October 23, 2013

World pork prices are expected to remain high for the remainder of 2013 due to demand resulting from the start of the festive season in China.

The global pork industry has experienced a positive third quarter, according to Rabobank's fourth quarter report. In line with expectations, the Rabobank five-nation hog price index continued its upward trend, resulting in a peak of 162% in August, just below the last peak of 165% in August 2008. The index declined at the end of the third quarter due to the recovery of supply after the summer heat.

Compared with the second quarter of 2013, pork prices in the third quarter of this year showed double digit increases in most major producing regions. The main drivers were tighter-than-expected supply in the US, due to the impact of the porcine epidemic diarrhoea virus (PEDV), EU's introduction of group housing of sows in January 2013, and continuing robust import demand.

The limited increase of the sow herd in most regions shows that farmers are cautious to expand production. Despite the positive prospects in regard to feed prices, farmers want to regain part of the lost margins for the last few years before expanding production.

Towards 2014, declining feed costs will continue to support slow herd rebuilding. Combined with productivity increases, this will result in higher supply and, likely, lower prices. However, the price slide will be gradual due to the limited growth of sow numbers, the continuing demand growth in Asia and relatively high feed costs, which will curb supply growth at least until mid-2014.

The approval of Shuanghui's acquisition of the largest international pork company, Smithfield, has been yet another sign of China's growing dominance in the global pork industry. In the last few years, China's import demand has been exerting more influence on prices in different regions throughout the world. The acquisition is but one illustration of China's on-going search for sufficient pork supply to feed their growing and wealthier population, a situation which will continue for the foreseeable future.