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Supply discipline key to pork industry’s success: Rabobank
Story Date: 1/30/2013
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Source: Tom Johnston, MEATINGPLACE, 1/29/13
The key success factor for the pork industry amid high feed costs will be supply discipline in 2013 and beyond, Rabobank said in a new research report.
Although global pork prices got off to a historically strong start in 2013, Rabobank predicts weakness in prices late in the first quarter of the year and into the second quarter due to pressures on production and limited growth in global consumption levels.
Declines in European production due to sow pen regulations; China’s appetite for import; and whether U.S. production will continue to expand despite the spike in feed costs are the three factors that will impact prices, the bank said.
The pace of pork demand growth is the key unknown for industry margins in 2013, and is highly dependent upon economic growth in the developing world.
Strong Chinese demand has supported global pork prices early this year, but price movements in China will be a key indicator for the year. Global pork prices may come under some pressure because production growth in China, the U.S., Brazil, and Russia is expected to be higher than global consumption growth, the bank says.
Higher pork prices are expected and necessary for 2013, as droughts in the U.S. and Black Sea region last year has lowered inventories of feed crops, and adverse weather in pork-producing countries continues to limit production expansion. Pork production and pricing in the second half of 2013 are highly dependent upon global crop growing conditions. Uncertainty regarding the pace and magnitude of EU enforcement of the ban on sow crates that will keep EU pork prices high is another consideration.
However, Rabobank predicts that global prices will be at a lower average level than previously forecast because herd liquidation has not occurred. Producers in the U.S. have managed their risk by using futures contracts.
Rabobank analyst David Nelson said, “Despite the higher feed input costs, the U.S. swine breeding herd has modestly expanded and large scale farming continues to develop at a rapid pace in China, Russia and Brazil. There seems to be limited opportunity for a significant increase in pork prices, given this expansion. Chinese hog supplies appear to be sufficient, but recovery in the Chinese economy could stimulate demand growth.”
In developed pork markets, the challenge will be managing soft demand and excess capacity. Supply discipline will remain the key to success, the bank says.
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