July 25, 2013

Global pork industry set to improve in H2 2013 till 2014

With limited supply growth, a likely increase in Chinese demand towards the festival season, and continuing high beef and poultry prices, Rabobank expects a positive landscape for the pork industry globally in the second half of 2013 and into 2014.

However, high stock levels resulting from the disappointing first half of 2013 across the globe and the continuing effect of the economic crisis on demand, mainly in the developed world, will likely limit the price increase.

“With declining feed costs resulting from bumper harvests, a subdued price increase will support much needed margin recovery across the globe,” explained Rabobank analyst Albert Vernooij. “However, due to the slowness of both the increase of pig prices and the decline of feed costs, it is questionable whether this will be enough to fully cover losses endured in first half of 2013.”

The Rabobank five-nation finished hog price index rebounded in the second half of second quarter of 2013, supported by improving conditions across the globe with limited impact of exchange rates. In the EU, the situation is forecast to remain difficult, with continuing pressure on consumer demand hampering market recovery despite lower supply and rising exports. However, prices recovered in China, supported by the outbreak of H7N9 avian influenza in poultry, which resulted in a consumer move to pork. In the US prices have also recovered, following the loss of key export markets, due to an increase in seasonal demand and lower-than-expected supplies.

The expectations for second half of 2013 are largely dependent on the prospects for demand as production is forecast to slightly increase. Pork markets are benefiting from relatively high prices for both beef and poultry, but will be negatively influenced by the continuing difficult economic conditions in key markets. Rabobank expects a slight increase in overall global pork consumption in second half of 2013, due in part to the start of the festival season in China. This will support rising prices, but will likely be limited due to the current large stocks across the globe.

Longer term, Rabobank believes the announced acquisition of US-based Smithfield by Chinese Shuanghui International highlights the increased importance of global trade for the pork industry. The limited number of relevant countries, demand growth, grain deficits in Asia, and continuing volatility mean that the Smithfield takeover may be a trigger for future steps. In order to secure supply, other importers may look to follow suit.