July 18. 2016
'Global pork prices supported by China demand, tight supply'
Global pork prices will continue to draw support from continuing strong Chinese import demand and tight supply, the latest quarterly report on global pork from Rarobank said.
"This will result in a further rise of the Rabobank five-nation hog price index supporting margins across the globe", said Albert Vernooij, animal protein analyst at Rabobank.
"Wildcards are feed costs and the Brexit-induced changing exchange rates which could negatively impact the upswing, especially in the EU and the US", he added.
The third-quarter report said pork prices in China would peak during the July-September period, supporting imports which will likely exceed 2 million tonnes in 2016.
In the EU, prices and much-needed margin recovery will continue to be supported by Chinese import demand and declining supply, the report said. Foreign exchange supports the EU's competitive export position, but domestic consumption remains lackluster, it added.
US pork exports, according to the Rabobank report, are expected to drive price recovery further. Positive margins will continue to be supported by relatively tight supply, growing domestic consumption and good prospects for increased exports, it said.
Easing corn prices, combined with increasing exports and higher pork prices, will support margin recovery in Brazil, the report said, adding that this will not, however, be sufficient to induce production expansion in the South American country.
Continuing strong Chinese import demand and stalling supply will continue to support global pork prices through 3Q 2016, according to the Rabobank Global Pork Quarterly Q3 2016 report.
"This will result in a further rise of the Rabobank five-nation hog price index supporting margins across the globe," says Albert Vernooij, Animal Protein analyst at Rabobank. "Wildcards are feed costs and the Brexit induced changing exchange rates which could negatively impact the upswing, especially in the EU and the US."
China: Prices expected to peak during Q3
The volatile prices in June are just a temporary blip in the positive mood in China. With supply forecast to bottom out and demand starting to pick up seasonally, prices are expected to peak somewhere during the coming months, supporting imports which will likely exceed 2 million tonnes in 2016.
EU: bullish market to remain
Chinese import demand and declining supply will continue to support prices and much needed margin recovery. Main challenge for the EU pork industry remains to limit supply expansion, while FX currently supports the EU's competitive export position but domestic consumption remains laclustre.
US: Export to drive further price recovery
Relative tight supply, positive developing domestic consumption and optimism of increased exports will continue to support positive margins. The expected export growth due to rising EU prices might be limited with the US dollar strengthening in the aftermath of the Brexit vote.
Brazil: Corn prices key for supply
Easing corn prices in 2H 2016 will relieve part of the cost pressure in the Brazilian pork industry. Combined with increasing exports and higher pork prices, this will support margin recovery. However, this will not be sufficient to induce production expansion.