Pork Shortage Threatens American Tradition

pork shortageA growing pork shortage threatens American tradition as the reported cases of porcine epidemic diarrhea (PED) have now spread to 27 states since it was first identified in May of 2013, according to several sources. Prices for April pork deliveries have increased by more than 45 percent since the beginning of the year. China has temporarily closed its borders to American pork products, fearing the spread of the disease to local hog farms, according to Gantdaily.com. At Friday’s closing, pork futures contracts dropped two cents to $1.23 per pound, but that still inflates the price of pork by almost 50 percent in less than one year.

The tradition in question – the American tradition of summer barbecues with racks of pork ribs smoking over open fires across the country – may not be in that much danger, because other reports are indicating that lower corn prices and negative price pressure are mitigating the epidemic’s effect on the projected pork shortage. Negative price pressure is what happens when the price of a product exceeds the consumer’s comfort level for the cost of the product. When that happens, consumers stop buying that product, and buy something else instead. In addition, China’s decision to ban imports of American pork products has actually helped to ease price pressure in the American market, while creating more of a pork shortage for Chinese consumers.

The United States sends more than 100 million hogs to market each year, with 113 million hogs going to market in 2012, the most recent year on record, making the U.S. the second biggest pork producer after China. More than seven million pigs have been affected by the epidemic, according to the Allendale market research company. By that measuring stick, pork prices should not have increased by more than 6.2 percent, since that the percentage of affected pigs to total pork production.

China prefers to import live hogs from the United States, largely due to the Chinese prejudice in favor of fresh meat over frozen pork products, making the ban against U.S. pork products more sensible. Banning U.S. pork products will hurt Chinese consumers because Chinese domestic pork prices are substantially higher than prices for imported American pork. In July of 2013, for example, China pork was running at around $1.15 per pound when American pork was just 78 cents a pound. Current U.S. pork prices have increased significantly over the past nine months, but they are still lower than current prices on domestic Chinese pork.

The virus that causes the PED does not affect humans, but it causes adult pigs to loss weight due to diarrhea and vomiting. The disease is, however, fatal to piglets, which means that there will be a further bump in pork prices when those dead piglets do not come to market.

U.S. pork producers are predicting a 1o to 15 percent decrease in pork production over the next four months, but that doesn’t explain the recent 45 percent price increase. Unwarranted fears about restricted supplies have driven futures up beyond normal levels, creating a demand market that encouraged the early liquidation of some stocks, driving actual deliverables to lower price points.

According to Green Bay Press Gazette columnist Alex Breightinger, the current U.S. hog herd holds just under 63 million head, well above analysts expectations of just 61.5 million animals. The gestation period for hogs is around 114 days, so that a largely female herd (the males are usually sent to slaughter while the females are routinely kept for breeding purposes) can reproduce itself three times in the course of a year. Pigs generally produce 10-12 piglets per litter, and piglets reach maturity in seven months.

Investors seeking quick profits from a pork shortage would be wise to tiptoe around this market until the smoke clears from the barbecues of the nation.  Backyard grillers may be burning more chicken than hog for a few weeks but then chicken was the original white meat original white meat, and chicken stocks are more easily adjusted than pork stocks due to the short gestation period….but the pork shortage threatens an American tradition only to the extent that backyard chefs refuse to convert to chicken, beef, lamb or, for that matter, shrimp.

By Alan M Milner
Follow me on Twitter at @alanmilner

Sources:
New Vision
Digital Journal
Investors News

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