Rabobank has published a new report on the global pork industry pointing to a slow cool-down of heated international pork markets.
In the report, the bank's Food & Agribusiness Research team says that, although the peak of the 2014 porcine epidemic diarrhea virus outbreak is past, the global pork industry faces another challenge from the Russian import ban affecting EU, U.S., and Canadian markets, which is resulting in a rapidly changing trade landscape.
Rabobank says that beneficiaries of the ban include Brazil, which has seen a 30% per kilogram price surge, while the EU has seen prices drop by 9% with no sign of recovery. Even taking into account the positive impact of declining feed costs on margins, it will be a disappointing year for the EU pork industry, Rabobank says.
"As Russian markets will not open again until July next year, the wildcard next year will be the possible return of PEDV this winter, cutting back available hogs for slaughter in 2015," says analyst Albert Vernooij.
• China: In China, subdued supply and rebounding demand will support market recovery and import growth towards the seasonal high in Q1 2015. In addition, with feed costs likely to decline next year, Chinese hog farmers are expected to finally make money.
• U.S.: PEDV induced surging pork prices where further supported by consumers trading down due to higher beef prices, thereby driving one of the highest margin periods in the industry's history. Producers are looking to increase production in 2015. Risk factor may be the return of PEDV this winter.
• EU: The EU pork industry has experienced a very disappointing Q3, deteriorating from July with the extension of the Russian ban to competing exporters in the U.S. and Canada in combination with pressured consumption. Both consumption levels and export levels will remain under pressure for the remainder of the year.
• Brazil: Q3 saw new record pork prices, with exports to Russia seeing 18% volume uplift representing almost 50% of Brazil's pork export value. This might pose a significant risk in the future should the situation normalize. A positive Q4 outlook is expected.
• Canada: Hog prices fell dramatically in Q3, driven by rising competition for other markets as exports were directed away from Russia - a situation which will likely continue until the ban is lifted. The dark horse for 2015 will be the possible impact of PEDV, despite largely dodging the virus so far.
• Japan: The pork market in Japan is doing well with consumption stabilizing despite surging imports and higher retail price which resulted from the depreciation of the Yen against the US dollar and high priced competing proteins. Resulting high stock will pressure imports in the remainder of 2015.
• Mexico: Mexico experienced the biggest PEDV impact this summer with year over year slaughter numbers down 11.1%, slightly higher than anticipated. Margins will set a record high in 2014 due to declining feed costs and higher hog prices.
• South Korea: Higher than expected supply, due to smaller than anticipated levels of PEDV, has resulted in a relatively large hog and wholesale price drop. Prices will remain firm going into 2015.