Remember last year, when hog prices spiked and concerns about high bacon prices hit headlines in the mainstream news? For pig producers and processors, those days are distant history, as the North American pork market has since undergone a major reversal.
Not wanting to expose consumers to volatility, grocery stores generally lag behind the hog market in moving prices higher (and lower.) The climb was so steep last spring that they also shifted to smaller packaging sizes to make prices palatable to consumers, with for example, bacon prices listed for 375 gram packages instead of 500 gram packs.
However, since last summer, when the outbreak of porcine epidemic diarrhea (PED) virus was at its worst in North America, hog supplies have rebounded. U.S. pig prices have fallen even lower than they were before the rally in early 2014 (see graph), and yet retailers are still selling pork at or near the high prices implemented last year.
“From a packer or producer perspective, we have almost the worst situation, because retail prices are high. They need that product to keep moving, but it’s not because prices at retail are high,” notes Guelph, Ontario-based livestock and meat market analyst Kevin Grier in the interview below (article continued below.)
The volume of pork being sold in grocery stores has declined as a result of the high prices, but retailers don’t mind because the margins have grown substantially, he says.
“Tonnage is down 5 to 10 percent at retail this rolling 52-weeks versus the last rolling 52-weeks, but their dollars are up,” explains Grier.
High beef prices are one of the factors allowing retailers to keep prices for bacon, pork chops and ribs at levels set according to last year’s pig prices, although Grier says pork is starting to displace beef on the front page of grocery store flyers.
“Beef typically is on the front page of flyers two-thirds of the time,” he says. “This year, no. Sometimes 30, sometimes 40 percent of the flyers across Canada have a beef item on it. That’s being replaced with pork.”
Since pork doesn’t have to compete against beef on price, it will be competition between retailers that will ultimately lead them to drop bacon prices back in line with lower pig values, says Grier.
“If Wal-Mart starts doing it or if your Safeway/Sobeys starts doing it, then others will start reacting to that. They’re going to start to see they’re making very good margins and that they can afford to lower it a bit to keep tonnage up.”