Pork has a Great Deal Going for it in 2016




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Pork has a Great Deal Going for it in 2016

Kevin Grier

  • 5 January 2016
Owen Roberts - The Urban Cowboy

Kevin Grier is a respected and connected agriculture and food market analyst with a solid understanding of industry issues from farm to retail. His research and analysis helps companies, producer groups, financial service organizations and governments make informed decisions that impact their bottom line.

Website: www.kevingrier.com

The pork sector goes in to 2016 on very solid footing with regard to both supply and demand from a retailer/retail perspective. In addition, the product is very cost/price competitive with regard to the two main competing meats, beef and chicken and it has performed very well from a margin perspective for merchandisers.

As a starting point, it is worthwhile to review Canadian consumer demand for pork. Recall that demand is a combination of a number of factors, the most important of which are changes in consumption and changes in price. For perspective, consider that in 2001, Canadian’s consumed 29 kilograms of pork per year on a carcass basis. The 2015 data is likely to show that the consumption amounted to about 22 kilograms. On the surface that trend does not seem too good for pork. With that noted however, the 2015 consumption is likely to be the most in about 5 years. That seems like a turnaround on consumption. 

On the consumer pricing front, pork prices are very high. Prices were driven skyward in 2014 due to the supply reductions caused by the PED virus at the farm level. According to the Statistics Canada Consumer Price Index, prices have been mostly steady to higher in 2015. That is on top of those big gains in 2014. Consumer pork prices are high, there is no getting around that fact.

The main point with regard to demand is that not only is consumption up in 2015, but it is up despite very high pork prices. Furthermore, consider the performance of demand in 2014. Yes Canadians ate less pork in 2014, due to lower availability and much higher prices. Given the soaring prices that year, however, the lower consumption could have been much worse. Canadians have been stepping up to the meat case for pork in a big way in 2014 and 2015.

The key take away is that Canadian pork demand begins 2016 very robust.

On the supply side, as is well known, 2014 was a tough year for pork availability given PED. The industry moved beyond PED in a big way in 2015 and saw North American production bounce back fast. North American pork production increased by at least 7% in 2015 compared to 2014. That is about 5% more than in 2013. Looking ahead to 2016, I expect that production should increase by another 1+% on top of the big number in 2015.

As such, 2016 pork availability should be ample and comfortable. Couple that with the strong demand, and from a retailer/retail perspective, the pork side of the protein offering looks to be shaping up very well.

Another aspect of pork that should be making merchandisers pleased is its profitability. As noted above, retail prices of pork have been very high to compensate for high costs last in 2014 and early 2015. Since early 2015, however, pork costs for retail/retail buyers have been declining. That in turn has meant that pork is likely the most profitable of the three main meats in the meat case.

Not only is it probably the most profitable of the big three fresh meats, it is the most cost competitive. Relative to recent historical averages, wholesale pork prices, the cost side for retail/retail buyers, have been running much less than beef and a little less than pork. In other words pork is cost competitive for buyers.

With regard to that overall protein offering, it is likely that retail and retail merchandisers are going to see some modest relief on the supply side of the beef market. Buyers and merchandisers have been struggling and frustrated the past two or more years with very low beef supplies and unbelievable pricing. The depreciated currency of course only made matters that much worse. In 2016 it is likely that beef supplies will increase by about 2% (USDA says 4%). That increase is not going to make beef remotely abundant by historical standards, but from a buyer’s perspective at least it is going in the right direction. Chicken is also looking more plentiful and comfortable for buyers in 2016. U.S. supplies are shaping up to be record breaking by a long shot. In Canada production going into the first half of the year looks to be plentiful.

The bottom line is that there is going to be increased supplies of the three main meats. Within that context, pork enters the year as the most profitable and competitive with an improved consumer demand profile.
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Ontario Pork represents the 1,192 farmers who market 5.41 million hogs in the province. The organization is engaged in many areas, including research, government representation, environmental issues, consumer education and food quality assurance.

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