Global pork market looks favorable; exports to drive U.S.

Rabobank analysts see a positive overall outlook for the pork sector, with the demand market continuing through the second quarter, supporting margins along the supply chain.

May 1, 2017

4 Min Read
Global pork market looks favorable; exports to drive U.S.
National Pork Board

Source: Rabobank RaboResearch Food and Agribusiness
The global pork picture looks promising throughout the second quarter and heading into the third quarter of this year, according to Rabobank RaboResearch Food and Agribusiness analysts in their “Global Pork Quarterly Q2” report.

RaboResearch analysts find a relatively stable global pork market as increased production from the Americas is being absorbed in the main Asian import markets.

“The overall outlook is positive right now,” says Justin Sherrard, Global Strategist Animal Protein at Rabobank. “The demand market will continue throughout Q2, supporting margins along the supply chain.”

All eyes have been on what is going on in China’s hog industry, and Rabobank analysts have not lost sight of what is taking place there. They report that the “steady, regulatory-driven relocation of pork production will support good price level and stabilize imports in the coming months.” Rabobank analysts predict that Chinese local supplies will start to recover in the third quarter, as investments that have been made in the past few years will be coming online.

Export eyes are also on Japan and South Korea, where pork markets are performing rather well.

Pork consumption in Japan is seeing steady growth, up 4.4% January-February year-over-year, marking three consecutive years of increased consumption. This is good news for countries, such as the United States, exporting pork to Japan. While Japanese consumption ticks up, domestic production has slipped 0.5% the first two months of 2017 compared to a year ago. Imports to Japan increased 5.3% in January-February compared to a year ago, following an 8.9% increase in 2016. The United States upped its exports to Japan by 8%, but Canada and Mexico increased exports by 11 and 13%, respectively.

South Korean pork production is growing, but so are imports. Rabobank analysts found South Korean hog slaughter increased 2% year-over-year, after seeing a 4% increase last year. Imports grew by 38% year-over-year in the first months of 2017, with the United States being the main supplier. Targeted promotions have been found to make an impact on consumption habits, focusing on the quality and taste of products other than bellies “which have an important place in the traditional diet of South Korean consumers.”

A booming pig market in the European Union sees pressure on supply as prices are rapidly rising. Analysts predict this scenario will continue as summer approaches following record prices for piglets in the first quarter. “Exports remain the wild card for the market’s price top, with high prices limiting the competitive position and resulting returns,” the Rabobank report says.

Speaking of wild card exports, U.S. producers are looking for exports to determine price levels as production is forecast to be up 4% this year. “Current low prices are supportive and also challenge supply from the main export competitor, the EU.”

Even though Brazil meatpackers were rocked by a large food fraud probe that brought the safety of Brazilian meat into question and closed some markets, Rabobank analysts found that the scandal had little, if any, impact on pork export volumes or related prices.

With all this said, the pork sector in the United States has started off 2017 strong, with strong exports and moderate growth in hog numbers. “Hog futures started the year at $55 per hundredweight and climbed steadily through January, peaking in late-February at $77 per hundredweight.” At this same time, hog slaughter was 2.5% above levels of a year ago, but hog numbers started to climb in March, averaging 6% above March of last year, cutting into a good portion of the price lift. Though the first quarter ended with prices in the mid-$60s per hundredweight (still profitable according to Rabobank analysts), those prices are disappointing considering the trajectory previously seen.

U.S. pork exports are shining bright, up 18% in January and February when compared with that term last year. “Mexico continues to be the biggest customer for U.S. pork, and volumes to that market were up 30% in the first two months of the year, with Mexico continuing to account for one-third of total U.S. exports.”

U.S. supply remains to be a moving target, as new plants will be coming online and hog numbers aren’t lining up with what’s reported in USDA hog reports. “This has added a good deal of volatility to hog prices, which we expect to continue as two sizable pork plants come online” at the end of the third quarter, according to Rabobank analysts. “We expect U.S. pork supply to increase by 3% to 4% in 2017, which will require exports to keep the upward trend started in Q1 in order for producers to enjoy another profitable year.”

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