“In the second quarter of 2013, the already difficult market will be further hampered by numerous import bans that startled the industry in the first quarter of 2013,” says Albert Vernooij, Rabobank analyst. “Without questioning the legitimacy of these trade distributions, these will further limit possible upside of the market, which can be characterized by the combination of lackluster demand and rising supply. The only positive note is that pig herd expansion will be postponed or herds will even decline, which together with the forecast declining feed costs, will likely result in better margins at both the farmer and industry levels.”
However, at the farmer level, the lower than expected hog prices limited the earlier upswing of margins where it was hoped for.
China, the US and Russia saw pork prices drop due to increased availability which more than offset the slow developing demand. In China, production recovered more quickly than earlier forecast, while in the US the expected production decline did not commence as productivity continued its steady growth and exports slowed due to the strengthening of the US dollar. In Russia, new capacity and higher imports resulted in surging supply. Prices stabilized in the EU, pressured by the declining demand and exports, while in Brazil an unexpected increase was experienced in January, followed by a lower than normal seasonal decline.
With the growing importance of Chinese and Russian pork imports, combined with the growing export dependency in the US and EU, it appears the seasonal trends in the pork market in the Northern Hemisphere are reversing with strong export demand and high prices in the second half of the year and a difficult market in the first half. If this development continues, Rabobank believes the impact will be huge for the pork industry in the Northern Hemisphere. This will be apparent not only in the changing seasonal price development, but also in the carcass valuation, which differs between the Northern and Southern Hemisphere and between spring and autumn.
In line with this possible structural development, the second half of 2013 offers better prospects, with forecast large production drops in the EU resulting from the implementation of the sow pen regulations in January and the expected seasonal growth in import demand in China.