By Joanna Newman
FOLLOWING weeks of heavy losses, US pig prices have managed to stabilise in recent days, and even inched back up ahead of the Christmas break.
The Chicago February live pig futures contract settled yesterday (22 December) at 29.52¢/lb, up from 28.15¢/lb late last week.
Thanks to Christmas demand, packers have been willing to pay more for live pigs, with the cash price climbing to 12-13¢/lb from a historical low of 8¢/lb last week in Iowa.
Americas inadequate slaughter capacity is struggling to process the supply of market-ready pigs. Last week the packing houses slaughtered a record 2.25 million head by running seven days a week.
While the industry agrees that packers need to run flat out to pull the market out of its slump in 1999, in the short term this is serving to increase pork supply and keep prices low.
The market is already saturated. The latest monthly cold storage report calculates frozen pork belly stocks at 42.4 million pounds, far greater than the expected 34-38 million pounds. Packers are expected to drop prices again now that holiday demand has been met.
No one will forget 1998 in a hurry. Prices have fallen by two-thirds. Over the past few months industry associations have advised their members to give away their pigs to charity or shoot and bury them.
According to some accounts, cash prices are worse today than in the Great Depression of the 1930s. Pig producers are losing $60-$75/head and independent operators declare they are now unable to pay next weeks feed bill.
Lack of slaughter capacity has enabled packers to drop their bids relentlessly as desperate producers compete for space at the packing houses. Sluggish export demand has proved disappointing and large-scale food aid to Russia has been slow to materialise.
Meanwhile, domestic retailers have held on to wide profit margins, rather than pass along cheaper costs to the consumer. According to the National Pork Producers Council, in November retailers enjoyed 60% gross margins on pork sales, compared with a historical average of 47%.
Admittedly the American people are eating 7% more pork than last year, but this is not enough to make a difference, according to the NPPC.
As long as supermarkets hold on to the savings, there is little price incentive to persuade Americans to eat their way out of the crisis. Pig farmers will be hoping the new MacDonalds pork hamburger will catch on.