Source: Wall Street Journal
Wholesale pork-belly prices nearly triple as the state’s animal-welfare measure takes effect
Bacon prices could soon start heating up.
Wholesale prices for pork belly—the cut of meat used to make bacon—have surged this summer, more than tripling since the start of June after hitting a multiyear low in May. Pork-belly prices were at $2.37 a pound on Thursday, just shy of their highest level since last August. The run-up could soon pressure restaurants and supermarkets that had been stepping up bacon promotions.
“They’re probably thinking twice about featuring a new bacon cheeseburger, bacon chicken sandwich or Baconator, or whatever,” said Brian Earnest, lead economist for animal protein with agricultural lender CoBank.
Helping drive the price surge is an animal-welfare law in California requiring pigs to be given at least 24 square feet of pen space for their meat to be sold in the state, which accounts for roughly 15% of U.S. pork consumption. After facing years of legal challenges, Proposition 12 was upheld by the U.S. Supreme Court in May and went into effect July 1.
Pork producers initially held off on buying new products after the Supreme Court ruling because they were unsure about how the law would be implemented. “You had processors that didn’t want to buy products for their freezers if it wasn’t Prop 12 compliant,” said Adam Samuelson, an agribusiness analyst with Goldman Sachs.
Then in June, California struck a deal with pork producers allowing them to sell their pre-existing inventory for the remainder of the year. Prices subsequently charged higher as buyers rushed to load up on supplies before the law came into full effect.
Also fueling the run-up is a seasonal shift; pork-belly prices normally rise in the summer when hog slaughters and pork production slow. But the scale and speed of this year’s increases haven’t been seen in at least a decade, outside of the seismic shifts at the onset of the Covid-19 pandemic.
The country’s frozen stocks of pork belly fell 14% in June from May. Inventories remain higher than usual for this time of year thanks to an earlier supply glut that had been depressing wholesale pork prices.
The prices consumers see don’t necessarily follow wholesale prices, because restaurants and grocers can adjust for changing costs in other ways. The wholesale market also represents a small slice of the broader market because many big bacon suppliers source their own pork bellies, said Christine McCracken, executive director of animal protein at Rabobank. She said the recent wholesale-price surge partly reflects better-than-expected demand this summer, with producers going out to buy extra supplies.
“It did help for the retail prices of bacon to be coming down,” she said.
Sales volume of bacon packages rose 3.2% for the four weeks ended June 17 versus the same period a year earlier, according to the most recent data from NielsenIQ. Americans’ increased appetite for bacon came after the easing of wholesale pork-belly prices earlier this year.
Supermarkets were still promoting bacon recently. More than 80% of grocery stores surveyed were advertising sliced 1-pound packages of bacon in their circulars and websites, the USDA said Friday. That is up from 73% at the same time last year.
How bacon prices change in coming months as a result of Prop 12 is still to be determined. Most of the pork produced in the U.S. isn’t currently compliant with the law, and some suppliers might opt to stop selling in California rather than change their practices. That could drive up retail prices in the state, while pushing them down in the rest of the country where supply would increase, analysts say.
For now, wholesale pork-belly prices are expected to remain higher. Livestock producers are struggling to keep pigs cool this summer, and extreme heat in August could kill animals and shrink herds.
