PED causes a spike in pork prices

Friday, December 5, 2014

With U.S. production down in 2014, prices have risen in the summer, but price variability has been greater at the wholesale and farm levels than at retail

by RANDY DUFFY

The increase in pork prices since the summer of 2013 is mostly a result of lower supply due to  porcine epidemic diarrhea (PED) losses. Pork production in the United States for 2014 is projected to be down two per cent from 2013.

The past 12 months, especially, have seen large price changes when compared to a year prior. All three levels of the market (retail, wholesale and farm) have experienced this. Examples of three levels of the market are bacon (retail), bellies (wholesale) and hogs (farm).

Typically, variability and relative price changes are greater at the wholesale and farm levels than at retail. Looking back at the three-year period from January 2011 to December 2013, the per cent change when compared to the previous month showed retail bacon prices ranged anywhere from minus four to plus five per cent. Wholesale belly price changes ranged from minus 18 to plus 25 per cent, while farm level hog prices ranged from minus 21 to plus 17 per cent.

Bacon prices have received a lot of attention from media and consumers. Figure 1 shows the trend in monthly prices for retail bacon, wholesale belly and farm level hog prices from 2011 to 2014. Retail Canadian bacon prices used in the analysis are from Statistics Canada. Montreal wholesale prices for skinless bellies from AAFC and the Ontario total value average hog price from Ontario Pork are also used. The blue line shows the retail bacon price, the red line is wholesale belly prices and the green line is farm level hog prices.

Figure 1 shows that, through 2011 and 2012, bacon prices were relatively stable at around the $10 per kilogram level. There was more variability in belly and hog prices. The average bacon price for 2011 was $10.10 per kilogram and for 2012 was $10.25, a difference of 1.5 per cent.

The average belly price for 2011 was $3.94 per kilogram and for 2012 was $3.84, a difference of minus 2.5 per cent. Farm level hog prices went from $1.80 in 2011 to $1.73 in 2012, a difference of minus 3.9 per cent.

However, since mid-2013, the impact of PED on supplies has caused the variability in prices to increase. Bacon prices in 2014 have increased 16.7 per cent from 2013 levels. Belly prices are up nine per cent and hog prices are up 29.3 per cent compared to 2013.

Higher belly prices in the spring of 2014 were not accompanied initially by a corresponding increase in the retail bacon price. There was a delay, but retail prices did increase a couple of months later.

Belly and hog prices for the two most recent months available (August and September) were lower than July, but retail prices continued to increase. Retailers will source some of their product two to three months prior to featuring it in their stores, so adjustments in retail prices will be delayed.

The forecast for U.S. pork production in 2015 is showing a five per cent increase over 2014 production. With the anticipated increase in supply, one would expect that retail level prices would decrease at some point. Prices usually are seasonally lower through the fall and winter months. However, when this price drop starts to happen is unknown and will depend on retailer strategy. In summary, there is usually more variability with wholesale and farm level prices than there is with retail prices. However, 2014 has seen tremendous variability in all three levels of the market. BP

Randy Duffy is Research Associate at the University of Guelph, Ridgetown Campus.