Earlier this week, the Internet went temporarily insane over news that a “bacon shortage” was in the offing.
“Start Hoarding Now: A Global Bacon Shortage is Coming,” screamed Time
“Global Bacon Shortage ‘Unavoidable,’ Group Says,” warned
Others descended into panic over the “Aporkalypse.”
Thing is, there’s no bacon shortage. And there won’t be one anytime soon. But, as Shawn Hackett
, a money manager specializing in agricultural commodities says, the issue is far less black-and-white than what millions of Twitter users made it out to be.
“There’s nothing binary about livestock; there are always a lot of moving parts,” Hackett tells Minyanville. “It’s not as simple as that. But there’s not going to be a shortage of bacon anytime soon.”
It all started with a September 20 press release
from Britain’s National Pig Association, a trade group that describes itself as “Fighting for the growth and prosperity of the British pig industry.”
“Europe's pork and bacon supply is contracting fast,” it began. “New data shows the European Union pig herd is declining at a significant rate, and this is a trend that is being mirrored around the world. Pig farmers have been plunged into loss by high pig-feed costs, caused by the global failure of maize and soya harvests.”
The NPA continued:
"British supermarkets know they have to raise the price they pay Britain's pig farmers or risk empty spaces on their shelves next year," said NPA chairman Richard Longthorp. "But competition is so fierce in the high street at present, each is waiting for the other to move first."
“In its Save Our Bacon campaign, NPA is asking shoppers to make a point of selecting pork and bacon with the British independent Red Tractor logo, as an increase in demand for British product now may help persuade supermarkets to act before it is too late.”
This, says Hackett, is the crux of the “issue” created by the NPA. “It’s a ‘problem’ that isn’t a problem,” he says. “The reason they’re trying to get people to ‘save’ their bacon is because there’s not enough demand.”
In fact, weak demand has been responsible for losses on both sides of the Atlantic. Earlier this month, Smithfield Foods
(NYSE:SFD) failed to meet analyst expectations due to
“weak retail demand” in its fresh pork business. Tyson Foods
(NYSE:TSN), which enjoyed decent results within its chicken segment, reported "very difficult market conditions" in pork.
Further exacerbating the situation is the fact that low demand coupled with high feed prices will only serve to increase the supply of pork on the market, while simultaneously lowering prices even further.
“If all the money you put into raising your pigs is a loss, you cut your losses and slaughter them and sell them for meat,” Hackett explains.
Indeed, the statistics confirm that a large culling is already underway.
, an outfit representing the British pork industry:
"So far this year, 175,000 adult pigs have been slaughtered, seven per cent more than during the same period last year."
It's also occurring in the US. From Ron Plain of The Pig Site
"Last week’s hog slaughter was the third largest ever. This week’s kill is the fifth largest ever. Hog slaughter this week totaled 2.406 million head, down 0.9 per cent from the week before, but up 5.0 per cent compared to the same week last year. Over the last six weeks hog slaughter has been 5.5 per cent above year-ago and 4.2 per cent above the level implied by the June hog inventory survey. Look for some big upward revisions next Friday in past inventory numbers when the September Hogs and Pigs Report comes out."
As Hackett explained, this means more meat, not less -- for now. “Depending on how severe the herd contraction is, there could potentially be an issue in a year,” he says. “If you slaughter your herd at a high level and it does shrink, you’ll obviously have a contraction, which would affect supply sometime in the back half of next year.”
On the other hand, those “moving parts” Hackett mentioned make the livestock market notoriously difficult to predict.
“If feed prices fall quickly, farmers may go back and start increasing their herd sizes again,” he says. “And you can do it pretty quickly with hogs -- it’s a six-month cycle, unlike cattle, which is a two year cycle.”
Of course, hog farmers will also have to contend with the USDA's estimate that overall meat production will be roughly 12% less in 2012 than it was in 2007, signaling a structural shift in the way people eat -- as well as something for large retailers like Safeway
(NYSE:KR), and Whole Foods
(NASDAQ:WFM) to consider very seriously.
All-in-all, bacon-eaters can relax. Here’s Hackett again:
“To say that a bacon shortage could reach a dire level, there’s just no way you could make that conclusion, not at all.”
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