Record U.S. Bacon Prices Poised to Drop on Fat Pigs: Commodities
U.S. bacon prices are poised to retreat from an all-time high as the fad that put the meat into everything from muffins to milkshakes wanes and pork supply rebounds after last year’s historic drought.
Retail bacon jumped 23 percent to $5.708 a pound this year, the highest since at least 1980, government data show. Pork bellies, cured and sliced to make bacon, account for a record share of the value of a hog as demand growth outpaced other cuts, according to the National Pork Board. Production shrank this year after last season’s drought, the worst since the 1930s, increased costs for corn, the main feed grain.
That’s reversing as this year’s 38 percent plunge in corn prices returns pig farmers to profit, sends hog weights to an all-time high and pork output to a record in 2014. Pork-belly prices plunged 23 percent since the end of September, and hog futures will fall 14 percent next year to the lowest since October 2012, according to the median of seven analyst estimates compiled by Bloomberg. That may help ease prices for bacon, which is appearing on more menus even as chefs say the trend is fading.
“There’s been this explosion of bacon in all kinds of different uses, ice cream and all kinds of things, and that certainly has helped demand,” said Steve Meyer, the president of Paragon Economics Inc. in Adel, Iowa. “The price is going to moderate some because we will raise more pigs.”
Lean-hog futures rose 2.7 percent to 88 cents a pound this year on the Chicago Mercantile Exchange, heading for a sixth consecutive annual gain, the longest rally since at least 1986. Prices may fall to 76 cents a pound in 2014, according to the median forecast in the Bloomberg survey.
Hogs are the sixth-biggest gainer in the Standard & Poor’s GSCI gauge of 24 commodities, which fell 3.1 percent this year. The MSCI All-Country Index of equities rose 16 percent, while the Bloomberg Dollar Index, a gauge against 10 major trading partners, climbed 3.1 percent. The Bloomberg Treasury Bond Index lost 2.7 percent.
A&W Restaurants Inc. says it was the first chain to serve a bacon cheeseburger in 1963. In the past two decades, fast-food restaurants started adding more items with bacon in their menus and frozen, pre-cooked bacon made it easier to eat at home. Forty-four percent of Americans eat bacon in a two-week period, compared with 38 percent 13 years ago, according to NPD Group, an industry consultant.
Denny’s Corp. (DENN), which operates more than 1,680 restaurants, reprised its 2011 “Baconalia!” menu in March with 12 items including BBQ Bacon Mac ’n Cheese Bites and Caramel Bacon Stuffed French Toast. Wendy’s Co. (WEN) started selling the Bacon Portabella Melt on Brioche in November. McDonald’s Corp. (MCD), the world’s largest restaurant chain, last month added three $2 sandwiches with bacon.
A spreading virus called porcine epidemic diarrhea may curb gains in pork production. Reported in 19 states since April, the virus slows growth of older hogs and has a mortality rate as high as 100 percent in suckling pigs younger than three weeks, data from the Iowa Pork Industry Center data shows.
There will be about 1 million to 1.2 million fewer hogs coming to market in the first four months of 2014 because of the virus, according to Steiner Consulting Group, the Manchester, New Hampshire-based consultant to the food industry.
Some companies are concerned that the virus could boost pork prices. Headwinds for Hormel Foods Corp. (HRL) in 2014 include “potentially volatile hog cost” if the virus limits supply, Jeffrey Ettinger, chief executive officer of the Austin, Minnesota-based meat producer, said on an earnings conference call on Nov. 26. Still, bacon prices helped improve margins for Hormel in the three months through October, Ettinger said.
Traditionally cheaper than other cuts, bacon caught up with pork chops in 2007 and became more expensive in 2010, according to Ronald Plain, a professor of agricultural economics at the University of Missouri.
“Bacon has become more popular than other cuts, but hogs are not producing more bacon than they ever did, and so the price has gone up dramatically,” Plain said. “Food fads come and food fads go. History says, at some point in time, this will go away.”
