Editor's note: The following article was originally published in the March 2015 issue of PORK Network.
Hog prices were at record highs in 2014 largely because hog slaughter was down 4.6 percent, their lowest level since 2006. The big drop in slaughter was mostly due to increased death loss caused by Porcine Epidemic Diarrhea virus (PEDv).
The decline in hog slaughter began in April of 2014 and lasted through December.
Since most hogs are slaughtered at six months of age, this implies high pig loss in October 2013 through June 2014. The worst death loss appears to have been in January-March of 2014.
Hog prices collapsed in the first part of this year partially because hog slaughter was back above year-ago levels, implying more farrowings and modest death loss in the third quarter of 2014.
Is PEDv going to give us fewer pigs to slaughter in the summer months when prices are high, without reducing winter slaughter when prices are normally low? We will see.
Domestic meat demand was up 3.4 percent in 2014. This was the second consecutive year with strong demand growth. The news was even better for pork, with retail pork demand up 5.9 percent in 2014.
Domestic beef demand was up 4.9 percent last year and broiler demand was up 0.5 percent, but domestic turkey demand was down 6.1 percent.
In general, meat demand increases when the economy grows and declines during recession years like 2008 and 2009.
Occasionally, other factors such as the popularity of the Atkins Diet in 2004 and its subsequent decline in 2006 have a noticeable impact on meat demand.
The economic outlook for 2015 is bright largely because of lower energy costs. This should mean another good year for meat demand.
There has been a steady decline in the number of hogs sold on the spot market, as producers and packers moved to contract sales.
In the first survey of its kind, Glenn Grimes found that 62 percent of barrows and gilts were sold to packers by negotiated sales in 1994. Last year, negotiated sales to packers accounted for only 3.3 percent of barrow and gilt slaughter.
Despite mandatory reporting by packers, there were many days with few negotiated price reports due to confidentiality rules.
Further decline in negotiated sales will force the market to find another way of valuing hogs.
The futures market is expecting 2015 hog prices to average well under last year's record level.
The death loss from the second year with PEDv in the United States appears to be much lower than during the first year. Despite signs of continuing herd growth, the February 2015 contract has been trading well below the February 2016 contract.
This is likely due to continued problems exporting product through the West Coast ports.