May 26, 2016
A post PEDv export surge and a European market upset: World pork production and exports go in opposite directions
By ERIC J. BROOKS
An eFeedLink Hot Topic
- World pork output has levelled out and is falling 1% but exports are still surging by a projected 6% in 2016
- Strong export growth is partly the result of a supply-side recovery from America's PEDv epidemic
- Russia's economic boycott created an oversupply of EU pork that was diverted into Far Eastern markets just as EU pork prices and the Euro both fell
- With most pork demand growth occurring in countries with insufficient swine growing inputs, the proportion of pork that is internationally traded is destined to increase over the next decade
In writing this introductory article to our focus on world exporters, my greatest concern is that the accompanying data and graphs could mislead readers. For the first time, our survey makes strong mention of the European Union; not merely as a leading pork exporter but as the world's top exporter.
This however, is itself an awkward statement: There is no singular EU swine sector that can be compared to pork production industries in America, Canada or Brazil. Among the 27 EU nations are exporters and also large net pork importers.
Several European countries have swine sector productivity comparable to that of America and higher meat quality. Others have productivity and reputations comparable to those found in Asia's developing regions. While EU exports represent the collective excess production of 27 countries and 600 million people, no single nation exports a quantity of pork even comparable to that of Brazil, the smallest of the top three national suppliers.
Nevertheless, there is no denying Europe's growing weight in fast growing Asian markets, be they for bacon or fresh milk. The problem is that Europe's export surge, rather than taking advantage of booming opportunities, was born in crisis. The 82% increase, near 100,000 tonne increase in China's imports of EU pork are not based on output increases or even lower European domestic consumption. Rather, they represent a diversion of pork once shipped to Russia to Asia's largest fast growing market.
Europe did a good job of diverting this excess pork into the Far East but it did not solve the continent's oversupply situation: Superficially EU statistics show that pork export outpaced output, rising by 5%. The problem is that while pork production's 3% increase is lower in percentage terms, the additional 650,000 tonnes of EU pork produced overwhelmed its 100,000 tonne increase in exports -almost all of which was accounted for by China.
According to Rabobank's Q1 2016 Pork Quarterly, the resulting half million tonne domestic oversupply, "Was pushed on to the EU market, which could only absorb it with large price drops." The Euro's 15% drop against the US dollar coincided with this swine market deflation, causing European pork's Asian price to fall by nearly 40% over two years.
The Canadian dollar's 30% decline over the same period helped shield its export market share. This however, was not the case with American pork, which was burdened by a rising US dollar. With EU countries like Germany and Denmark having a strong reputation for safe, high quality pork, it was natural for Asian importers in China, Japan and South Korea to substitute these EU products in place of US pork.
This year, even though EU pork trading fundamentals nominally deteriorated from last year's bargain levels, East Asians like Chinese and Japanese know good pork when they see it: For that reason, while Europe's swine sector endures a flat domestic market, EU 2016 exports are rising 8.9%, from last year's 2.388 million tonnes to a record 2.6 million tonnes.
Having said that, EU influence has already peaked for this swine market cycle. Led by domestic European swine deflation and an even longer downturn in Chinese supplies, 2016's global pork output will total 109.3 million tonnes; 1% less than 2015's 110.4 million tonnes.
Moreover, unlike America, Canada or Brazil, EU pork demand has also been contracting. Needless to say, with nominal returns and no domestic market support, EU hog herds are currently shrinking and with it, the continent's scope for significantly boosting exports beyond current volumes.
But while EU production and exports is at their cyclical peak, this is not reflected in the world pork trade. Complimenting Europe's large increase in shipments, surging US and Brazilian exports have created an odd situation: While world output is flat and the vast EU and Chinese sectors are flat, world pork exports are rising a very strong 6%, from 2015's 7.17 million tonnes to a USDA estimated 7.6 million tonnes this year.
Part of this large rise is a recovery from America's PEDv epidemic, which resulted in world pork exports falling for the previous two years. It is however, an early indicator that the world's least traded major meat line is becoming more export-oriented -and it has no choice but to become more that way. For while less than a tenth of pork is traded across, this soon must change.
Compared to chicken or fish, swine have less efficient feed conversion ratios and require far more feed, land and water -but most pork demand growth is occurring in East Asian countries where these inputs are in short supply. Hence, it is inevitable that the next decade should see a significant increase in the proportion of world pork output which is internationally traded.
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