Fine dining has embraced bacon as well, often artisanal varieties. Bacon has become something chefs are expected to put on the plate to add value, said Clark Wolf, a New York-based restaurant consultant who has advised hotel companies, casinos, arts institutions and universities.
This year, 67.5 percent of restaurants have at least one menu item with bacon, compared with 67.4 percent in 2012 and 67.0 percent in 2011, according to Datassential, a Chicago-based company that tracks menu trends. Popularity at quick-service restaurants fell 1 percentage point to 65.4 percent since 2009, compared with a 2.1 point drop to 75.4 percent at fine-dining establishments, data show.
In a survey of U.S. chefs by the National Restaurant Association, 60 percent said bacon-flavored chocolate would be “yesterday’s news” in 2014. Still, 64 percent called artisan or specialty bacon a “hot trend,” up from 60 percent in last year’s survey.
“That old adage that everything goes better with bacon obviously translates into the restaurant arena,” said Hudson Riehle, senior vice president of research at the National Restaurant Association in Washington. “For an operator to remain au courant with the evolving consumer palate, it’s entirely logical that they start expanding and promoting bacon offerings.”
While bacon sales at U.S. supermarkets, drugstores and other retailers rose 5.8 percent to $3.84 billion in the 52-week period ending Nov. 3, the number of units declined 2.7 percent, according to data from IRI, a Chicago-based market research company.
Wholesale pork-bellies will fall 1 percent to average about $1.80 a pound in 2014 as supply expands, Steiner Consulting estimates. That’s still up 34 percent from 2000.
Retail prices for bacon include other costs such as marketing and transportation, and competition with restaurants curbs supply, said Altin Kalo, an economist at Steiner Consulting. Lower pork-belly prices will cause bacon prices to decline after a lag, according to James Robb, director of the Livestock Marketing Information Center in Denver.
Prices will also ease because pork production peaks in the fourth quarter while bacon consumption traditionally declines, Robb said. November retail prices fell in eight of the past 10 years, U.S. Department of Agriculture data show.
The hog herd as of Sept. 1 totaled 68.4 million head, the largest for that time of year on record, according to USDA data. Pork production in the U.S., the world’s biggest exporter of the meat, will climb 2.9 percent to a record 23.92 billion pounds (10.85 million metric tons) next year, the USDA said on Dec. 10.
Corn, the main ingredient in livestock feed, tumbled 49 percent from an all-time high of $8.49 a bushel in August 2012.
Pork supplies are also climbing as hogs get bigger. The average U.S. carcass weighed 214.24 pounds (97.2 kilograms) on Dec. 6, the most in government data going back to 2002. Weights have climbed 2 percent this year.
U.S. stockpiles of pork bellies totaled 27.429 million pounds as of Oct. 31, 47 percent more than a year earlier, according to USDA data. That’s the most in cold storage for that time of year since 2009.
Producers who didn’t use hedging strategies turned profitable in June of this year, and probably made about $3.26 a head in October, according to the latest data from Iowa State University. June was the first profitable month since July 2012, according to the university’s estimates.
Production costs are down as much as $20 per hundredweight from last year, and hog farmers may make about $26 a head in 2014, based on current prices, according to estimates last week from commodity broker Allendale Inc. in McHenry, Illinois.
“Expansion is going on, there’s no doubt,” said Rich Nelson, the chief strategist at Allendale. “We will see strong profitability return. These will be the best returns in over 10 years for the hog industry.”
Prices may drop to 72 cents a pound by the end of next year “as pork production ramps up,” said Tim Petry, a livestock-market economist for North Dakota State University in Fargo.
Bets on higher hog prices by hedge funds and other money managers fell 38 percent since the end of September, U.S. Commodity Futures Trading Commission data show. They are now the least bullish since July.
“The uses of bacon are getting a little bizarre -- 2013 saw it being added to cocktails, which is probably not my favorite fruit,” said Michael Whiteman, president of Baum & Whiteman LLC, whose projects included the Rainbow Room at Rockefeller Center. “When food combinations start to get baroque, the end is near.”
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