As Memorial Day kicks off the U.S. grilling season, Americans are finding another reason to throw a barbecue party: cheaper pork.
After a virus killed millions of piglets last year, farmers expanded herds and took advantage of lower grain prices to fatten animals. That drove hog prices 33 percent lower in the past 12 months. Hedge funds are now betting the slump won’t last as the lure of lower-cost meat stimulates demand.
Memorial Day is the most popular holiday for U.S. grillers after Independence Day on July 4, according to the Hearth, Patio & Barbecue Association. Adding to the excuses to celebrate, it’s not just bacon and pork chops that have got cheaper. An index of seven party staples that includes ice cream and potato chips is at the lowest level since October, according to retail prices compiled by Bloomberg. More than two-thirds of Americans own an outdoor grill, a survey by Weber-Stephen Products LLC showed.
“People are taking out their grills for Memorial Day,” said Jessica Sampson, an agricultural economist at the Livestock Marketing Information Center in Lakewood, Colorado. “We have a lot more pork on the market, and that’s pushed prices down, and those lower prices are definitely incentivizing consumers to purchase more.”
Retail pork-chop prices fell 8.6 percent from a record reached in October, while bacon dropped 15 percent from its peak in June. The Livestock Marketing Information Center’s demand index climbed about 17 percent in the first quarter from a year earlier, Sampson said.
As grillers welcome cheaper pork now, money managers are betting that costs will climb again as demand strengthens. The net-long position in lean hogs expanded 4.7 percent to 29,605 futures and options contracts in the week ended May 19, U.S. Commodity Futures Trading Commission data show. It was the sixth straight gain and the longest advance since August 2013.
Hog futures on the Chicago Mercantile Exchange jumped 32 percent since reaching a five-year low in February. Prices slid 0.2 percent last week to 83.725 cents a pound.
Demand may taper off once the grilling season is over, said Donald Selkin, who helps manage about $3 billion as chief market strategist at National Securities Corp. in New York. Not all pork cuts are cheap, with wholesale rib prices reaching a record on May 19.
The glut of pork supply will also keep prices in check. The U.S. hog slaughter climbed almost 6 percent so far this year from 2014, and animals weigh about 9 pounds more on average than they did two years ago, government data show. Global production of the meat will rise to 110.9 million metric tons in 2015, from 110.5 million last year, the U.S. Department of Agriculture forecast in April.
“I would be careful about holding long positions in hogs,” Selkin said in a May 21 phone interview. “Supplies are going to increase a lot.”
Even though there’s a glut in the global market, futures traded in Chicago will follow what’s happening in the U.S., said Will Sawyer, a vice president of animal-protein research for Rabobank International. Along with increases in domestic consumption, rising demand for exports to China will support prices, he said.
Part of the reason grillers might choose more pork chops this Memorial Day, celebrated on May 25, is because burgers are still relatively expensive. The cost of beef is more than three times as much as pork, compared with an average of 2.2 times in the past decade, according to USDA data compiled by Bloomberg.
“Americans have had very strong demand for pork, and that’s going to continue through the rest of the year,” Atlanta-based Sawyer said in a May 21 phone interview. “Because beef continues to be expensive, with no signs of coming down, consumers can look to pork.”