Global pork prices to fall on limited growth in consumption

While global pork prices began 2013 at historically strong levels, some weakness in prices late in the first quarter and into the second quarter are estimated due to pressures on production and limited growth in global consumption levels, according to Rabobank's latest report. 2013 pork prices will be impacted by swing factors, including how much European production will decline due to sow pen regulations; China’s appetite for import; and whether U.S. production will continue to expand, despite the spike in feed costs.

While global pork prices began 2013 at historically strong levels, some weakness in prices late in the first quarter and into the second quarter are estimated due to pressures on production and limited growth in global consumption levels, according to Rabobank's latest report.

2013 pork prices will be impacted by swing factors, including how much European production will decline due to sow pen regulations; China’s appetite for import; and whether U.S. production will continue to expand, despite the spike in feed costs. The pace of pork demand growth is the key unknown for industry margins in 2013, and is highly dependent upon economic growth in the developing world, according to Rabobank.

Global pork prices started 2013 supported by strong Chinese demand ahead of the Chinese New Year in February. However, price movements in China will be a key indicator for 2013 going into the second quarter as Rabobank expects global pork prices to come under slight pressure due to production growth in China, the U.S., Brazil and Russia being higher than the growth in global consumption.  

Higher prices for pork are expected overall for 2013, as the 2012 drought in the U.S. and Black Sea regions has led to low inventories of feed crops and adverse weather in pork-producing countries continues to limit production expansion. There is also uncertainty regarding the pace and magnitude of EU enforcement of the ban on sow crates, which Rabobank forecasts will reduce the sow herd, keeping EU pork prices high.

However, Rabobank predicts that global prices will be at a lower average level than previously forecast, as the expected consequence of higher feed costs — herd liquidation — has not occurred, as producers in the U.S. have managed their risk by using futures contracts. “Despite the higher feed input costs, the U.S. swine breeding herd has modestly expanded and large scale farming continues to develop at a rapid pace in China, Russia and Brazil," said Rabobank analyst David Nelson said. "There seems to be limited opportunity for a significant increase in pork prices, given this expansion. Chinese hog supplies appear to be sufficient but their economy is recovering, which could stimulate demand growth.”

In developed pork markets, the challenge will come from managing soft demand and often excess capacity, according to Rabobank. As such, supply discipline will remain the key success factor for the pork industry’s performance in 2013 and beyond.

 

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