Kokomo Tribune; Kokomo, Indiana

August 19, 2010

Increase in bacon prices helping pork producers regain profits

By K.O. Jackson
Tribune business writer

Tipton — Without it, it’s just a boring veggie sandwich.

With it, it’s a one-of-a-kind taste perfect for a hot, summer evening.

During the summer — especially in August when produce is fresh — nothing compliments tomatoes and lettuce on a sandwich like bacon.

That’s pork bacon: Bacon substitutes need not apply.

However, consumers are finding it’s costing a lot more to make a BLT sandwich because of the rising price of bacon.

Consumers are currently paying record-high prices for bacon; prices for other pork products are also expected to increase because the number of pork farmers and the size of their herds are both declining.

According to the U.S. Department of Agriculture, the price of wholesale pork bellies, which are cured and sliced to make bacon, are up 72 percent in the past year to around $1.43 a pound, the highest price since at least 1998.

Since June, retail bacon prices have averaged more than $4 a pound; the highest since at least 1980, according to the U.S. Bureau of Labor Statistics.

“There’s only a fixed amount of bacon you can get from a hog,” said Chris Hurt, a Purdue University agricultural economist, “There’s only one belly to be sliced and cured so when you have a small supply of hogs, you are going to have a small supply of bellies. Short supplies lead to higher costs.”

Earlier this summer, the UDSA reported nationwide hog inventories of 64.4 million, down 3.6 percent from last year.

Agricultural economists expect bacon prices to increase in August, said the Iowa-based National Pork Board.

The NPB reported the U.S. consumes more than 1.7 billion pounds of bacon annually at restaurants and other food service companies. Furthermore, in the food service industry, besides ground pork, demand for bacon is the fastest-growing of any pork item.

“You put bacon on anything and it tastes good,” said Jeffrey Harker, of Swine Health Services in Frankfort. “You can’t replace the taste of bacon with anything else. Turkey bacon doesn’t have the smoky flavor and fat. The demand for bacon is good. I expect that to last for a long time.”

With the recent increase in pork costs, the nation’s remaining producers are trying to gradually make up for substantial losses within the last few years, and pork consumers will likely continue feeling it in the wallet, economists indicate.

“Hog prices have been up since June, it’s just now being reflected in stores and I expect the increase to last,” said Steve Neyer, livestock economist for the Iowa-based Paragon Economics.

Within the past three years, economists indicate, hog farmers have suffered due to the downturn in the economy, the H1N1 scare and increasing feed costs.

As ethanol production has increased in recent years, demand for corn — the staple feed for hogs — has grown. The increase in feed costs cut pork producers’ bottom line.

Additionally, hundreds of thousands of hogs were slaughtered worldwide last year as people mistakenly thought the animals were responsible for the spread of the H1N1 flu strain, also called the “swine flu.”

The panic led many people to stop eating pork and some countries banned U.S. pork imports. According to the National Pork Producers Council, at the peak of flu panic, 27 countries rejected the imports of U.S.-raised hogs.

With the losses from the H1N1 scare and rising cost of corn, pork farmers lost more than $6 billion last year, said Neyer.

Even after panic subsided from the H1N1 scare, most consumers didn’t start buying pork products right away, which meant pork farmers weren’t making a profit.

Until now.

On his 500-acre farm in southwest Tipton County, Mike Glunt has 17,000 hogs. In production since 1972, Glunt understands good times, like the bad times, don’t last long. But it’s all part of the pork producing business.

“We’re doing a little better this year than we were last year, considering in 2009, we were losing $20 a head and now we are getting close to that on profit,” said Glunt, adding pork farmers can also make money selling hogs’ organs and tissues for medical use.

“It’s a supply-and-demand business. The last couple of years was just tough and a lot of farmers closed their operations or cut their herds. When you are spending more on feed, and you have fewer animals, all the meats are going to cost more. Hogs are very valuable animals.

“It’s a way of life for me, the up-and-down cycles, but I love it and the team I work with every day.”

A pork producer himself, Harker said there is “pain involved” for both sides with bacon’s high price.

“This is the real deal from all that has happened over the past several years,” said Harker. “When [pork] is cheap, that means the farmer isn’t making any money. When the price rises, the consumer loses on that end of the business. It’s a free market and that’s a good thing. You produce what the market demands.”

The USDA estimates only China and the European Union consume more pork than the U.S. and the world’s largest per-capita pork consumer is Hong Kong, where each person is expected to eat 151 pounds this year.

On a per-capita basis, the USDA indicates the U.S. ranks 10th, with Americans eating more than 60 pounds annually — much of that being sizzling bacon.

As a result, even as pork prices increase, one economist said consumers who love bacon will likely still pay for it.

“When a person wants bacon, they want bacon,” said Hurt. “They want the taste and quality. They don’t want a substitute for it and they will pay for it. The people who don’t eat bacon, don’t eat it so they don’t buy it.

“... [Bacon] can be as high as $6 a pound and people are going to buy it. I expect the costs to continue to be high, at least until it cools off. Pork farmers are in a position now to make a profit, and that was not the case in 2008 and 2009.”