Oh, for the Love of Bacon!
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
By now you've surely heard the news from the UK about the impending bacon shortage that sent the Internet into a tizzy last week. It was as though a million voices cried out "Noooooooooo!" in unison and then were silenced. Ok, maybe they weren't exactly silenced, but the anguish over the loss of bacon in the near future turned to occasional giggles as a thousand Internet memes were launched filled with bacon-y goodness. Since that time there have been several reports that have come out claiming that there's not going to be a bacon shortage, though we may see a bit of a price hike at some point in 2013. I haven't seen any memes about that yet, but I'm hopeful.
What it appears is actually happening is that pork production (including bacon) is slightly slowing, largely as a result of a decreased consumer demand. Companies such as Smithfield Foods (NYSE: SFD), Hormel Foods (NYSE: HRL) and Tyson Foods (NYSE: TSN) have all reported pork-related difficulties lately; Smithfield, the world's largest pork producer, even failed to meet income projections as a result of consumer interest in pork dropping. Similar consumer interest problems are present overseas as well, which is actually where the initial announcement of the bacon shortage came from... it was first announced by the British National Pig Association and reflected a projection on the state of Britain's pig industry.
So if the whole problem is that we just don't want quite as much pork as we did before then it means that the crisis is over and things will stay the same, right? Well, not exactly. A decreased demand for pork means that there will likely be some thinning of the herds (though a group of pigs isn't actually called a herd; there are a few different words that could be used, though my personal favorite is "sounder") which will result in more pork being put on the market. Take into account the increased cost of feed due to this year's droughts and some companies such as Tyson who have chicken and other products to fall back on may end up thinning out the sounders a bit more than they would otherwise. It's already happening, actually; pork production is up 5 to 7 percent or more compared to this time last year and it's estimated that up to 3 percent of the breeding pigs in the US may be sent to slaughter before it's finished.
This means that grocery stores such as Kroger and Safeway may find themselves with an abundance of pork products, at least for the time being. For those who enjoy a good BLT this is good news since they'll have products stocked that consumers seem to have a reduced interest in, a situation that often results in manager's specials and sale prices. This will help them to get rid of the extra pork that's on the market and could actually turn in to a nice little revenue boost for the grocery outlets provided that their sales (combined with what people have heard about pork shortages) prompt customers to buy those low-priced pork chops and bacon.
Looking ahead to 2013, however, we have pork producers who have fewer pigs than they normally would and a surplus of pork products that will start to fade. We can assume that consumer interest will still be down slightly, though there's always the possibility of an increased interest that would bring it back up to the levels of previous years. All of a sudden we've got less pork going onto the market which some might consider a shortage... is this the Aporkalypse of legend? Yes, but only in the way that your cat stepping on the circuit breaker in your computer's power strip was the long-foretold Y2K crash. There is no Aporkalypse, but there may be slightly higher pork prices since pork production will be slightly reduced. How much those prices go up remains to be seen, in large part because it will depend on whether demand continues to decline.
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