CHART OF THE DAY: Bacon prices are booming

Mmmm, inflation. Photo: Joe Raedle / Getty

The Australian pork industry woke up to some tough headlines today with the World Health Organisation’s publication of a paper that links processed meat, including everyone’s favourite – bacon – to cancer.

At least pork farmers are entering this challenging time from a position of strength. Bacon prices in Australia are near all-time highs.

The chart below, from industry body Australian Pork Ltd’s newsletter “Eyes and Ears”, shows the rally.

The spike in prices back in 2008 was caused by the drought, as grain prices on the eastern seaboard skyrocketed, crushing the profitability of pig farmers and leading to a supply shortage.

But since then, pig prices have been on a steady, impressive rally, rising from around $2.70 a kilo two years ago to over $3.50 now for “baconers”, or the larger, heavier pigs whose meat tends to be used more for bacon. “Porkers” are the smaller pigs in the 45-60kg size range.

Peter Smith, marketing development manager for Australian Pork, said a number of forces were at work in the current rally in bacon and pork prices.

“Since 2009 what’s start to happen is more and more farmers have got into contract situations,” Smith told Business Insider. “We don’t get the peaks we used to see. Farmers have become much better at managing their supplies.”

The other issue in play is that with an El Nino forecast, farmers are concerned about a potential repeat of drought conditions and may be lifting prices to help cushion against the potential impact. “The farmers that are there at the moment, they remember the bad times,” Smith said.

The prices reported on in “Eyes and Ears” are based on average prices reported by both buyers and sellers in the market. Some 70% of the processed meats sold in Australia are actually imported from overseas, while local farmers’ produce is used for fresh meats.

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