Pork production returns to profitability – Rabobank

Rabobank noted a “radical shift” in its quarterly forecast, as sow numbers appear to be stabilizing after a contraction phase.

The stabilization is the result of better-than-expected consumption trends combined with lower production costs in most regions, the bank wrote. “These factors contribute to a more optimistic outlook for hog prices and encourage producers to think about rebuilding their herds.”

However, there is a caveat, the bank warned, “Producers in regions with ongoing epizootic problems or higher regulatory costs may experience slower recovery rates.”

In a press statement, Christine McCracken, the bank’s senior analyst for animal protein, said: “The industry’s improved supply-demand balance has led to a slowdown in herd shrinkage. While meaningful growth in breeding stock is not expected until late 2024 or early 2025, improved productivity is contributing to increased production.”

The bank pointed to the US, Canada and China, where herds have become healthier, leading to increased pig availability. However, in the EU and the UK, while the decline in sow numbers has stabilized somewhat, pork exports were down 10% in the first month compared to January 2023.

The bank wrote that “the structural decline in EU pork production and lower import demand has left a significant hole in global export markets, which is rapidly being filled by competing countries – primarily North and South America.”

In addition, the bank analyzed that rising global stocks of grains and oilseeds have lowered feed costs for producers. A bountiful harvest in South America further pressured prices, which helped lower inflation.

Despite a drop in consumption in key Asian markets in the first quarter of the year, pork maintains its position as a cost-effective protein choice for consumers around the world, McCracken said, “This is particularly important in light of rising beef prices. The trend toward frozen products is expected to continue to drive retail pork sales, with value-added and processed meat sales forecast to increase as inflation peaks.”

As for China, the bank noted a sharp 40% drop in pork imports compared to the first two months of 2023. The bank attributed the “significant decline to weakness in local markets and large frozen stocks of imported products.” The bank expects imports to recover in the second quarter, although the level may remain lower than in 2023.

In the Philippines, the bank expects the effects of the African swine fever outbreaks are still being felt as farm selling prices jumped strongly in Q4 2023. The bank quotes the Philippine government as expecting a 3% increase in pork production in 2024.

Tags: pork