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Pork Jumps to 11-Year High on Export Gain; Meat Profit Squeezed
August 1, 2008

Pork prices in the U.S. are the highest in at least 11 years, squeezing profits for food companies, as more of the nation's meat supply is shipped overseas and domestic hog producers shrink their herds.

Wholesale pork jumped 62 percent in the past four months to 88.9 cents a pound today, the highest since at least 1997, U.S. Department of Agriculture data show. Exports of the meat in May doubled from a year earlier as demand surged in China, according to the most recent USDA statistics.

The jump in costs is forcing makers of pork products to raise prices. All-meat hot dogs made from beef and pork by Goldstar Sausage Co. in Denver are up 25 cents a pound since May, and another increase is likely because the high cost of pork is eroding profit, owner Rick Rue said in an interview.

``You have to pass it along if you want to stay in business,'' said Todd Purnell, president of F.B. Purnell Sausage Inc. in Simpsonville, Kentucky. ``Nobody can stand to lose money for very long.''

U.S. pork exports in May totaled 481.3 million pounds, up 98 percent from 242.7 million pounds in the same month last year, the USDA said July 14. Shipments to China and Hong Kong increased more than sixfold to 137.7 million pounds.

``What's producing this increase is the global demand for meat products, including China and India and other countries where income growth is stimulating meat demand,'' said Ernie Goss, an economics professor and head of the Economic Outlook Center at Omaha, Nebraska-based Creighton University.

U.S. supplies also may shrink because the high cost of feed grain is forcing hog producers to liquidate their herds. Corn futures are up 74 percent from a year ago and reached a record $7.9925 a bushel on the Chicago Board of Trade on June 27.

``The high corn prices are the number-one contributor,'' Purnell said by telephone.

Livestock producers are sending more hogs to be slaughtered and feeding them less to cut costs. U.S. processors will slaughter 2.091 million hogs this week, up 6 percent from 1.973 million a year earlier, the USDA estimates. Hogs sold to slaughterhouses in the Iowa-Southern Minnesota area were 0.9 percent lighter last week than a year earlier, USDA data show.

``You've got a demand increase and a supply reduction,'' Creighton's Goss said in a telephone interview. ``Both contribute to an increase in prices, and we're going to see more of that in the months ahead.''

Some U.S. meat processors and grocers have been unable to raise prices fast enough to keep pace with rising costs.

``It's impacted us tremendously from a profitability standpoint,'' Goldstar's Rue said in a telephone interview. ``We are hoping that we're seeing the ceiling right now. Normally we get a downtrend in prices and it comes out even. But it's just been escalating and definitely cutting into our margins.''

At De An's Pork Products in Brooklyn, New York, owner Guy De Angelis said he raised the price of the company's Italian sausage about 10 cents a pound to $1.85 on May 26, the Memorial Day holiday, because of higher fuel costs. Another 15-cent increase may be needed to offset the jump in pork costs, he said.

``We try to absorb as much of it as we possibly can, but it's difficult after awhile,'' De Angelis said in a telephone interview. ``It's killing us.''

Molly is a reporter for Bloomberg News.