Growth in pork demand necessitates supply chain discipline

Feb. 6, 2013

Rabobank has published a new research report on the global pork industry which states that as a result of continuing high feed costs, the key success factor for the foodservice industry will be supply discipline in 2013 and beyond.

Global pork prices have started 2013 at historically strong levels, but in the report, Rabobank's global Food & Agribusiness Research and Advisory team says that some weakness in prices is anticipated in late Q1 and into Q2 due to pressures on production and limited growth in global consumption levels.

The bank forecasts that pork prices in 2013 will be impacted by swing factors including:

  • Declines in European production due to sow pen regulations;
  • China's appetite for import; and
  • Whether U.S. production will continue to expand despite the spike in feed costs.

According to the report, 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.

Strong Chinese demand ahead of the Chinese New Year in February supported global pork prices early in 2013. However, bank analysts say price movements in China will be a key indicator for the year moving into Q2. Global pork prices may come under slight pressure because production growth in China, the U.S., Brazil, and Russia is expected to be higher than global consumption growth.

Higher prices for pork are expected and necessary for 2013, as the drought in the U.S. 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. There is now no margin for error for world crop production, with pork production and pork pricing in the second half of 2013 highly dependent upon crop growing conditions.

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

However, the report predicts that global prices will be at a lower average level than previously forecast, since the expected consequence of higher feed costs - herd liquidation - has not occurred, as producers in the U.S. 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. There seems to be limited opportunity for a significant increase in pork prices, given this expansion. Chinese hog supplies appear to be sufficient, but recovery in the Chinese economy could stimulate demand growth," said Rabobank analyst David Nelson.

In developed pork markets, the challenge will come from managing soft demand and often excess capacity. As such, the report states, supply discipline will remain the key success factor for the pork industry's performance this year and beyond.

Read more supply chain news.

Topics: Equipment & Supplies , Operations Management , Trends / Statistics

Sponsored Links:

Related Content

Latest Content

comments powered by Disqus