China, the world’s largest producer and consumer of pork, is currently experiencing a pork supply glut, with pig farmers forced to cull sows and hogs due to lower margins.
The Dutch agri-specialists, in a quarterly review of the global pig sector, predict Chinese pigment prices will continue to fall in the second and third quarters of this year, more than a year after the price decline began.
Rabobank analyst, Albert Vernooij, said tumbling pig prices has resulted in less demand for pig feed in China.
Margins set to recover
However, he expects Chinese pork prices to recover slightly by the autumn, in line with the seasonal increase of pork consumption in that market, leading to a slow but steady increase in swine herd expansion at “some stage” in the first six months of 2015.
“In China, pork consumption picks up in the second half of the year due to the colder weather and the build-up to the Chinese New Year in February. From March to August, consumption is lower,” he told FeedNavigator.com.
Chinese pig farmers under pressure
The declining pork prices in the first three months of this year have been pushing many smaller hog producers – major users of animal feed - out of business.
“In Q1 of 2014, China’s pork prices continued to decline, falling to $2.8 per kilogram in March, which was 25% below the September 2013 peak. Hog prices also declined, falling to $6 per kg in March, which was 14% below last year and the lowest level in three years.
As a result, the hog-to-corn price ratio fell to 4.5:1 in March, which is far below the break-even point of 6:1, indicating a significant loss on the farming side. In many regions, farmers are realizing losses of over $50 per hog,” notes the report.
China’s hog inventory declined by 0.9% month on month (MOM) in February, to 434.1 million heads, which is 1.1% lower than the same period last year, said Rabobank.
The report shows sow inventory experienced a similar decrease, falling to 48.7 million heads in February, which is down 0.8% MOM and 3.5% year on year (YOY), as farmers are pressured by low prices.
But Rabobank said disease outbreak remains the largest factor of uncertainty for the market.
Decline in global pork output
And disease continues to be the focus of global pork markets in Q2 2014 – it is the driving force behind higher prices elsewhere.
Instead of the earlier expected 1.3% increase, global pork production will likely decline in 2014 due to the outbreak of porcine epidemic diarrhea virus (PEDv) in the US, Mexico, Japan and South Korea, notes the report.
US pig prices
There have record high prices in the US pig sector, due to contracting hog inventories.
US futures climbed 30% in Q1 and are up 45% over last year. This is challenging pork end users and consumers to source sufficient pork supplies, said Rabobank.
“In the US, where the PEDv outbreak has been most severe, we estimate pork production could decline to mid-single digits in 2014 due to hog losses from the virus,” said the Dutch agri-industry specialists.
Profit margins for US hog producers and pork packers climbed during Q1 2014 as the threat of PEDv intensified, causing a spike in hog and pork cut-out prices, said the report.
There were 140 cases of PEDv per week by the end of 2013 – that climbed to over 300 a week by the end of Q1 2014, raising the risk of much tighter pork supplies this summer than previously expected, said Rabobank.
The analysts say a key question for the two quarters is how the hogs lost due to PEDv this winter and spring will impact US hog slaughter rates and packers.
“With recent reports of a number of major processors planning to idle operations for at least one day per week, things could get very tight in the regions hard hit by the virus,” said the research team.
The Dutch group expects PEDv to continue to spread through the US hog herd this spring, depressing 2014 pork production in the US to the tune of 6% to 7% below 2013 levels.
Canadian prospects
Given the general difficulty in containing the virus, the Dutch agri-industry experts say they expect PEDv to continue to spread through Canada as it has in the US and in Mexico, supporting higher hog prices this summer.
“If PEDv in Canada does follow the pace of the outbreak in the US, pork production could begin to decline in late 2014 and through the summer of 2015, but with the virus still in very early stages, it is too early to call,” said the report.
Mexico hit by PEDv
A significant number of Mexican hog farms have been exposed to PEDv, particularly in Northern and Central Mexico, notes Rabobank.
Although it is too early to quantify the total impact of PEDv in Mexico, the researchers, based on current anecdotal information, estimate a decline of 1.6 million slaughtered hogs by the end of the year. As a result, pork production there is forecast to drop by 9.7%.
Russia’s continued demand for pork, due to its decision to impose a ban on EU pork imports, has boosted Brazilian exports to Russia since March, when Russia also approved two more pork export plants in Brazil.
In total, six factories are now approved, compared to only three last year.
High demand for EU pig meat
Lower production globally, said Rabobank, is creating more demand for EU produced pigment, as the sector there remains unaffected by PEDv.
But the analysts say such buoyancy in the EU pig sector could be dampened by Russia’s ban, imposed after the discovery of African swine fever (ASF) in Poland and Lithuania.
“This is a major loss for the EU pork industry—last year they shipped 1.3 million tons to Russia, accounting for 25% of total exports, making Russia the EU’s second largest export market,” said the quarterly review.
However, the Dutch bank’s report notes EU pork prices should remain on the upside given that the EU Commission has forecasted a 1.7% drop in pork production in Q2 2014, in addition to there being strong export demand for EU pork in other countries, in tandem with tapering domestic consumption.
And the analysts say positive price trends for the EU pork sector are borne out by the development of EU piglet prices, which averaged well above €50 in Q1, a 10.6% hike on the first quarter of 2013.
The Rabobank report can be read here.