Strong prices for pork are set to dip as summer approaches, report says

Strong global prices being paid for pork are likely to dip in late spring and early summer, according to the latest Rabobank analysis.

While global pork prices started the year at historically strong levels, Rabobank anticipates some weakness in prices late in the first quarter and into the second due to pressures on production and limited growth in global consumption levels.

The bank’s agri-analysis unit notes that 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 US production will continue to expand, despite the spike in feed costs.

The report’s authors note that 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.

However, Rabobank also predicts 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 US producers have managed their risk by using futures contracts.

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.”

Global pork prices started strong supported by Chinese demand ahead of their New Year in February. However, price movements in China will be a key indicator for the year as the second quarter begins 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 growth in global consumption.

Higher prices for pork are expected and necessary for 2013, the report says, as the drought in the US and Black Sea region last year led to low inventories of feed crops and adverse weather in pork-producing countries limited production expansion.

The report states: “There is now no margin for error for world crop production, with [second half] pork production and pork pricing highly dependent upon crop growing conditions.

“There is also uncertainty regarding the pace and magnitude of EU enforce-ment of the ban on sow crates, which Rabobank forecasts will reduce the sow herd, keeping EU pork prices high.”

In developed pork markets, the challenge will come from managing soft demand and excess capacity. Supply discipline will remain the key factor for the industry’s performance, the report adds.