Rabobank: Pork prices will keep breaking records in 3Q 2014

The global pork market is moving into record territory in the third quarter of 2014, especially in exporting countries impacted by porcine epidemic diarrhea (PED) virus, Rabobank reports.
According to Rabobank, hog and pork prices will continue to break records in countries such as the United States, Canada, Mexico, Japan and South Korea, where PED virus has been a factor. These record prices are expected to continue into the fourth quarter. In countries not impacted by PED virus, record hog prices in affected countries, plus the high prices for beef and poultry, will support bullish hog and pork prices.
Rabobank expects that markets in European Union (EU) and China will improve seasonally but will not reach the highs experienced in other countries.
“In the U.S., Mexico, Japan and South Korea, the countries that have been affected by PEDv, the key question will be ’Where to source pork?’ In these countries the supply drops, as well as declining feed costs, are expected to push farmer’s profitability into record territories. In contrast, processors’ margins will be pressured due to the strong competition for hogs,” said Rabobank analyst Albert Vernooij.
“With PEDv continuing to impact supply into 2015, prospects for the global pork industry remain positive. The main wildcard is keeping supply discipline, as many farmers will be tempted to expand production driven by the low feed costs and high profitability.”
Outlook for countries affected by PEDv
While the U.S. is mitigating the effects of PED virus on supply and prices with hog weights that have risen by nearly 5 percent since 2013, the growing scarcity of pork globally is pushing import prices up, impacting Mexico, South Korea and Japan in particular, Rabobank estimated.
In Mexico, pork meat prices have increased around 25 percent year-on-year and have the potential to increase another 5percent. Also feeling a significant impact is
Japan has also felt a significant impact, as imports are relatively expensive compared to other importing countries because of the yen’s low value. With beef supply also under pressure, Japanese processors will find it challenging to source sufficient meat supplies.
Chinese hog industry prospects positive
The prospects are turning positive in China, with hog prices forecast to recover after a very difficult beginning in 2014. Chinese pork prices are expected to stay at the current low level in most of the third quarter, but will likely show a strong rebound from the end of the third quarter onwards, driven by the seasonal uplift in demand and lower supply after the sow culling of the last months. A limited global supply will increase competition for imports and support higher prices. The key challenge for hog farmers to recover part of their losses is to limit herd expansion. Many smaller farmers will face shakeouts in 2014, according to Rabobank, which will advance market consolidation.
Favorable conditions for EU pork exports
Prospects for EU exports to Asia and the U.S. remain positive, as the EU is the only region with enough pork available at lower prices. However, this will not be enough to totally compensate the lower export to central and eastern European countries.
The Russian import ban remains a deciding factor for price levels. In addition, the importance of exports to central and eastern European countries for the total carcass valuation, in combination with the high value of the Euro will limit the seasonal increase of EU pork prices. However, if pork trade between EU and Russia reopens, it will boost EU pork prices.