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Wednesday, March 4, 2015

Pork's Boom & Bust Price Cycle

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Pork’s Boom & Bust Price Pattern
Chris Hurt, Purdue Extension Ag Economist

Markets can take your breath away and the hog market over the past year has left many breathless says one Purdue University ag economist. Todd Gleason has more…

A year-ago in March, the new PED virus…
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A year-ago in March, the new PED virus was the talk of the trade. Baby pig death losses of nearly 100 percent were the reality for some herds. The disease was not well understood and was spreading rapidly. There was trade talk, says a Purdue University ag economist, that death losses were so high it could account for 20 percent of 2014 pork production. It was a fearful and unguided time says Chris Hurt.

Hurt :23 …live price reaching $100 per hundredweight.

Unfortunately, in the early stages the pork industry had no way of measuring the national baby pig death losses. Fear set in among some pork buyers-“What if bacon was not available to put on fast food hamburgers, What if tasty BLT sandwiches have to become only LT sandwiches?” Hog and pork prices exploded to record highs with the national live price reaching $100 per hundredweight.

Contrast that number with the five year lows near $45 per live hundredweight hogs brought this winter. It is a price bust from the record highs a year earlier.

Hurt :33 …a classic boom/bust price cycle.

The market adage “Buy the rumor, and sell the fact” has played out once again. The inability to refute the rumors of massive death losses a year-ago contributed to prices overshooting to the upside. The reality that pork production was only down two percent in 2014 and is now moving up rapidly in 2015 helped create what may be the greatest collapse of hog prices ever. A classic boom and bust price pattern.

Now Chris Hurt says the market is deciding if prices overshot to the downside. Will they recover? Or will large pork supplies justify the price break?

February pork supplies were expected to be up about three percent, while actual supplies have been up seven percent due to four percent more hogs reaching the market than anticipated. The USDA’s inventory count in December appears to have undercounted the number of young pigs.

Pork producers, it seems, may have also expanded sow numbers and farrowing intentions more that USDA picked-up in the December survey. Based on that report, pork supplies in the last half of 2015 were expected to be up six to seven percent. If expansion has been more robust, this could mean eight to ten percent more pork in the last-half of the year and a continuation of weaker prices.