Low Pork Prices Make Investors Go Whole Hog

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Fans of bacon, barbecue, ribs, and ham rejoice: all flavors of pork now cost less on the grocery shelf than they did during the past year, with lean hogs trading for nearly half the cost of their peak in late 2013.  A particularly nasty strain of infection known as porcine epidemic diarrhea virus devastated hog farms two years ago, a fatal condition for anywhere from 50 to 100% of newborn hogs affected with the disease.  While older hogs managed to fight off the virus, the lack of young pigs capable of making a healthy recovery created one of the largest agricultural shortfalls of the past decade, with the price of lean hogs peaking at nearly $1.35 per pound in comparison to today's price of $.85 per pound.  Does pork represent an agriculture commodity that's at a low point, or will the hog regrowth keep pushing prices lower?

A World Powered By Pork

Americans love the other white meat so much that they demand it at nearly every turn.  Market research by Datassential reports that no less than two in three American restaurants serve bacon, a ten percent leap from a decade ago.  Unlike metal and energy commodities, lean hogs never fluctuated much thanks to economic woes: the price of pigs stayed steady in the five-year span between 2005 and 2010, the same time that gold and oil spiked all over the map.  Global demand for pork has risen steadily over the past decade, furthermore, with China leading the way with sevenfold more pigs produced today than during the 1970s.  The United States isn't far behind: we now export more pork than we do beef for the first time in history.  While the larger quantity of supply should push prices down, pigs succumb to threats that energy and metals need never worry about, including viral infection.  The Chinese blue-ear pig disease of 2007, for instance, killed nearly fifty million hogs, accounting for ten percent of the national output and five percent of global output.  Swine prices nearly doubled, leaping from $.50 per pound to $.80 per pound before falling back down to normal levels, at the time a ten-year high.  It proved to be a precursor to a much larger disease vector.

Pig Stocks and Pig Commodities

The blue-ear pig disease paled in comparison to the 2013 porcine epidemic diarrhea virus, however, which primarily affected North American livestock.  While the virus posed no risk to humans, the pig population tumbled as the disease spread throughout the Midwest and Great Plains states responsible for the nation's pork production.  Some seven million piglets died, a smaller number than the Chinese virus but a larger percentage of the total US and Canadian output.  Since the virus affected piglets rather than grown hogs, furthermore, the economic impact of a lost generation hit harder than the prior waves of disease that killed hogs who had already bred.  Futures in pork rose to their highest level in recorded market history during July of 2014.  Vaccinations against porcine epidemic virus, in addition to immunity in the surviving generation, has mitigated the harm.  What's more, the lowered cost of soybeans and corn, the primary food sources for nearly all American-grown swine, have made it cheaper to finance the re-growth of the pig population.

Recovery and Revenue

Take a trip to your grocery store and head down the meat aisle and you can find bacon selling for a little over four dollars per pound.  The pork bellies used to make these slices of bacon represent the sine qua non of hog commodities, hit five-year lows in April of 2015, nearly half the price of the meat cuts this time last year.  That's made buyers go hog-wild for bacon, with companies like Sugar Creek Meat Packing reporting double-digit growth in the second quarter of this year thanks to revenues of seven times the processing costs.  Pork has never enjoyed such a large profit margin as older frozen cuts of meat hit the shelves for high cost while the newer, cheaper pork comes into the factory at a fraction of the price tag.  Indeed, companies like Sugar Creek don't even need to lower the price tag on their products since the overwhelming demand keeps bacon flying off the shelf regardless of the cost.  Summertime meals like barbecue and bacon cheeseburgers from the grill in tandem with fresh produce to make BLT sandwiches keep Americans consuming pork without any sign of slowing.  Despite the larger percentage of the population on strict vegetarian and vegan diets (some seven million Americans eschew meat rather than chew meat), the trend of meat-centric diets like the Paleo and Atkins diets have made pork a central fixation. 

Should Your Portfolio Pull Pork?

Agriculture commodities often serve as a good complimentary aspect of an investor's holdings since they react to individual changes rather than playing into the zero-sum game of currency and metal or markets and energy.  In the case of hog commodities, it's unfortunately too late to invest at the bottom-barrel prices, since the price of pork has steadily risen in May, climbing a full twenty cents per pound.  There seems to be plenty of good times still ahead, however: the sudden drop in the dollar index represents good news for pork producers, bad news for ham lovers, and very good news for hog investors.  Since the dollar imbalance kept pig farmers from selling their pork at high prices, hog commodities have swung back up as the dollar loses spending value thanks to a poor May performance.  Given the dollar's inability to retain its record highs during the first quarter of 2015 (and with the certainty of a Federal Reserve interest rate raise come autumn), it's a fine time to be in swine.  The summer months will likely continue to provide pork with value growth; higher feed prices during the winter months may also serve to push up the cost of pork production, though risk-adverse investors may prefer to sell high on pork come the autumn.

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