EU pork faces tough times with health scares and Russian ban
The global pork market will likely begin to cool down as the buoyent market circumstances from the first three quarters are now disappearing.
With the peak of the 2014 porcine epidemic diarrhoea virus (PEDv) outbreaks behind us, the global pork industry was faced with another challenge in the shape of the Russian import ban affecting EU, US, and Canadian markets and resulting in a rapidly changing trade landscape.
According to Rabobank’s Pork Quarterly report, beneficiaries of the ban include Brazil which has seen a 30% per kilogramme price surge. Meanwhile the EU has seen its 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.
PEDv's impact on production volume was smaller than initially expected, resulting in downward price pressure in all affected countries. Only in Mexico has volume dropped considerably, with an estimated decline of 11% in 2014.
In the US, the expected decline in slaughter numbers, down 14% from January and August, was largely offset by higher slaughter weights.
PEDv's positive impact on prices will continue to fade over the coming months. Into 2015, the wildcard is the possible return of PEDv this coming winter, which could cut back hogs for slaughter next year.
Should we see modest outbreaks of PEDv this winter, production will likely run ahead in 2015, especially in the US, due to very attractive feeding margins.
The Russian import ban has supported Brazil, where prices surged 30% between June and August.
Brazil is Russia's last resort for sourcing pork. Their prices will continue to rise due to slight growth in production and seasonally increasing domestic consumption.
In contrast, EU pork prices dropped with no sign of recovery. With the EU locked out of the Russian market since January, after discovery of African swine fever (ASF) followed by the Russian import ban and declining domestic consumption, the European industry has been unable to profit from positive trends in the global pork market.
Even with the positive impact of declining feed costs, it will be a disappointing year for the EU pork industry.
With few signs that this situation will improve in 2015, many players in the industry face challenges ahead. They can only hope for further depreciation of the exchange rate, which will further increase the EU's competitiveness globally.
Global market outlook
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.
US: 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 US 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 normalise. A positive Q4 outlook is expected.
Canada: Hog prices 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 stabilising 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 YoY 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.
