U.S. market hog prices are determined by the basic economic forces of supply and demand. The supply of hogs is determined by the price of production inputs and production technology, while market hog demand is derived from the demand for pork and other products from pigs.
The interaction of supply and demand results in prices that vary over time. The graph demonstrates all of the forms of price variation – trend, cyclical and seasonal.
Trends can be seen in the growth of hog prices during the 1970s, which was largely attributable to increasing meat demand and inflation. Hog prices trended downward in the 1990s as new technology and lower grain prices reduced the average cost required to produce pigs.
Stronger export demand and, higher production costs, especially from 2006 onward, fueled the price uptrend from 1998 through 2013. Higher feed prices, driven by subsidized and mandated ethanol production, were the primarily contributors to higher production costs. With the resulting economic losses for producers, they collectively reduced numbers enough to push prices back to profitable levels.
Piglet losses due to porcine epidemic diarrhea virus (PEDV) caused 2014 hog prices to surge. Lower feed costs and growing productivity have resulted in a downtrend since then.
Cyclical variation can be seen in the three- to four-year period between price peaks and lows. The hog cycle is caused by the biological lags inherent in pig production, producers’ need for sufficient financial resources to expand and producers’ natural tendency to try to endure hard times before reducing production.
The price cycle is less consistent and dramatic than it once was because there is much less variation in pork production. However, omitting the price spikes noted for 2008 and 2014, both caused by market shocks, would leave the hog price cycle much as it has been in the past.