Pork producers have scored something of a trifecta. In 2004 and 2005, producers crossed the finish line with strong profits, and it appears that good fortune will continue into 2006.

In 2004, the final purse was $8.90 per live hundredweight; in 2005, the winnings rose to about $10.10 per live hundredweight; and in 2006, the prediction is for a $6.30 payoff, notes Chris Hurt, Purdue University agricultural economist. 

But even Triple-crown winners can’t maintain their explosive pace. For pork producers, 2007 and 2008 could present a less exciting run.

There has been a lot of focus on the pork industry’s expansion restraint. There’s also much speculation about whether more sows have been placed than USDA’s December pig-crop report showed. But increasingly, the focus is turning toward demand.

“Hog prices in 2004 and 2005 were stronger than hog supplies would have suggested,” notes James Minert, Extension economist at KansasStateUniversity. “We will see an equilibrium in the supply and demand relationship.”

Even with stable hog inventories, pork production is expected to exceed 2005 levels by 2 percent. That will come from more pigs per litter, higher weaning rates, heavier market weights, as well as more live-hog imports from Canada. Add it up, and hog slaughter is expected to reach a record 105.5 million head this year. Actual pork supplies will expand to 21.1 billion pounds—another record.

“The pork complex is much more inelastic than it used to be, and small changes in production mean a bigger impact on prices than they once did,” notes Daniel Bluntzer, with Frontier Risk Management, Chicago, Ill.

Domestic pork demand started showing signs of slowing last year. Minert points to the third and fourth quarters, which showed declines of about 8 percent from 2004 levels.

In fact, 2005 pork supplies didn’t keep pace with U.S. population growth, yet prices were lower than in 2004. “This tells us that supplies were not the reason for lower hog prices,” notes Hurt. He estimates domestic demand’s downward trend contributed about a 75-cent-per-hundredweight decline in live-hog prices.

Marketing margins are another factor. “In 2004, producers received an unusually large portion of the retail pork dollar (33 percent),” says Hurt, “In 2005, that dropped to 31 percent, which cut about $4 a hundredweight from hog prices.”

He looks for retail-marketing margins to increase another 6 cents to 8 cents in 2006, which could further dampen live-hog prices.

“Both the beef and pork sectors are going to have to wake up to lower domestic demand trends,” says Minert. With meat demand’s breakneck pace, it’s been hard to convince producers that they have to worry about demand. “It’s a long-term issue,” he says. He’d like to see more product research and development activity in the beef and pork sectors.

It won’t help for 2006, or maybe even 2007, but even with modest production growth there’s more downside potential in hog prices ahead.

On the export side, pork’s sales have provided unequaled strength, which in some ways has clouded the demand perspective.

While final 2005 export numbers are expected this month, the November data made it clear that U.S. pork exports will score a 15th consecutive record year. The growth looks to be around 23 percent, and that’s up from a 27.5 percent gain in 2004. Exports equaled 8.2 percent of total U.S. pork production for 2005.

Some will have you believe that the resumption of U.S. beef exports won’t negatively effect pork sales. But it’s naïve to think that countries won’t make changes. The impact could be tempered some if pork offers a low-cost alternative.

“Pork has benefited greatly from reduced U.S. beef exports,” says Minert, “but it is only part of the equation. I am relatively optimistic that pork exports will grow, but not at the same pace.” USDA projections are for a modest 4 percent growth in 2006.

While the industry’s production numbers suggest a general attitude of, “let’s not work our way out of a profit,” the demand side may be rounding the bend and presenting a different challenge in the home stretch.