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Pork outlook muddled by inflation, disease

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Rabobank says global trade should pick up in the second half of 2022.

According to the latest Rabobank quarterly pork report, global trade should pick up in the second half of 2022 and market prospects are improving due to slight easing of feed costs and resilient consumer demand. Still, challenges to growth remain as African swine fever (ASF) continues to spread, and inflation is impacting trade policies.

Rabobank said global pork trade flows declined in the first half of 2022, mainly from weaker import demand from China, but also due to political, disease, and shipping issues, as well as the pork supply in exporting countries. While the slowing of economic growth worldwide has not yet affected pork demand, trade has had mixed performance.

Overall, global pork trade is expected to pick up in the second half of the year, largely due to the expected rise in import demand from China. This follows a 65% year-over-year decline in pork imports during the first four months of 2002. In the past month, COVID restrictions in China eased and pork prices increased greatly, supporting imports. Still, despite an uptick in the second half of the year, Rabobank expects China’s imports to end 2022 down 25-35%. Other traditional importing countries, such as Japan, also expect imports to remain firm.

ASF continues global spread

In Europe, since its first appearance in Germany in September 2020, ASF has spread west, with two recent cases reported on farms close to the French and Dutch borders. In Italy, too, the virus has traveled some 400km from the initial outbreak area.

“Most outbreaks in commercial herds happened in small-scale operations in Germany and Italy, with limited direct impact on production,” said Chenjun Pan, senior analyst of animal protein at Rabobank. “ASF-related trade restrictions, however, disrupt European markets, creating an oversupply of certain products and pressuring prices.”

In Asia, the disease continues to impact local production and prices, especially in Thailand, Vietnam, and the Philippines. Rabobank said Thailand’s pork supply could drop by over 35% in 2022 due to culling and liquidation activity, causing pork retail prices have surged. The first global commercial ASF vaccine was approved in Vietnam in early June and is being rolled out across the country.

Meanwhile, ASF is still an issue in the Dominican Republic and Haiti but remains contained. The North American industry is increasing testing and prevention efforts to limit the risk of introduction into local herds.

Consumer demand proves resilient

Pork consumption tends to be quite resilient in most regions. “This is because pork is neither the most expensive nor the cheapest protein, so consumption levels change slowly,” explained Pan. “The impact of a slowing economy on pork consumption is more about channels, with weaker performance in foodservice and stronger in retail, as consumers make price-value comparisons.”

According to the report, demand remains strong in North America and is improving in the EU, a reflection of seasonal movement more than a structural change. Japan, South Korea, and some other Asian countries expect weaker demand in the second half of 2022 due to rising inflation concerns, the slowing economy, and ongoing COVID risks. China’s pork market is still subject to uncertainty around COVID policy measures but is looking more positive for the rest of the year. In Brazil, producers and processors are finding it difficult to pass additional costs on to consumers.

Herd reductions in the U.S.

Rising costs, limited incremental harvest capacity and the ongoing regulatory overhang have kept herd expansion in the U.S. on hold, Rabobank said. USDA’s June “Hogs and Pigs” report showed the U.S. sow herd was 0.8% below year-ago levels. However, continued hog market strength and recent declines in building and feed costs may encourage gradual expansion in 2023, the report suggested.

Despite the deteriorating economy, domestic consumption has been resilient. Rabobank reported that month-over-month retail sales volumes in 2022 have been 8-10% lower but added this has been offset by sales values that have been 15% higher.

“Stronger sales at retail reflect a shift to more in-home eating and a move away from foodservice, although sales to quick service restaurants remain steady,” the report noted.

On the export front, ongoing demand weakness in China and lower cost pork exports from the EU and Brazil will continue to challenge shipments. Rabobank expects limited improvements in 2H 2022 due to a strengthening U.S. dollar. However, a recent drop in U.S. turkey exports to Mexico due to highly pathogenic avian influenza and increased Chinese demand may provide a boost.

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