Prices are determined by supply and demand. The pork supply is expected to be down 3 percent or so this year; unfortunately, demand also is expected to be down. Hog demand is driven primarily by pork’s wholesale value, which is a combination of roughly 80 percent domestic demand and 20 percent export demand. Currently, domestic demand is weak because of the recession. Export demand is weak as a result of the global economic slowdown, a strong U.S. dollar and a rebound in Chinese pork production.
As the chart shows, hog demand tends to be cyclical. Because of a huge increase in pork exports in 2008, demand was strong last year and appears poised to cycle lower in 2009.