Pork prices down, but chicken flies high

Restaurateurs can expect some relief in the price of pork as producers increase supply, but the cost of poultry should remain high due to increased demand, industry experts say.

“Pork prices are beginning to return to normal, thanks to the stabilization of the pig virus outbreak that plagued producers last year,” said restaurant commodities expert John Barone. “The virus still exists, but two things are happening right now: first, there are two vaccines that seem to be working to a degree. Second, it looks as though the sows that contracted the virus and passed it along to the piglets in their litters have developed antibodies that are fighting off the spread of the disease.”

According to Barone, resistance to the virus is resulting in bigger herds and lower prices.

“The numbers are going in the right direction,” he said. “We’re expecting a good amount of pork supplies by the second half of the year and prices are forecast to be down double digits percentagewise.”

Barone added that U.S. Department of Agriculture estimates indicate pork prices have already decreased nearly 18 percent over 2014 levels.

Hudson Riehle, the National Restaurant Association’s senior vice president of research, said higher wholesale food prices last year put pressure on operators and relief this year would be welcomed.

“The intensity of the pressure related to higher wholesale food prices has been easing for some operators as prices on certain commodities seem to be moderating,” he said. “But, because overall food costs have increased for several years, prices in general remain elevated. The impact on operators can vary depending on what’s on their menus. For example, beef prices are expected to advance, but pork costs are likely to drop. That will give operators something of a break for now.”

Barone noted that poultry production is on the rise and prices are reflecting the increase. That could change, however, if demand grows.

“Chicken could result in a bit of a tug of war this year,” he said. “There will be a lot more supply, but also a lot more demand. Because of the high cost of beef, anybody who can use chicken for every [limited time offer] out there is going to. Operators last year couldn’t get enough given the increased demand resulting from the shortages in beef and pork supplies. They couldn’t even plan LTOs that required additional chicken volume, especially on breasts or wings. This year, there’s going to be extra availability and more demand, but the price ‑ because of that demand ‑ is going to be close to year-ago levels.”

In 2014, poultry prices averaged around $1.12 per pound, according to USDA estimates.

What's driving up pork prices?

The ongoing spread of pig virus throughout North America and Asia is expected to affect U.S. swine production and cause pork prices to keep rising through the rest of the year, a commodities analyst for the restaurant industry said.

John Barone, president and founder of New Jersey-based MarketVision Inc., said restaurateurs, especially small companies and independents, will feel the brunt of the economic pain resulting from the outbreak of porcine epidemic diarrhea, or PEDv, which has up to a 100-percent mortality rate in piglets and no reliable cure.

“This is going to cause substantial pain,” Barone said. “Of course it will depend on how these restaurant companies are contracted in.” He said companies that have contracted for the year for their bacon, sausage and rib products might not be affected at all. "But those of them that are not will get hit with much higher food costs. I can guarantee that the average restaurant on the street that has not locked in its supply contract is already suffering from the price increases.”

Barone said restaurants that specialize in breakfast foods or feature pork ribs and pork-based hot dogs, like barbecue joints and sports concessionaires, would feel the biggest pinch because of the disease, which tends to attack entire herds of piglets as soon as they are born.

“Sandwich chains will experience a little more flexibility because they can offer pork alternatives, like turkey and chicken products,” he said. “But, obviously, a rib chain will be affected as will stadium foodservice concessionaires. And then there are the burger chains. They’re experiencing a double whammy since beef and bacon prices are skyrocketing. You can make it a triple if you throw cheese in there, too. They’re getting hit from every side.”

According to published reports, Donnie Smith, president and CEO of Tyson Foods, said hog supplies are expected to decrease by 4 percent or 5 percent during the company’s fiscal year 2014 due to the outbreak. He told shareholders during a May 5 earnings call that herd losses related to PEDv are the main reason for the expected decrease in production and that supplies would be further reduced from June until August, but could ease by October.

Barone said PEDv takes a big toll because “when a sow is infected, it doesn’t die, but, instead, passes it along to her entire litter upon giving birth. That could mean that up to 10 piglets in each litter would be lost, and that is an exponential loss of future pig supply.”

Barone added that if the problem continues for a long period of time, other protein supplies could see some effect, too.

“Restaurant operators are already dealing with extremely high beef prices, and chicken prices also are on the rise,” he said. “If this continues and people look to switch out to protein substitutes, the demand will lead to even higher prices.”

“It’s going to be a difficult summer for the restaurant industry.”