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Retail Pork Demand Could Be Improving

Live hog demand strength could help offset impacts of higher feed costs.

Consumer demand for pork slumped after the high protein/low carbohydrate diet fad passed into history last year.

"However, it looks like the pork demand picture is improving," says Ron Plain, University of Missouri economist. "For the first time in nearly a year and half, our preliminary estimate of the retail pork demand index was positive last month.

"Through September, U.S. per capita pork production was up 1.5%," he explains. "But because of higher exports and a growing domestic population, per capita consumption of pork in the U.S. was down about 1.5%. If demand had held steady, a 1.5% decline in per capita consumption should have produced a 2%, or so, increase in inflation-adjusted retail pork prices."

Early 2006 data clearly show soft demand. Bureau of Labor Statistics' monthly surveys show the average price of a pound of pork during the first nine months of 2006 was $2.806, down 1.2% compared to January-September 2005. Adjusted for inflation, retail pork prices were down 4.7%. Lower per capita consumption and a lower retail price are a clear indication of a drop in demand.

"Although year-to-date prices are down, the good news is that retail pork prices have been above year-ago levels for each of the last three months," says Plain. That's the signal suggesting pork demand is improving.

Hog demand remains strong. The live hog demand index has been stronger than the retail pork demand index.
"Live hog demand benefits from the ongoing strength of the export market for pork," explains Plain. "U.S. pork exports are running 12% above year-ago levels. Live hog demand was down at the start of 2006, but has been up for the last three months."

Where to from here? Changes in meat demand are very difficult to predict. The huge popularity of the Atkins Diet surprised almost everyone.

Plain sees two positive forces for retail meat demand. One is a low unemployment rate. Another is lower gasoline prices. "Both of these have been positive for meat demand in recent months," he says. "Hopefully, they will continue to be and this will keep hog prices up."

Feed costs are a caution. With the recent rapid run up in corn prices, a sharp drop in hog prices would quickly change the bottom line for hog producers from black to red.

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