eight percent; Mexico, our second largest customer, has purchased 33 percent more than last year; and South Korea, our fourth biggest customer, has purchased 32 percent more.
With about two percent more production in the U.S. so far this year, the amount of pork available to U.S. consumers is actually down about one percent because of favorable trade. When population growth is considered, the available pork per person in the U.S. has been down about 1.7 percent for the year. This fits the theme of larger production and higher prices, with the strong export demand being the primary driver so far this year.
The theme of larger production and higher prices is expected to continue into the summer and fall. Last-half 2017 domestic pork production is expected to grow by about two percent, yet prices are expected to be well above those in the last-half of 2016.