In early April it appeared the hog market was building toward a traditional summer rally that would have offered most producers the opportunity to turn a profit for the first time in almost two years. However, the outbreak of H1N1 at the end of April stalled any momentum the hog market had. In its place came worry about the unknown effects this novel virus might have on pork demand, both domestically and internationally.
In the end, domestic demand held strong after a brief dip in early May. For the year ending June 2009, retail sales of fresh pork grew by 5.4 percent in volume and 6.0 percent in value. The retail meat case saw aggressive promotion activity to counter the negative news of H1N1, and ham sales increased in total dollars, volume, and average price. Pork remains a great consumer value.
Internationally, while the export market could not repeat the spectacular performance of 2008, it has returned to the respectable upward trend established in 2004. In 2008, pork exports accounted for just over 20 percent of the total U.S. production of pork. The slowdown in the world economy, coupled with the irrational fear of H1N1, has tempered the pace of growth of U.S. pork exports. Exports are expected to account for between 15 to 17 percent of total U.S. pork production in 2009.
All of this activity is taking place within the context of what appears to be a new normal cost structure for the industry. The cost of production is 20 to 25 percent higher than the historic norm, due mainly to the new plateau reached in corn and soybean prices, the primary ingredients in hog feed. According to work done at Iowa State University, the average Iowa pork producer has not been able to turn a profit since October of 2007. This is a situation that cannot continue indefinitely.
The industry is in the process of rationalizing supply to better fit the current increased cost of production. In the end, fewer hogs will be produced, less pork will be offered for sale, and prices will increase. In the face of all these challenges, consumers can be assured that U.S. pork producers will continue to provide a safe, wholesome product that offers great value to consumers.
