April 30, 2018

 

Global pork trade faces uncertainty-report

 

 

The global pork industry faces uncertainty due to disease risk, trade disputes and feed availability.

 

In its second-quarter report on pork, agricultural lender Rabobank said this uncertainty will, in turn, create opportunities and challenges for the pork industry in the coming months.

 

The bank's report said that impacts of the China-US trade dispute will distort markets and weigh on pork values in North America while creating some potential upside for producers in Asia, Europe and South America.

 

"The potential escalation of the China-US trade dispute-along with ongoing NAFTA modernisation talks-creates a heightened sense of risk," said Christine McCracken, senior analyst - Animal Protein.

 

She added that disease is also part of this uncertainty, including the threat of African swine fever (ASF) spreading in Europe.

 

"With so many threats, agility will be a key asset for pork producers in a volatile operating environment", she said.

 

Stabilising effect

 

In another light, the report said, the announced tariffs on US pork should help stabilise the Chines market in the near term, since China remains oversupplied because of which hog prices have declined (-30% year-to-date) and are pressuring margins.  

 

Potential tariffs on US soybeans add further cost pressure, the report said, adding that losses are expected to continue, but gradually improve as the industry right-sizes production. Demand for pork in China will remain good, helped by spring festivals and low costs, it said.

 

In the US, the report said that with NAFTA (North American Free Trade Agreement) renegotiations underway and the trade war with China heating up, plans to add production may be reconsidered until there is improved visibility.

 

With regards to the EU, the threat of ASF (and the risk to exports in that eventuality) remains an overhang on the market, the report said. Thus, production growth and weaker exports are expected to limit the upside in margins in 2018.

 

Meanwhile, Brazil's lost access to the nation's primary export market, Russia, is being partly offset by a surge in exports to China and Hong Kong. Even so, Brazilian producers continue to struggle with weak pork prices and higher feed costs (following a moderately disappointing growing season), according to the report. "Based on current profit levels, we expect slower growth in production in the year ahead", the report added.