Higher 2012 pork production levels and lower consumer per capita income are delivering a double dose of bad news for hog prices as the May lean-hog contract slipped below the $80 mark, closing Friday at $79.625.
The increased pork production level for 2012 comes at a time when consumers are struggling with lower personal disposable income and higher prices at the gas pump.
For the last full week of April, U.S. pork production rose to 436.8 million pounds. For the same week in 2011, pork production was 406.1 million pounds. (In 2011, Easter fell on April 24.) “Hog prices, both on a carcass weight basis and on a live-weight basis, are clearly lower at the start of May this year than was the case in the last two years,” says Ron Plain, University of Missouri agricultural economist.
The year-to-year comparison in the pork cutout also reveals the troubling scenario with sagging consumer demand. For the first weekday of May, the pork cutout, or the value of wholesale pork cuts from a 100-pound carcass, was $76.76. The same day in 2011, the price was $92.43, according to Plain.
The higher 2012 pork production level comes as no surprise. “All along, we have been expecting 2012 pork production to be higher than in 2011,” Plain says. “We had been expecting record high beef prices to provide some support for pork prices but that doesn’t seem to be happening.”
Both hogs futures and cattle futures have done very poorly during the last eight weeks. “I fear that meat demand, both domestic and export, is weakening,” Plain says.
The lean, finely textured beef (LFTB) situation is part of the answer to the current weakness in meat demand, including pork, according to Steve Meyer and Len Steiner, authors of the CME Group Daily Livestock report. “Negativity from consumers is not usually confined to the specific product in question,” according to the report.
The authors also cite the fact that consumers have less disposable income after paying their tax bill. “U.S, consumers are struggling to have enough money to fully support meat demand,” say the authors.
A much-needed resurgence in meat demand will help support hog prices but that may take some time. “Economic conditions and consumer confidence are still shaky and that will tend to hold down hog prices,” says Shane Ellis, Iowa State University livestock economist. “Until consumers have more confidence in their personal financial security, the meat complex will have a hard time establishing a bullish market trend.”