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Continuing High Feed Costs Make Pork Supply Discipline Key Success Factor

01 February 2013

GLOBAL - Global pork prices started 2013 at historically strong levels, but Rabobank anticipates some weakness in prices in late Q1 and into Q2 due to pressures on production and limited growth in global consumption levels.

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 US 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.

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 the year as we move into Q2 as Rabobank expects global pork prices to come under slight pressure due to production growth in China, the US, Brazil and Russia being higher than the growth in global consumption.

Higher prices for pork are expected and necessary for 2013 as the drought in the US and Black Sea region last year has led to low inventories of feed crops and adverse weather in pork producing countries continues to limit production expansion. There is now no margin for error for world crop production, with 2H 2013 pork production and pork pricing highly dependent upon crop growing conditions. 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 US have managed their risk by using futures contracts.

Rabobank analyst, David Nelson said, "Despite the higher feed input costs, the US swine breeding herd has modestly expanded and large scale farming continues to develop at a rapid pace in China, Russia and Brazil. 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. As such, supply discipline will remain the key success factor for the pork industry’s performance this year and beyond.

ThePigSite News Desk

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