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 below 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 were largely attributable to increasing meat demand and inflation. Hog prices trended downward during the 1990s as new technologies and lower grain prices reduced the average cost required to produce pigs.
The uptrend of prices from 1998 to the present is due to stronger export demand and, especially since 2006, higher costs that are primarily due to higher feed prices driven by ethanol. The higher costs caused economic losses for producers who collectively reduced numbers enough to push prices back to profitable levels.
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.