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High Feed Costs Lower Global Pork Price Expectations

High Feed Costs Lower Global Pork Price Expectations

Global pork prices started 2013 at historically strong levels, but Rabobank anticipates some weakness in prices in late Q1 and into Q2 due to pressures on production and limited growth in global consumption levels.

2013 pork prices will be impacted by swing factors including how much European production will decline due to sow pen regulations, China’s appetite for imports and whether U.S. production will continue to expand, despite the spike in feed costs.

Rabobank says 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.

Global pork prices started 2013 supported by strong Chinese demand ahead of the Chinese New Year in February. 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 United States, Brazil and Russia being higher than the growth in global consumption.

Higher prices for pork are expected and necessary for 2013 as the drought in the United States and Black Sea region last year has led to low inventories of feed crops, and adverse weather in pork-producing countries continues to limit production expansion.

Analysts say there is now no margin for error for world crop production, with 2013 pork production and pork pricing highly dependent upon crop growing conditions.

There is also uncertainty regarding the pace and magnitude of European Union (EU) enforcement of the ban on sow crates, which Rabobank forecasts will reduce the sow herd, keeping EU pork prices high.

However, Rabobank predicts that global prices will be at a lower average level than previously forecast, as the expected consequence of higher feed costs – herd liquidation – has not occurred, as producers in the United States have managed their risk by using futures contracts.

“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,” says Rabobank analyst David Nelson. “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 often excess capacity. As such, supply discipline will remain the key success factor for the pork industry’s performance this year and beyond, Rabobank concludes.





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