Despite a strong start to 2013 for global pork prices, the Dutch bank Rabobank has predicted some weakness in prices to come at the end of the first quarter (Q1).
According to Rabobank, the weakness is due to the pressure on production, as well as limited growth in the consumption levels of pork on a global scale, which could see weak prices continue into Q2.
Several “swing factors” are to impact pork prices this year, Rabobank said, with a major contribution in production coming from the sow stall ban in Europe. The Dutch bank also cast an eye of concern on whether or not US pork production would continue to expand as a result of the spike in feed costs caused by bad weather.
As a result of the poor weather, feed crops were damaged in the US and Black Sea region, which will also limit the expansion capabilities of pork-producing countries. Rabobank warned: “There is now no margin for error for world crop production, with second-half 2013 pork production and pork pricing highly dependent upon crop growing conditions.”
The “key unknown” for the industry Rabobank said is whether demand for the meat will grow and this, said the report, “is highly dependent upon economic growth in the developing world”.
“Global pork prices started 2013 supported by strong Chinese demand ahead of the Chinese New Year in February,” the report highlighted. “However, price movements in China will be a key indicator for the year as we move into Q2, as Rabobank expects global pork prices to come under slight pressure due to production growth in China, the US, Brazil and Russia being higher than the growth in global consumption.”
Sow stall ban
The industry was also warned about the “uncertainty” of the pace and magnitude regarding the EU enforcement on the sow stall ban. And Rabobank forecast a reduced sow herd, resulting in the continuation of high pork prices.
However, the Dutch firm said it predicted global prices to be at a lower average than previously thought and this, it added, was the consequence of higher feed costs.
Rabobank analyst David Nelson said: “Despite the higher feed input costs, the US 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 their economy is recovering, which could stimulate demand growth.”
In developed pork markets, the challenge will come from managing soft demand and excess capacity. As such, supply discipline will remain the key success factor for the pork industry’s performance this year and beyond, he added.